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Can the Bucket Strategy Eliminate Sequence of Returns Risk? 

Rob Berger
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A viewer named Bill emailed me today about the bucket strategy. He has watched my videos on the bucket strategy and understands why I don't recommend it. He wants to know if the traditional approach of a total return portfolio with annual rebalancing negates the sequence of returns risk. It's a great question, and I share my perspective in today's video.
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While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
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22 фев 2024

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Комментарии : 165   
@Kimmer
@Kimmer 3 месяца назад
You are absolutely correct Rob. The bucket strategy is way more complicated than it needs to be. Simply rebalancing is the most efficient and best way to invest and then have emergency/short term cash available. Also, far too many people think they are safe by putting all their money into one investment like the S&P 500 which simply isn't diversified enough. Even if you have a couple of years of cash, that is a risky approach and Bengen's study shows this.
@davearey4922
@davearey4922 3 месяца назад
The “Tools” Rob has made available on his website (and will add to) is terrific. Thanks Rob!
@user-be1tz1pk6u
@user-be1tz1pk6u 3 месяца назад
Rob, thanks for sharing this clear and helpful content!
@michaelevans5328
@michaelevans5328 3 месяца назад
Excellent as usual. Got some sequence of hair brushing issues today, though. I would rank the options as follows: (1) liability matching portfolio, at least for safety-first folks; (2) Rob's total return + rebalancing; (3) bucket strategy.
@LarryIrwin
@LarryIrwin 3 месяца назад
If both bonds and stocks are down why refill the cash bucket at year end? Isn't the 3 years in cash there to ride out a 2 or 3 year downturn if needed?
@christopherflynn843
@christopherflynn843 3 месяца назад
I think Rob was giving an example of how to rebalance rather than a practical example of use of the buckets. It would be for each person to decide if they wanted to take the risk of just staying in cash or withdrawing from the other buckets
@yestohappiness2721
@yestohappiness2721 3 месяца назад
I think that bonds being down is not an issue since the fixed income are most likely treasury tbills or bonds (so you don’t lose the capital invested, you just get less interest back, even if 0%), and even if it’s BND it’s not losing as crazy as stocks can go like 25-40% down the initial investment. So yes, I would not take from stocks to replenish bucket 1 or 2 in a bad stock market, but I would not flinch in taking from bucket 2 to replenish bucket 1 since most my fixed income is treasuries and VMFXX mutual fund…
@hanwagu9967
@hanwagu9967 3 месяца назад
@@yestohappiness2721 this would be the case if you held actual bonds: you would still retain face value/principal so long as you hold until maturity, but your yields could decrease. In contrast, bond index funds and etfs you aren't guaranteed to recoup principal.
@wisulliv
@wisulliv Месяц назад
I will do wellington in bucket 2 rather than all bonds. Looking at its history it has a better chance than bonds only of being up to be used if cash runs out or to replenish the cash bucket.
@bryanpape1537
@bryanpape1537 3 месяца назад
Bravo. Excellent video. clear and concise.
@stevenobrien595
@stevenobrien595 3 месяца назад
Rob is excellent. So many years of helpful insight. Thank you
@scoobedoo5243
@scoobedoo5243 3 месяца назад
The beauty of the bucket strategy is that it's easy to shift around, just as you stated, to make it work for you. But I also only think it's important for the reason you stated earlier - it's especially useful for the first ~10 years of retirement. After that unless you have a market crash I think it's not necessary to worry about it. Our plan has the two or three buckets only for those years for protection and I like it because it makes the most sense TO ME. One size does not fit all.
@boricua_in_wa
@boricua_in_wa 3 месяца назад
Thank you for thinking this through and sharing!
@user-mo9od7cs1t
@user-mo9od7cs1t 3 месяца назад
Excellent information. Thank you.
@scotts6590
@scotts6590 3 месяца назад
Glad Bill asked this question as I am in my first year of retirement at the age of 60, and sequence of return risk is one of my primary worries. Your overview was really helpful and insightful! Also, I appreciate the additional explanation with FI Calc. I have used the tool a great deal but some of the strategy explanations were lacking so your comments provided needed perspective. Thank you!
@williammarton583
@williammarton583 3 месяца назад
The problem is that you have to be REALLY committed to rebalancing if you are following a total return withdrawal strategy (i.e., Bill Bengen's 4% fixed withdrawal approach). In 2009 when stocks were down close to 50%, it required a lot of conviction to re-allocate back to something that got so crushed. The bucket strategy is mostly a behavioral crutch, but folks like Fritz Gilbert (Retirement Manifesto blog) make it work.
@jmc8076
@jmc8076 3 месяца назад
I looked up what BB is invested in now. Interesting. Not much to rebal.
@FrankGransee
@FrankGransee Месяц назад
Rebalancing with stocks that are down is "good news" even in retirement - should not require much conviction (unless you use your last Bond dollars)
@ericj9011
@ericj9011 3 месяца назад
Very persuasive! So, the endowment approach for the bare necessities, using a 10-year TIPS bond ladder so you know exactly how much you’re getting and exactly when. That’s maybe 20% of your portfolio. Then the rest with the rebalancing strategy.
@John-wx2ce
@John-wx2ce 3 месяца назад
Thanks Howard
@vincentslusser9205
@vincentslusser9205 2 месяца назад
Rob, I "have" loved the bucket strategy "until" I saw this video. This example of a bucket for cash, and a % of bonds/stocks for the other bucket (depending on an individual''s factors) hits home with me. Thank you much for this video.
@rawhideslide
@rawhideslide 3 месяца назад
Ramsey was clearly talking about "Percentage of Portfolio" strategy. The strategy of "on the day you retire, memorize the amount of your nest egg, then take X% of that amount and then every year increase that amount by inflation". Everyone thinks that not reacting to market returns is foolish and can lead to bankruptcy. So we should take an overly complex algorithm and make it more complicated by adding guard-rails and magic thresholds (yuck). As you say just Percent of Portfolio is interesting, especially as it is very very simple. You just take out 8% of your nest egg every year, so a 20% drop in the market reduces your income 20%. Some would say that is baaaaddd, .... but you should adjust your spending immediately upon bad news. The biggest advantage of this scheme is that you will never run out of money, but you may suffer through that lean years until the market recovers. In reality this works if you have some discretionary expenses over and above your necessary expenses. Why don't more people talk about this 'Yale' approach?
@Saintor1
@Saintor1 3 месяца назад
Very good comment actually. I saw many YT influencers condemning Ramsey's take, stating a $80000-for-ever yields a 38% success I tried 8% of portfolio since 1966, 90% equities, with no social security and they all worked. Not so sure that it would allow proper inflation, because his 12% average return for his 4 types of mutual funds is nearly impossible. Some YT influencers evaluated real-life more at 10%.... so 6-7% will still work and allow a better provision for inflation.
