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i saw in other threads the requests for more info on the bucket system.
the bucket system is just a convienient way to get cash flow, growth and down market isolation protection.
many systems exist, i like the one conceived by radio personality ,financial maven and author ray lucia.
its based on the fact that pretty much whatever 15 year time frames you pull out the markets seem to have a return within 1% of each other but there are almost noooo years where markets were not up substaintialy even though they may have had a down 10 year period or so,..
the overall mix works out to the old 50/50 mix of equities/cash ,bonds and averages about 6-7% a year long term..
bucket 1 holds money for eating and paying bills now. banks,cd,s ,immeadiate annuties, money markets etc
we have 7 years worth of withdrawls here
bucket 2 is a little riskier, some principal fluctuations can happen..
bonds,bond funds, i also use an un-traded reit apple hospitality spinning off 7%.....
7 years worth of withdrawls here too
bucket 3 is all the action, this is used for eating 15 years out. stocks, junk bonds, commodities , equity mutual funds ,the tip your brother inlaw gave you , etc
buckets are now re-balanced not by market action but on years of money needed to refill buckets 1 and 2,..
as an example if buckets 1 and 2 are pretty much filled and the markets are going into its 2nd or 3rd year of a bull run conventional systems have you rebalancing taking money out of stocks and into bonds or cash.
well here if the buckets are full let it run....
also a drop like we had last year is really a non event. with a 15 year time frame before hitting bucket 3 and selling your first equity mutual fund or stock the drop dosnt effect a single thing withdrawl wise.
for us it enabled us to watch the drop last year more of a spectator then effecting our retirement plans. oooh yeah we crinched but money wise it meant nothing to us in withdrawls right now.
i saw in other threads the requests for more info on the bucket system.
the bucket system is just a convienient way to get cash flow, growth and down market isolation protection.
many systems exist, i like the one conceived by radio personality ,financial maven and author ray lucia.
its based on the fact that pretty much whatever 15 year time frames you pull out the markets seem to have a return within 1% of each other but there are almost noooo years where markets were not up substaintialy even though they may have had a down 10 year period or so,..
the overall mix works out to the old 50/50 mix of equities/cash ,bonds and averages about 6-7% a year long term..
bucket 1 holds money for eating and paying bills now. banks,cd,s ,immeadiate annuties, money markets etc
we have 7 years worth of withdrawls here
bucket 2 is a little riskier, some principal fluctuations can happen..
bonds,bond funds, i also use an un-traded reit apple hospitality spinning off 7%.....
7 years worth of withdrawls here too
bucket 3 is all the action, this is used for eating 15 years out. stocks, junk bonds, commodities , equity mutual funds ,the tip your brother inlaw gave you , etc
buckets are now re-balanced not by market action but on years of money needed to refill buckets 1 and 2,..
as an example if buckets 1 and 2 are pretty much filled and the markets are going into its 2nd or 3rd year of a bull run conventional systems have you rebalancing taking money out of stocks and into bonds or cash.
well here if the buckets are full let it run....
also a drop like we had last year is really a non event. with a 15 year time frame before hitting bucket 3 and selling your first equity mutual fund or stock the drop dosnt effect a single thing withdrawl wise.
for us it enabled us to watch the drop last year more of a spectator then effecting our retirement plans. oooh yeah we crinched but money wise it meant nothing to us in withdrawls right now.
We watched and uttered a few more sounds than just crinching but we were not hurt at all. Again we had pensions as a cushion so are situation was a bit different but bucket one was safe and the other two have recovered and are getting awfully close to the October 2007 highs. Thanks for the thread now when a question comes up in a thread folks can refer back to this one as a resource.
one of the nice things is that you can have your choice of when to refill buckets 1 and 2.
whenever stock markets are rising you can sell some equities from bucket 3 and refill buckets 1 and 2 . that will give you slightly less gains then waiting until the buckets are empty but more security.
or you can go for the most gains and hold off refilling buckets 1 and 2 as long as you can and let bucket 3 rise longer and go for more gains and less security.
The problem is, you lost me after about the first few sentences, LOL! And I'm sure I'm not the only one who doesn't understand this stuff. I lost (on paper) a good chunk of my 401K, because I didn't trust my instinct and move money out of stocks when I saw the market was teetering (I had what was considered a balanced portfolio for my age). Nooo, I listened to Suze Orman and all the other "experts" who said "don't panic"....I left it there and lost about 1/3 of the total value. I don't have a financial advisor, nor do I trust anyone anymore. I don't understand a lot of the stuff you're talking about, but I have to trust my gut instinct about how to safeguard what I have left.
But I didn't mean to sound ungrateful, I appreciate the information on the bucket system.
Lost 1/3 ? you did the wrong thing. you panicked and ran. exactly the opposite of what successful investing takes ... If you merely rebalanced on the way down with almost any plan and even added some more at the lows you should be just about even or ahead. my mix of nothing special funds are just above now where they were before the drop.
the fact is left to our own devices we hate loosing money more then we like making it . morningstar now tracks small investor money in and out of funds and computes a small investor return for the fund.
most small investors barley make 3% over time when the markets do 9% because they do the opposie of what they should
a thought may be to use any one of the newsletters out there that specialize in either fidelity or vanguard funds, pick a portfolio that lets you sleep and run with it.
use one that dosnt try to market time by darting in and out but rather just nudges your mix like steering a ship to fine tune it to the big picture.
i like using fidelity insight and i use the capital preservation portfolio , i had used the growth portfolio most of my investing years..
i like it not because they have a crystal ball to the future but because they hold my hand and they call the shots so i myself dont do what seems natural and bail when things are going to hell in a handbasket.
i then incorporate that mix into my buckets
Last edited by mathjak107; 04-06-2010 at 04:06 AM..
