Christine Benz's Three Bucket System

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newcollegeman
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Christine Benz's Three Bucket System

Post by newcollegeman »

I'm insterested in Boglehead viewpoints & critiques to Christine Benz's Three Bucket System....

M*'s Christine Benz has developed a Three Bucket System for managing the withdrawal mode in retirement.

She has boutiqued her aggressive long term (+25 year) Three Bucket System into several different suggested portfolios:
1) Best Mutual Fund Portfolio
2) Best ETF Portfolio
3) Investment House Portfolios (Fidelity, Vanguard, T Rowe Price, and Schwab)

For her portfolios, see http://www.morningstar.com/content/morn ... olios.html

Her Vanguard aggressive long term (+25 year) Three Bucket System Portfolio is as follows:

Bucket 1 (always 2 years in cash) 8% in Bucket 1
Year One (4%)
Year Two (4%)

Bucket 2 (always 8 years in bonds) 37% in Bucket 2
VBIRX Vanguard Short Term Bond Index (7%)
VTAPX Vanguard Short Term Inflation Protected Securities (7%)
VBTLX Vanguard Total Bond Market Index (15%)
VWIAX Vanguard Wellesey Income Fund (8%)

Bucket 3 (balance in stocks) 55% in Bucket 3
VDIGX Vanguard Dividend Growth Fund (22%)
VTSAX Vanguard Total Stock Market Index (10%)
VFWAX Vanguard FTSE All-World ex-US Index (10%)
VWEAX Vanguard High Yield Corporate Bond (8%)
VGPMX Vanguard Precious Medals & Mining (5%)

The withdrawal strategies vary, but the core idea is that interest, dividends & annual rebalancing keep Bucket 1 filled up, providing the income on which retirees can live. Strategic adjustments are made, not in the portfolio target, but rather in the source of cash. For example, if I have understood her right, she would recommend protecting the contents of Bucket 3 at all costs, other than the loss of dividends & interest, if there was a serious downturn in the market. In other words, if dividends & interest are not sufficient to fund Bucket 1 each year, then it's better to cut expenses (thus reducing the draw from Bucket 1) and even cannibalize Bucket 2, if that's what it takes to protect Bucket 1 until the market downturn reverses.

The only alternative to this approach that M*'s Director of Personal Finance (Christine Benz) suggests that is in the same vein as her Three Bucket System is to just buy Vanguard's Managed Payout Fund (VPGDX), which operates in a parallel fashion to her designed portfolios.

Benz suggests that Index investors make adjustments in her portfolio, but that they stick with her withdrawal strategy & keep the overall 60%/40% ratio of stocks to bonds, as well as her 2 years of cash buffer in Bucket 1.

The only other crucial suggestion I have seen her make is that the slowing macro USA & world economies may well mean that a retiree may need to drop the annual draw from 4% as originally intended to something more like 3%....

What think ye? I read loads of stuff on accumulation phase but little on withdrawal phase.

Your input is appreciated!
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Re: Christine Benz's Three Bucket System

Post by jebmke »

I retired in December 2007. Not a big fan of cash. Have not carried significant cash balance for decades. A moderately low duration bond fund will provide adequate stability and better returns than cash IMO.
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Good Listener
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Re: Christine Benz's Three Bucket System

Post by Good Listener »

It seems like a waste of time to even consider. Taylor's 3 fund portfolio is more than enough and if you want to add cash to it, then that's fine.
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Re: Christine Benz's Three Bucket System

Post by JoMoney »

The idea of mental 'buckets' appeals to me, but in practice I believe the mechanics of refilling the buckets winds up quite similar to a constant mix/re-balanced allocation.
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Re: Christine Benz's Three Bucket System

Post by livesoft »

There are investors/retirees who insist on buckets and so Benz satisfies their cravings.

I can't stand buckets and view them as unnecessary complicated mental accounting.
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Re: Christine Benz's Three Bucket System

Post by Peter Foley »

My take at first glance: While I don't disagree with her bucket approach, she holds too many funds for my taste.

I share her preference for 2 years of cash.

I don't know her rationale for holding a balanced fund in bucket 2 nor a bond fund in bucket 3.

Bucket 2 could be total bond + TIPS.