@davidperry2725
@davidperry2725 3 месяца назад
Try the Percentage of Portfolio withdrawal strategy in FiCalc with a $1M portfolio in 100% stocks and an 8% withdrawal rate. Set the duration to 23 years. A person who begins retirement in 2000 will withdraw $80k the first year and quickly drop to $38k by 2003. They never get back above $43k. With those kinds of fluctuations, I can’t think of any retiree who would benefit from that strategy. Edit: just rewatched Ramsey’s video. What he actually said is that you should be able to withdraw $80k from a $1M portfolio “perpetually, like forever". Plugging that into FiCalc anyone starting that strategy in 1998-2002 quickly runs out of money.
@dougjuliehowell9675
@dougjuliehowell9675 2 месяца назад
Thank you so much!
@M_Y_Wolde
@M_Y_Wolde 3 месяца назад
Love your content. Keep it coming
@Rick-Upton-San-Jose
@Rick-Upton-San-Jose 3 месяца назад
My current overall strategy: In pre-tax accounts (traditional IRA, rollover IRA, pre-tax 401k) buy two types of investments: (1) a TIPS ladder to cover necessary expenses that go up and down with inflation, and (2) a bond ladder to cover necessary expenses that don't track well with TIPS (e.g. property tax in California is capped at 2%, medical cost inflation is typically much higher than a TIPS ladder would cover). In Roth accounts, invest 100% in an S&P 500 index fund to cover nice-to-haves and big purchases that, if the stock market goes down, I can hold off on buying. There are some more nuances, like if my bond ladder produces more interest than needed in a year AND I can withdraw those funds at a low tax rate, then I will withdraw those funds and use them for a contribution to a Roth IRA (contributions can be withdrawn immediately at any age, conversions require a 5 year wait EVEN if you are over 59 1/2).
@johnbeeck2540
@johnbeeck2540 3 месяца назад
Great explanation Rob! KISS always works out the best!
@user-bt9cm7ze4c
@user-bt9cm7ze4c 3 месяца назад
Great band
@Gary-ib8dz
@Gary-ib8dz 3 месяца назад
Rob, thanks for the breakdown on this. Did you do a video before about the endowment strategy for withdraws? I thought you did. I looked for it a few days ago but I couldn't find it.
@michaelswami
@michaelswami 3 месяца назад
Your analysis makes a ton of sense.
@scott1441
@scott1441 3 месяца назад
I agree with you 100%
@charlesbyrne71
@charlesbyrne71 3 месяца назад
One issue involves pretax retirement accounts. RMDs don't make exceptions to market swings so it may be a challenge to restore your balance depending on when you withdraw and when the market is up or down. It only considers your age and your current portfolio balance. If there were a multi year span with a bad market year, a short term bull market for less than 6 months then another bear market your RMD formula would increase your withdrawal of your remaining portfolio balance. Bucket strategy seems like a feasible option. Rebalance depends on the frequency to eliminate sequence of returns.
@hanwagu9967
@hanwagu9967 3 месяца назад
presumably you will account for taxes if subject to RMD from your cash bucket as part of your annual expenses. You would then not need the proceeds from RMD for expenses, so you would simply turn around an reinvest in the taxable account at the same price you sold, thus it's a wash.
@alphamale2363
@alphamale2363 3 месяца назад
Very good summary of the various approaches.
@BradMangas
@BradMangas 3 месяца назад
Thanks for going through this. It was very helpful.
@Jl-620
@Jl-620 3 месяца назад
Excellent video!. One question I always have with regard to rebalancing is how it plays when you also want to maintain your asset location. For example, if most of your bonds are in a Trad IRA and you want to use them to buy stocks in a down year, buying the stocks in the Trad IRA changes your asset location, which can also affect you in the future by increasing your RMDs, taxable SS, etc. Would be great if you can make a video on this topic of rebalancing combined with asset location. Thank you for all your great videos and tools!
@littleBrownDwarf
@littleBrownDwarf Месяц назад
Just sell bonds for cash in the trad IRA then use the cash to buy stocks in whichever other account you'd like. You might be out of the market for a day, doesn't matter. You never have to hold stocks in your trad IRA if you don't want to.
@Jl-620
@Jl-620 Месяц назад
@@littleBrownDwarf That would not be considered just rebalancing, since you would have to move the cash out of the IRA, which has additional tax consequences, on top and usually greater than those created by the sale of stock at a low in the taxable account.
@helgashighway1869
@helgashighway1869 3 месяца назад
Thanks Rob. I plan to factor in actual spending habits of GoGo, SloGo and NoGo, where I'll average 5-6% during GoGo, go down to 2-3% during SloGo, and up to 4-5% for end of life care. I have a lot I want to do during my early years of retirement, and I see how folks slow down and don't want to do anything in their 70s. Why would I want to sacrifice GoGo experiences just to have too much money while eating Cheerios and watching Weather Channel?
@TrumpetGuy360
@TrumpetGuy360 3 месяца назад
How do you approach varying needs in retirement? Social security kicks in, you pay off a mortgage for example. Sometimes your needed money drops way down and starting at a 4% withdrawal rate leaves people working longer than they need to.
@derMikester
@derMikester 3 месяца назад
I use New Retirement. It’s great for modeling effects of changes like this both before and during retirement. Rob has reviewed this tool before
@ld5714
@ld5714 3 месяца назад
Another great discussion Rob. I appreciate all the time and effort you put into your channel and thank you for all you are doing to share your knowledge and insights with us. Larry, Central Valley, Ca.
@Yette
@Yette 3 месяца назад
Thanks Rob. It turns out, developing a withdrawal strategy does not need to be overly complicated.
@bridgecross
@bridgecross 3 месяца назад
I like the flat percentage of portfolio strategy, so long as your fund is of a size that covers your expenses even during very bad years. One of my goals is to leave as much as possible to heirs, and that strategy leaves the most.
@johnm8693
@johnm8693 3 месяца назад
Hi Rob, great stuff. I did get a bit confused after you walked through the orthodox Bucket Strategy concept, suggested it was complex due to rules application, and then offered the 3 year cash / 7 year bond / rest in stocks simpler approach. Then you finished with saying you really don't like the bucket strategy. To be clear, were you negating your own alternate to the strategy as well?
@brushbackz1
@brushbackz1 3 месяца назад
One thing I'm thinking is why not keep 100% in stocks throughout the duration of your life, including retirement. Especially before retirement. I have a higher risk tolerance I guess. Although not enough risk tolerance to pick single stocks, just s&p 500.
@peter-hr1gl
@peter-hr1gl 3 месяца назад
THere is no absolute. It can't ELIMINATE the risk, however, it can help alleviate it unless the length exceeds your allotted bucket for spending and you are still forced to liquidate market invested assets at an inopportune time. By having money out of the market to use for expenses (all expenses both base and discretionary), it also gives you the mental piece of mind to not kneejerk money out of the market by selling immediately during negative return cycles. Not perfect, but I've found it to be helpful.
