How to construct buckets for your retirement portfolio?
This article explains how retirees should allocate their investments between equity, debt and cash buckets for their post-retirement portfolio.
This article explains how retirees should allocate their investments between equity, debt and cash buckets for their post-retirement portfolio.
The concept of the 3-bucket retirement portfolio creates three risk-based asset pools or buckets out of the retirement portfolio:
In this article, we will discuss how retirees can split their assets between the three buckets based on the concepts of goal-based investing for retirement.
Join our WhatsApp community: You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.We will use the āMediumā risk profile and apply the allocation to each year in retirement. Once we do that, using the Arthgyaan goal-based investing calculator, we will arrive at the split of equity, debt and cash budgets. The theory of breaking down the expenses as per retirement years is explained here: How do you get SIP amount for retirement: Part 3.
We will make the following assumptions:
Running the model gives us the following chart:
We can read the chart like this:
Once the asset allocation is determined, you can choose investments in each bucket per this guide: How to plan for retirement using the bucket approach?
The process explained above is accurate as of today. A year later, you need to revisit the entire retirement portfolio since, in the X-Axis, you need to move one place to the left. In our example, the portfolio above, the passing of one year means 39 years are left. The asset allocation changes to a more conservative value of 45.75%, 47.13%, and 7.12%. The portfolio will need to be rebalanced by selling assets in the category which has excess and buying that category which has more to bring the allocation to the target figure.
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This post titled How to construct buckets for your retirement portfolio? first appeared on 08 Mar 2023 at https://arthgyaan.com