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Investing Specialists

Bucket Investors Aren't Sweating Lower Yields

In our latest stress test, the strategy has delivered cash flows and held the portfolio's value steady.

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Yields declined sharply in 2020 as the Federal Reserve lowered interest rates in response to the pandemic. Though interest rates have jumped recently, in December 2020 the 10-year Treasury bond yield was stuck below 1%.

For total-return-minded retirees using a bucket strategy, however, watching already-meager interest rates head down even further is a nonevent. That's because trimming appreciated holdings, especially stocks, can provide cash flows for bucket investors even as income distributions slow to a trickle. In off years for rebalancing, a cash bucket can serve as a buffer, providing cash flows and staving off the need to withdraw from assets when they're down.

Christine Benz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.