Bucket 3 could be total stock + total international ex-US.

Her over allocation to stocks at 55% is close to mine.
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Re: Christine Benz's Three Bucket System

Post by jebmke »

livesoft wrote:There are investors/retirees who insist on buckets and so Benz satisfies their cravings.

I can't stand buckets and view them as unnecessary complicated mental accounting.
I have enough trouble keeping up with regular accounting. If I had to do mental accounting I'd be in real trouble.
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Re: Christine Benz's Three Bucket System

Post by Gort »

livesoft wrote:There are investors/retirees who insist on buckets and so Benz satisfies their cravings.

I can't stand buckets and view them as unnecessary complicated mental accounting.
+1
Too many moving parts for me to keep track of. I just use the 3 fund approach and rebalance to my desired asset allocation occasionally.
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Re: Christine Benz's Three Bucket System

Post by Dandy »

I like Dr. Bernstein's approach:

1. a "safe" portfolio (reasonably liability matching) he suggests that in retirement it equal at least 20 years of withdrawals.
2. a "risk" portfolio for any excess with any allocation you desire.

My additional suggestion: hen the risk portfolio does well take all or most form it. If the risk portfolio does poorly take all or most from it.
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Re: Christine Benz's Three Bucket System

Post by SGM »

I have looked at bucket systems for a long time, but think they add needless complication. I prefer multiple income sources including pensions, SS, rental income and possibly SPIAs and whatever AA one prefers with rebalancing if things get too out of whack.
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Re: Christine Benz's Three Bucket System

Post by The Wizard »

If you analyze a bucket portfolio, you can determine the equivalent AA for a normal portfolio.
Except a bucket portfolio tends to fluctuate depending on whether stocks are pushing record highs or slumping.

So I'm happy to eliminate cash drag and just do a pro rata withdrawal from my non-bucketized portfolio each month...
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Re: Christine Benz's Three Bucket System

Post by The Wizard »

Dandy wrote: ...My additional suggestion: hen the risk portfolio does well take all or most form it. If the risk portfolio does poorly take all or most from it.
This doesn't make much sense.
You might want to review it...
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Re: Christine Benz's Three Bucket System

Post by Theoretical »

I much prefer Bernstein's roll-your-own pension LMP/Risk portfolio approach. Benz's is a mess.
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Re: Christine Benz's Three Bucket System

Post by jhfenton »

Peter Foley wrote:My take at first glance: While I don't disagree with her bucket approach, she holds too many funds for my taste.

I share her preference for 2 years of cash.

I don't know her rationale for holding a balanced fund in bucket 2 nor a bond fund in bucket 3.

Bucket 2 could be total bond + TIPS.

Bucket 3 could be total stock + total international ex-US.

Her over allocation to stocks at 55% is close to mine.
I agree completely. I don't know that I will mentally structure my portfolio in terms of buckets, but if I did, the three buckets would be cash/near cash + bonds + equities.

Benz's buckets are a mess.
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Re: Christine Benz's Three Bucket System

Post by billfromct »

I would agree with the 3 retirement buckets. My buckets in retirement will be:

-15% Short term bonds, 3 years of withdrawals (duration, 2-3 years)
-25% Intermediate bonds, 5 years of withdrawals (duration, 5-6 years)
-60% Stocks

bill
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Re: Christine Benz's Three Bucket System

Post by livesoft »

I just got my SS statement in the mail the other day. It looks like SS benefits will more than cover our current annual expenses, so we don't need any safe buckets. That said, a 60/40 portfolio will work fine for everything else. Does that mean we have 3 buckets? 60% stocks, 40% bonds, and SS? I don't think so.
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Re: Christine Benz's Three Bucket System

Post by Artisan »

I guess if the financial "gurus" didn't think up stuff like this no one would need to listen to them.

A three fund portfolio, an emergency fund, a proper asset allocation for our situation and an IPS are all we need.
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Re: Christine Benz's Three Bucket System

Post by The Wizard »

It's important to emphasize at this juncture that one key tenet to bucketizing is to move funds between buckets depending on the strength of the stock market primarilyly.
If you don't do this predictably, in good times and bad, you may not be a true bucketeer...
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Re: Christine Benz's Three Bucket System

Post by David Jay »

livesoft wrote:I just got my SS statement in the mail the other day. It looks like SS benefits will more than cover our current annual expenses, so we don't need any safe buckets. That said, a 60/40 portfolio will work fine for everything else. Does that mean we have 3 buckets? 60% stocks, 40% bonds, and SS? I don't think so.
That is my case as well, if I wait to claim until after age 68.

