Post by Admin on Mar 25, 2022 23:27:43 GMT -5
The bucket system isn't logical. It's just a way to trick your brain. You have to look at your total portfolio. A total 20% loss, is just 20% regardless of how you spin it. The bucket system adds complexity to an already complex retirement situation compared to accumulation. You can achieve the same goals by using several funds without all the moving parts.
Do you really need years of cash, even as a retiree? IMO, a retiree needs maybe 6-12 months at most. Most/all retirees have a cash flow from SS + distributions + pension + can sell something, What is so difficult to sell 3-4 times per year? When stocks do better, you can sell stocks, when stocks lose, you can use bonds. Some of these bonds should be a ballast for stocks, which means in a market meltdown they will go up or have minimal losses. Bonds have different categories, risk, duration, and behavior such as treasuries, Munis, HY, bank loans, MBS, TIPS, emerging markets, and corp. Usually, over longer term hold, they will do better than money markets and CDs.
It's a lot easier to know your goals and come up with a portfolio based on some cash + several bond + stocks funds. No need to have buckets and transfer money from one to another. Suppose you decide to have 50/40/10 (stocks/bonds/cash). All you got to do is keep this % within a 5% margin to eliminate too much rebalancing. Another easy way is to sell shares from the fund that made more money, this will help with the rebalancing.
You can even achieve your goals with only one fund. See 20+ years of PV(link) using VG VSMGX(40/60) vs VWIAX 35-40% stocks vs VWENX 60-65% stocks. I assumed 1 million portfolio, and 3.5% annual withdrawal. Yes, I know, the situation today may be different but, the SP500 lost money in 10 years 2000-2010 and this portfolio survived.
Do you really need years of cash, even as a retiree? IMO, a retiree needs maybe 6-12 months at most. Most/all retirees have a cash flow from SS + distributions + pension + can sell something, What is so difficult to sell 3-4 times per year? When stocks do better, you can sell stocks, when stocks lose, you can use bonds. Some of these bonds should be a ballast for stocks, which means in a market meltdown they will go up or have minimal losses. Bonds have different categories, risk, duration, and behavior such as treasuries, Munis, HY, bank loans, MBS, TIPS, emerging markets, and corp. Usually, over longer term hold, they will do better than money markets and CDs.
It's a lot easier to know your goals and come up with a portfolio based on some cash + several bond + stocks funds. No need to have buckets and transfer money from one to another. Suppose you decide to have 50/40/10 (stocks/bonds/cash). All you got to do is keep this % within a 5% margin to eliminate too much rebalancing. Another easy way is to sell shares from the fund that made more money, this will help with the rebalancing.
You can even achieve your goals with only one fund. See 20+ years of PV(link) using VG VSMGX(40/60) vs VWIAX 35-40% stocks vs VWENX 60-65% stocks. I assumed 1 million portfolio, and 3.5% annual withdrawal. Yes, I know, the situation today may be different but, the SP500 lost money in 10 years 2000-2010 and this portfolio survived.