FYI: Hi, I'm Susan Dziubinski for Morningstar. Retirees using the Bucket system probably put a lot of thought in how they invest their long-term buckets, but the cash bucket, Bucket 1, may get less attention. Joining me to share some tips for getting the most out of bucket one is Christine Benz, our director of personal finance at Morningstar.
Regards,
Ted
https://www.morningstar.com/videos/921196/how-to-get-the-most-from-bucket-1.html
Comments
Thanks- OJ
This is Morningstar's convertibles funds list.
Numerous duplicates among fund families due to the "R" type for dedicated retirement accounts and some institutional that may not be available to us regular folks.
You can sort the return list with a click upon the "year".
Course, I don't know what you may have access to via Schwab. I've not used their web site for a long time; but wondering what they show for a search list or investment style list.
Being a Fidelity acct. I chose their similar fund to chart against The Franklin fund, which appears to have the edge over other similar funds for the past several years......
Chart here
If you find something available at Schwab, use this active chart and add a comma and the ticker and click GO. The time frame should remain the same if the new add has long enough time frame.
I have enclosed a link below that will take you to Morningstar's category of funds currently set for convertibles. You might search through it. Notice you can sort by 1 month, ytd, 1 year, 3 year and 5 year returns plus their tickers.
A good monthly distribution fund that I own that holds about a third in convertibles is AZNAX. It is open and pays a monthly distribution of $0.0775 which equals an annual distribution yield of better than 8%. You might check it out as well as it has good total returns. It is held in my hybrid income sleeve along with my convertible securities fund FISCX. Another fund held in this sleeve that genrates good income is my commodity strategy fund PCLAX with a TTM yield of better than 11%. And, yet another good income producer is my real estate income fund FRINX with a yied of about 4%. It has some convertibles and perferreds in it as well.
http://news.morningstar.com/fund-category-returns/convertibles/$FOCA$CV.aspx
During the fall, 2018 mini-melt, convertibles dropped about 11.5% versus about 20% for SPY..........the period for this measure is Sept. 20 - Dec. 24
K. Good evening.
http://performance.morningstar.com/fund/performance-return.action?t=FISCX®ion=usa&culture=en_US
You can open the performance tool from Morningstar's Fund Quote Report. Just locate the performance tab and then click to open the performance tool.
OJ
https://www.marketwatch.com/story/a-bond-etf-with-an-equity-feel-2019-03-29-1246451/print
The other part of that safety bucket I'd like to incorporate is that all dividends earned in my portfolio would continuously go into that safety-cash bucket. That would safely stretch out that 2-3 years need for replenishment even longer.
Good luck with your planning.
Derf
Proponents of the approach Dizubinski advocates often point to the duration (in month’s) of a bear market. However, a more accurate way to examine this is to look at the number of months from market peak to full recovery. Since the bull market always begins at the bottom of a bear market, the climb back up to the earlier high can be long. I suppose the proponents of the cash bucket approach intend to rely on the bucket during the full recovery period?
Just estimating here -
- Looks like it took about 10 years for the S&P to fully recover from its high reached in 1906 (Dividends / compounding aren’t included* / A world war transpired).
- About 25 years elapsed before full recovery from the 1929 S&P peak (A world war intervened).
- After the 1968 peak, nearly 20 years elapsed before all the S&P losses were recovered.
- The S&P partially recovered from the 2000 sell-off (in 7 years) by around 2007. Than the “big fall” we’re most familiar with occurred.
- From that interim high in 2007, the market recovered in just 5 years. To some extent, that rapid recovery may have taught us the wrong lesson.
- Full S&P recovery, however, from its 2000 high took something in the vacinity of 15 years.
Admittedly, the above analysis is at least partially flawed: *(1) It doesn’t account for compounded dividends paid investors along the way, (2) It assumes (suggests) that investors dipped into their cash bucket immediately after a significant decline from “peak” occurred and relied on it until full market recovery, (3) It fails to acknowledge most investors are diversified into domestic equities, international holdings and debt instruments in addition to the S&P. To this last point ... If you own an actively managed fund of just about any sort you’re automatically exposed to some fixed income (typically cash) held by the manager for liquidity purposes.