So I am a two-bucket man: Living expenses from age 62 to age 68, all in bonds (including 2 years short term) prior to retirement. Second bucket is 60/40 to supplement survivor's benefit when the time comes and for the estate.
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Re: Christine Benz's Three Bucket System

Post by gkaplan »

I think, at least for my purposes, that the bucket system, any bucket system, is overly complicated, and I never have considered using it.
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Re: Christine Benz's Three Bucket System

Post by 22twain »

I'm now retired, several years away from taking Social Security at 70. My only external (non-portfolio) income in the meantime is a bit of deferred compensation for the next few years. I don't use anything like Benz's bucket scheme, only a small cash bucket for convenience, so that I need to make stock/bond fund transactions only once a year.

In my taxable account, I let dividends accumulate in my money market fund. These cover about 1/4 of my spending. Deferred compensation covers another 1/4. Once a year, I simultaneously rebalance and sell enough stock/bond fund shares to cover the remaining 1/2 of the next year's spending. Once a month I transfer a month's worth from the money market fund to my "working" checking account, as a "paycheck" to myself to supplement the deferred compensation.

If something comes up that requires an extra lump of cash, I'll simply sell a lump of shares from whichever side of the portfolio is high at the moment.
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Re: Christine Benz's Three Bucket System

Post by AlohaJoe »

newcollegeman wrote:I'm insterested in Boglehead viewpoints & critiques to Christine Benz's Three Bucket System....
She has never backtested it -- showing how it works in real world circumstances -- and has never included enough details of how it actually works for a person to use.

When I performed my own backtesting, using historical data, it seemed to be useless and provide no value.

Here's my first post on it:

viewtopic.php?f=1&t=187626&p=2847117&hi ... z#p2847117

Image

and here's my second post on it

viewtopic.php?f=1&t=187626&p=2847117&hi ... z#p2847247

Image
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Re: Christine Benz's Three Bucket System

Post by JoMoney »

MIchael Kitces has posted on 'Bucket' strategies several times, such as this one:
https://www.kitces.com/blog/are-retirem ... on-mirage/
... two portfolio-based strategies are increasingly popular to generate retirement income: the systematic withdrawal strategy, and the bucket strategy. While the former is still the most common approach, the latter has become increasingly popular lately, viewed in part as a strategy to help work around difficult and volatile market environments. Yet while the two strategies approach portfolio construction very differently, the reality is that bucket strategies actually produce asset allocations almost exactly the same as systematic withdrawal strategies; their often-purported differences amount to little more than a mirage! Nonetheless, bucket strategies might actually still be a superior strategy, not because of the differences in portfolio construction, but due to the ways that the client psychologically connects with and understands the strategy!
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Christine Benz's Three Bucket System

Post by pascalwager »

livesoft wrote:I just got my SS statement in the mail the other day. It looks like SS benefits will more than cover our current annual expenses, so we don't need any safe buckets. That said, a 60/40 portfolio will work fine for everything else. Does that mean we have 3 buckets? 60% stocks, 40% bonds, and SS? I don't think so.
Because of SS living expenses coverage, you don't need 1-2 years funding in bucket 1, or three to 11 years funding in bucket 2. Hence, you don't need any buckets at all.

Summary:

-60/40 stocks/bonds: major expenses/luxuries
-SS: living expenses
16% TSM | 16% TISM | 7% LV | 7% SV/SC | 7% ISV/ISC | 7% EM | 20% TIPS | 20% STIG | Bonds 9.1 years duration
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Re: Christine Benz's Three Bucket System

Post by pascalwager »

billfromct wrote:I would agree with the 3 retirement buckets. My buckets in retirement will be:

-15% Short term bonds, 3 years of withdrawals (duration, 2-3 years)
-25% Intermediate bonds, 5 years of withdrawals (duration, 5-6 years)
-60% Stocks

bill
How does 15% of the portfolio always provide three years of Bucket 1 withdrawals? If the percentage is fixed at 15%, then what happens as the portfolio is drawn down? Fifteen percent of a declining portfolio results in a shrinking Bucket 1.
16% TSM | 16% TISM | 7% LV | 7% SV/SC | 7% ISV/ISC | 7% EM | 20% TIPS | 20% STIG | Bonds 9.1 years duration
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Re: Christine Benz's Three Bucket System

Post by Dandy »

Dandy wrote:
...My additional suggestion: hen the risk portfolio does well take all or most form it. If the risk portfolio does poorly take all or most from it.

