Definition
Bucket Strategy
The bucket strategy is a way of organising retirement or goal savings into separate 'buckets' by time horizon — short, medium and long term — each invested according to when its money is needed.
A typical setup: a cash/liquid bucket holding a few years of expenses, a medium-term bucket in debt or hybrid funds, and a long-term bucket in equities. In retirement you spend from the cash bucket, refilling it from the others during good markets — so you never have to sell equities during a crash to pay the bills.
This directly addresses sequence-of-returns risk and gives psychological comfort: knowing the next few years' spending is safe makes it easier to leave growth assets alone. It is a practical application of asset-liability matching for individuals managing their own retirement income.
Related terms
- Asset-Liability MatchingAsset-liability matching is the practice of aligning the timing and risk of your investments with the timing of the expenses (liabilities) they are meant to fund.
- Glide PathA glide path is a planned, gradual shift in your asset allocation from higher-risk to lower-risk investments as you approach a financial goal or retirement date.
- Sequence-of-Returns RiskSequence-of-returns risk is the danger that poor investment returns early in retirement — when you are withdrawing money — can permanently damage your portfolio, even if average returns are fine.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.