From February 19th through February 27, the S&P 500 fell more than 11%, In contrast, the Bloomberg Barclays U.S. Aggregate bond index —the benchmark tracked by core bond funds— is up 1%. If you are using Treasury bonds in your portfolio, you’ve likely seen a bigger gain of approximately 1.78%.
The coronavirus induced market collapse shows how using a three-bucket strategy can make it easier to stay the course during stock sell-offs. With a cash bucket and a bond bucket, you can generate the income you need without needing to touch your stock bucket when it is down.
3 Bucket Approach
Buckets 1 and 2 (cash and bonds) buy time for bucket 3 (stocks) to recover. Bucket 3 offer the best shot of delivering inflation-beating gains over the long-term. Inflation and loss of purchasing power of the dollar are a very real threat for a retirement that can stretch 30 years.
- Bucket No. 1 holds two to three years’ worth of living expenses—reduced by your guaranteed income—in cash or cash equivalents.
- The intermediate bucket—bucket No. 2—should hold three to seven years’ worth of expenses in a balanced portfolio with investments that give off a yield, such as dividend-paying stocks and bonds or bond funds.
- Bucket No. 3 holds longer-term funds that may not be needed for several years. It can be invested in riskier assets, such as 100% stocks.
To read more: https://money.com/coronavirus-protect-retirement/
References:
- https://money.com/bucket-approach-for-retirement-income-how-to-use/
- https://money.com/coronavirus-protect-retirement/