Q. What is your opinion of the so called “bucket” investment strategy for retirement in the TSP, with a “now,” “soon” and “later” allocation? The now being a three-year time frame in the G Fund for a safe flow of income, the soon 3-5 year in the L-Income that would be less conservative and the later maybe investing in the Lifecycle Fund corresponding to life expectancy for more aggressive growth? I realize the allocations would have to be updated regularly. With such a strategy, would it be best to make adjustments monthly, quarterly or annually?
A. You won’t find competent pension fund managers relying on the “bucket” strategy for portfolio management and neither should you. There are better ways to ensure acceptable outcomes, but that also require a fair amount of specialized skill in statistical and probability analysis. The “bucket” strategy, in its many variations, is a simple way of trying to create an asset allocation scheme for your portfolio. It’s better than randomly guessing, but you’ll still have to guess about the maximum safe standard of living that it will support. There is no inherently “best” rebalancing frequency. This frequency is part of an investment strategy – a variable – that should be tested to ensure that it is optimal to achieve your goals.