This doesn't make much sense.
You might want to review it...


Yikes - bad typing on my part. When the "risk" portfolio does well take all or most of your need from it. When the risk portfolio does poorly take all or most from the "safe" portfolio.
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Re: Christine Benz's Three Bucket System

Post by The Wizard »

pascalwager wrote:
billfromct wrote:I would agree with the 3 retirement buckets. My buckets in retirement will be:

-15% Short term bonds, 3 years of withdrawals (duration, 2-3 years)
-25% Intermediate bonds, 5 years of withdrawals (duration, 5-6 years)
-60% Stocks

bill
How does 15% of the portfolio always provide three years of Bucket 1 withdrawals? If the percentage is fixed at 15%, then what happens as the portfolio is drawn down? Fifteen percent of a declining portfolio results in a shrinking Bucket 1.
This is why bucket strategies don't work. The 15% ST bonds is NOT a fixed percentage.

During a stock market downturn, you take $$ from the short term bond bucket and leave stocks alone. Then when stocks come roaring back, you replenish the bond portfolios...
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Re: Christine Benz's Three Bucket System

Post by livesoft »

I will guess that Bucketeers will withdraw from their fixed income buckets to pay expenses during downturns, but I don't think they will use their fixed income buckets to buy more equities when equities have tanked. That is, they really probably only do half of the rebalancing act by only rebalancing asymmetrically.
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Re: Christine Benz's Three Bucket System

Post by jebmke »

livesoft wrote:I will guess that Bucketeers will withdraw from their fixed income buckets to pay expenses during downturns, but I don't think they will use their fixed income buckets to buy more equities when equities have tanked. That is, they really probably only do half of the rebalancing act by only rebalancing asymmetrically.
Although I would guess that they spend their equity dividends which is a silent raid on their equity during the downturn.
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Re: Christine Benz's Three Bucket System

Post by goingup »

I don't see a problem with bucket strategies. It looks like a plausible option to me. What I don't understand is how these buckets work when you're an early retiree with assets in IRAs or 401Ks. How will stocks/bonds in an IRA/401K feed the cash buckets? Seems like this will only work when you have access to all accounts without penalty.
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Re: Christine Benz's Three Bucket System

Post by dwickenh »

JoMoney wrote:MIchael Kitces has posted on 'Bucket' strategies several times, such as this one:
https://www.kitces.com/blog/are-retirem ... on-mirage/
... two portfolio-based strategies are increasingly popular to generate retirement income: the systematic withdrawal strategy, and the bucket strategy. While the former is still the most common approach, the latter has become increasingly popular lately, viewed in part as a strategy to help work around difficult and volatile market environments. Yet while the two strategies approach portfolio construction very differently, the reality is that bucket strategies actually produce asset allocations almost exactly the same as systematic withdrawal strategies; their often-purported differences amount to little more than a mirage! Nonetheless, bucket strategies might actually still be a superior strategy, not because of the differences in portfolio construction, but due to the ways that the client psychologically connects with and understands the strategy!
+1 Buckets are for emotional stabilization, not for a new way to invest assets!!!

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
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Re: Christine Benz's Three Bucket System

Post by The Wizard »

goingup wrote:I don't see a problem with bucket strategies. It looks like a plausible option to me. What I don't understand is how these buckets work when you're an early retiree with assets in IRAs or 401Ks. How will stocks/bonds in an IRA/401K feed the cash buckets? Seems like this will only work when you have access to all accounts without penalty.
Early retirees generally need a "bridge" scheme of some sort.
This is largely a different issue from bucketizing...
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Re: Christine Benz's Three Bucket System

Post by conlius »

Buckets seem difficult to manage. Between his/her 401k, his/her roth IRA, his/her traditional IRA, HSAs, etc plus income coming from pensions/social security/annuities. Basically you are building logical buckets across multiple accounts. I think it can be made much easier.

