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My model "bucket" portfolios are composed of funds
that our analysts consider best of breed. But they
also assume that investors don't mind running hither
and thither to put together their portfolios—a
Vanguard fund here, a Harbor fund there, and a T.
Rowe Price fund thrown in for good measure.
But rather than assembling a portfolio of "onesies,"
many investors would prefer to deal with as few
investment providers as possible. Here I’ve designed
a portfolio for the one-stop shopper who
prefers Fidelity.
Bucket Basics
Before we get into the specifics, let's review the
basic concept of bucket retirement portfolios,
pioneered by financial-planning guru Harold Evensky.
The central premise is that the retiree holds a cash
bucket alongside his or her long-term assets,
both stocks and bonds. If the long-term components
of the portfolio, especially stocks, hit a rough
patch, the cash bucket ensures that the retiree has
enough liquid assets to use for living expenses. That
cash cushion helps ensure that the retiree doesn't
have to sell any long-term assets when they're
at a low ebb and also provides valuable peace of
mind. But the cash also drags on performance
in an upward-trending market, which is one reason
that retirees should limit the cash bucket to
one to two years' worth of living expenses, at most.
Aggressive Bucket Portfolio
Anticipated Time Horizon: 25 or More Years
Bucket 1: Years 1–2
8%
: Cash (certificates of deposit, money market
accounts, and so forth; percentages will vary
based on amount of assets and spending rate)
The goal of this portion of the portfolio is to
provide money for cash needs in years one and two
of retirement. The size of this bucket—in both
percentage and dollar terms—will vary depending on
the retiree's income needs and total assets. For
example, a retiree with a
$1
million portfolio who's
withdrawing just
$30
,
000
a year from her portfolio
would have only
6%
(
$60
,
000
) of her portfolio in cash
(her
$30
,
000
annual living expenses times two years).
Bucket 2: Years 3–10
7%
:
Fidelity Short-Term Bond
FSHBX
20%
:
Fidelity Total Bond
FTBFX
10%
:
Fidelity Strategic Real Return
FSRRX
This portion of the portfolio steps out on the risk
spectrum from bucket one. Fidelity Short-Term Bond,
which is also a holding in my actively managed
bucket portfolios, can serve as next-line reserves if
Bucket
1
is depleted and the portfolio's longer-term
stock and/or bond holdings are depressed. While
it suffered a blowup in
2008
, its new managers have
given it a risk-conscious makeover. Fidelity Total
Bond, which has a Morningstar Analyst Rating of
Gold, is the portfolio's largest fixed-income
position. Senior analyst Sarah Bush lauds it for its
flexibility, experienced management, and deep
resources; Fidelity's corporate-credit team consists of
30
-plus analysts and other researchers. Meanwhile,
Fidelity Strategic Real Return is in place to deliver
one-stop inflation protection, including slugs of Treasury
Inflation-Protected Securities, floating-rate loans,
real estate investments, and commodity-linked notes.
Recent performance has been tepid; with inflation
low, demand for inflation-protective investments has
been limited. But the goal is to put down inflation
protection before it's actually apparent and the prices
of inflation-protective instruments get bid up. I like
that the fund eliminates the need for a lot of smaller
holdings, including bank loans and commodities.
Bucket 3: Years 11 and Beyond
20%
:
Fidelity Large Cap Stock
FLCSX
10%
:
Fidelity Spartan Total Market Index
FSTMX
15%
:
Fidelity International Discovery
FIGRX
10%
:
Fidelity Strategic Income
FSICX
Primarily invested in stock funds, Bucket
3
is the
growth engine of the portfolio. It's anchored by two
large-cap domestic-equity funds, Silver-rated Fidelity
Large Cap Stock and Gold-rated Fidelity Spartan
Total Market Index. Senior analyst Katie Reichart
A Bucket Portfolio for Fidelity Investors
Portfolio Matters
|
Christine Benz