Why wouldn't you use a HYSA for years 2-7? It's more liquid, has a higher interest rate and is federally insured. Keep year 1 in a checking account and anything after 7 years in your brokerage account.
Because a HYSA is going to have a variable yield. By using multiple bond length you can reduce interest rate risk and also plan to have portions of the principle to become available at pre determined dates.
Well done! I like that you started with expenses per month, how to cover those expenses and then how to max out bucket three to help cover monthly requirements. I think this strategy will work for many retirees.
If you are retired, about 50/50 allocation is a good start (Moderate allocation) and that includes T-Bills, Intermediate Bonds, and your money market fund. And a mix of AVGE, FDIF, and MAGS for your equity exposure and Worldwide coverage. You can pick between MAGS and FDIF if you want to avoid duplicate company coverage; however, both of these ETFs cover AI, go with FDIF which is a fund of funds ETF of "DISRUPTOR" companies in five sector ETFs in the stock market. You can also add the GLTR to add precious metals to your portfolio. I have four buckets with the fourth being a taxable account for my RMD withdrawals.
Just do this instead. If you are in your 20s, buy about 30 fund across Fidelity and Schwab. Then in your 30's buy more of one of the funds each year for the year. Every 30 year period the S&P 500 has never done worse than 9% since World War II. This will make sure you can sell your original investment and what it grew to plus the corresponding dividend and capital gain re-investments. The S&P 500 had an APY of over 10% from March 1979 to March 2009 and the same is also true from December 1944 to December 1974 and December 1972 to December 2002. You will never lose money that way.
See the problem with the 3 bucket strategy in this video at time 14m 50s. Also note that Michael Kitces has writing on a more effective strategy. ua-cam.com/video/gVYThVn5gQA/v-deo.html
Yes. In fact, I am following that logic. My bucket # 2 will consist of bonds along with high paying dividend ETFs. There are a variety to choose from, so its a valid alternate. Additionally, real estate investments like rental properties would fall within the bucket # 2 area as another potential alternative.
Nothing is guaranteed. But if dividends get cut like in the financial crisis you wont be doing any better with a traditional % based withdrawal strategy. This st leastbget you 7 year before youd be forced to sell equities as your bond later is fixed. You may need to adjust your spending needs but better than sell stocks that are down 50% or more.
$70k / $2.5mil = 2.8% withdrawal rate. That is more conservative than the Morningstar recent recommendation of 3.3%. Ok if you have somebody to pass on the money, if not you would die rich.
2:57 Why would you want to invest in Bonds that pay 2.5% when you could invest in T-Bills (etc...) that are paying 5% (or more)?? I'm a novice at best and have heard that government securities are safe and have the added incentive of no state tax.
Did the video say this will only work if you have 2.5 million? I'm pretty sure that 2.5 million was used just as an example and that this approach could work with less money.
It applies regardless of the amount you have. Notice I didn't say it "works" regardless of the amount you have. Obviously you have to begin with enough money to generate a livable amount.
He ain’t wasting his time on you unless you will make money for him. Notice how $2 mill of their retirement remains in stocks. Why is that? It’s called Job Security for Financial Planners.
Ran this on £1.1 mill that I have which is a healthy amount and way above the average in UK. Wouldn’t even provide me with £40k pa. So unworkable ( would you agree?). Thanks anyway for the video as it was well explained 👍🏻
Depends on your age and cost of living. If you're older (at retirement age) and can minimize your cost of living, 700K could be enough to retire right now. But if you're young (younger than retirement age) or cannot minimize your cost of living, then you need to keep working. In 20 years from now, no one will be able to retire with 700K because of inflation, but if you are at retirement age now, have low expenses, and don't plan to live for more than 30 years, 700K might be enough. My current retirement goal is $2m-$4m, but that's decades away and accounts for future inflation. If I was 65 today and had $700k, I could probably retire.
