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Today’s discussion focuses on the “bucket strategy” for allocating retirement funds, which helps manage risk by separating assets into different categories based on time or spending types. The first bucket strategy divides assets into three categories: the first bucket holds low-risk, easily accessible assets like T-bills and money market funds to cover immediate expenses for 1-3 years; the second bucket contains moderate-risk fixed income to fund years three through seven; and the third bucket includes higher-risk investments for long-term growth covering years seven to thirty. The bucket strategy offers comfort, as lower-risk buckets provide security, allowing for more risk in the growth-oriented third bucket. Execution can be complex, considering various account types (taxable, Roth, traditional IRAs, 401(k)s) for each bucket and making sure investments match the desired duration and risk level. During market downturns, spending can be adjusted by taking from different buckets—equities when they are up, fixed income when equities are down, or cash when both are down—to protect against excessive risk in later retirement years. An alternative “two bucket strategy” addresses essential versus non-essential spending, sometimes including an income stream like a single premium immediate annuity to cover core needs, with a separate bucket for wants and luxuries. However, Mark Struthers also notes issues like the challenge of rebalancing during market dips and the psychological comfort a bucket strategy provides, even if it may not always be the most efficient method. Struthers suggests a hybrid approach, combining total return with rebalancing and the appearance of a bucket strategy, to balance comfort with financial efficiency. Themes: – Retirement planning and strategies – Investment risk management – Asset allocation across different time horizons – The emotional and psychological aspects of investing – Rebalancing investment portfolios – The role of fixed income and equities in retirement Connections: – The “Three Bucket Strategy” for retirement allocation [00:00:36 – 00:00:36; 00:02:21 – 00:02:21]: Mark Struthers describes the bucket strategy as a method of organizing retirement funds to manage risk and provide comfort to clients through mental accounting. – Asset allocation across different time horizons [00:05:25 – 00:05:25; 00:06:49 – 00:06:49]: The speaker elaborates how different buckets fund different periods of retirement, from immediate needs to long-term growth. – The emotional and psychological aspects of investing [00:09:29 – 00:09:29; 00:16:26 – 00:16:26]: Mark Struthers discusses how adhering strictly to the bucket strategy without adjustments may lead to a portfolio heavy in risky assets later in retirement, and the importance of being comfortable with one’s investment strategy. – Rebalancing investment portfolios [00:14:59 – 00:14:59]: The notion of rebalancing to maintain a certain asset allocation and the difficulties seen during market downturns are mentioned. – The role of fixed income and equities in retirement [00:08:06 – 00:08:06]: The third bucket’s role in long-term growth and hedging inflation through investment in equities is explained. Insights: This strategy is framed as a psychological comfort tool that serves to manage mental accounting and risk among retirees. Struthers emphasizes the importance of low-risk assets for immediate living expenses, moderate-risk fixed-income assets for mid-term needs, and higher-risk assets for long-term growth and inflation protection. He highlights the need for careful rebalancing to avoid being overweighted in risky assets late in retirement and underscores the difficulties faced by individuals in selling or rebalancing during market downturns. The narrative builds around the tension between the emotional comfort provided by the bucket strategy and the mathematical efficiency afforded by a total return approach, eventually suggesting a combined approach to satisfy both the emotional and financial aspects of retirement planning. Disclosure: Investment advisory services are offered through Sona Financial LLC (DBA Sona Wealth Advisors, Sona Wealth, Sona Wealth Management), an investment adviser registered in the state of MN. Sona Financial only offers investment advisory services where it is appropriately registered or exempt from registration and only after clients have entered into an investment advisory agreement confirming the terms of engagement and have been provided a copy of the firm’s ADV Part 2A brochure and document. This video is for educational purposes only. Nothing discussed during this show/episode should be viewed as investment advice. If you have questions pertaining to your specific situation, please consult your own financial professional.

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