So I have these savings, and they might be in a checking account, an IRA, a 401K, stocks, bonds, gold silver, alien futures, what have you, but are these all just savings? Not from my perspective.
I have a two-bucket approach to my financial investment strategy
Bucket 1: Solid, Steady, and Passive
Bucket 1 includes my IRA and 401K. Both are index funds. The IRA points to two foreign index funds, and the 401K is your standard 401K lifecycle fund. Contributions are automatically deducted. I don’t ever see what’s going on in this bucket. I know its there. I know it will be fine 30 years down the road. This bucket keeps me financially secure later on
Bucket 2: Crazy, Fluid, and Active
Bucket 2 includes my stocks, bonds, and a commodity index fund. I’m more active here. I do research. I buy. I rarely sell but I am active in monitoring it. And it is in this bucket that I want to take my shots. I want to beat my index investing, or at least try. But I’m not going to pay others to do it. If I lose this bucket, I still have Bucket #1. So its guns ablazing in Bucket #2.
I like the two bucket approach. I want to actively manage, but I don’t want to tinker with my 401k. So I am able to battle my own psychology and win.
And how is the bucket approach doing? Bucket #1 has recovered from the economic crash and has about a 5% real return annualized over 5 years so far. It is doing what it needs to do. Bucket #2 has been awesome! I started Bucket 2 in June 2008. That was a heck of a time to start! But, Bucket#2′s return, despite some big misses in some assets, has annualized returns of 15%. I’ve even got one stock that’s been a whopper, 320% return in just a year!
The two bucket approach I think works well for defeating the psychology of wanting to mess with things when times are bad and good, and gives my financial brain exercise.
How would you organize a bucket strategy?