What Percentage of Your Net Worth Should be Invested? Our 3 Buckets Will Tell You

It’s a common question: What percentage of net worth should be invested for long-term growth and how much should be more conservative? Some investment management firms in Arizona will offer a complicated equation or produce a number you may not understand. But at Watts Gwilliam and Company, we turn to our 3 buckets!

Everyone’s situation is different, from their income and savings, to their dependents, their plans for retirement and their financial goals. So, when our team is asked the question above, there’s not one standard answer. Instead, we use the Watts Gwilliam buckets to help clients understand how much to invest in long-term growth and how much to invest in more conservative asset classes.

The 2 Phases of Investing

First, it’s important to understand the two phases of investing.

There’s your working years, when you can rely on a steady paycheck for your everyday needs and the goal of investing is typically growth. Then there’s retirement, when your traditional employment-income ends and the goal of investing is no longer just growth but also creating income to meet your spending needs.

In our experience as an investment management firm in Arizona, it’s this second phase (retirement) that’s the most complicated. This is the reason we’ve created the Watts Gwilliam buckets.

For a lot of retirees (and pre-retirees), the major concern is, where will my income come from in retirement? The next question is, how can I balance out the need for income with the desire for growth?

This is where the buckets come into play.

Have questions? Let’s talk! Schedule a no-sales conversation with the team at Watts Gwilliam and Company to see how we can help.

The Watts Gwilliam Buckets

If you’ve entered retirement, how do you manage your investments to make sure a “paycheck” is always available? Just as important, how do you get that paycheck while still allowing your money to grow at its maximum potential?

What we help clients do at Watts Gwilliam and Company is allocate their money appropriately.

• A percentage should go toward your short-term goals, those you hope to accomplish in a year or less (Cash Bucket)
• A percentage then goes toward your intermediate goals, those you hope to accomplish in one to seven years (Intermediate Bucket)
• The remainder is used to grow your portfolio (Growth Bucket)

This allocation provides clients with the confidence that they have enough money to maintain their lifestyle, they have the flexibility to pull from the market when times are good (or not, when they would be better off experiencing a full market cycle) and the ability to maximize the growth potential of their overall portfolio.

Not only is the purpose for each bucket different, but the goals vary as well.

• The cash bucket should include one year’s worth of expenses. The focus is on stability, not growth. It may have low returns, but the money is safe and liquid. This bucket is refilled with dividends and interest from the other buckets.

• The intermediate bucket should include two to seven years’ worth of expenses. Strategic investments will offer higher returns than in your short-term bucket.

• The growth bucket should include all other assets. This bucket invests in our highest conviction long-term growth ideas.

Decisions need to be made as to the amount to allocate to each bucket and, more importantly, how to invest the buckets. This can be difficult to do on your own. Which investments make sense for each bucket?

At Watts Gwilliam and Company, we use these buckets to give clients more control of their money. For example, if you’re allocated appropriately to each bucket and the growth investments drop, you can draw from the intermediate bucket and not have to sell stocks or other alternative investments to meet your short-term income needs. If growth assets are strong, you can utilize those assets to replenish the cash bucket.

How a Financial Advisor Can Help

As an investment management firm in Arizona, Watts Gwilliam and Company can help you:

• Review your situation to ensure that all your assets are included in your bucket strategy
• Properly allocate each bucket
• Stay on track as your bucket values change due to spending and market volatility.

There’s a lot to consider when it comes to investing, especially in retirement. For example:

• Have you considered all of your retirement income, including any rental properties, pensions, Social Security, retirement accounts, etc.?
• Have you maximized your returns appropriately in each bucket?
• What happens if you fall short?
• Will you know how to “refill” each bucket at the end of the year?
• What if retirement comes earlier than expected?

If you’re not sure about the answers to the above questions or don’t have the time, energy or interest in making sure you stay on track, lean on someone who does!

Investing may seem easy, fun, even exciting – especially at first! But making the right decisions consistently can be confusing, complex and have major effects on your future when done incorrectly.

At Watts Gwilliam and Company, our team of investment advisors can help you establish your buckets and then give you access to review your bucket amounts in real time via your personal online data room or mobile app. To learn more about how these buckets work, let’s talk! Schedule a no-sales conversation with our team to see how we can help.

Watts Gwilliam and Company is a fee-only, fiduciary financial advisory firm headquartered in Gilbert, Arizona that serves investors nationwide. Our firm was established to provide a conflict-free environment that’s dedicated to our clients’ success. We provide innovative investment and financial planning strategies to help you build wealth, generate income and secure your future. Our specialty is helping high net worth individuals whose financial lives are generally more complex.

If you’re already a client, check out your Personal Data Room, accessible at top right corner of our home page.