Understanding the 3 Buckets: Cash, Income, and Growth

Bucket 1: Short-Term Needs (0–5 Years)

Bucket 1 focuses on capital preservation and liquidity, ensuring you have reliable funds available for immediate retirement expenses. This portion of your portfolio typically includes low-risk investments such as a money market ETF like SPDR Bloomberg 1-3 Month T-Bill ETF (BIL), or the iShares 0-3 Month Treasury Bond ETF (SGOV). A short-term bond fund like Vanguard Short-Term Bond Index Fund (VBISX), and a high-yield cash savings account. Together, these assets provide stability, modest income, and easy access to cash, helping cover the first 3–5 years of retirement while reducing exposure to market volatility. A typical allocation is around 30% of your total portfolio.

Bucket 2: Mid-Term Needs (5–15 Years)

Bucket 2 is designed to provide income and moderate growth for retirement expenses over the next 5 to 15 years. This portion of your portfolio can take on some market risk while still prioritizing stability. Investments often include a dividend-focused ETF like Vanguard Dividend Appreciation ETF (VIG), or Schwab US Dividend Equity ETF (SCHD). A balanced fund such as Fidelity Balanced Fund (FBALX), and a diversified bond fund like iShares Core U.S. Aggregate Bond ETF (AGG). These assets help generate consistent income while allowing for portfolio growth, making this bucket ideal for bridging the gap between short-term needs and long-term investments. A typical allocation is around 40% of your total portfolio.

Bucket 3: Long-Term Growth (15+ Years)

Bucket 3 focuses on long-term growth and wealth accumulation, helping your portfolio keep pace with inflation and support a longer retirement. Because of its extended time horizon, this bucket can tolerate more market volatility and is typically invested in equities. Common holdings include a broad market ETF like Vanguard Total Stock Market ETF (VTI), an international fund such as iShares MSCI, ACWI or U.S. ETF (ACWX), and a real estate ETF like Vanguard Real Estate ETF (VNQ). Together, these investments provide diversification and growth potential, ensuring your portfolio continues to expand over time. A typical allocation is around 30% of your total portfolio.

The 3-bucket strategy offers a balanced approach to retirement planning by dividing assets into short, mid, and long-term horizons. Each bucket plays a crucial role in managing risk, income, and growth potential. By carefully selecting investment vehicles like ETFs and mutual funds that align with your goals and risk tolerance, you can create a dynamic portfolio designed to provide financial security in retirement.

Consider periodically reviewing and rebalancing your buckets as you age and your financial situation changes. Consulting with a financial advisor can further tailor this strategy to your specific needs and ensure you stay on track for a successful retirement.