When investing, people dislike losses twice as much as they enjoy gains. This imbalance between our feelings around gains and losses provokes anxiety in investors during volatile markets. For retirees, this feeling compounds rapidly.
We've been trained to visualize our portfolio in the stale manner of stocks and bonds. Instead, what if we considered viewing it through a new lens - BUCKETS?
- The Bucket Strategy helps relieve our mental tension around investing while building an efficient, effective performance plan for retirement.
- The approach consists of low-cost, balanced volatility strategies designed to meet all risk tolerance and cash flow needs.
HOW IT WORKS: Confidence during periods of market stress is rooted in stability—the stable element of your portfolio occupies buckets 1 & 2.
- Bucket 1 focuses on safety, protection & current spending needs. Cash and money market funds supply 1-2 years of income. Rock solid; they'll always be there to help you sleep at night.
- Bucket 2 delivers opportunistic flexibility. Our personalized bond portfolio provides interest-bearing funds open for immediate liquidity, emergency needs, and dry powder to leverage opportunities markets give us. Three to 7 Years of income live in this bucket, supplying the endurance to survive an entire market cycle.
WHAT ABOUT GROWTH? The ability to live the extended life you want in retirement - whatever form that takes - requires portfolio growth.
- Bucket 3, comprised of dividend-producing stocks, high-yield bonds, and non-correlated alternatives, offers stable growth, income generation, and balanced volatility. The income produced is fed into bucket 1 to serve current spending needs.
- Bucket 4 will be our most volatile bucket. Higher growth companies and emerging markets will perform the heavy lifting of growing our portfolio long-term. With the foundation of buckets 1 and 2 in place, short-term fluctuations of bucket 4 transform from threats to opportunities.
REMEMBER TAXES: Taxes are a genuine expense for everyone, sanding down our returns over time. The bucket strategy is tax-aware, efficiently placing assets across accounts whileusing the most effective vehicle to optimize after-tax returns.
- Bonds may be placed in our IRAs to shield interest payments from current income tax.
- High-growth companies accomplish more in Roth accounts, maximizing the value of tax-free growth.
ETFs and individual stocks grant us more control over capital gain exposure in non-qualified accounts. For example, traditional mutual funds push out their capital gains annually regardless of whether we want to realize them. 
WHY IT MATTERS: Ultimately, how you behave is much more important than how your investments behave. Rational people can make irrational decisions during times of stress. The bucket strategy helps relieve this pressure, empowering you with confidence.
- During chaotic times, the market becomes a mechanism for transferring wealth from the impatient to the patient. With our immediate income needs secure in buckets 1 and 2, we transform from investors who panic, selling near lows when prices become too painful to bear, to opportunistic buyers at favorable prices.
Having a plan before volatility strikes is crucial to our success as investors. Becoming comfortable with our portfolio risk requires understanding the role of each specific component and how it helps us achieve retirement on your terms. To quote Ben Franklin, "An ounce of prevention is worth a pound of cure."