What is a Blockchain and How Does it Work?

A blockchain is a digital ledger of all cryptocurrency transactions. It is constantly growing as “completed” blocks are added to it with a new set of recordings.

Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data.

Bitcoin nodes use the blockchain to differentiate legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.

Blocks are added to the blockchain in chronological order, and every node has a copy of the blockchain.

In order to alter any Unit of information on the blockchain, you would need more than half of the network’s computational power working together in unison.

This makes tampering with historical data practically impossible. For these reasons, blockchains are often described as being “immutable.”


How Does a Blockchain Work?

As mentioned earlier, a blockchain is a digital ledger of all cryptocurrency transactions.

However, the term “ledger” can be a bit misleading, as it implies that there is only one central copy of this digital record.

In reality, there is no central ledger; instead, the ledger is distributed across a network of computers, known as “nodes.”

Each node has a copy of the ledger, and each time a new transaction is made, it is recorded in all ledgers across the network.

This network of computers is what allows the blockchain to be so secure when you trade the currencies at platforms like Virtual Payout.

In order to change any information on the blockchain, one would need to hack into the majority of computers on the network – an almost impossible feat.

In addition to being secure, the blockchain is also transparent.

According to Virtual Payout, all transactions are recorded in the blockchain, and anyone can view these transactions at any time.

This allows for a high level of accountability, as all users can see what has been happening on the blockchain.

The combination of security and transparency makes the blockchain a highly appealing solution for a variety of different industries.

Investirex Cryptocurrency Broker – The Benefits and Drawbacks

If you’re looking for a comprehensive guide to an Investirex cryptocurrency broker, you’ve come to the right place.

In this article, we’ll explore the benefits and drawbacks of using Investirex so that you can make an informed decision about whether or not it’s the right platform for you.

Cryptocurrency Broker

Why Invest in Crypto?

Cryptocurrencies offer a high degree of security and privacy. Transactions are transparent and secure, and there is no need for a third party to verify or facilitate them.

In addition, cryptocurrencies are global and borderless, so they can be traded 24/7. Lastly, cryptocurrency prices are incredibly volatile, providing investors with the opportunity to earn high returns.

So, What Are the Benefits of Using Investirex?

One of the biggest advantages of using Investirex is that it offers a wide range of coins and tokens to trade.

This means that there’s something for everyone on the platform, whether you’re looking to invest in major cryptocurrencies like Bitcoin or Ethereum, or more niche altcoins.

Another big plus is that Investirex charges very low fees. In fact, it’s one of the most affordable brokers out there, which is great news for those of us who are looking to trade without breaking the bank.

What about the Drawbacks?

Well, one potential downside of using Investirex is that it doesn’t offer a mobile app. This means that if you want to trade on the go, you’ll need to use the desktop version of the platform.

However, this shouldn’t be too much of a problem as the website is optimized for mobile devices.

Another thing to bear in mind is that Investirex is a relatively new broker. This means that it doesn’t have the same level of experience as some of its more established rivals.

However, this isn’t necessarily a bad thing as it could mean that Investirex is more innovative and responsive to the needs of its users.

So, there you have it – a quick overview of the benefits and drawbacks of using Investirex.

Ultimately, whether or not the platform is right for you will come down to your individual needs and preferences. However, we hope that this article has given you some food for thought.


Wide range of trading products at Ualgo

When it comes to trading stocks, forex and cryptocurrencies there are so many reasons for giving your preference to the trading business.

But if you want to ensure that your business is developed profitably overtime then the most important thing for you to check in this is that you choose the best service provider only.

So many companies say so many things. They speak about their trading assets and platforms.

But even a small brokerage firm can offer you so many assets, but not all firms can give you a reliable trading platform.

When you talk about Ualgo, it really outshines here.


At Ualgo a trader can easily trade in foreign currencies globally. They can trade in the most lucrative currency pairs.

The homepage of the broker tabulates these pairs to show whose prices are going up and which pairs are going down.


It allows commodity trading. The homepage shows a graph which shows which commodity items are high in demand and can help you earn a good profit.

You can also get in touch with the experts on the site and get their guidance for effective trading.


