How to implement Bucket Methodology
Maryland Annuity Resource offers Annuities, Fixed Annuities, Fixed Indexed Annuities, Immediate Annuities and Retirement Accounts in Maryland, Washington D.C. and Virginia. We believe that creating income buckets or investment buckets to ensure retirement income is paramount in any investment portfolio. There are many ways and methods to creating buckets of assets and we are going to cover a few.
Lets first define what Bucket Methodology is and how you can implement it in your investment strategy. It is a pretty simple idea of setting aside assets in different buckets with different terms or risk levels to maximize diversification of your portfolio. We are going to be covering products and investments that we do not offer but are used as examples only. All of the products we offer are based on Annuity investments with insurance companies because they do not have the potential for loss like other investments. As you have read several times on this website that when interest is credited to annuities, the gains are locked in and cannot go down. That would be an example of a platinum bucket.
We will always tell you to keep at least 6 months of cash or more for emergency expenses either due to accidents, disability, sudden job loss, or catastrophic events in your life where you need a chunk of cash to make it through a couple of months if needed. We would call this a cash bucket where you keep a certain amount of cash on hand either in paper form or gold coins, silver, or other types of metal that can be used for barter or purchases. It may sound a little extreme but go ahead and create that bucket and tell me how you feel once you have done it.
There are many choices out there for stocks that are just stocks, but there are also stocks that pay dividends so take a portion of your portfolio and play around with stocks. You will most likely lose money if you trade with your emotions so we do not advise creating this stock bucket with too much money to start with. The younger you are the easier it will be to recover from losses you may incur with stock purchases. However there are some long term stocks that do pay dividends and for the long term, you can increase your holdings and even recover from losses. You have to try it before you can actually know weather you like investing in stocks.
There are some bond choices out there that offer decent returns and we do suggest investing in bonds. However, they are not for everyone and most of the time, they are long term stable investments that most people really do not have the time or patience to deal with. If you do, we suggest adding a bond bucket to your portfolio and invest in municipal bonds, government bonds, and other less risky bonds.
If you are part of a 401(k) plan, you most likely own some mutual funds that part of you overall asset allocation within the plan. Mutual funds are risky investments and do not always give a positive return. Following the rule of 100 when you are young, you can have some of your assets within a mutual fund bucket to diversify your portfolio but as you get older, you need to move those to different assets. The key term is mutual, which means you own parts of companies with all of the other people out there. If there is a crisis, you would most likely be the last to know when selling which could result in huge losses.
If you have a term life insurance policy, that is great, but statistics show that 8 out of 10 term life policies go to term and expire. I know it serves a purpose but there are other ways to have better lifetime permanent insurance. Indexed Universal Life Insurance is a type of life policy that builds cash value while also insuring the life of the policy owner. We would consider this a life insurance bucket where you have access to tax free funds that can help supplement retirement income.
Investing in Gold could be an option for you if you have the ability to hold on to it for a while. American Bullion is our source for Gold and gold coins that we diversify our portfolio by owning gold. Like land, there is only so much gold here on earth and if and when the dollar collapses, gold could be a viable option for currency or even bartering. We would consider this your gold bucket but you can mix silver, copper, and any other precious metal but the bucket is going to be really heavy.
Fixed annuities are great because you know what the returns are going to be. You can use fixed annuities to ladder the terms and keep rolling over your assets over and over again. We use fixed annuities because CD rates have been so low for so long that it only seems like our viable option. We would consider this a very smart fixed annuity bucket where you consistently have access to your funds on a rolling basis improving the liquidity of your portfolio.
Fixed indexed annuities have two components so it is really like have two or three buckets inside one big bucket. The first would be the fixed account bucket, the second would be the indexed account bucket, and if you chose an income rider, that would be an additional bucket you could access for retirement income. We would consider this your fixed indexed annuity bucket that we encourage all investors young and old to consider.
When you get close to retirement, it is a wise choice to really consider an Immediate Annuity. Even if you have a large windfall of taxable income that you need to spread out over time to reduce the tax burden, immediate annuities can help. There are many options for immediate annuities and we would consider this part of your portfolio as your immediate annuity income bucket that will provide immediate retirement income for as long as you live. Turning all of your assets or even part of them into an immediate annuity could be a choice to consolidate and create an income stream for retirement.
We hope that this explains our concept of bucket methodology. You are basically diversifying your assets over many many investments to ensure that you will always have the liquidity, security, and peace of mind when it comes to your retirement income.
For more information about Bucket Methodology and its principles, click here.