Why the bucket investment strategy could be right for you
If you’ve finished working full-time, it may be worth re-thinking your investment strategy. Here’s one option to consider
We have all heard of a bucket list but what about the bucket strategy? Perhaps not as many people. According to wealth management firm BT Financial Group, a bucket strategy can help you tick off the experiences, activities or destinations you’ve put down in your bucket list.
For those who have recently retired or are looking to retire within the next few years, it’s a good time to re-think your investment strategy. While you were previously focused on building your investments as much as possible, in retirement your focus shifts to maintaining an income – both today and well into the future.
What is the bucket strategy?
It’s an investment strategy where your investments are essentially divided into two categories or buckets. The first bucket contains your secure investments such as cash and term deposits, which will pay your income over the next three to five years. The second bucket contains your growth investments such as shares, property and managed funds to make your money go the distance.
The first bucket will pay a monthly income into your bank account. The money you withdraw from this bucket is then replenished by income produced by the growth investments in the second bucket, so from profits generated by share dividends, rental income and managed fund distributions.
Market downturns, like the global financial crisis, generally have less of an effect on this income than the underlying investment’s price, which means it’s a relatively reliable source to replenish your income.
When the market is doing well, it’s a good idea to sell some growth investments from the second bucket to move the proceeds into the first bucket as a way to prepare yourself for future market downturns.
What are the benefits of using this strategy?
The whole idea behind the bucket strategy is making sure that you’re not forced to sell assets at the worst possible time – when they’ve been hit by a market downturn. This would mean heavy losses because you’d be selling investments that have already fallen in value.
By using the bucket strategy, you would have the time to let these battered investments recover and grow so that you can sustain your income longer. It’s designed to give you the peace of mind of knowing your income is secure for the next three to five years, and that your money will continue to look after you well into retirement.