Think about in­vest­ment plans in terms of buck­ets

Austin American-Statesman - - BUSINESSBRIEFING -

My hus­band and I are get­ting ready to re­tire next year. We have de­cided to use the bucket method for fund­ing part of our re­tire­ment. (We will have a $50,000 in­come be­fore dis­tri­bu­tion from in­vest­ments.) The first bucket is for im­me­di­ate spend­ing dur­ing the first five years (this bucket must be safe). The sec­ond bucket is for years six to 10 (this bucket must be able to grow and have low risk), and the third bucket is for growth (this bucket would not be tapped for at least 10 years). What type of in­vest­ments would you sug­gest for each bucket? — S.N., by e-mail

Buck­ets are a con­ve­nient way to think about in­vest­ment risk and time. Here’s what I sug­gest:

Bucket 1: a lad­der of CDs or other se­cure in­ter­est rate in­vest­ment, with the money you need in each year ma­tur­ing on sched­ule. You could also ex­plore CD-like an­nu­ities, which of­ten yield a bit more, and yields on de­posits at credit unions.

Bucket 2: a low-cost bal­anced fund such as Van­guard Welling­ton, cur­rent yield 3.1 per­cent ac­cord­ing to Morn­ingstar, or a 50/50 com­bi­na­tion of Van­guard GNMA and Van­guard Windsor. The sec­ond choice would give you the op­tion of sell­ing bonds or stocks when cir­cum­stances dic­tated a with­drawal.

Bucket 3: a low-cost global eq- uity fund, such as the Van­guard To­tal World Stock In­dex. An al­ter­na­tive with a higher com­mit­ment to the U.S. and a small (15 per­cent) com­mit­ment to fixed in­come would be Fidelity Four-in-One In­dex fund.

The buck­ets, evenly di­vided, would re­sult in a port­fo­lio that was slightly more than 50 per- cent eq­ui­ties.

It would have a highly liq­uid front end for meet­ing cur­rent and emer­gency ex­penses. It would also be very in­ex­pen­sive to man­age.

The same gen­eral idea could be tai­lored to dif­fer­ent plat­forms to fur­ther con­trol costs. By us­ing a ma­jor com­pany such as Sch­wab, Fidelity or Van­guard, you can also in­te­grate your check­ing and credit card use, thus avoid­ing hav­ing de­posits at a “too big to fail” bank.


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