(PUB) Investing 2015

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A Bucket Portfolio for Fidelity Investors Portfolio Matters | Christine Benz

percentage and dollar terms—will vary depending on the retiree's income needs and total assets. For example, a retiree with a $1 million portfolio who's withdrawing just $30 , 000 a year from her portfolio would have only 6% ( $60 , 000 ) of her portfolio in cash (her $30 , 000 annual living expenses times two years).

My model "bucket" portfolios are composed of funds that our analysts consider best of breed. But they also assume that investors don't mind running hither and thither to put together their portfolios—a Vanguard fund here, a Harbor fund there, and a T. Rowe Price fund thrown in for good measure. But rather than assembling a portfolio of "onesies," many investors would prefer to deal with as few investment providers as possible. Here I’ve designed a portfolio for the one-stop shopper who prefers Fidelity. Bucket Basics Before we get into the specifics, let's review the basic concept of bucket retirement portfolios, pioneered by financial-planning guru Harold Evensky. The central premise is that the retiree holds a cash bucket alongside his or her long-term assets, both stocks and bonds. If the long-term components of the portfolio, especially stocks, hit a rough patch, the cash bucket ensures that the retiree has enough liquid assets to use for living expenses. That cash cushion helps ensure that the retiree doesn't have to sell any long-term assets when they're at a low ebb and also provides valuable peace of mind. But the cash also drags on performance in an upward-trending market, which is one reason that retirees should limit the cash bucket to one to two years' worth of living expenses, at most.

Bucket 2: Years 3–10 7% : Fidelity Short-Term Bond FSHBX 20% : Fidelity Total Bond FTBFX

10% : Fidelity Strategic Real Return FSRRX This portion of the portfolio steps out on the risk spectrum from bucket one. Fidelity Short-Term Bond, which is also a holding in my actively managed bucket portfolios, can serve as next-line reserves if Bucket 1 is depleted and the portfolio's longer-term stock and/or bond holdings are depressed. While it suffered a blowup in 2008 , its new managers have given it a risk-conscious makeover. Fidelity Total Bond, which has a Morningstar Analyst Rating of Gold, is the portfolio's largest fixed-income position. Senior analyst Sarah Bush lauds it for its flexibility, experienced management, and deep resources; Fidelity's corporate-credit team consists of 30 -plus analysts and other researchers. Meanwhile, Fidelity Strategic Real Return is in place to deliver one-stop inflation protection, including slugs of Treasury Inflation-Protected Securities, floating-rate loans, real estate investments, and commodity-linked notes. Recent performance has been tepid; with inflation low, demand for inflation-protective investments has been limited. But the goal is to put down inflation protection before it's actually apparent and the prices of inflation-protective instruments get bid up. I like that the fund eliminates the need for a lot of smaller holdings, including bank loans and commodities. Bucket 3: Years 11 and Beyond 20% : Fidelity Large Cap Stock FLCSX 10% : Fidelity Spartan Total Market Index FSTMX 15% : Fidelity International Discovery FIGRX 10% : Fidelity Strategic Income FSICX Primarily invested in stock funds, Bucket 3 is the growth engine of the portfolio. It's anchored by two large-cap domestic-equity funds, Silver-rated Fidelity Large Cap Stock and Gold-rated Fidelity Spartan Total Market Index. Senior analyst Katie Reichart

Aggressive Bucket Portfolio Anticipated Time Horizon: 25 or More Years

Bucket 1: Years 1–2 8% : Cash (certificates of deposit, money market accounts, and so forth; percentages will vary based on amount of assets and spending rate) The goal of this portion of the portfolio is to provide money for cash needs in years one and two of retirement. The size of this bucket—in both