Hello again everyone, I trust this Sunday is finding you well and God is pouring His grace into your life. For me, in my personal life, this year has been anything but pleasant. I’ve been overworked, criticized for not working enough, and yelled at for working. Yeah, it doesn’t make much sense to me either and it seems “crazy” is trying to take the year. If you’re experiencing something similar this year or at any other time. Don’t lose hope, God will show us the way forward.
Nevertheless, as we trudge through 2024 and the difficulties it may bring I think it’s important to do some general financial house cleaning. For myself, that means re-organizing my various investing strategies into something a little more user friendly.
With that, let’s discuss briefly what I’m doing with all of my accounts as we move toward the back half of this year.
Post Agenda
- Investment Organization
- The Bucket Investment Strategy
- My Bucket Strategies
- Closing Thoughts
Investment Organization
Admittedly, for those that prefer simplicity, the need to constantly re-organize investments would make little to no sense. Those in that camp would just invest in a few different index funds and let the market handle the rest. However, for those like me, optimization is a task that never really stops. As the market changes, I feel the need to change with it or at least implement new strategies. Probably not the greatest of ideas but we’ll save that for another time.
To explain the re-organization effort, I recently came across a Youtube channel by a woman in her 50’s planning to retire early. Like me, she’s a teacher so I was immediately caught by her story. She has created a rather simple version of what I’m aiming for but the strategy resonated with me. She has separated her money into what she called, “The 3 Bucket Retirement Strategy”. The concept isn’t new but how she was implementing it peaked my interest. For those wanting to view it as well, here is a link to her channel, Happy on Monday’s.
After reviewing several of her videos it occurred to me I could clean up my own financial house to incorporate all of my strategies into “buckets” as well. Primarily to add more mental structure but also to keep the door open for additional buckets in the future.
The Bucket Investment Strategy
In brief, the bucket strategy concept is an attempt to create a sustainable retirement income by distancing ourselves from market volatility. I’m sure there are both success and failure stories using the strategy. However, in a vacuum, it makes beautiful sense. Here is the general idea;
Bucket 1 – Cash | Cash Equivalents | Bonds
In the first bucket keep a percentage of cash or ultra safe investments that generate a smaller but stable yield. Typically treasuries or bonds.
Bucket 2 – Defensive Investments | Bonds
This bucket is characterized by slightly riskier investments that return a higher yield or better opportunities for growth. Typical focus is on bonds or assets that can weather a market downturn.
Bucket 3 – Growth Investments | Equities
The final bucket in this strategy is solely focused on growth. Typically the most volatile bucket but has the ability to drive every other bucket higher in value.
Honestly, the strategy is a bit more complex than I’ve described here but in a nutshell, this is it. It’s more or less just a mental accounting game to provide confidence for the inevitable market storm. By separating our investments into buckets we’re able to better see the path through a gut wrenching market decline. Hopefully, helping us to avoid costly mis-steps at the worst possible time.
My Bucket Investment Strategy
I’m not quite ready, financially, to retire. Mentally, I think I’ve been ready since the day I started working. Regardless, I’ve broken my preferred investment techniques into 5 separate buckets. All of which I’ve discussed on this site before but this makes for a much more organized approach.
Also, you’ll notice each of my safety buckets has a growth driver. In retirement, that would likely change but as of today I’m of the belief that each bucket needs to sustain itself. Growth from the driving asset will be re-balanced as needed for optimization.
Bucket 1 – Cash | Treasuries | Bonds
The primary focus of this bucket is safety. Generally, each investment here would provide a stable yield without loss of principle.
- SGOV – Short term Treasury ETF
- USFR – Floating Rate Treasury ETF
- VTI – Total Stock Market ETF (Growth Driver)
- IUSB – Total USD Bond Market
- STIP – Treasury Inflation Protected Bond ETF
Bucket 2 – Income
Deviating from the original bucket strategy, this bucket is all about income with a focus on protecting principle. These holdings are not shielded in any way from market volatility.
- VUG – Growth ETF (Growth Driver)
- ARCC – Business Development Company
- SPYI – S&P 500 Income ETF
- FEPI – Equity Income ETF
- MAIN – Business Development Company
- EPD – Energy Services Company
- IVVW – Buy Write Income ETF
- FDUS – Business Development Company
- HTGC – Business Development Company
- ISPY – S&P 500 Income ETF
- QQQI – Nasdaq 100 Income ETF
- YMAX – Yield Max Income ETF
- YMAG – Yield Max Mag 7 Income ETF
Bucket 3 – Equities | ETF’s
Again, a deviation from the original strategy, equities are in this bucket. Every stock, whether that be the latest hot tip or my preferred holdings, I’ll place them here. However, my preference is for large cap or more defensive staple companies.
- XLU – Utilities ETF
- GLDM – Gold ETF
- QQM – Technology ETF
- MSFT – Technology
- UNP – Industrials
- V – Financial
- KO – Staples
- WM – Industrials
- AMZN – Discretionary
- GOOG – Communication
- WMT – Staples
- XLE – Energy ETF
- DELL – Technology
- SLYV – Small Cap Value ETF
- JNJ – Healthcare
- LILM – Lottery Ticket
Bucket 4 – Growth ETF’s | Dividend Growth ETF’s | Income ETF’s
More or less my long term “junk drawer”, everything is really in this bucket. If I were only able to build one bucket, this would be it.
- SPLG – S&P 500
- VT – Total World ETF
- VGT – Technology ETF
- SCHG – Large Cap Growth ETF
- SCHD – Dividend ETF
- VO – Mid Cap ETF
- SLYG – Small Cap ETF
- DGRO – Dividend Growth ETF
- STIP – Treasury Inflation Protected Bond ETF
- VNQ – Real Estate ETF
- JEPI – Income ETF
- JEPQ – Income ETF
Bucket 5 – Options Strategies
My final bucket, as you may expect, is just for options strategies. Admittedly, it’s my smallest bucket given the speculative nature of most option strategies. Currently, my favorite option strategies include;
- Bull Call Spread
- Bear Call Spread
- Bull Put Spread
- Bear Put Spread
- Calendar Spread
- Iron Condor Spread
Closing Thoughts
As you can see, using the bucket investment strategy approach I can essentially create as many buckets as I prefer. As time goes on, I want to have a system in place that allows for either a pivot away from one of the above strategies or the ability to add another outright. This system does that, at least as of today.
It was a long road to narrow down my preferred investments within each bucket but each has a functional purpose in their respective places. Over time, I may opt to move assets from one bucket to another. Possibly eliminating the growth drivers from the cash or income buckets or preferring one growth driver over another.
Lastly, I’ve managed to simplify my account structure as well. For now, every bucket is housed in either my Bank, Schwab, or Robinhood. Schwab for buckets 3, 4 & 5 and Robinhood for the income bucket since I find it very easy to move money in and out of that account.
God bless,
Jeff
