8044 Montgomery Road Suite 163 Cincinnati, OH 45236
The Oxford Oracle
Five Years of Stability
Every portfolio is different, and however, certain foundational elements remain the same. The area we’re concerned with today is what we call Five Years of Stability, and it’s a critical building block for any retirement plan. This stability is created by placing your money into different “buckets,” each offering specific benefits. The risk and returns associated with each bucket are different. While one bucket is responsible for maintaining income stability, other buckets offer growth in investment. Because the future is always uncertain, this retirement strategy will allow you to handle years of uncertainty without panic or worry.
Here’s How it Works
Maximizing growth may seem like the ideal aim when considering your retirement goals. The best goal for many, however, is a balance of both stability and growth. That’s why when we set up a new retirement plan, we create a bucket of money for each.
In essence, your Stability Bucket is there to provide your immediate income for five years so that you will not find yourself in a position of having to dump stocks when they are temporarily selling at fire-sale prices. While your Growth Bucket, as the name implies, is there to maximize growth.
Each year, after you have withdrawn from the Stability Bucket the amount that you agreed you would need, we take a look at both of those buckets and ask, “Where are we now?” If the Growth Bucket is way up, we can take some gains from those investments. We’ll clip a bit from here, some from there, and we can use those gains to help replace the money that you withdrew from the Stability Bucket for income. If, however, the Growth Bucket is having a terrible year, then we might decide not to sell anything. Why sell when the price is down?
The allocation of funds to your buckets is done to ensure a constant supply of income without sacrificing too much growth. It could also provide you with the option to make a bulk withdrawal (for travel, renovations, etc.) if the need arises.
Does This Really Matter?
If you want to maintain or even improve your lifestyle without a job, you need predictable cash flow. When you sell in a down market, either out of panic or out of necessity, you are realizing your losses. That’s why our approach ensures that you’re never withdrawing money from a fluctuating account in a down market!
Bear markets do come with some regularity and are perfectly normal. Investing is never an uninterrupted run to prosperity. You should both expect and be prepared for ups and downs.
Portfolios should be built in anticipation of volatility, not in reaction to it. That is why we continue to stress our Power of 5 Investing philosophy. We build a five-year volatility cushion into our Stability Bucket, thereby allowing retirees to get through the inevitable market declines they will face.
Start Taking Action!
With inflation on the rise, the idea of retirement can be a scary thing. Every investor needs to establish a strategy to ensure financial security at every phase of life. Securing five years of stability can be instrumental in giving you the peace of mind you need.
Our approach is rooted in our own experience of how people feel in good times and bad. The emotions surrounding money are powerful. You might intellectually understand what is happening in a downturn but still feel a churning in your gut — and those emotions cannot be ignored. The Stability and Growth Buckets are a disciplined approach to taking the emotion out of retirement investing.
Interesting in learning more about what it takes to employ an effective bucket investing strategy? Get a copy of Power of Five Investing today!