Ualgo offers data and analysis of trading in stocks. It has successfully helped a lot of traders fill their pockets.

Indices: It facilitates Indices trading too for its traders.


The firm enlists some of the top cryptocurrencies available in the market.

All in all, it allows you to trade in the top products of the market under one roof.

It allows you to trade with confidence and without the fear of losing your funds.


As a trader, you need to consider a lot of things which choose a brokerage firm for you.

However, Ualgo takes your trading to another level with its services.

It offers a great trading platform, driver asset index, gigantic leverage, and social trading to its traders, helping them make the most out of their trading.

Silver Linings – Financial Planning Opportunities During the Coronavirus Turmoil

What a wild month it has been. The Dow Jones and S&P 500 peaked on February 19th and we have had the steepest correction in history over the past month. This correction has brought unprecedented volatility both up and down.

We experienced the largest single day drop in history on Monday. Last week was one of the most volatile weeks in history when we had two of the largest single day gains accompanied by three of the largest single day losses in the past 10 years.

While there is plenty to talk about when it comes to investments and markets, we also want to point out some opportunities the Coronavirus downturn has created for our clients. First, market downturns open the opportunity to do tax loss harvesting.

In Canada, if you had an allowable capital loss, you must apply it against your taxable capital gain for that year. If you still have a loss, it becomes a net capital loss for the year. You can use a net capital loss to reduce your taxable capital gain in any of the three preceding years or in any future year.

In the U.S., if a taxpayer’s capital losses are more than their capital gains, they can deduct the difference against other income on their tax return. This loss is limited to $3,000 per year for married couples filing jointly.

Tax loss harvesting refers to the practice of selling securities in a loss position to be able to use those losses against future gains, or against other income in the U.S. to reduce your future tax liability.

There are limitations to this as we must avoid the “wash sale rules”. We also manage investments according to the Investment Policy Statement that has been agreed upon with the client and we have to make sure that if we go out of model it is for a short period.

Second, both short-term and long-term interest rates have dropped to historic lows. Any client who has a mortgage in the U.S. should consider refinancing and locking in these low rates.

If you are currently working, we generally recommend our clients use a 15-year term as rates are considerably lower than 30-year rates.

Rates around 3% are currently available on 15-year fixed rate mortgages in the U.S. Rates between lenders can vary with the current volatility and as they try to manage the rush of applications they are receiving.

With rates this low, we recommend making the minimum payment only to take advantage of this cheap money for as long as possible.

Since we recommend making the minimum payment only, it makes sense to pay points to lock in the lowest rate possible. The breakeven for paying one point is usually between seven and eight years.

Refinancing is less common in Canada because most mortgages carry prepayment penalties. Canadian mortgages generally have terms of up to five years but are amortized for 25 or 30 years.

These mortgages have to be renewed at the end of the term and penalties apply if you pay it off early, such as a refinance. Refinancing is still possible but the difference in interest rate must be bigger to make up for the prepayment penalties.

Also, it is less appealing because the rate, if it is a fixed rate mortgage, is only locked in for up to five years. Consult your mortgage professional for current loan options, and make sure to get quotes from at least two lenders. Cardinal Point can provide referrals if necessary.

Third, current market conditions have caused the Canadian dollar to depreciate relative to the U.S. dollar. This means you get more Canadian dollars when converting from U.S. dollars.

Part of our mission is to help you reduce the amount of risk in your financial life. Ultimately, we recommend clients hold the currency they will need to support their lifestyle in the future.

Holding a currency other than what you need to live on creates additional risk that we would like to reduce when prudent. The current exchange rate according to the bank of Canada is 1.4496 which is considerably better than we have seen in recent history.

It is also approximately 18% better than the historical average exchange rate which is approximately 1.23.

One of the barriers we usually face when considering currency conversion is unrealized gains that will be realized when U.S. securities are liquidated to make the conversion.

Much of the unrealized gains that were previously in many people’s accounts have been reduced or eliminated with the current correction, making currency conversion transactions more appealing. U.S. retirement accounts such as IRAs cannot be held in any currency other than U.S. dollars.

