We've been hearing from some of you in recent weeks and realize that the news headlines can cause anxiety and worry. Remember last year at this time, we were dealing with the sudden announcement of higher-than-expected tariffs (Liberation Day).
While moments like today aren't comfortable or predictable, they do remind us that investing requires courage and patience. And that having sufficient funds in our green, yellow, and red bucket framework makes a big difference in weathering such storms.
When financial markets become more volatile, risks appear high (geopolitical tensions, COVID, a financial housing crisis, higher-than-expected tariffs, a tech bubble bursting—whatever the worry of the day), having a strategy that incorporates various asset classes greatly improves the odds of sticking with your plan.
Green Bucket:
- What do we consider green bucket assets? High-quality government and corporate bonds, CDs, money market funds, and cash.
- Why own? Stability, interest, and liquidity—to sleep at night. And it builds in a margin of safety—time.
- Primary return? Interest and possible appreciation in bonds when interest rates decline.
- Our climate analogy = Room temperature in a climate-controlled home. Imagine your thermostat is set for 70 degrees. If it drops to 65, the heat might come on. If it rises to 75, the air conditioning might come on.
- Expectations: Relatively stable price movements that are predictable and consistent with the tradeoff for such comfort being lower return probabilities.
For people who are retired or soon to be retired:
- We recommend having at least 2-5 years of your portfolio withdrawals in the green bucket.
- Said differently, if you need $50k per year from your portfolio to augment Social Security, rental, and/or pension income, we suggest having $100k-$250k (2-5 years of $50k) in these "sleep at night" type assets at a minimum.
Yellow Bucket:
- What do we consider yellow bucket assets? Balanced portfolios that are actively managed between stocks, bonds, and cash with flexibility. Dividend-paying stocks, high-yield bonds, and income-oriented real estate investments.
- Why own? Higher, longer-term return opportunities over green bucket assets and keeping pace with inflation.
- Primary return? Income and some asset price movement. (total return)
- Our climate analogy = Honolulu. 365 days a year, 24/7, the average temperature in Honolulu is 77 degrees. The highest high ever is 92 degrees, and the lowest low ever is 62 degrees.
- Expectations: Moderate price movements that are moderate but more volatile (price movement) than green bucket assets with moderate return probabilities in the longer term.
For people who are retired or soon to be retired:
- We recommend having at least 5-10 years of your portfolio withdrawals in the yellow bucket.
- Said differently, if you need $50k per year from your portfolio to augment Social Security, rental, and/or pension income, we suggest having $250k-$500k (5-10 years of $50k) in these total-return-type assets at a minimum.
Red Bucket:
- What do we consider red bucket assets? Growth stocks from domestic and international companies and commodities.
- Why own? For long-term growth and to outpace inflation.
- Primary return? Asset price movement. Up and down (Capital appreciation or declines)
- Our climate analogy = Death Valley. 365 days a year, 24/7, the average temperature in Death Valley is 77 degrees (the same as Honolulu, but with a very different experience to get that average). The highest high ever is 138 degrees, and the lowest low ever is 15 degrees. It is rarely 77 degrees in Death Valley.
- Expectations: More volatility than either the green or yellow bucket assets, with more opportunity for long-term growth and higher return probability over the long haul.
For people who are retired or soon to be retired:
- We have no minimum recommendation for years of income in the red bucket. If the other buckets are adequately filled using our years-of-income approach (with a runway of years - not days or months), we have created a time margin of safety to weather financial market ups and downs and subsequently capitalize on opportunities. (e.g., tax loss harvesting, buying the dip - putting cash to work, and buying good companies at better prices)
One final thought.
As market volatility has picked up over the last month (or at any time), it's important to remind ourselves that short-term mindsets rarely lead to successful long-term decisions. The fundamentals of the economy remain solid, and it is simply too early to tell how these new geopolitical developments will impact the path of future economic growth.
At the beginning of every year, we send a gentle reminder that we will likely be surprised. That is our prediction. We believe attempting to forecast the future with any consistency or accuracy is a fool's game.
Thus, we have shaped our buckets framework the way we do. To help our clients navigate both good and challenging times while meeting unique lifetime objectives and goals.
If you want to discuss your plan and buckets, please reach out, and we can coordinate a mutually convenient visit. team@mirusplanning.com
Thank you for choosing Mirus Planning as your guide and for your trust and relationship!
Behavior and Strategy Matter!
Hang in there and take care.