@uwepemberton3768
@uwepemberton3768 3 месяца назад
Rob great video as always, I see a lot of vids on retired investing and withdraws to cover expenses, I would love to see your thoughts on a retired person who has a pension and SSI that covers all expenses plus some. in my case I have cash invested in a T bill ladder, and a new IRA rollover at Fidelity currently 1Mil sitting in money market , trying to decide on an allocation moving forward. Thanks
@gcburkett
@gcburkett 3 месяца назад
I have been looking at the bucket methods but its coming up with rules for pulling from bucket 3 that have me stumped right now. It easy as long as the market goes up and even initial when the market falls but when do you start to refill. I have asked a couple of people that use it but its seems they you their instinct to know when to start refilling from bucket 3. I am thinking of doing a little time segmentation. I am 58 now looking to retire around 62. I want to delay SS until 70 for me and maybe 65 or 67 for the wife. I was thinking set up a bond ladder for the amount of social security before claiming and then use total return with the rest of the funds is that a reasonable approach. Is this bucket approach or more of a time segmentation approach.
@howardtenzer8307
@howardtenzer8307 3 месяца назад
1st off , Thank you for all the context you put out. Been watching for a little while now and really enjoy watching your stuff. . I wanna say I have been somewhat fortunate in my career with my 401k and now my IRA. with around 400,000 in a brokerage account and by the end of the year around 1.6 in 401k/ira I’m probably retiring 1-1-25. I have a CFP handling my money at this point and I’m constantly running FI Calc ( got that program from u )to make sure I don’t run out of money. In your opinion can I take 5 pct for the 1st 10 years , go to 4 pct ( or RMDS) the next 10 and get to 3 pct starting at 80 ? I am 62 end of year and I figured out I need around 100k. For the 1st 10 years and the drop for sure after that.
@raphaelb5456
@raphaelb5456 3 месяца назад
Suggestion for future Video: I always struggle a bit with the "survival percentage" approach to withdrawal strategies. A key element missing for me is how the chance of failure is distributed over time: Sure a 10% chance to fail in year 5 of retirement is much worse than a 15% chance to fail in year 32. But this dimension seems to miss from a lot of the discussion. e.g. bonds-heavy allocations have low chance to fail early in retirement but are almost guaranteed to fail over long enough time horizons, etc.. Would love to hear your thoughts on this how to manage this tension between avoiding early failure vs. ensuring long-time viability
@alanyoung159
@alanyoung159 3 месяца назад
I wonder if there's a way to combine e them all. Rebalancing by percentage (4%), bucket strategy, guardrails? I bet that would look real complex. You were trying a bit of that in the end, and it already was getting a bit hard.
@danielw4394
@danielw4394 3 месяца назад
Good content. Personally i agree with you, a fixed constant withdrawal with inflation adjustment , and rebalancing just between bond and stock only may be the best. And this can be automated , I assumed. My logic is yes we can plan all we want with different complicated strategies when we are still young and of feeble mind. But what happens when we become too old , fearful of more advanced technology or ways to do things or have undiagnosed dementia? I suppose a trusted executor plan to be in place and who knows and understands our withdrawal strategies, and I am very doubtful. So in much senior years, a much simpler method or a paid CFA to handle my be a good options?
@stephtraveler7378
@stephtraveler7378 3 месяца назад
Curious what you think about LTC plans. They seem like a rip off and nearly impossible to execute when the time comes. Would you consider using inflation protected TIPS and self-covering your LTC expenses with today's dollars???
@slevitron1543
@slevitron1543 3 месяца назад
Rob, what are your thoughts on a portfolio that is rebalanced annually into 60% stocks, 36% bonds, and 4% cash at a constant dollar inflation adjusted withdrawal with initial income being 3.5%? Playing around in FI Calc this portfolio shows 100% success rate in 30 and 35 year retirements with 17.06% and 5.99% of the initial portfolio being the lowest final year value. 44% of the time you end up with a portfolio that is more than 100% larger than the initial value. This is basically the path I am following for my wife and I in our planning; once 3.5% of the portfolio covers our goal income (current goal is 100% replacement) we consider ourselves financially prepared for retirement.
@Lukionest
@Lukionest 3 месяца назад
You might want to consider if achieving 100% success rate is really optimal or not. It could mean you are under-spending to guarantee you don't run out of money. This means you always have money leftover at the end of your life that you could have enjoyed. If instead you aimed for, say, 90% success, then 10% of the time you would need to make some adjustments to your spending plan sometime during retirement. It doesn't mean you will die in the poor house 10% of the time. Think of it as, "Do I make some spending adjustments in the future if I need to, or do I force myself into a lower spending rate to guarantee I never need to make an adjustment?" Remember, you will continue to evaluate your finances and spending rates as time goes on to accommodate changes in taxes, interest rates, inflation, investment performance, spending needs and wants, etc. Planning isn't a "do it once, then never do it again" type of thing.
@slevitron1543
@slevitron1543 3 месяца назад
​@@Lukionest I agree it is important when considering the 100% success rate. To me, at present, the goal is to set myself up for a 100% success rate because I am approaching the 100% success rate with the following in mind: 1) 3.5% of my initial portfolio value is equivalent to 100% of my pre-retirement income level. 2) My current savings rate (~27%) would become additional spending money in retirement while maintaining my pre-retirement income. 3) The flat rate withdrawal (3.5% of my initial portfolio value) is then increased to be inflation adjusted yearly. 4) Social security or any type of government sponsored retirement income will not exist, if it does exist and the 3.5% already exceed my wants and needs then that is just a fun bonus. I'd rather not adjust my spending because my portfolio does very well for the first few years or even decade of retirement and then hit an oh shit period where I need to severely cut spending and potentially have to adjust lifestyle. Lets assume (for easy math) I have $3mil in retirement and my pre-retirement income is $105,000. At that point I am at the 3.5% portfolio equaling my pre-retirement income. If I was already living comfortably on $105k taking 2 week long vacations per year, my house is paid off, and I am saving 27%. Now I no longer have a mortgage to worry about and that 27% savings rate is now additional spending money available for use in retirement. Additionally since that $105k initial withdrawal is inflation adjusted at a 4% inflation rate that means by year 30 I am looking at a withdrawal of somewhere around $350k and that fits into that 100% success rate.
@meibing4912
@meibing4912 3 месяца назад
Great tool box - and relevant video on managing sequence of return risks. I do - maybe falsely - not think we will have a 1920's or 1970's high inflation situation once again. The reason is that national banks manged the financial crisis and covid really well. There were mistakes at the outset of the financial crisis (especially by the FED in the USA), but in reality it was just a bump in the longer term due to the intense inter-governmental coordination that happened. Not saying we will see great future market returns - only that multi-year economic downturns seem less likely to happen today (stats support this). This of course does not negate very negative short term market returns as those are not closely linked with the real economy but expectations. Only that the time lines for economic crisis have very likely become shorter. A macro-economic reason for this is that global savings today are much, much larger than ever before - so there's more capital to work through a crisis - which we clearly saw during covid.
@rick_vv7754
@rick_vv7754 3 месяца назад
Many financial experts say that one of the biggest risks for individual investors is making a poor decisions when there has been a significant market decline (panic selling or other psychologically influenced decision) especially when someone retires. It is easy to say don't sell or don't panic but during a prolonged downturn like in 2008, but in reality people can react and make poor decisions. Whether you use a bucket strategy or you design your portfolio based on time segmented spending, it can provide a retiree more confidence in their plan and to not make irrational decisions during significant downturns. It is easy to say that you would buy more stock if the market was down 40%-50% but in reality there are few people that have that much conviction unless you have a large portfolio to begin with or are many years from retirement. The other major risk is inflation which is why you need a healthy amount of diversified stock investments (ETFs or mutual funds) to help outpace inflation.