Here’s the source of the chart and some accompanying analysis:
https://www.advisorperspectives.com/dshort/updates/2019/04/01/a-perspective-on-secular-bull-and-bear-markets
Good topic.
Derf
I agree you need to stay invested, as you said, while the stock market is rising, but also I see advantages to be able to not pull from those equity funds in a bear, when you are cashing in on a loss. The equity drop is just on paper unless you have to withdraw low.
Good discussion. I enjoy this topic.
What I’d fear most with this approach would be that when my bucket had dropped below the “25% remaining” level (maybe 4 years after I began withdrawing from it), I’d panic and sell some securities at very depressed levels to add to that bucket (similar to noticing your gas tank is below quarter-full and not knowing how far away the next gas station is).
Those with good memories will remember that by the end of ‘08 almost everyone was expecting things to get even worse. Of course, 2 months later the recovery began.
@MikeM - Yes, you make good sense. By pulling from your cash bucket (as you explain it) you are in effect increasing your allocation to equities & other risk assets. Generally, that’s a smart thing to do in a falling market (but psychologically difficult).
@OldJoe - Yep. I sleep well too. Always something in the basket that increases in worth - even on the worst days - (but sometimes only the cash portion)
I mentioned the 50-40-10 mix in my earlier note, but that was just a random choice to present my point. Another good reason to hold that 2, 3 or 4 year safe-bucket, I think, is that the rest of the portfolio can be more aggressive since you have given yourself time to recover any market-drop loss.
@MikeM- Yes, that was the way I looked at things also. While working, our "cash bucket" was mostly insurance against a protracted job loss. Because that never occurred, the unused reserve could , in hindsight, be regarded as a lost opportunity for wealth increase. Depends entirely upon the comfort zone of each individual.
But, yes - Ol’Skeet has a very definitive concrete plan. That’s what one needs. I used to do that (add during declines). The hardest thing was knowing when to “hold fire” and when to begin committing the dry powder. Tough because when markets start to fall you don’t know how far or for how long.
BTW - John Templeton used to say - “It’s very rare” for a market to fall by more than 50% (peak to bottom) and remain there for long (but it is certainly possible). If I recall correctly he was alluding in particular to some of the emerging markets of the day. I’ve always taken that to heart. So, for a long term investor, when you come across a market you’d like to own that has sustained a 50% or greater loss from its peak it isn’t a bad time IMHO to stake out a hold. Doesn’t always work. Example - Oil peaked at over $100 in 2015 and than fell to as low as $26. However, today at $60-$70 it’s getting back nearer to its all time highs.
I found all of your comments of good value.
This has been a good discussion which I chose to step back from an observe until I felt that it was about to conclude. I'll say this about my all weather asset allocation its purpose is to provide sufficient income, maximizes diversification, minimizes volatility, and provides long-term returns. Thus far from running a back test of the portfolio it seems to accomplish these goals.
Should my portfolio begin to trail the Lipper Balanced Index by a reasonable amount (let's say 10 % to 15% range) then I plan to revisit my allocation and my needs to see if any adjustment might be wise. Just because it is this way now ... does not mean that it will always be this way.
One of the things I now plan to do after monitoring this discussion is to trim the amount of cash now held within my demand cash sleeve down to a sum equal to about one fourth of my portfolio's annual income generation. I'll most likely split position this sum between my Income and Growth & Income Areas as Hank made a good point about opportunity loss by not being more fully invested.
Old_Skeet
One other lucky thing --- we are all just insanely lucky to live in these long bull times --- is that this company Pimco has made it possible to invest in bond vehicles which offer much cashlike safety combined with much equitylike performance.
So I can divide my non-equity moneys among MINT, PONAX, and PCI, and over some patient periods the latter two do match or even outperform such stalwarts as JABAX and TWEIX. (This is why I have often posted that my 'balanced fund' is simply varying proportions of DSEEX and PONAX.)
+2
Derf