Example 1mil portfolio. Need 40k per year from your portfolio after other income sources. Keep 10 years in lower-risk assets.

OK: 400k bonds, 600k stocks. Make it 8/32/60 if you are stuck on the cash thing. Re-balance annually (via gains, dividends, etc) to maintain 10x needs in securities. When things get tough in the stock market, lower your expenses and draw from bonds. When things get good, rebalance appropriately and spend more? That took 30 seconds for a KISS solution.
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Re: Christine Benz's Three Bucket System

Post by Call_Me_Op »

I think the 3 bucket approach is more confusing than just separating assets into high-risk and low-risk and rebalancing on a regular basis. And this approach allows better understanding and control of the risk in the portfolio.
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Re: Christine Benz's Three Bucket System

Post by itstoomuch »

sgm's, Income streams is the method we choose. We now have 3 lifetime Income buckets and a variable bucket that can be used realistically. The annuity, RE, and variable may have inheritable assets. :sharebeer
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Re: Christine Benz's Three Bucket System

Post by CULater »

I decided that my best investment strategy is to kick the bucket. :D
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Re: Christine Benz's Three Bucket System

Post by herpfinance »

I like the mental idea of buckets during the withdrawal phase, but I find Benz's approach far too complicated.

I've personally found the most appealing approach to be that of of Jim C. Otar in Unveiling the Retirement Myth. I'll summarize the key points here:
Allocate two years' of withdrawals to a money market fund as part of the fixed income portion of the portfolio. The money market fund is for immediate-term liquidity.

Allocate three years' of withdrawals to short-term bonds as part of the fixed income portion of the portfolio. This is used to top off the money market fund as it depletes over time.

All periodic withdrawals must come from the money market fund only. Do not set up automatic withdrawals from any fluctuating investments such as equity funds, income trust funds, balanced funds or even bond funds.

If rebalancing from equities to fixed income, the money should first top off the money market fund, then the short-term bond, and finally other bonds in the fixed income portion of the portfolio.

If rebalancing from fixed income to equities: the money should go from longer-term bonds to money market first, then to short-term bonds, and finally to equities.

If there is cash inflow into the portfolio, such as dividends, interest or other cash distributions, add these to the money market fund first. Do not reinvest them until the money market and short-term bond portfolio is fully topped up.
However, I do not plan to use a short-term bond fund. If the money market fund (or cash equivalent) depletes, I will begin withdrawing from intermediate-term bonds.
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Re: Christine Benz's Three Bucket System

Post by Dandy »

I think the 3 bucket approach is more confusing than just separating assets into high-risk and low-risk and rebalancing on a regular basis. And this approach allows better understanding and control of the risk in the portfolio.
+1
I agree -- mostly. All you need to do is make sure you "safe" / low risk assets fund you retirement for the period you deem reasonable. Some feel just a few years "safe" is enough. I prefer a longer "safe" funding period. But having more "buckets" and moving money to and from 3 buckets seems unnecessary.
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Re: Christine Benz's Three Bucket System

Post by htdrag11 »

It's too complicated for my pay grade.

KISS!

Guess she needs to write articles to satisfy her client base. Glad I'm retired. :beer
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Re: Christine Benz's Three Bucket System

Post by jcar »

The old saying "there's more than one way to get their " applies in both accumulation and withdrawal. I know many who use the 3 fund program, others on the dividend program, and others on the 4% withdrawal program. They all seem to get along fine and have roughly the same growth. I believe the important thing is to avoid any thing that leads to paying advisory fees, loads, etc. This is what eats up a nest egg.
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Re: Christine Benz's Three Bucket System

Post by Pajamas »

I have never understood the point of having a "cash buffer" if there is sufficient wealth to meet spending needs because it implies market timing will be used to replenish it. Is market timing when de-accumulating any different from market timing when accumulating?

This particular three bucket system seems a little complicated to me without knowing what advantages it gives.
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Re: Christine Benz's Three Bucket System

Post by cfs »

And talking about back testing . . .