The problem is, you lost me after about the first few sentences, LOL! And I'm sure I'm not the only one who doesn't understand this stuff. I lost (on paper) a good chunk of my 401K, because I didn't trust my instinct and move money out of stocks when I saw the market was teetering (I had what was considered a balanced portfolio for my age). Nooo, I listened to Suze Orman and all the other "experts" who said "don't panic"....I left it there and lost about 1/3 of the total value. I don't have a financial advisor, nor do I trust anyone anymore. I don't understand a lot of the stuff you're talking about, but I have to trust my gut instinct about how to safeguard what I have left.
But I didn't mean to sound ungrateful, I appreciate the information on the bucket system.
The problem is, you lost me after about the first few sentences, LOL! And I'm sure I'm not the only one who doesn't understand this stuff. I lost (on paper) a good chunk of my 401K, because I didn't trust my instinct and move money out of stocks when I saw the market was teetering (I had what was considered a balanced portfolio for my age). Nooo, I listened to Suze Orman and all the other "experts" who said "don't panic"....I left it there and lost about 1/3 of the total value. I don't have a financial advisor, nor do I trust anyone anymore. I don't understand a lot of the stuff you're talking about, but I have to trust my gut instinct about how to safeguard what I have left.
But I didn't mean to sound ungrateful, I appreciate the information on the bucket system.
And. if you left it there after the bottom in March you should have it all just about back if not back plus some
For someone invested during 2007 or earlier, stocks have only regained half of what was lost at the bottom in March 2009.
Like Avalon, I am interested in trying to find the best investment strategy. One of the best strategies seems to be to use an annual rebalancing plan. This works better than the gut approach because it forces us to take investments out of the funds which have done well and put them into the funds which have not done well. This does not set well with our guts but it works because it is more likely that we will sell at the towards the peak and buy towards the valley. There is another strategy that seems to work even better. Ignore the daily and weekly trends and corrections, but buy when stocks are consistently decreasing in value and sell when they are consistently increasing. If I had done what I should have done, I would be following this plan right now. I would be slowly cutting back on my allocation of stocks. Unfortunately, I did not buy on the decline so now my stock allocation is still short of where I want to be long term. If anything I am tempted to buy more stock. That is thinking with the guts and not acting wisely. So I will take another chance that the market will continue its long term correction. I will ignore the little blips like we had a few weeks ago and I will wait a while longer until I start to slowly sell off. If the optimistic predictions are wrong and the market starts a sustained downturn, then I will start buying. As long as I have enough to cover expenses and emergencies, I will not worry about the size of the buckets.
For someone invested during 2007 or earlier, stocks have only regained half of what was lost at the bottom in March 2009.
Like Avalon, I am interested in trying to find the best investment strategy. One of the best strategies seems to be to use an annual rebalancing plan. This works better than the gut approach because it forces us to take investments out of the funds which have done well and put them into the funds which have not done well. This does not set well with our guts but it works because it is more likely that we will sell at the towards the peak and buy towards the valley. There is another strategy that seems to work even better. Ignore the daily and weekly trends and corrections, but buy when stocks are consistently decreasing in value and sell when they are consistently increasing. If I had done what I should have done, I would be following this plan right now. I would be slowly cutting back on my allocation of stocks. Unfortunately, I did not buy on the decline so now my stock allocation is still short of where I want to be long term. If anything I am tempted to buy more stock. That is thinking with the guts and not acting wisely. So I will take another chance that the market will continue its long term correction. I will ignore the little blips like we had a few weeks ago and I will wait a while longer until I start to slowly sell off. If the optimistic predictions are wrong and the market starts a sustained downturn, then I will start buying. As long as I have enough to cover expenses and emergencies, I will not worry about the size of the buckets.
Not sure where you are getting half from even if you are looking at the major index's' I know I am at about 88% and closing. That's the problem with index funds. A successful fund manager is beating the comparable index by trading what is moving at the right about to be moment which will out perform the index. When evaluating funds compare them to the comparable index and did they out perform and over what time period? If you are trading individual stocks yourself that is one thing. However if you are into mutual funds your manager is making decisions about what to buy or sell. You might decide which specialty funds to hold at any given time or the weight between fund holdings of bonds, domestic and international stock/bonds. The size of the bucket becomes important. If you are holding long term money in your short term bucket which is safely invested and that will have a limiting impact. Or if you are holding money needed over the next couple of years in your long term basket which is much riskier ouch. Size does matter!
rebalancing towards the lows was a major difference in the recovery you had.
if you froze or didnt have a plan in place that forced you to rebalance then its going to take alot longer to recover then it should have. i know im breaking new highs at this point.
typically back testing has shown that while rebalancing only produced slightly better returns the fact this time was the scope of the drop was soooo huge that rebalancing and committing more money towards the lows was a huge difference in recovery time.
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