It is best to leave those accounts intact to preserve the tax deferral for as long as possible, unless early distributions or Roth conversions make sense from a tax perspective.

Those who have taxable investments in U.S. dollars, but either live in Canada or will be moving there for retirement should consider converting some of their U.S. dollars to Canadian dollars soon.

We advise against selling after a major market correction, but this is one circumstance when it makes sense.

Lastly, the most basic principle of investing is “buy low, sell high”. Times like these can be scary and the idea of putting cash into the market after seeing such losses makes many people nervous.

That is part of the reason why you hire a financial advisor. Financial advisors analyze your situation objectively to provide you the best advice. One of the advantages of working with an advisor is they can help you take the emotions out of investing decisions.

Market research has shown that selling after a major market correction is the worst thing to do. The best approach is to maintain a long-term perspective, remember that security prices only matter when you are buying or selling, and remind yourself that capitalism works and the market will recover.

We don’t know how long that will take, which is why we don’t sell until you need the cash for living expenses or there are other financial planning considerations being made such as currency conversion.

We don’t know where the bottom of this correction is, but we know equity securities are much cheaper than they were a month ago, and they are much cheaper than they will be in the future.

Those with available cash or disposable income should consider purchasing equities while they are cheap.

Our investment team has done a good job communicating with our clients from an investment perspective.

Our financial planners and relationship managers are doing their best to be proactive reaching out to clients and making themselves available to clients who want to talk about their portfolio and markets. If you have not heard from your relationship manager yet, you will sometime this week.

Many people are concerned about how this will affect them long-term and their finances are weighing heavy on their mind.

Our staff is doing our best to point out financial planning and tax opportunities to our clients, but our time is limited. If you know one of these situations applies to you, please help us be proactive and reach out to your financial planner.

We want to take advantage of opportunities as they present themselves, but things can change quickly and we want to strike while the iron is hot.

We are here to provide advice and guidance, and we need to work as a team in such a quickly changing environment to make sure we take advantage of all opportunities available.

Should You Sell Your Annuity?

Old age and retirement are fearful of many persons. To remove this fear and make a happy old age government has introduced many schemes and policies. One such thing is the annuity.

In this, a person may get the income which he has invested many years before. So, this gives a hassle-free life.

Sell Your Annuity

There is also another option here in this annuity where the person can get the lump sum money as a whole in hands. It means annuity can be sold to another person or agent who can give back cash in hand.

There are plenty of reasons to the question of why to sell my annuity as this is one of the valuable assets for any person.

So, selling an annuity would be helpful to invest in a new business, start a new venture, other better-investing plans, etc.

If you want you can also invest or trade the cash in forex and cryptocurrencies where you can get multifold returns very soon. Sites like Neuer Capital can help you get started but make sure you check the Neuer Capital review to know how it works before joining them.

It may also help in settling down any loans, dues, pay off debts, etc. On the other hand, a person may sell his annuity on an idea of purchasing a new house, car, or any other thing.

Some people might ask how I would sell my annuity. Selling an annuity is not a difficult thing. There are many experts who would help in explaining the procedures involved in selling an annuity. The documents related to the annuity should be kept ready.

Quotes from various different places can be obtained and the best one can be chosen.

Even these things can be sent by envelope to the concerning authority. It takes hardly around 3 – 6 weeks for the payment to be settled if every document is clear.

There are many options for selling an annuity. If the person has not started receiving the payments, he can get more profit by selling the annuity.

Even if a person has started receiving the payments, he can sell an annuity. In this case, he may have to pay some fees for receiving the cash in hand.

Some people do not want to sell their annuity on whole; they also want to receive the monthly payment from the annuity.

Even in this case, it is possible to sell a part of their annuity. In any case, some work is required from the owner part for him to stay safe.

He should also proofread his papers before signing in to any of them.

What’s Driving Institutional Investors Towards Factor Investing?

Factor investing isn’t a new tactic. In fact, institutional investors have been employing factor research for decades. Many are already executing this investment strategy, whether they realize it or not. We believe, as institutional investors realize lower returns for most asset classes, their need for alpha will have many of them gravitating toward factor investing.

