Personal Finance – Caffeinated

Jolting For More Jingle Jangle

A Two-Bucket Approach to Financial Investing March 24, 2010

Filed under: Uncategorized — coffeecents @ 4:07 pm

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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?

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2 Responses to “A Two-Bucket Approach to Financial Investing”

  1. This sounds like a reasonable approach. Do you divide your contributions evenly between the two buckets?

    • coffeecents Says:

      Keith,

      No, they’re not evenly divided and that’s a good point. I take full advantage of the 401K, putting the limit in pre-tax. Looking at my account totals my active bucket is about 1/3rd my total portfolio, while the passive 2/3rds, but that was not intentional. Just how it happened. This is probably an idea where how big the buckets are depends on the individual


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