Why not include in bucket one your social security along with an annuity so you don't need to sell any stock to meet your annual income needs and in the second bucket have your growth stock for growth
Congrats. In today's environment your first two buckets are super risky as they lose at least 10% of value due to current inflation (if you really put TRUE inflation like it used to be calculated in the 70s and before it much worse). Best strategy, high quality dividend income portfolio of companies that have a very high historical reputation of not only paying but also raising dividends.
Rob Berger (he's not a financial professional, however, which I acknowledge) debunked the 3 Bucket Strategy because of the complexity involved. 1. Is there an algorithm in place to ensure bucket movement decisions are made without emotions? 2. What if there is a down market for 7+ years, let alone bonds being down? 3. What makes this approach any more efficient than a consistent asset allocation strategy? 4. Why hold cash in an asset management account at all instead of a client's high yield savings? 5. Are clients allowed to ask to stick with an asset allocation strategy instead of this one? Reasons I ask: 1 and 3. An asset allocation strategy is algorithmic, but this one is more complicated. Complication is not always a good thing with wealth management. 2. Past performance does not predict future results. While growth assets being down for 7+ years in a row is extremely unlikely, if this did occur, an asset allocation approach would be way safer in my opinion. Imagine your portfolio being down 90% like the great depression and only having stocks available to pull from. 4 and 5. If I ever became a Wealth Management client, I would prefer an asset allocation strategy over the 3 bucket strategy.
Your 1st question is personal and can't be answered by this guy nor anyone else. Only you have the ability to control your emotions. Also, every financial plan must be individualized, so you need to consult your own advisor who can speak to your specific situation.
@@dlg5485 An algorithm for a financial plan is essential for success. Without an algorithm, you *must* use emotion to make your decisions because there is no roadmap to guide you. I don't have an advisor but I have created my own algorithmic financial plans. I might need a financial advisor one day but in the accumulation phase a financial advisor is not necessary.
For simplicity, bucket 1 is 1-2 years of income in your bank account. Bucket 2 holds up to about 5-7 years of income in a US bond mutual fund that automatically sends a month of income to the bank each month. Bucket 3 holds the rest in broad market US stocks. Reinvest all dividends. This is the classic 'Warren Buffet' portfolio. You choose the size of the buckets and the algorithm that decides when stocks are high enough to make it a good time to replenish the bond fund and then stick to it. If the bond fund is about to run out, sell just enough stocks at market each month to buy bonds and keep the automatic income transfer from bonds to cash going. While this plan is simple and algorithmic, everyone has different tastes, and if you prefer to use asset allocation to rebalance annually regardless of markets, that is your decision and don't let anybody tell you otherwise.
@@nicholas5396 Yes he did debunk it. Just an annual rebalance at the time you take your annual withdrawal accomplishes everything the 3 bucket strategy is claimed to do.
Thank you for publishing this. You've help demystify how to set things up. Very well done!
Why wouldn't you use a HYSA for years 2-7? It's more liquid, has a higher interest rate and is federally insured. Keep year 1 in a checking account and anything after 7 years in your brokerage account.
Because a HYSA is going to have a variable yield. By using multiple bond length you can reduce interest rate risk and also plan to have portions of the principle to become available at pre determined dates.
* also the bond will typically have a fixed APY providing consistent income.
👍🏻
Individual bonds are 100% predictable
This video is 5 years old and the hysa wasn't paying today's rates. Today yiu van just put buckets 1 and 2 into the hysa and be good.
Well done! I like that you started with expenses per month, how to cover those expenses and then how to max out bucket three to help cover monthly requirements. I think this strategy will work for many retirees.
Is 2 years cash and a straight 60/40 portfolio not just as good?
This was extremely well done. Easy to follow!
Thank you for sharing this - concise & clear without complex jargon.