With this not-so-new tactic, investors can move away from active management fees—which are quite high—towards much lower-cost factor – indexed strategies. New technology and a broad range of analytical tools have made it easier to analyze a wide range of factors. This helps investors understand how factors work within their portfolios.

Factor Investing

Factor investing goes beyond smart beta strategies by measuring both performance sources and existing portfolio risks. This enables a hybrid solution of both active and passive management and also allows for ETFs that specifically concentrate on both of these attributes, that we believe will result in a better target asset allocation.

We believe that Factor investing gives most investors a competitive edge within the portfolios they construct. It also means better liquidity and lower fees—attributes that become more important in low-return environments. Unsurprisingly, a recent survey showed that institutional investors plan to increase their factor allocations from 12% to 18% over the next five years[1].

Ultimately, investors want to maximize their risk-adjusted returns. After the 2008 financial crisis, which revealed how various underlying factors could negatively impact unrelated assets, investors in our opinion, want full transparency while getting the most out of the equity asset class.

Is factor investing the “holy grail” of investing strategies? It’s still hard to say. But this tactic has the potential to deliver a return that’s much less cyclical than the returns on most passive strategies. Factor investing uses a systematic method to maximize the return of available assets at a much lower cost and over a longer period. It’s clear why institutional investors are giving this approach more attention.

This kind of factor-based strategy isn’t only being applied to equity investments. Companies around the world are developing transparent solutions that are rule-based for other asset classes, including fixed-income. We believe this shows that factor-based investments and strategies seem to be a good business decision all around.

In the past, active managers charged an arm and a leg for factor investing. The need to process research and calculations manually made data analysis far too time-consuming. Things are different now, as new innovative apps and tools have made data analysis cheaper and more accessible. These tools also make for better informed, smarter investors. The market for analytical tools is very competitive, with new apps and SAAS software sprouting up in digital marketplaces daily.

Some investors theorize that the more factor investment strategies are used, the harder it will be to get a return. The factor-based investment market is approaching the $500 billion mark, leaving many worried about market saturation. However, the money in this pool is not ‘new money’ as much as it is ‘existing money’ that’s been repurposed more systematically. This means market saturation might not be an issue for a while.

There are various methods of incorporating factor investing in a portfolio. A common factor strategy utilized today involves allocating as much as 30% or more of core equity allocation—and investing it on factors such as momentum, value, and quality. As more data and analysis have become available on the market, investing has grown more strategic. This allows for a more sophisticated approach where the impact of factor-based investing is noticeable across whole portfolios while still maintaining transparency for the investor.

Some things worth noticing in factor investing include trading, capacity, how to handle liquidity, and how performance should be measured. Advisors and institutional investors have the goal of building portfolios that meet a specific need for their clients or themselves. Whether they’re looking for aggressive or passive, low volatility or high returns, they should consider factor investing at some point when constructing a portfolio. So, what would that look like?

There are two different types of factor-based investments: Single-factor investments and multi-factor investments. Investors should consider which of these strategies makes the most sense for them to use based on several variables.

Single-factor Investments

Single-factor investments track, follow, or aim for a single factor such as momentum, whereas multi-factor approaches combine several factors.

Single-factor investments are more straightforward than multi-factor investments. Since they are much easier to create and to operate, the investor can continually change their investments/positions to achieve the desired exposure. Unfortunately, this also allows for investments to underperform if the wrong factor is chosen or the timing is wrong. Thus, single-factor investments are better utilized by long-term investors or those with firm convictions about a specific factor.

Multi-factor Investments

With multi-factor investments, investors are offered a broader range of benefits. This makes multi-factor investments more attractive but through a more complicated process. If an investor is considering multi-factor strategies, they should consider each factor they plan to invest in and construct that factor individually.

The decision to use simple patterns or more complex ones is ultimately up to the investor. While a simple pattern makes it easier to explain benchmark differences, a more complex portfolio may achieve better results. The potential choices and outcomes in factor investing suggest that spending time on selecting the right factors and creating the most efficient portfolio constructions can significantly impact the overall performance of an investor’s factor investment(s).

Tips for Saving Like A Pro

The investment needs of two individuals are never identical and as such investors should never follow the investment needs of others blindly.