@paulweathers
@paulweathers 3 месяца назад
How bout a video on the bare bell strategy?
@johnristheanswer
@johnristheanswer 3 месяца назад
Bare ?
@sergiosantana4658
@sergiosantana4658 3 месяца назад
A properly designed bucket strategy will have you spending interest and principal from bucket #1 ,while you give bucket #2 time to grow to refill b1. Combined income between b1 and b2 should be 12 to 15 years .This will buy you the time for b3 to grow and survive a bad sequence . By this point you are 12 to 15 years into retirement and can safely switch into a Wellington type fund for the remainder of your life And to Rob,s concern of buying in a down market there is no rule that say,s you cannot use procedes from b1 and b2 as dry powder.
@Sylvan_dB
@Sylvan_dB 3 месяца назад
Agreed. While widely talked about, buckets are also frequently misunderstood or mismanaged. Too often people, Rob included as in this video, try to rebalance when using buckets. This breaks buckets and then the buckets add complexity to a simple asset allocation approach. Instead, buckets are not rebalanced. Income flows naturally to fill b1, when b1 is full into b2, and only when b1 and b2 are full does income go to b3 (equities). You don't need to sell equities to fill b1 and b2 until after 15+ years of growth, but if b3 gets huge before then why not sell some? Just don't sell equities into a down market. Any time you sell equities when down you are at risk of sequence of returns. Buckets avoid that. Berger's study used completely impossible assumptions (his bond reinvestment at the current rate was not possible then), combined with unreal assumptions (such as spending constant real dollars). Oh, and I also only use 2 buckets. I just skip the longer term bonds entirely - all short term (1yr and less) and cash or cash equivalents plus stock. Combine the cash with a large allocation to low volatility equities that regularly increase their dividends, aka dividend growth, and dividends cover my base spending plus extra most months to refill cash. Plus the income keeps growing faster than inflation. The cash bucket covers lumps. Trimming large stock positions adds more cash and if the cash bucket is full I buy equities. People worried about those low volatility dividend growers not having as high of returns need to do more research. But even if they did return 2-3% less than the market, having 30% to 50% more equities (compared to a 60/40 or 50/50 portfolio) means you get more returns.
@roberthuff3122
@roberthuff3122 3 месяца назад
🎯 Key Takeaways for quick navigation: 00:00 *💡 Introduction and Understanding Sequence of Returns Risk* - Introduction of the video and a viewer's question about rebalancing to negotiate sequence of returns risk. - Clarification on sequence of returns risk using two hypothetical retirees. - Explanation of the negative effect that early bad market returns and high inflation during retirement could have on the retirement fund. 02:18 *📊 Demonstrating Sequence of Returns Risk on Financial Independence Calculator * - The creator visually demonstrates sequence of returns risk using a financial independence calculator. - Using an example of a $1 million portfolio with 100% stocks, the creator shows the risks associated with different stock market conditions and high inflation rates, using real data from 1966. 04:50 * 🛡️ Approaches to Addressing Sequence of Returns Risk* - The creator introduces different ways to address sequence of returns risk, including through a withdrawal strategy. - Detailed discussion on the 4% rule, showing that starting with a relatively low safe withdrawal rate is one way to deal with sequence of returns risk. - Explanation of the 'guardrails' approach, which adjusts the withdrawal rate based on changes in the portfolio's value, and the 'percentage of portfolio' approach, which involves withdrawing a set percentage of the portfolio each year. 09:52 *🔄 Combining Different Withdrawal Approaches* - The creator explains that an individual could combine the inflation adjustment approach and the guardrails approach, to strike a balance between necessary expenses and discretionary spending. - Overview of the Yale Endowment Approach, where both percentage of portfolio and inflation adjustments are used, adjusting spending based on whether the markets are performing well or poorly. 12:10 *💰 Bucket Strategy vs. Rebalancing * - Reiterating that the spending policy is crucial in managing sequence of returns risk. - Introduction of the bucket strategy, which allocates funds into 'buckets' for different spending categories (e.g. cash, bonds, stocks) based on years of expenses. - Discussion on how the bucket strategy can help manage risk in bad years, by filling up the cash bucket from the bonds or stocks buckets. 16:04 *📈 Example of Bucket Strategy in Down Market* - The creator gives an example of how the bucket strategy is implemented in a 'bad' year, based on assumptions of the portfolio's performance. - Explanation of how the bucket strategy remains effective in bad years; it provides a predictable cash flow by steadily refilling the cash bucket. 17:01 *🫂 Applying the Bucket Strategy * - Explanation on how the bucket strategy is implemented during unfavorable market years. - Discusses potential complications with the bucket strategy such as decision-making rules on how to replenish the buckets. - Maker debates the efficacy of the bucket strategy, mentioning that stocks may need to be purchased when their value is down, contrary to the bucket strategy. 20:28 *🔄 Comparing the Bucket Strategy to Rebalancing* - Maker states the preference for traditional percentage allocations and rebalancing over the bucket strategy, due to the added complexity of the latter. - He explains that traditional rebalancing methods make purchasing low easier, protecting from sequence of return risks. - He provides evidence from Michael Kitces' research confirming his stance that simple rebalancing provides as effective a solution as a bucket strategy but with less complexity. 22:19 *⚖️ Exploring Limitations and Variations of the Bucket Strategy * - Maker clarifies that while sequence of return risks can be mitigated, they can’t be completely eliminated. - Discussion around potential issues that come with implementing the three-bucket strategy. - Explanation of a modified bucket strategy involving a cash bucket and a percentage allocation of stocks and bonds. Made with HARPA AI
@jsketel
@jsketel 3 месяца назад
Rob, thanks so much for your excellent videos. One thing I have never heard anyone say is, when both bonds and stocks are down and you rebalance, such as 2022, you still need to withdrawal your annual amount from a depreciated asset. I read a book a few years ago called level 3 Investing that recommended 4 years of cash for such an event and then replenish your cash account on good stock return years. I think the rational was most bear markets last 2.8 years and return to pre bear market levels in 4 years. What are your thoughts on this strategy? I believe there were two bear markets, 73-74 and 08-09 that lasted more the 4 years, so obviously no system is perfect. I just always hear people say rebalance but never talk about which account, bonds or stocks, to take from when they are both down. This assumes you are not getting any other sources of income like a pension or SS at the time. This is my situation. Everything is in my 401 K until I decide when to take SS, so regardless of market conditions, I will need to withdraw my annual amount.
@davec7176
@davec7176 3 месяца назад
This is what you do if both bonds and stocks are down. Draw down the cash bucket. Then if required draw on the bond funds --that's why you have seven years' worth of living expenses in them. Restore your cash and bond stake by selling stock funds the next year they gain ground. Remember not to sell off more than you made, though. The golden rule of this strategy is to never sell stocks when they're down. Read Fritz Gilbert's "The Retirement Manifesto" for a great source on how to create and manage the bucket strategy. It has worked well for me for over 7 years. Not as complicated as Rob describes. The cash bucket is the key as a defense against sequence of returns risk. Good Luck.
