Buckets of Money

About the Authors
Ray Lucia is a CFP and has a well-known radio show "The Ray Lucia Show."

Buckets of Money describes a technique of separating investment assets in 3 groups, or buckets: Bucket 1: safe income (like CDs or treasuries) that is spent down (interest + principal) over a period of 7 years Bucket 2: low-risk assets, like bonds, TIPS, balance mutual funds to provide slight growth over inflation in order to refill bucket #1 after 7 years - the first two buckets, then, provide 14 years of relatively safe income Bucket 3: growth assets, mainly stocks to provide long-term survivabily of the overall portfolio

The intention of this strategy is to spend down bucket 1 over 7 years, refill it with bucket 2 for an additonal 7 years, after which

bucket 3 should have had sufficient time to provide enough gains to refill both buckets 1 and 2 and repeat the cycle for another 14 years.

This is similar to the Grangaard Strategy and the book Asset Dedication.

Table of Contents
Part 1: Introducing the Buckets Chapter 1: Everybody's Got an Investment Idea - But Is It a Good Idea? Chapter 2: Why Your Grandmother Was Right After All

Part 2: Understanding the Buckets Chapter 3: What Kind of Investor Are You? Chapter 4: Buckets: The Simple, Yet Proven, System

Part 3: Filling the Buckets Chapter 5: The First Bucket: Consistent, Sometimes Guaranteed, and Potentially Tax-Favored Income Chapter 6: The Second Bucket: A Conservative Cache for Inflation-Indexed Income Later Chapter 7: The Third Bucket: Investing for Long-Term Growth

Part 4: Bucketizing Your Life Chapter 8: Getting Your Buckets All Lined Up Chapter 9: Managing Your Buckets in Good Times and Bad Chapter 10: Repairing the 'Hole's in Your Bucket Chapter 11: Bucketizing My Life

Part 5: Living Happily Ever After As a Bucketeer Chapter 12: Finding the Right Financial Planner Chapter 13: 10 More Steps You Could Take to Help Bulletproof Your Retirement Chapter 14: Enjoying Life As a Bucketeer

Appendix A: Recommended Books Appendix B: Helpful Online Sites

Book Summary
Part 1 discusses concerns about retirement: people living longer, inflation and taxes, reliance on Social Security. It also reviews a lot of pitfalls of investing such as market timing and following the herd. The second chapter covers diversification, risk and return and rebalancing.

Part 2 starts with a personal risk assessment, then introduces the buckets strategy with a simple example. It follows with a worksheet where you can draw up a plan with your own figures.

Part 3 covers what assets should go in each bucket - with each asset there is a discussion of pros and cons.

Part 4 discusses how to set up buckets as you get nearer to retirement, how to manage taxes, and how you might handle a bear market or a windfall. There are some good examples of integrating the bucket strategy with pensions and social security, showing how the location of assets can affect taxes. It finishes with a "real life" example of how the author has set up his retirement.

Part 5 covers financial advisors and how to choose one, and other tips on investing, insurance, estate planning

mikenz
many people would consider this "mental accounting". You could probably achieve the same result with a Target Retirement Income or Balance Fund like Wellesley, or with a simple 3-4 fund portfolio and annual rebalancing. However it's an interesting approach, as are Asset Dedication and The Grangaard Strategy. The author generally advocates diehard principles of index investing, but he also suggest you could consider investing some assets in managed funds and various insurance and annuity products.