Ryan explains the importance of a balanced and diverse portfolio to get you through down markets like we are currently experiencing.

The “Bucket Method”: Our Strategy to Balancing Risk and Reward

Both stocks and bonds are down this year. Traditional 60/40 portfolios are experiencing major decline due to this. That is why we want to diversify our retirement portfolios and keep them balanced. One way we help our clients understand diversification in their retirement portfolio is what we call, the “bucket strategy”. When we look at our clients’ assets, we break them into three different “buckets”, or categories.

  1. The first “bucket” is the safest assets they may have. This is for immediate cash needs that you may have. 10-15% of our clients’ accounts will be in these very safe assets. We are trying to gain 1-2% on it, but one of the most important things is capital preservation. Meaning, we don’t want to lose very much on these assets, especially if we need that money right away.
  2. Then we begin to build out into a medium-sized “bucket” where around 20-30% of their account will reside in with a moderate risk. Think along the lines of a traditional bond in this zone, safer than stocks, but still provides a decent rate of return. We are aiming for 3-5% gain in this middle “bucket”.
  3. The largest bucket, with the greatest growth potential long-term is in stocks. With stocks we are trying to gain 7-9% per year. In the up markets, this “bucket” is very fun, but in down markets like we are in now, this “bucket” can cause some pain. We try to keep 50-60% of our clients’ assets in this “bucket”. The bucket method allows us to take cash out quick when we need it, while allowing us to take a more aggressive and risky approach to get amazing rate of return in the long-term.