If you are retired, about 50/50 allocation is a good start (Moderate allocation) and that includes T-Bills, Intermediate Bonds, and your money market fund. And a mix of AVGE, FDIF, and MAGS for your equity exposure and Worldwide coverage. You can pick between MAGS and FDIF if you want to avoid duplicate company coverage; however, both of these ETFs cover AI, go with FDIF which is a fund of funds ETF of "DISRUPTOR" companies in five sector ETFs in the stock market. You can also add the GLTR to add precious metals to your portfolio. I have four buckets with the fourth being a taxable account for my RMD withdrawals.
Thank you so much ❤❤
great video ! which bucket would realestate be in bucket wise
Great information!!
Don’t forget bucket 4….kick the bucket
and not enjoying your 2,5 million! just giving it away to people who will waste it
Just do this instead. If you are in your 20s, buy about 30 fund across Fidelity and Schwab. Then in your 30's buy more of one of the funds each year for the year. Every 30 year period the S&P 500 has never done worse than 9% since World War II. This will make sure you can sell your original investment and what it grew to plus the corresponding dividend and capital gain re-investments. The S&P 500 had an APY of over 10% from March 1979 to March 2009 and the same is also true from December 1944 to December 1974 and December 1972 to December 2002. You will never lose money that way.
Thank you☀️☀️☀️
Need update with interest rates so high
This video is 4 Yeats old. Interest rates in HYS accounts were below 1% at that time
See the problem with the 3 bucket strategy in this video at time 14m 50s. Also note that Michael Kitces has writing on a more effective strategy. ua-cam.com/video/gVYThVn5gQA/v-deo.html
Could you not include some very strong, long time paying dividend stocks / ETF's in Bucket 2, along with bonds? JNJ, CAT, PG, etc.
Yes. In fact, I am following that logic. My bucket # 2 will consist of bonds along with high paying dividend ETFs. There are a variety to choose from, so its a valid alternate. Additionally, real estate investments like rental properties would fall within the bucket # 2 area as another potential alternative.
What do you do for inflation?
60/40 hopefully gives 6/7% per annum. I’m looking for this to offset 2/3% inflation and income.
Why would you not have most of your first bucket in a high yielding savings account? That’s around $3,000 a year difference.
When they made this video we were in a zero interest rate environment.
Nothing is guaranteed. But if dividends get cut like in the financial crisis you wont be doing any better with a traditional % based withdrawal strategy. This st leastbget you 7 year before youd be forced to sell equities as your bond later is fixed. You may need to adjust your spending needs but better than sell stocks that are down 50% or more.
Nice strategy but you ignored the elephant in the room: TAXES
$70k / $2.5mil = 2.8% withdrawal rate. That is more conservative than the Morningstar recent recommendation of 3.3%. Ok if you have somebody to pass on the money, if not you would die rich.
2:57 Why would you want to invest in Bonds that pay 2.5% when you could invest in T-Bills (etc...) that are paying 5% (or more)?? I'm a novice at best and have heard that government securities are safe and have the added incentive of no state tax.
Bruh, look at the date the video was made.
Great idea for millionaires, how many of your viewership has 2.5 million dollars to start something like this?
Did the video say this will only work if you have 2.5 million? I'm pretty sure that 2.5 million was used just as an example and that this approach could work with less money.
It applies regardless of the amount you have. Notice I didn't say it "works" regardless of the amount you have. Obviously you have to begin with enough money to generate a livable amount.
He ain’t wasting his time on you unless you will make money for him. Notice how $2 mill of their retirement remains in stocks. Why is that? It’s called Job Security for Financial Planners.
You do not talk about how to spend down different accounts, cash Roth IRA within the blankets. Can you explain how you would pull from these
Ran this on £1.1 mill that I have which is a healthy amount and way above the average in UK. Wouldn’t even provide me with £40k pa. So unworkable ( would you agree?). Thanks anyway for the video as it was well explained 👍🏻
So, you start off with 2.5 Million? What if I only have 700K?
