Don't Drain the Right Bucket at the Wrong Time!

Most investors have money set aside in different "buckets," with the money apportioned to various investments based upon specific goals and objectives combined with their stage in life.  The bucket concept is a long-term, tactical strategy and funds should be allocated accordingly.

Bucket Strategy 






For example, a young individual or couple that is 20 - 30 years from retirement may have their checking and savings accounts (emergency funds) for their short range goals bucket, which is completely separate of their retirement/401(k) investment allocation. Whereas, they may have a very modest amount of their 401(k) funds in intermediate range goals bucket 25% (long-term bond funds, asset allocation and income funds), and the majority of their money in the long range goals bucket 75% (U.S., international, emerging market funds, along with some specific stock sector funds like healthcare, technology, real estate, etc.). Retirement is many years away, and even though stock market volatility is unpleasant, the focus on accumulation/wealth building is the priority. Thus, the majority of their funds and contributions may be directed toward the long range goals bucket.

If that same individual or couple were either retired or facing retirement in say the next 7 years, their buckets may look completely different. For example, checking and savings accounts (emergency funds), along with money in their retirement funds, may be set aside for their short range goals bucket 10% - 20%. The intermediate range goals bucket may represent 30% - 40% (long-term bond funds, asset allocation and income funds), and their money in the long range goals bucket may represent 40% - 50% (U.S. , international, emerging market funds, along with some specific stock sector funds like healthcare, technology, real estate, etc.). During market downturns, the short range bucket would be more heavily drawn on to fund expenses. Then, during market run ups, gains could be harvested from intermediate and long range buckets, to replenish the short range bucket.

Both scenarios may appear quite reasonable and sensible; however, the following chart illustrates when this long-term strategy oftentimes is interrupted or abandoned at precisely the wrong time. 

The Cycle of Market Emotions








During bull runs in the stock market, some investors will question why they aren't being more aggressive and putting more money into stocks. The concern is they are lagging the market, missing out on gains, and they want to be more aggressive and request that money be moved out of the their short and intermediate range goals buckets and into the long range goals bucket.

Then, which ultimately happens, when the market begins to correct/decline, oftentimes the same investors will say things aren't going well and they need to stop the losses. At this point, they are requesting that money be moved out of stocks in their long range goals bucket and moved primarily to cash in their short range goals bucket. 

This is an excellent example of abandoning a long-term, common sense strategy for ill-timed, non-tactical movements of money, based upon whims of thrill and fear. In each case, the reallocation of funds is based upon the wrong emotion at the wrong time.

Liz Sonders, is Charles Schwab's chief investment strategist and her firm handles $2.5 trillion in investments. At a national ETF conference in Florida this week, Ms. Sonders stated that the likelihood of temporary corrections or pullbacks increases the longer a bull market persists. She went on to say that after the six-plus years run-up in stocks following the recovery from the financial crisis, a slide does not necessarily spell doom.

She said Schwab is "cautious" about markets currently and that the global economy has entered a "funky environment." She stated that it is her belief that panicky sellers will be sorry, and the following are a couple of items she laid out in a detailed case for why predictions of a coming crash are overblown.

  1. For one, the crude oil price decline recently reached an "extreme" near-$30 per barrel. She contended that low prices will eventually force supply cuts, giving the commodity some room to recover.
  2. A brutal start to the trading year and weaker U.S. economic data have many market watchers calling for continued pain in stocks — if not also a looming U.S. recession. She just made maybe the boldest call of all: belief in a continued bull market run and confidence that a recession isn't happening anytime soon.
  3. Sonders said that the turmoil this year likely marks a brief interruption to the bull market. "We probably have a ways to go before the next recession," said Sonders.


In life, timing is important. You can ask any realtor, and they’ll tell you that historically the spring – summer seasons are the best for selling your home. This is why for those wanting to get the most value when selling their home; they put it on the market in early spring. 

If a neighbor put their home up for sale in the dead of winter, would you do the same? Chances are NO. During the last housing crisis, did you put your home up for sale as you saw property values all around your neighborhood drop and your annual county real estate appraisal tank? No, of course not! As a matter of fact, when I ask individuals and couples this same question they tell me that it’d make no sense to sell their home during such a downturn, especially when they believe beyond any doubt that their home’s value will appreciate in the years ahead.

Selling a home is not an easy task. It takes time, effort, as well as finding another home or suitable dwelling. Just thinking about it tires me out. Thus, during a housing downturn, unless under financial duress (i.e., loss of job, career move, etc.), selling your home does not even come to mind. Actually, some homeowners will do the opposite during a housing downturn and look for bargains as a way to upgrade to a nicer home.

Ironically, the same cannot be said when it comes to one’s investments. During market downturns, some investors will second guess what has worked in the past. They believe that anything is better than what they are currently experiencing and, as a result, they need to move a large portion or all of their investments into cash or even lock them into low paying annuities (i.e., drain their long and intermediate range goals buckets into their short range goals buckets). In doing so, not only have they made temporary or paper losses into permanent losses, but have placed all their money in investments that have no ability to grow when things improve. Unfortunately, by making these moves one would have traded in all the long-term traditional and tactical investment benefits of the "bucket" strategy, to alleviate one's short-term fears.

If this downturn continues, there will be some investors who throw in the towel and pour all of their bucket into cash or something similar. In my experience over the last 28 + years, every time this occurs I know that we are that much closer to a market bottom and profitable days ahead. Until then, don't be dissuaded by the media noise, talking heads or those best interests not aligned with yours.  Keep thoughts of spring in your head and stay focused on your long range goals.


In investing, what is comfortable is rarely profitable."

                    Robert Arnott

"Every once in a while, the market does something so stupid it takes your breath away."       

                   Jim Cramer

Quotes selected by the IAG Staff

You must have long-range goals to keep you from being frustrated by short-range failures.”

                   Charles C. Noble

“Positive thinking won’t let you do anything, but it will let you do everything better than negative thinking will.”

                   Zig Ziglar


Tony Moeller, CPA

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.

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