Everybody keeps saying ‘save for retirement’- ‘invest for retirement’, but nobody ever cares to share the right way to invest for retirement! Today, we have decided to break that bubble as well. The only way your investment will be actually worthy once you retire is if it keeps growing while keeping up with the inflation rate, averting risks and funding your unique lifestyle. Secondly and more importantly, it must be able to last as long as you live.
So, how do you make sure that your investment will help you have the retirement you dream of? And enjoy life and relax just the way you want? The answer lies in two words- Bucket Strategy!
What is bucket strategy?
Bucket strategy is your ticket for easy retirement that includes balance, growth and stability. To elaborate, in this strategy, you divide your investments for retirement into different buckets according to risk tolerance, time horizon, needs and/or spending type. So, you invest some money in secured investments and some money with more risk.
The most common and easiest approach is to set up a bucket strategy for retirement based on risk tolerance and time horizon. Here you prepare 3 different buckets for 3-time horizons depending upon your risk tolerance and needs as you age:
- Initial Years of Retirement (1-5 years): This bucket is filled conservatively with low-risk investments that are enough to meet your spending requirements and desires during the first five years of retirement. This money should be invested in cash or other low or no risk investments like bonds because you would need it right away, not in the further future. It provides liquidity and stability.
- Middle Years (6-15 years): The second bucket is filled with a mix of instruments consisting moderate risk, such as fixed-income security. You can take small risk with this money as you require this money after some years and thus it has some time for correction; however, refrain from taking too much risk.
- Further Years of Retirement (After 15 years): Investment for the third bucket can be aggressive. It mostly contains equities and mutual funds, as this bucket is required after 15 years, and in the long run equity and mutual funds provide good returns. You can afford to take risk in this bucket because you have enough time to ride out any market volatility this investment faces. It is a good way to grow money; however, do not forget to diversify!
It is fairly easy to plan for the retirement with buckets as they give you a clear idea with time segmentation in terms of how to invest in different buckets and when to use which bucket. This makes money easily available and easy to manage once you have retired.
For any further clarifications or queries or help in making your own bucket strategy for retirement, get in touch with our customer care team at support@5nance.com or call us at our toll-free number 022-6713-6713.