@davidrogers0717
@davidrogers0717 3 месяца назад
There are some that have demonstrated that if the "bad" year just happens to occur in the 1st year of retirement that can be enough to cause concern regardless if markets recover in year 2. So, doesn't have to be multiple bad years strung together.
@kevinbarrett3706
@kevinbarrett3706 3 месяца назад
Rob, Strongly Disagree. Plan on retiring later this year. Plan on using Bucket Strategy. Only use cash bucket in bear/down market. Will continue to rebalance on a yearly basis. Plan on a 3 year cash bucket.
@GailAiken
@GailAiken 3 месяца назад
Agree with you Kevin. 1 Year of cash does not help me sleep at night; I also have 3 years in money market accounts and CD's. 2022 is still vivid in my mind.
@KayKay0314
@KayKay0314 3 месяца назад
My buckets are the following brokerage accounts: taxable/personal, IRA compatible, Roth compatible. What I plan to do is assign risk and percentage of liquidity for each bucket and adjust according to market conditions. For example, when building your buckets in your 20's and 30's, you could be 90% stocks and 10% bonds with zero liquidity. As I get closer to retirement, I'm slowly lowering the risk and increasing the ease of liquidity in each bucket. My taxable account (cash) will only have low risk investments (like Treasuries) that can be quickly liquidated. My IRA compatible account will be allowed more risk (60/40 mix) until I am ready for withdrawals. My Roth compatible account can remain fairly high risk (80/20 mix) until I am ready to take Social Security.
@alastairford7145
@alastairford7145 3 месяца назад
One of the "features" of the 3-bucket strategy is that retirees gradually get less and less exposed to stocks over time as the X years of bonds becomes a bigger and bigger proportion of their remaining assets. Do you have a view on whether the stock/bond split in your re-balancing approach (or the original 2-bucket strategy) should or should not be revised over time? At its most extreme, one could see a situation where a retiree in the later years has money they expect to spend in 3-4 years' time invested in stocks.
@jordankendall86
@jordankendall86 2 месяца назад
The only way to protect or hedge against sequence of returns risk during the accumulation period is to save as much as possible at the beginning of the savings period. The only way to deal with sequence of returns risk in retirement is to have realistic expectations of future returns, understand where to best allocate for each asset class each year, and make reasonable distributions according to a well thought out plan.
@krihanek117
@krihanek117 3 месяца назад
I love the rebalancing strategy. I always place 1 year in cash as part of the annual portfolio rebalance.
@GailAiken
@GailAiken 3 месяца назад
What happened in 2022 when both stocks and bonds were down?
@jamesmorris913
@jamesmorris913 День назад
Seems a lot like "bucketing" to me. You just don't have as large of a short-term bucket, as most recommend.
@scott1441
@scott1441 3 месяца назад
What happens if both stocks and bonds are both down like in 2022 ? Rebalance based on lose percentages.
@lonestrtgr55
@lonestrtgr55 3 месяца назад
Right, this is what I would like to know as well.
@cathyg1099
@cathyg1099 3 месяца назад
That’s when cash (bucket) comes into play. Take the cash, leave stocks and bonds alone.
@hanwagu9967
@hanwagu9967 3 месяца назад
there have only been two separate years where bonds and stocks have both been down for the entire year. If you have 3yrs expenses in cash, you should be able to weather that scenario based on history. People seem to think that the bucket strategy eliminates all risk, it doesn't. You are mitigating the risk to your portfolio running out by giving yourself cash sufficient for a couple years worth of expenses to weather decline in bonds, which in turn allows you time to weather decline in stocks. If you run out of cash, of course you are going to have to pull from your other bucket(s) even if they are down. If you keep too much in cash, your create portfolio risk by having your portfolio eaten up by inflation and opportunity cost of keeping cash as bonds and stocks smooth out over 10years. If you have a shorter life expectancy time horizon, neither inflation nor opportunity cost may matter, so you would probably hold far more in cash.
@koyamamoto5933
@koyamamoto5933 3 месяца назад
Regarding the percentage reallocation of the buckets scheme, wouldn't you keep the Cash portion at 3 years of inflation adjusted spending, not 15% of portfolio? So, the Bond portion would be set to 41% (= 350/850) & Stock portion be set to 59% (=500/850) . In your example, assuming 0% inflation, that would suggest in year 2, you'd make the Cash portion whole at $150k. The remaining $750k would be apportioned into $309k (=41% of (350 + 400)) for Bonds and $441k (=59% of (350 + 400)) for Stocks.
@hanwagu9967
@hanwagu9967 3 месяца назад
if you want $150k it always stays $150k in future dollars. You are trying to apply math for future dollars even though we are talking in present (today) dollars regardless of point in time.
@briankelly7632
@briankelly7632 3 месяца назад
According to FI Calc the median remaining portfolio doing it Dave Ramsey's way is $544,852.52, so not awful.
@mongo2044
@mongo2044 3 месяца назад
This is what I have been doing (just a bucket or two of cash for living off off, including home repair and bigger surprise and unexpected expenses year to year along with - bonds and stocks being managed as needed as the long term engine) but, I always struggle with the cash investment account portion of my savings for rebalancing and getting money out of it to live on without incurring next level tax impact (mostly taxes where I am). I wish the SEC/IRS or whoever it is would let retirees and disabled rebalance say, up to 500,000 in taxable account as long as it stayed there (but rebalancable) and withdraw was only used to feed into a designated cash account for expenses. Could be into an ABLE account for disabled people. Maybe also as long as your entire stock and bond investments were worth than 2 million. Something like that. :)
@TimmyJ-he4ub
@TimmyJ-he4ub 3 месяца назад
Buckets are just a way to choose amounts to allocate across asset classes and result in rebalancing "as usual". its clearly helpful to some but unnecessarily complex when its time to "fill buckets" i.e. rebalance. I did a video on my channel showing the math behind in via google sheets. Buckets = Rebalancing.
@odourboy
@odourboy 3 месяца назад
Rebalancing seems to fly in the face of the 'sell your losers and let your winners run' adage. Thoughts?
@dl777
@dl777 3 месяца назад
I am still a little unclear how the cash level is calculated. Do you always have three years in it? Or is a rule needed that says if both stocks and bonds do not not reach the expected 8%/5%/yr increase respectively) then you transfer from cash to everyday checking account and let the cash level go down to 2 years and then to 1 year and then to nothing? If one of the other investments increases greater than the expected % then you sell that investment and replenish cash? And then rebalance?
@hanwagu9967
@hanwagu9967 3 месяца назад
Think of your cash/cash equivalent level as your retirement operating and emergency fund. During your work years the advice is 3-6months of expenses in an income disruption fund. similarly, during market downturns you don't want to withdraw from stocks, which is akin to income disrupiton. You want 2-3 years cash/cash equivalent on hand to create a buffer until market turns back up. Since market turns can take longer than you find a new job, the amount you need to cover is more to cover that longer period If you are more risk adverse you'd keep 3-5 years cash/cash equivalent just like you'd keep 6mo-1yr for income disruption fund during your working years. whether 2-3yrs or 3-5yrs cash/cash equivalent on hand as primary buffer, your bonds are your alternate buffer to draw from when stocks are down. So, you replenish from bonds to your cash/cash equivalent until stocks regain where you can replenish bonds and cash from stocks. then repeat.
