Bucket Strategy

The portfolio is divided by time horizon. The first holds one to two years of spending in cash, the second holds several more years in bonds, and the third holds equities for the years beyond that. Withdrawals come from the first, which is refilled from the second, which is refilled from the third.

The mechanism addresses sequence risk directly. Because near-term spending is already held in cash, a decline does not force equities to be sold at depressed prices, and the equity portion has years to recover before it is needed.

It is worth being precise about what this does and does not achieve. Analytically a bucket portfolio is a total portfolio with an asset allocation, and studies comparing it to a rebalanced portfolio of the same mix find little difference in outcomes. What differs is behavioral: it makes the allocation legible in terms of years covered, which is a different question from whether it improves returns.