To earn lucrative returns, it would be better to consult a professional for investing and saving like a pro.

Tips for Saving

Most clients will tell you that a financial expert or an advisor will personally evaluate your individual profile and income-earning capacity while giving you a patient hearing.

Based on various reviews and ideas given by experts here are three tips for you…

Tax planning

Certain deductions are allowable like for payment of insurance premium, repayment of the loan, investment in tax-free bonds, infrastructure bonds, contribution to a charitable institution and investment in ELSS (equity-linked saving scheme), etc.

In order to save a huge tax burden, investors plan to allocate funds in these avenues. If you can, you will easily save good money every year.

Market watch

According to XTRgate review commodities trading, currency trading, and trading of derivative instruments like futures, options, and swaps are on the upswing.

Arbitrageurs take advantage of the differential pricing in the different markets of the world.

It is the speculators and the arbitrageurs that play a good game, whereas the innocent investors are guided by the brokers, stock broking houses, market analysts, or financial advisors.

It’s therefore essential that you gain good information and choose wisely about the assets you want to trade-in.

Selection of the financial instrument

Picking up equity stocks or bonds/debentures would depend upon the expected return and the beta of the stock.

Usually, high beta stocks are considered aggressive securities, and low beta stocks are defensive securities.

Thus, speculators hedge against the risk. Equity research reports can also help in a big way in the stock selection process.

The interest on bonds/debentures is also a motivating factor, as the bond yield varies with the maturity period.

Tips for Investing in a Most Logical Way

An individual is surmounted with several options in life, be it with regard to Career planning, Personal affairs, Travelling, Budgeting, Financial planning to avail tax benefits, or Investing.

Amidst several alternatives, an investor looks for maximization of benefits by reviewing the pros and cons of every option especially focusing on the aspect of negative and positive returns.

However, he may pursue the following measures to have a more logical approach.

Determinations of the risk-return profile

The risk perception of an investor varies. A risk-averse investor avoids risk and hence is satisfied with a low rate of return whereas a risk lover assumes a high level of risk and expects a high return.

Aggressive investors dare to take a chance of putting their resources in the stock market and act strategically working on the buy, hold, and sell options during the bullish and bearish phase of the market.

Conservative investors are skeptical about investing in the market as it is prone to volatility.

They seldom take such risky ventures and prefer to be on the safe side. Which means they usually prefer to put their savings in fixed-income investments like fixed deposits.

However, the thing to note here is you should involve in a more strategic approach by investing a part of your portfolio in some risky options like stocks, forex, or cryptocurrencies.

According to Gtlot review, it is very easy to get started and earn handsome amount of returns once you gain the knowledge.

Overall, portfolio management is an art into which the fund managers of the Asset management companies are critically involved. If you want you can also take the help of these companies and managers who can make your investment returns better.

It is all about strategy for diversification of risk by spreading the risk over a number of assets like investing in debt funds, equity funds, hedge funds, or choosing the systematic investment plan or corporate bonds and equities or derivatives trading.

Investing in Smart Beta

Interest in “smart beta”, or “strategic beta,” has grown rapidly in popularity over the past decade.  This interest has led fund companies to introduce hundreds of smart beta funds, giving investors a wide range of options for integrating the smart beta concept into their portfolios.

As with any investment, though, investors should have an understanding of what smart beta is and how it works before determining if smart beta can help them achieve their investments goals.


Smart beta is based on the more comprehensive factor investment strategy, which has its roots in the discovery of various attributes, or factors, of stocks that help explain their returns.

The first factor identified was the well known CAPM Beta.  Developed by Willian Sharpe in the 1960s, CAPM is an equation that calculates the expected return of an equity based on a measure of risk called Beta.

Re  =  βe  x  ( Rm – Rf  )  +  Rf


Re is the expected return of the stock in question

Β is the Beta of the stock in question

Rm is the return of the market

Rf is the risk free rate of return

In CAPM, the higher the Beta, the greater the return of the security.  And since Beta is a measure of the risk of a security compared to the risk of the market as a whole, CAPM can be distilled to “higher risk, higher return.”  The first factor, then, is risk as measured by Beta.