Keep working. Lol
You can send me about $50k in a gift certificate, and I’ll send you stocks that’ll double your money. Easy
1) Rob a bank, 2) start hooking, 3) sell lemonade, 4) buy lotto ticket and pray real hard
Depends on your age and cost of living. If you're older (at retirement age) and can minimize your cost of living, 700K could be enough to retire right now. But if you're young (younger than retirement age) or cannot minimize your cost of living, then you need to keep working. In 20 years from now, no one will be able to retire with 700K because of inflation, but if you are at retirement age now, have low expenses, and don't plan to live for more than 30 years, 700K might be enough.
My current retirement goal is $2m-$4m, but that's decades away and accounts for future inflation. If I was 65 today and had $700k, I could probably retire.
Why not include in bucket one your social security along with an annuity so you don't need to sell any stock to meet your annual income needs and in the second bucket have your growth stock for growth
Congrats. In today's environment your first two buckets are super risky as they lose at least 10% of value due to current inflation (if you really put TRUE inflation like it used to be calculated in the 70s and before it much worse). Best strategy, high quality dividend income portfolio of companies that have a very high historical reputation of not only paying but also raising dividends.
So you're saying that the dividends, in a high quality dividend income portfolio, have increase their dividend rate by 10% to keep up with inflation?
@@mtjam3183 no, but its close. It is certainly better than what you would get in a "secure" bond or money market.
This comment didn't age well...
Rob Berger (he's not a financial professional, however, which I acknowledge) debunked the 3 Bucket Strategy because of the complexity involved.
1. Is there an algorithm in place to ensure bucket movement decisions are made without emotions?
2. What if there is a down market for 7+ years, let alone bonds being down?
3. What makes this approach any more efficient than a consistent asset allocation strategy?
4. Why hold cash in an asset management account at all instead of a client's high yield savings?
5. Are clients allowed to ask to stick with an asset allocation strategy instead of this one?
Reasons I ask:
1 and 3. An asset allocation strategy is algorithmic, but this one is more complicated. Complication is not always a good thing with wealth management.
2. Past performance does not predict future results. While growth assets being down for 7+ years in a row is extremely unlikely, if this did occur, an asset allocation approach would be way safer in my opinion. Imagine your portfolio being down 90% like the great depression and only having stocks available to pull from.
4 and 5. If I ever became a Wealth Management client, I would prefer an asset allocation strategy over the 3 bucket strategy.
Your 1st question is personal and can't be answered by this guy nor anyone else. Only you have the ability to control your emotions. Also, every financial plan must be individualized, so you need to consult your own advisor who can speak to your specific situation.
@@dlg5485 An algorithm for a financial plan is essential for success. Without an algorithm, you *must* use emotion to make your decisions because there is no roadmap to guide you. I don't have an advisor but I have created my own algorithmic financial plans. I might need a financial advisor one day but in the accumulation phase a financial advisor is not necessary.
For simplicity, bucket 1 is 1-2 years of income in your bank account. Bucket 2 holds up to about 5-7 years of income in a US bond mutual fund that automatically sends a month of income to the bank each month. Bucket 3 holds the rest in broad market US stocks. Reinvest all dividends. This is the classic 'Warren Buffet' portfolio.
You choose the size of the buckets and the algorithm that decides when stocks are high enough to make it a good time to replenish the bond fund and then stick to it. If the bond fund is about to run out, sell just enough stocks at market each month to buy bonds and keep the automatic income transfer from bonds to cash going.
While this plan is simple and algorithmic, everyone has different tastes, and if you prefer to use asset allocation to rebalance annually regardless of markets, that is your decision and don't let anybody tell you otherwise.
Rob didn't de bunk it. Said he prefers his % based withdrawl strategy.
@@nicholas5396 Yes he did debunk it. Just an annual rebalance at the time you take your annual withdrawal accomplishes everything the 3 bucket strategy is claimed to do.
Dividends are not guaranteed. Your plan is already flawed.