@dl777
@dl777 3 месяца назад
@@hanwagu9967 Thanks! My question is when do you pause replenishing your 3-5 year cash account. Bonds did very poorly a few years ago (down 17% at one point) and it would have been bad timing to sell any of those (stocks were also down). Otherwise the cash account never gets touched as every year you would be pulling from either stocks or bonds or both.
@hanwagu9967
@hanwagu9967 3 месяца назад
@@dl777 First, the bucket strategy is a risk mitigating strategy that doesn't eliminate all risk to your portfolio. Second, you have 3 yrs cash/cash equivalent to weather situations of where you have both bond and equity decreasing or equity declines. We've only seen two years where bonds and stocks have both been down after a year, although there are plenty of quarters where both were down. Given this, your 3yrs cash/cash equivalent should weather a both bonds and stocks down for the year scenario, based on history. Since you have 3yrs worth cash you could wait until year 3 if necessary to move from bonds or stocks to cash, or you could just replenish after each year's worth of expenses has been consumed from either bonds and/or stock buckets depending on relative performance. Third, you have to differentiate between bonds and bond index or bond etfs. Bonds don't lose principal unless you seel before maturity, so bond yields may have gone down where you will earn less interest, but you won't lose principal. In contrast, you can lose principal (initial investment) on bond index and bond etfs, which is what you are really talking about here.
@jeeplife5262
@jeeplife5262 3 месяца назад
Has anyone done a study on how often you should rebalance? Yearly, quarterly, heck even weekly, etc
@ericj9011
@ericj9011 3 месяца назад
One thing I saw that was fairly convincing was to rebalance based on how far off you get from your target allocation, and around 20% was the optimal.
@hanwagu9967
@hanwagu9967 3 месяца назад
vanguard did one in 2022 and some others also have done them. just web search
@mikeg2538
@mikeg2538 3 месяца назад
Question. If you are 50 with $4 million invested having 50% in etfs based on broad indexes (Dow, Spy, Nasdaq) and 50% money market. Is this $ enough to retire? I rent a 2 bedroom apartment, no debt, no kids. I also ask because I have slight back pain sitting at PC 8 hours a day. I wonder how long I can endure it. I anticipate 6% returns but the past 30 years seem like a rosey picture. Thanks.
@jamesmorris913
@jamesmorris913 День назад
Mike..IMHO, you are too young, even with $4 mil; to be a perpetual renter. Rents will ALWAYS increase. You need to take about $500,000 and BUY a house, or condo; ASAP. If there are no houses or condos in your area for $500K or less, MOVE..preferably to a zero income tax State. Then, with the remaining $3.5 mil, put approx $250,000 into a high-yieling money-market account, and the remainder (3.25 mil) into VBINX (Vanguard Balanced Index Admiral) and NEVER withdraw more than 4% of the ending balance, in any given year. DO NOT make annual inflation adjustments, until you are 70. DO NOT take Social Security, until you are 70, either. After your Social Security has started..THEN, continue to take the 4% annual withdrawls, plus an annual inflation-adjustment, based upon the C.P.I. figure posted each year...NEVER go into debt for ANYTHING, ever again (especially for CARS) and you should have a WONDERFUL remainder, of your life!
@jamesmorris913
@jamesmorris913 20 часов назад
Mike..4 mil certainly IS enough to retire @50, unless your lifestyle is just hideously wasteful! IMHO..the first thing I would do, if I were you; is buy a home, or condo; ASAP. Stop renting..you have NO control over housing-cost inflation, when you rent, indefinitely. With 4 mil in net-worth, at 50yrs old, I would spend (with NO mortgage) a max. of $500K, on my home. Then..I would put about $500K into Vanguard Federal Money Market Acct. Then, I would put together a ladder of approx $1 million in individual 5 and 10yr T.I.P.S (NOT, a T.I.P.S. mutual fund!) divided roughly evenly, between the 5&10 yr maturities. When they mature, simply transfer the proceeds into the MM acct, along with any coupons from them, until they mature. That gives you approx $50K/yr, from age 50-70, INFLATION-PROTECTED; until you're 70. With no mortgage or rent..that should be PLENTY for basic living. Then, at 70..I would draw MAXIMUM Social Security, AND; convert my entire equities holdings (which would EVCLUSIVELY be held in VTSAX) into VBINX (Vanguard Balanced Index Fund). Then, implement the 4% annual withdrawl rule, along with Social Security..should give you a FINE retirement, for the remainder of your days!
@jamesmorris913
@jamesmorris913 20 часов назад
...just an "amedment" from the previous idea, because garunteed inflation protection, was inadvertently overlooked.
@mikeg2538
@mikeg2538 6 часов назад
@@jamesmorris913 Thanks! I love your detailed breakdown. Ive thought about buying condo for the past decade. In a way I regret. Home prices are guarteened going up. But you pay crazy taxes and upkeep and HOA. It is about 75% apt rent rate cost. I think investing in total stock market index plus SP500 and Russell I should get at least 7% invest returns. I neglected to mention $2 mil is in a Trust. I cant invest it but can only advise. I saw 20% was in short ETFs and 80% in money market and bond. If the Trust officer put my $2 mil in SPY Id be up 40% not 5%. Also, is waiting till 70 for SS $ a big deal? I feel collecting at 62 is better. You can put the SS $ in index fund and come out just about same $ as getting more payout. You subtract 8 years of pay if collecting at 70.
@KayKay0314
@KayKay0314 3 месяца назад
There is a big difference between withdrawing money and spending what you withdraw. Maybe, during good market years, you withdraw more from your IRA compatible accounts and put that money into your cash bucket (which is a taxable brokerage account for me). I may only want to spend $50,000 in a given year, but I decide to withdraw $75,000 3 years in a row in a bull market. Then, during a market downturn, maybe I decide to withdraw less (or not at all for one year). Maybe I significantly lower my risk first before the market gets really bad so I can continue to withdraw a consistent amount and keep my total tax burden to 20% or less per year.
@John-wx2ce
@John-wx2ce 3 месяца назад
Another great video Rob! My portfolio is essentially like your “bucket”, $1.3M: w/ 1 year of cash, 5 years of bonds and the balance in equities. The difference, or maybe it goes without saying is that my bonds are in a bond ladder timed to mature as I need the cash. In addition, My equities generate a good portion of dividends that I utilize for cash flow as well. I replenish the bonds from equities in up years; leave them alone in down years. The bear market recovery median being approximately 30 months seems to work for me. The last downturn took right at 23 months to recover. Your thoughts?
@howardfriedman7077
@howardfriedman7077 3 месяца назад
Read: "Living Off Your Money."