A number of other factors have since been identified.  In the 1990s, Eugene Fama and Kenneth French developed the Fama-French Three Factor Model.

This model identified value and size as new factors along with Sharpe’s Beta and was the result of research which showed that small companies (size factor) and companies with lower valuations compared to those of their peers (value) tended to outperform over time.

Other asset pricing models using these and newer factors, such as the momentum and quality factors, have been developed since then.

There are now hundreds of funds that target these factors.  Most will target one individual factor, but other may take a multi-factor approach.  They all allow investors to target specific segments of the market which have outperformed historically without investing in expensive, actively managed funds.

This is not to say that investors should just blindly invest in smart beta funds.  Investors should do their research to understand the risks involved and should be mindful of their investment goals before adding these funds to their portfolios.

With the rapid growth of the smart beta segment, it is easy to find differences in factor definitions between funds.  For instance, some funds may have a higher valuation threshold for size than others, so two size targeted funds may have different makeups, even if the stock universe that they pull from is the same.

Sometimes terms can be different between funds, with momentum occasionally called “trend,” and “quality” and “profitability” being interchangeable in some cases, but not in others.

In addition, newer, less well-known factors may have much less research behind, them and some of the more established factors may have actually underperformed in recent periods.

Understanding exactly what you are investing in is as important as ever with smart beta funds.  Take the time to know both the factor and its history and how the fund uses that factor before making an investment.

Smart beta funds are generally considered passively managed funds, but while index-based fund holdings are according to market weight, smart beta funds are a bit more complex.

Weighting is done to target factors, and some funds will use screens to filter out more than just their factors screens would allow.  Each fund develops its own set of rules to determine how to best target a certain factor.

Comparing smart beta funds to a benchmark can be difficult as well, as they tend to pull from all areas of the market when targeting a specific factor.  Performance will likely vary widely from common market benchmarks such as the S&P 500.

Diversification can also be an issue when investing in smart beta funds.  Despite data showing long term outperformance, individual factors can go though years long periods of underperformance.  Targeting just one factor in a portfolio can decrease diversification, increasing risk unnecessarily and adversely affect returns if that factor’s performance falters.

In addition, targeting some factors can leave you overexposed to certain market segments.  The low volatility factor, for instance, can overweight the utility sector.  If you’re already invested in that sector through other strategies, targeting the low volatility factor can increase risk in your portfolio.

As with asset class strategies, returns from smart beta tends to be driven by returns from a few well performing companies.  Its important to ensure that your smart beta investments are well diversified within an asset class as well as across asset classes to avoid missing out on returns from that handful of companies.

Don’t forget to pay attention to the cost of your investment.  Because smart beta focuses on easily definable metrics, smart beta funds are generally fairly inexpensive, but they are not as cheap as index funds.

Furthermore, turnover in a smart beta fund may be higher, especially with a shorter-term factor such as momentum.  Higher expenses can quickly eat up any outsized returns a fund generates, so it is critical to be aware of how much these funds cost to invest in.

Finally, don’t lose sight of your investment goals.  When a hot new strategy comes along, its easy to be tempted to go all in chasing returns and expose your portfolio to unnecessary risk and expense.

Take the time to evaluate the smart beta strategy and understand how integrating it into your portfolio will align with your financial plan and help you achieve your investment objectives.

The Bucket Approach to Retirement Investing

Forty years ago, many retirees could rely on pension income from a previous employer to cover most of their financial needs – with supplemental income coming from Social Security and personal savings. Back then, government bonds were yielding 10%, which mitigated the need to invest in riskier assets, such as equities. Those days are long gone.

Traditional Capital Allocation

There are two primary schools of thought when it comes to retirement investing: the total return approach and the bucket approach. The total return approach is the traditional strategy, with assets invested in a diversified portfolio. During the accumulation phase, the investor’s primary objective is capital appreciation. As he nears retirement, funds are shifted from equities to fixed income in order to reduce market risk. Once the client retires, assets are typically drawn down evenly from the entire portfolio.