2016 article from Miss Benz: How Has the Retirement Bucket Strategy Performed?

http://news.morningstar.com/articlenet/ ... ?id=746240

2016 Stress test simulation from Miss Benz: Covering 2000-2015 [start of 2016]

http://news.morningstar.com/pdfs/bucket ... 032116.pdf

Good luck with your investments, with or without buckets. Thanks for reading ~cfs~

Edit 1 --- p.s. Posted for information only, I am NOT here to defend or attack this strategy.
~ Member of the Active Retired Force since 2014 ~
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Re: Christine Benz's Three Bucket System

Post by CULater »

So, as Dr. Milevsky has pointed out, bucketing actually exposes you to more risk from a bad sequence of returns. Reason: you are forced to draw down the safest assets (cash, bonds) and consequently this increases your relative equity allocation - increasing the overall risk of your portfolio. Smoke and mirrors, folks. Smoke and mirrors. Some people just never learn.
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Re: Christine Benz's Three Bucket System

Post by pascalwager »

CULater wrote:So, as Dr. Milevsky has pointed out, bucketing actually exposes you to more risk from a bad sequence of returns. Reason: you are forced to draw down the safest assets (cash, bonds) and consequently this increases your relative equity allocation - increasing the overall risk of your portfolio. Smoke and mirrors, folks. Smoke and mirrors. Some people just never learn.
Non-bucketing retirees would do the same thing during a market crash, to maintain stock shares at a high level for future growth and replenishment of Buckets 1 and 2. W. Bernstein mentions this in one of his earlier books. Benz also covers this in her bucket articles.

Yes, the main risk is that stocks don't revive soon enough, in which case both portfolio types would fail--bucketed and non-bucketed.

That's why Bernstein doesn't include stocks in his liability matching portfolio. Contrarily, Benz does include stocks, taking a much less conservative position than Bernstein, or simply ignoring Pascals Wager.
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Re: Christine Benz's Three Bucket System

Post by CULater »

pascalwager wrote:
CULater wrote:So, as Dr. Milevsky has pointed out, bucketing actually exposes you to more risk from a bad sequence of returns. Reason: you are forced to draw down the safest assets (cash, bonds) and consequently this increases your relative equity allocation - increasing the overall risk of your portfolio. Smoke and mirrors, folks. Smoke and mirrors. Some people just never learn.
Non-bucketing retirees would do the same thing during a market crash, to maintain stock shares at a high level for future growth and replenishment of Buckets 1 and 2. W. Bernstein mentions this in one of his earlier books. Benz also covers this in her bucket articles.

Yes, the main risk is that stocks don't revive soon enough, in which case both portfolio types would fail--bucketed and non-bucketed.

That's why Bernstein doesn't include stocks in his liability matching portfolio. Contrarily, Benz does include stocks, taking a much less conservative position than Bernstein, or simply ignoring Pascals Wager.
Except I would follow Larry's asymmetric rebalancing approach and not sell bonds to rebalance during stock market drawdowns; while continuing to rebalance into bonds when the stock allocation increases. I've always felt that rebalancing into stocks during bear markets actually increases risk also, because it's a contrarian strategy. Maybe OK for young investors; not OK for older retirees. Not smart for retirees to sell down safe assets like bonds to buy more risky assets like stocks, IMO. Your stock allocation should be systematically declining anyway. If a bear market speeds up that process, then so be it.
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jebmke
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Re: Christine Benz's Three Bucket System

Post by jebmke »

CULater wrote: Not smart for retirees to sell down safe assets like bonds to buy more risky assets like stocks, IMO. Your stock allocation should be systematically declining anyway. If a bear market speeds up that process, then so be it.
I think it is hard to make this generalization. This may be true for some and not for others. I start my pension next year (65) and SS in 5+ years so at that point, I may bump our equity up from 40 to 50% or so.
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Fundhunter
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Re: Christine Benz's Three Bucket System

Post by Fundhunter »

Good Listener wrote:It seems like a waste of time to even consider. Taylor's 3 fund portfolio is more than enough and if you want to add cash to it, then that's fine.
Not everybody on this board subscribes to the 3-fund portfolio. I do not, because of the recommended fixed income fund which is Total Bond Market, which contains a slug of long bonds. I agree with Larry Swedroe and his book that the relatively small increase in yield is not worth the very high interest rate risk that long bonds have. I have 3 different fixed income funds: short, intermediate and TIPS, and I rebalance between them, avoiding long bonds.