@70qq
@70qq 3 месяца назад
🤘
@user-bt9cm7ze4c
@user-bt9cm7ze4c 3 месяца назад
Very simple solution. Buy enough physical real estate to live off the rent and invest the rest in good dividend stocks.
@efimshvartsburg3335
@efimshvartsburg3335 3 месяца назад
Essentially you recommend 2 buckets strategy: 3 years of cash and 60/40 portfolio with rebalancing
@kckuc310
@kckuc310 3 месяца назад
I’m about 50/50 cash and stock, I think I can make it with my bucket strategy. I have no bonds and over 5 percent on cash and yes Dave Ramsey is clueless about this subject and doesn’t even need the money that why
@Sylvan_dB
@Sylvan_dB 3 месяца назад
17:00 you simply don't fill up the cash bucket. You don't take the bonds until the cash bucket is empty. Your income from b2 and b3 continually flow to b1. No wonder you think buckets are too complicated.
@szej3860
@szej3860 3 месяца назад
Rob, I thought the point of X # of years of cash was to give you the ability to ride out a bear. So don't refill the cash bucket when market is down.
@davec7176
@davec7176 3 месяца назад
Exactly! Restore your cash and bond stake by selling stock funds the next year they gain ground. Remember not to sell off more than you made, though. The golden rule of the bucket strategy is to never sell stocks when they're down. Not as complicated as Rob describes. The cash bucket is the key as a defense against sequence of returns risk.
@hanwagu9967
@hanwagu9967 3 месяца назад
@@davec7176 it's not never sell, because you may be forced to (RMD) or need to (emergency situation that blows up your cash and bond buckets). The bucket strategy gives you time to mitigate the risk to your portfolio of having to draw from stocks, it doesn't eliminate all risk.
@dominichoward4833
@dominichoward4833 3 месяца назад
I understand we don't know what the future holds, but why are these disaster scenarios always so far in the past? Is the market improving over time?
@pertainedorangeman3056
@pertainedorangeman3056 3 месяца назад
Idk how Dave can call himself a financial "expert" when he thinks stocks average get 12% / year and you can pull 8% each year
@Mitzi73
@Mitzi73 3 месяца назад
And when a retiree’s brain fails, then what happens? This is great and simplistic approach for those that can, however.
@berniekeene868
@berniekeene868 3 месяца назад
An annuity is good insurance against sequence of returns risk, in my opinion.
@howardfriedman7077
@howardfriedman7077 3 месяца назад
But it doesn't typically have inflation rider.
@kckuc310
@kckuc310 3 месяца назад
Who is rebalancing or moving buckets when the market is down? That’s insane. You can eliminate all risk by just using cash and not taking for anything else, those other buckets leave alone. 7 to 10 years cash will ride it all out and your buckets will fill up when the market goes up and you can bring your cash up as your other 2 buckets will fill the cash up.
@hanwagu9967
@hanwagu9967 3 месяца назад
i think the idea is that you aren't taking from the equities, you are first drawing from cash/cash equivalent then bonds, and presumably that is sufficient to weather market down turn. 7-10yrs in cash/cash equivalent you are killing yourself becuase of inflation. that is why you would keep in bonds to at least cover inflation.
@sergiosantana4658
@sergiosantana4658 3 месяца назад
You are 100%. A common issue that i see with youtube bucket strategies is the fact that what starts out as a bucket strategy turns into a fixed percentage systematic withdrawal strategy. Many youtube bucket strategies succumb to the fear of missing out and don't allow the buckets to work through there allotted time frames ,defeating the propose,of the bucket strategy You just have to succumb to the reality that a bucket strategy is not a wealth maximization strategy but a making sure you don't run out if money before you run out of life strategy
@CaptainBenjamins
@CaptainBenjamins 3 месяца назад
I don’t know man as long as I am working my portfolio will be 100% S&P500 and I’ll take a safe withdrawal rate of 3% when I retire
@damienbates
@damienbates 3 месяца назад
I’m thinking similarly, just be sure to put aside that 2 or 3 years of cash or cash like funds, to cover those big downturns.
@harryhankins1338
@harryhankins1338 3 месяца назад
That not 100% stock allocation if you have 2 to 3 years of cash set aside for down market
@baybay7898
@baybay7898 3 месяца назад
Are you sure your portfolio is 100%? As long as you have cash reserves, it’s not 100%😂
@rayzerot
@rayzerot 3 месяца назад
The numbers are very clear that 100% equities is a less successful retirement method than a slightly more diversified portfolio. Because equity growth is volatile and not linear, a higher average returning but more volatile portfolio can have significantly worse returns for a retiree than a slightly lower growth but higher stability portfolio once withdrawals are started. Very counterintuitive at first but history plus monte carlos don't lie Look-up the "reverse guide path" by Kitces so you can see the research. If you're saving and investing, I want to make sure you aren't losing money when you don't have to
@aprilracine
@aprilracine 3 месяца назад
My plan is the same: low cost Vanguard index funds and 3 years in cash.
@marcthomas3053
@marcthomas3053 Месяц назад
Your % numbers don’t make sense. After 1st period your total portfolio is worth $850k, you moved $50k from bonds to cash and $25k from bonds to stocks Now you have $150k in cash(17% of $850k), $275k in bonds (32% of $850k) and $425k in stocks(50%of $850k) . How is this rebalancing? Your asset allocation is different from the start?
@TheSmartLawyer
@TheSmartLawyer 3 месяца назад
Very interesting, but amateurs rebalancing their own retirement accounts every year during retirement, after taking distributions into account at the time of withdraw using a guardrail approach, seems like a path heading for disaster.
@davidw7005
@davidw7005 3 месяца назад
You assume that bonds aren't correlated with stocks. I think of bonds as stocks-lite.
@pauld9653
@pauld9653 3 месяца назад
I just bought a 10 year MYGA that pays 6% guaranteed.. and I have the option to take out interest each year if I need it, or let it compound. In years where my portfolio is down, then I take out the interest to live on. Sequence of Return Risk is Dollar Cost Averaging- in Reverse. Wade Pfau would suggest you have your house paid off, and use it as a bank in yrs the market is down.. either a HELOC or a Reverse Mortgage.. pay off the balance in good years, Or have cash value life insurance to draw down on in down yrs.
@2023Red
@2023Red 3 месяца назад
Sequence of returns risk is a large market downturn simultaneously as you withdraw from your portfolio as I undertake it. Why would anyone ever do that? Your assumptions should exclude this. I would set a moving stop on SPY at 5%. Never withdraw if stopped out. I would withdraw 5% if not stopped out that year in January. And live within my means. I think your focus on that topic is really an oddball example.
@hanwagu9967
@hanwagu9967 3 месяца назад
Why? That's the whole point of mitigating sequence of return risk, by having the three bucket portfolio. it is intended to allow you to meet your retirement expense needs while the market is down without having to touch your volatile equities to avoid running out of money before your projected death. How do you expect to live within your means if you can't touch your equities over a multiple years when you had a 5% stop in the first year? Monetary and fiscal policy take a while to work, so you would normally not see an immediate recovery back to zero during a down period. This is why you have a few years worth of expenses in cash/cash equivalent bolstered by more years worth of expenses in bonds, then equities.
