Best Ideas

 Three Investment Buckets

A disciplined, long term investment strategy is the key to your financial success. Unfortunately, our daily lives do not always cooperate with this simple notion. We need money for all kinds of things in our lives, many of which crop up unexpectantly.

An easy way to ensure a successful strategy and to have the money you need when you need it, is to think of investing as filling three buckets: short term money, intermediate term money and long term money. The proper mix of these three buckets with periodic adjustments can keep you focused on success.

Short term bucket:

1. Time horizon is less than one year.

2. Includes money for budget items, debt payments and emergencies.

3. Money should always be safe and liquid.

4. Savings accounts, money funds, and short term bank certificates are appropriate.

5. You will sacrifice high returns for safety and liquidity.

Intermediate term bucket:

1. Time horizon of 2 - 5 years.

2. Includes money for home improvements, new car, vacations etc.

3. Money should be above average in safety, some risk for higher returns is okay.

4. Medium term bank certificates, bond and bond funds, some diversification into equities okay.

5. Some advance planning for withdrawals is necessary in return for the better returns.

Long term bucket:

1. Time horizon of 5 or more years.

2. Includes money for retirement, college education, charity and wealth accumulation.

3. Stocks, growth mutual funds, real estate, collectibles and precious metals okay.

4. Long term commitment and illiquidity are trade-offs for higher potential returns.

Your needs in each bucket will depend upon your specific circumstances. However, if you do it right, the odds are you will have the money you want when you need it. And isn't that what money is all about?