Personal Finance July 25, 2016

    If you're putting money away regularly, you're already taking great strides toward meeting your financial goals. But did you know you can fine-tune your savings plan by using "buckets" for different goals?

    Many people are familiar with using buckets as a method for retirement income planning. It's a simple strategy for managing money over a multi-year period, and helps you to apply an appropriate asset allocation for money you will need in a few months, a few years, in 10 years or more. Here's how it generally works:

    • Bucket 1: This bucket typically holds one to two years' worth of living expenses, invested in traditionally more stable vehicles such as cash, certificates of deposit, money-market funds or short-term Treasury bonds. Putting money you plan to spend soon into liquid, generally low-volatility investments can help you avoid having to sell riskier investments, such as stock, in a down market to raise cash for living expenses. This bucket should be refilled annually.
    • Bucket 2: This typically holds money that you expect to need within three to 10 years, invested in intermediate-term assets with a focus on growth and capital preservation.
    • Bucket 3: This bucket typically holds money that you expect to need in 10 years or later, invested for growth and income.

    There are lots of other ways to use buckets, depending on your life stage. If you're in your 20s, consider one bucket for your emergency fund, another earmarked for a house down payment in a few years and a third invested for retirement.

    As you move through life, buckets can be used to save money for a child's college tuition, a new car or a once-in-a-lifetime vacation. Schwab Intelligent Portfolios® offers many types of accounts, including individual and joint brokerage accounts, custodial accounts, revocable living trusts and individual retirement accounts, including Roth, traditional and rollover IRAs.

    Even retirement accounts can be invested in multiple ways. For example, some investors have opened separate IRAs—one for their personal use, invested based on their risk tolerance and investing timeframe, and the other for their children to inherit, which may be invested more aggressively to suit a longer timeframe and higher risk tolerance.

    How Schwab Intelligent Portfolios Can Help

    Want to add buckets to your own portfolio strategy? You can have as many as 10 different types of Schwab Intelligent Portfolios accounts, each with a different strategy for a different goal. Answer a short series of questions using our Investor Profile Questionnaire, and Schwab Intelligent Portfolios can recommend a target allocation based on your goals for each account.

    This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Charles Schwab & Co., Inc. ("Schwab") recommends consultation with a qualified tax advisor, CPA, financial planner or investment manager.

    Investing involves risks including possible loss of principal.


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