Indeed, today a nickel ain’t worth a dime anymore—but tomorrow it could be if you believe that markets are oversold as 220px-Yogi_Berra_1956the analysts do at Dorsey Wright and Associates.

Today the world and all baseball fans say goodbye to baseball’s great legend, Yogi Berra.  Berra’s humor and lightheartedness could teach us a few things given 2015’s stock market volatility.  What comes to mind is “you can observe a lot just by watching.” True.  Investors need to observe the ups and downs of this overdue hiccup and keep a healthy perspective of what is best for their portfolios.

Do you have a Plan–a strategic, written, financial plan that safeguards what you will need to spend or withdraw from your investments over the next 5 years?  A 5 Year Bucket™ is what makes it easier for investors to Liberate from the emotion that plagues most investors in expected market hiccups like what we are experiencing today—A 5 Year Bucket™ allows investors the freedom to “observe a lot” versus getting wrapped up in the emotion of stock market losses.

With 10% declines in the stock market occurring, on average, every year I think Yogi would offer, “its like deja vu all over again.”  Be seasoned, be Liberated, shake it off–If you had a 5 Year Bucket™, you would do just that.

What’s a 5 Year Bucket™?

  1. Take an inventory of your needs and goals over the next five years; monthly needs, income taxes, down payment for a home, the trip you are saving for in 2 years, etc.
  2. Separate that dollar amount from the rest of your portfolio in such a way that you can “see” it, track it and use it for moments like now when you need to build your investing confidence.
  3. Invest that separated account, or bucket, in cash and fixed income vehicles with low volatility.  Your needs over the next 6 months should be in cash, and the rest of your bucket should be staggered invested in low-mid range duration, low-mid range maturity bond exchange traded funds (ETFs) such as CSJ, TLH, IEF.

The benefit of a  5 Year Bucket™ is that market statistics will show you that of all 5-year rolling periods in the history of the S&P 500 going back to 1936, 82% of the time, you had the likelihood of losing value with your investments fully invested in stocks/S&P 500.  No one wants their short-term cash needs to lose money.

On a 10-year rolling period, however, 95% of the time, your portfolio MADE money.  The take-away; if you have a  5 Year Bucket™, and the remaining of your investments are down right now, you should have a very peaceful sense that those investments will not only rebound, but make money, if given time.

The  5 Year Bucket™ gives you the sigh of relief that you are taken care of for the next 5 years, thereby making it easier to shake off what noise may be going on in the markets, today.  After all, investor bad behavior—selling when they should be buying—is responsible for a majority of investors’ short-medium and long-term under performance.

Investor or Advisor bad behavior accounts for a tremendous percentage of under performance in investors portfolios, and hence the INABILITY for retirees to legitimately travel out of their zip code.
Don’t fall victim to “bad behavior” (also known as buying high and selling low), or as Yogi Berra would say, “don’t make too many wrong mistakes.”

Dalbar’s Quantitative Analysis of Investor Behavior (QAIB):

“…when looking at long-term returns, the average asset allocation investor has under performed both equity and fixed income indices. For the 5, 10 and 20-year time frames, the average asset allocation investor failed to keep up with inflation.  Investor bad behavior accounts for staggering investment under performance.”

The reason for the under performance is the shifting of investments without a plan or ground rules.

Make your nickels worth dimes with a  5 Year Bucket™. Smile when you observe by watching deja vu all over again with a 10% decline every year.  And above all, remember, “Ninety percent of this game is half mental.”  Rest In Peace, Yogi Berra May 12, 1925-September 22, 2015.