A bucket portfolio stress test

How would our aggressive bucket portfolio have fared during and after the bear market?

Christine Benz 26 May, 2014 | 6:00PM

Using so-called buckets to organize your retirement portfolio by time horizon has caught on among many Morningstar.ca readers, in large part because of the psychological benefits.

By maintaining a dedicated cash pool to draw upon for near-term living expenses -- the linchpin of every bucket program -- retirees can ride out fluctuations in the long-term portion of their portfolios. They can also switch on automatic withdrawals from their cash buckets to simulate a paycheck, and that reliable income stream can provide comfort in good markets and bad. Finally, a bucket strategy gets retirees away from what I consider to be an unhealthy form of mental accounting: focusing on income at the expense of total return.

But does bucketing actually work in practice, meaning does it meet a retiree's cash needs while also generating a satisfactory level of return?

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About Author

Christine Benz

Christine Benz  Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz.