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52 | Old Naples News April 2023 et me tell you a secret: Money is a messy topic, even for those who you’d think have it all together. Our team recently worked through the most complex estate plan we've ever seen. Living trusts, generation-skipping trusts, charitable trusts, personal accounts, retirement accounts, insurance, inherited assets, partnerships, and shared property. A multitude of brokerage statements with no cohesive strategy. It was all one big ball of wealth that didn’t make sense and was costing the client a lot of money. Natural progression often goes as you work hard, you save prudently, and you accumulate financial stuff—investments, trusts, insurance, etc. Initially, everything is established for good reason and with good intent. But, after a while, it can all just add up to one big bundle of confusion, anxiety, fear, and, in some cases, shame. If this is you, know that you are not alone. One wealth planning strategy that we’ve been using to help clients gain clarity and feel protected is the idea of thinking in buckets as an investment strategy. A bucketing investment strategy balances the competing needs of growth and income in an unknown and uncertain future. It involves dividing a nest egg into three buckets—short-term, intermediate, and long-term—each with its own risk tolerance, tax efficiency, and purpose. Thinking in buckets can help: • Protect your wealth against unwanted, but inevitable, market volatility. • Create space for growth while still providing reliable cash flow. • Organize your wealth for greater clarity and confidence. Let’s look at the three buckets and provide some insights as to how our team is guiding clients to think about each in the current market environment. THE SHORT-TERM BUCKET – 0 TO 2 YEARS The short-term bucket is meant to provide cash flow and income today. Thanks to our friends at the Federal Reserve, one- and two-year Treasuries now yield 5.1% and 4.9%, respectively (As of March 2, 2023; Source: Bloomberg). While these rates aren’t life-changing, they can help provide stability and reliability to help you weather difficult markets and support your ongoing cash flow needs. Some examples of short-term bucket investments, depending on your financial situation, can include Treasuries, high-quality corporate bonds, and municipal bonds of fiscally responsible states and local governments. You’d be surprised how many people don’t know that their checking account still only pays interest rates that are near-zero, and well below what they could be receiving elsewhere. The Intermediate Bucket – 2 to 7 years This bucket’s primary objective is to find the right mix of stability and growth. Investing too conservatively here can potentially make it difficult to keep up with the current inflation rate, but investing too aggressively potentially creates unwanted volatility, possibly knocking you off track of your overall goals. There are many investment options in the intermediate bucket, which may include high-yield equity income stocks and real estate-focused investments. The income from this bucket can spill into the short-term bucket to keep it plentiful and liquid. Taxdeferred accounts, such as traditional IRAs, are preferred here, but taxable accounts can work as well. THE LONG-TERM BUCKET – 7 YEARS TO THE NEXT GENERATION The long-term bucket’s primary objective is growth, growth, and growth. With our previous two buckets providing stability and income, this is where we are willing to take higher risks with the goal of compounding wealth. In our opinion, the current bear market offers plentiful opportunities in quality growth stocks, small and mid-cap stocks, as well as international stocks. Some of our clients also hold private equity and venture capital investments, which we would consider to be a part of their long-term investment bucket. The optimal investment vehicle here would be taxexempt accounts, such as Roth IRAs Markets have changed dramatically over the past 18 months and many investors are feeling more uncertain about their financial future. The good news is change creates new opportunities. By thinking in buckets, you can create a wealth planning strategy that balances the competing needs of growth and income. With the right approach to investing and proper guidance, you’ll be well on your way to letting your money serve you, too. Wells Fargo Advisors did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC, a registered brokerdealer and non-bank affiliate of Wells Fargo & Company. 0223-04384 by ROB EDWARDS Managing Director – Investments Senior PIM® Portfolio Manager Edwards Group of Wells Fargo Advisors EdwardsGroupNaples.com L Thinking in Buckets Investment and Insurance Products: Not FDIC Insured / No Bank Guarantee / May Lose Value
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