The Bucket Approach

The bucket approach follows the total return approach throughout most of the accumulation period. However, once the client is about three years away from retirement, his assets are divided among several portfolios (or buckets) with differing time horizons, asset allocations, and objectives. The advantage of this approach lies in its simplicity. Dividing assets into smaller, more manageable pieces is less overwhelming than lumping everything together into a single account.

Today’s retirement portfolios typically have three requirements: capital preservation (cash), income (bonds), and growth (stocks). The bucket approach is well-suited to these objectives, with each bucket serving a unique purpose. The first bucket is conservatively designed to produce income while preserving capital over a short time period, and the second bucket takes on more risk in order to provide a higher income during retirement. The third bucket is the riskiest of all, with substantial long-term capital gains as the investment goal.

Due to an investment environment with historically low interest rates, these are particularly challenging times for investors looking for a dependable retirement income. With money market accounts and short-term bonds offering practically nonexistent yields, retirees are faced with a difficult decision. They must either delay their retirement, reduce their standards of living, save more, or take on greater investment risks.

The bucket strategy was developed as a way of dealing with these problems. It maintains a stable pool of assets—sufficient to cover two years’ worth of living expenses—and a diversified basket of investments geared toward long-term growth. In other words, you segment your total portfolio by your anticipated investment time horizon. Funds required to cover short-term living expenses remain in cash, regardless of yield. Assets that won’t be needed for at least a couple of years are invested in a diversified pool of long-term holdings in pursuit of higher returns.

Bucket 1

Your first bucket is designed to provide immediate income and cash for emergencies. It contains sufficient funds to cover the first two years of retirement. To determine the amount of money you’ll need in bucket 1, start with your anticipated annual spending. Subtract any other sources of guaranteed income, such as pension payments or Social Security. The remaining amount is the annual income that bucket 1 must provide. Conservative investors may wish to include an extra cushion for unexpected expenses. Appropriate bucket 1 investments are stable, very conservative, and liquid in nature.

Bucket 2

Funds invested in bucket 2 are waiting to be tapped for income when bucket 1 is depleted. This intermediate bucket contains sufficient assets to cover living expenses for retirement years three through 10. Investments in this bucket tend to be higher risk than those found in bucket 1, since there’s more time to ride out market swings. Funds are typically invested in quality fixed income assets—such as corporate and government bonds—with an eight-year time horizon. A small portion of this portfolio may be invested in dividend-paying equities and other higher-yielding securities such as master limited partnerships. Conservative or balanced mutual funds are also appropriate bucket 2 investments.

While it’s possible to spend the income from bucket 2 directly, it’s generally better to use these proceeds to refill bucket 1 instead. The yield from these investments can flow directly into bucket 1, replenishing it automatically throughout the year.

Bucket 3

Bucket 3, which covers years 11 and beyond, represents the long-term, high-volatility, high-return portion of your portfolio. This bucket has the highest risk profile of them all, since it has the longest time horizon and the best chance of recovering from a market downturn. It’s invested in equities and higher-risk bonds—such as junk bonds—with a primary focus on capital appreciation. This portfolio has the potential to deliver the best long-term performance, but it also has greater risk of permanent loss of capital than do buckets 1 and 2. The first two buckets exist to prevent you from needing to dip into bucket 3 when markets are down, and these assets show paper losses. When your short-term living expenses are safely tucked away in bucket 1, you can psychologically endure the volatility that comes with bucket 3.

Bucket Management

The bucket strategy is simple in principle, but managing this plan becomes more complicated when bucket 1 runs dry. You should add assets to bucket 1 as cash gets spent down, and there are different ways of doing this. This process works for many investors:

The retiree reinvests all income, dividends, and capital gains back into his holdings. He refills bucket 1 by rebalancing the other buckets – periodically selling holdings that have performed the best to bring the total portfolio’s asset class exposures back in line with asset allocation targets. Using this strategy, the investor sells appreciated assets on a regular basis, while leaving the underperforming assets in place.

Cash meets immediate income needs and preserves capital, bonds satisfy intermediate cash flow needs, and stocks provide growth. By linking asset buckets to specific time horizons and income goals—and investing in the appropriate vehicles—the bucket approach can potentially generate a more reliable retirement income.