@2023Red
@2023Red 3 месяца назад
@@hanwagu9967 You make valid points. My view is only take profit on SPY and only when it rises. SPY averages 10% a year. But can drop too. So when I take profit I simply put into cash. Or make a purchase like replacing my car. In other words, I take some profit off the table. But I never withdraw in a downturn once it stops out. Unless it fully recovers. And
@hanwagu9967
@hanwagu9967 3 месяца назад
@@2023Red you are ignoring the operative word "averages". Taking profit off the table is called rebalancing. the bucket strategy isn't intened to eliminate all risk, it is intended to mitigate risk. You may not have a choice to withdraw from stocks (e.g. RMD) and/or you may need to withdraw from stock (e.g. emergency situation that blows up your cash and bond buckets) during a downturn.
@2023Red
@2023Red 3 месяца назад
@@hanwagu9967 Yes. I agree with you. We are fortunate and have ample retirement income. But this black swan events are a concern. We try to keep six months in reserve for them. But I do not see a way to eliminate risk.
@hanwagu9967
@hanwagu9967 3 месяца назад
Rob, your math don't work. EOY 1 balance $850k ($100k/$350k/$400k). You say rebalance EOY 1 to 50% stock at $425k ($850k/2), replenish cash to $150k from bonds, leaves bonds at $300k, buy $25k stocks from bonds to make stocks 50% because you argued to buy more when stocks are low. My country math yields that this means cash $150k, bonds $275k, stocks $425k (total $850k), but buying $25k stocks from bonds to reach 50% of $850k in stocks means your bond allocation is now 32.35% not 35%, or is my country schoolhouse math wrong?
@BossTweed-mj7jp
@BossTweed-mj7jp 3 месяца назад
If you're underwater on bond funds, you really can't do rebalancing without incurring a loss. Maybe abandon portfolio rebalancing until it makes sense? Until then; maybe live off cash and stocks, take the interest income, if needed, from the bond funds? Otherwise bond funds should recover faster with reinvested income.
@mplslawnguy3389
@mplslawnguy3389 3 месяца назад
What kind of rebalancing are you talking about? There are different ways to rebalance.
@BossTweed-mj7jp
@BossTweed-mj7jp 3 месяца назад
Rebalancing to a fixed asset allocation, say, for example 50/40/10?
@mplslawnguy3389
@mplslawnguy3389 3 месяца назад
@@BossTweed-mj7jp I'm not sure there would be much difference whether you actively rebalance the portfolio or just pick and choose which asset class to withdraw from. You're essentially doing the same thing. Also the frequency that you rebalance probably has an effect.
@jmc8076
@jmc8076 3 месяца назад
Ben Felix - Rational Reminder has good videos w/ Prof. Scott Cederburg and his extensive study on bonds for investing incl retirement. Easy to search orig paper online. Would also listen to Ben’s view on it on RR and his own recent videos. Just more good info to consider. Maybe Rob will comment on the study one day.
@markhenderson558
@markhenderson558 3 месяца назад
you would only incur a loss if your stock side was also down. otherwise you are selling the stock side while up to buy the bond side while down
@xst9880
@xst9880 2 месяца назад
Guaranteed Income Sources: Utilizing guaranteed income sources such as annuities or pensions can provide a steady stream of income, reducing reliance on portfolio withdrawals during market downturns.
@richardthorne2804
@richardthorne2804 3 месяца назад
I took early retirement in 2017 from the federal reserve bank and this is the primary reason why I stay away from relying on selling shares to pay the bills. No thank you. I made $60K in dividends and $63K selling covered calls last year. My pension plus this income is more than sufficient for me to live on. No 4% rule here. 2000-2013 no thank you.
@favjr
@favjr 3 месяца назад
Like a bad penny, those buckets and flower pots just keep turning up. What is frustrating is that lots of people who ought to have appreciated Kitces's research years ago, and should know better by now (cough, cough, Morningstar), continue to promote and write about this kind of nonsense, along with dividend investing and other cutesy-named dalliances involving shields and ladders and hoses and other assorted gardening implements. Whatever happened to the plain old "belt and suspenders" anyway? But I suppose that will be the case as long as it attracts clicks and eyeballs and potential customers. Always gotta be closing with the cutesy labels and the bucket-of-the-month gardening clubs.
@susanjsee
@susanjsee 3 месяца назад
Wait until age 70 to take Social Security.
@briankelly7632
@briankelly7632 3 месяца назад
Ramsey doesn't say withdraw $80,000 per year adjusting for inflation. He says withdraw 8% of the portfolio value annually. I'm not necessarily agreeing with him, but there's a big difference. You're comparing apples to bowling balls. And with his strategy you do get a 100% success rate, however small the final withdrawals may or may not be.
@hanwagu9967
@hanwagu9967 3 месяца назад
i think you may have misheard Ramsey. Ramsey said you could withdraw 8% because good mutual funds easily return 12% (Ramsey claims the magical mutual funds he invests in earn 12%+), so after 4% inflation, that leaves you able to withdraw 8%. So, he did actually account for inflation.
@rudyardganuelas6254
@rudyardganuelas6254 Месяц назад
@@hanwagu9967i did a look back on his 4 fund portfolio with a million dollars, and added 2% to the index return per year. A person who retired in 2000 still ran out of money by 2010 taking out 80k a year, no inflation adjustment. Hope and prayers is his strategy
@Asstronauts93
@Asstronauts93 3 месяца назад
You can withdraw 8% a year as long as you don't spend it all lol.
@Patrick-iq1do
@Patrick-iq1do 3 месяца назад
Buy Single Premium Immediate Annuities. What Babe Ruth did before the Great Depression. (On advice from his agent.)
@peaceofcake8464
@peaceofcake8464 2 месяца назад
It is financial malpractice if you are not using Income Lab for a retirement spending plan now. Everything else is amateur hour.
@user-rd2em4zw1s
@user-rd2em4zw1s 3 месяца назад
this is all noise u could do this vid in two minutes,4-5 years of cash ,no worries about markets or sequence risk,seriously!!
@Gary-ib8dz
@Gary-ib8dz 3 месяца назад
You are allowed to have your opinion, but I disagree. I like how Rob breaks down his thoughts on things.
@Acton65
@Acton65 3 месяца назад
@@Gary-ib8dz Yes, I too appreciate the methodical explanations. Rob is a natural teachers.
@alexporter7003
@alexporter7003 3 месяца назад
You could do that but it would be an incorrect video with misleading info in it.
@alphamale2363
@alphamale2363 3 месяца назад
"No worries about markets"? Yeah, right.
@GoKU-xx2vg
@GoKU-xx2vg 3 месяца назад
Karen alert
@leeward1717
@leeward1717 3 месяца назад
What happens when there are multiple years of losses for both Bonds and stocks?🫣
@hanwagu9967
@hanwagu9967 3 месяца назад
that's why you have 3yrs cash/cash equivalent. If you have lower risk tolerance, then 5yrs cash/cash equivalent. For those in the risk mitigating business, use PACE: cash/cash equivalent=Primary; bonds=Alternate, equities=Contingency, illiquid assets=Emergency.
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