Christine Benz' "bucket" approach makes a lot of sense and is similar to a lot of other recommendations for the withdrawal phase (that I am about to start on in less then a year). It is really just a portfolio that you periodically rebalance, thereby "refilling" the buckets. Not that complicated, particularly for people who can read through the threads on this site.

I do take a small risk in that I have very short term bond funds, rather than her recommended cash, for the first money to be liquidated, as cash pays next to nothing and doesn't keep up with inflation. If I lose a little to an interest rate spike, it ain't much with short bonds, and I will take less of a hit than if I were withdrawing against the more volatile Total Bond Market Index, for sure.
dbr
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Re: Christine Benz's Three Bucket System

Post by dbr »

Fundhunter wrote:
Not everybody on this board subscribes to the 3-fund portfolio. I do not, because of the recommended fixed income fund which is Total Bond Market, which contains a slug of long bonds. I agree with Larry Swedroe and his book that the relatively small increase in yield is not worth the very high interest rate risk that long bonds have. I have 3 different fixed income funds: short, intermediate and TIPS, and I rebalance between them, avoiding long bonds.
I don't consider that a meaningful deviation from the essence of a three fund portfolio even if it is literally a five fund portfolio. I do things like that myself and still recommend the "three fund" portfolio to most anyone.
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willthrill81
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Re: Christine Benz's Three Bucket System

Post by willthrill81 »

dwickenh wrote:
JoMoney wrote:MIchael Kitces has posted on 'Bucket' strategies several times, such as this one:
https://www.kitces.com/blog/are-retirem ... on-mirage/
... two portfolio-based strategies are increasingly popular to generate retirement income: the systematic withdrawal strategy, and the bucket strategy. While the former is still the most common approach, the latter has become increasingly popular lately, viewed in part as a strategy to help work around difficult and volatile market environments. Yet while the two strategies approach portfolio construction very differently, the reality is that bucket strategies actually produce asset allocations almost exactly the same as systematic withdrawal strategies; their often-purported differences amount to little more than a mirage! Nonetheless, bucket strategies might actually still be a superior strategy, not because of the differences in portfolio construction, but due to the ways that the client psychologically connects with and understands the strategy!
+1 Buckets are for emotional stabilization, not for a new way to invest assets!!!

Dan
Don't discount the impact of human emotions on investing, withdrawal or accumulation. If it weren't for emotions, investing would look a lot different than it does in practice.

I'm not opposed to the bucket strategy, and as Kitces and others (i.e. Kahneman) have pointed out, humans tend to think in terms of 'buckets' anyway, so this may make more sense to them and provide them with more psychological safety than a traditional AA.

And while I'm not a huge fan of Benz's choice of funds, I don't see why some people think that 10 funds is a lot more complicated than three unless you have your money spread across five different accounts. Otherwise, it only takes a few minutes once a year (at most once a quarter). If you don't have time for that in retirement, well.....
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Grt2bOutdoors
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Re: Christine Benz's Three Bucket System

Post by Grt2bOutdoors »

Too cumbersome. I prefer the floor and upside approach, some know it as the Bernstein method - 20-25 years expenses less known sources of income such as Social Security/pensions/annuities in highly liquid, highly rated instruments like T-Bills, CD's, I bonds, EE bonds, Treasury notes, TIPs. The remainder invested in your risk portfolio - equities.

So, in this order:
1) Social Security, annuities, pensions
2) Ladder of t-bills, certificates of deposit, laddered I bonds or laddered TIPs, laddered Treasury notes, laddered EE bonds.
3) Equities.

Holding 7 different funds for your risk portfolio - I guess what ever floats your boat. You could hold Total World Stock Index and do just fine, you could hold two funds - VTI and VXUS, still be fine. Hold 7 funds? Hopefully, not in a taxable account.

Many roads to Dublin as Taylor might say. He'll also say "the Majesty of Simplicity". :happy Less can be more, indeed.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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