60/40 vs. Buckets During The Lost Decade

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Earlier this month, my article The 60/40 Portfolio vs. The Bucket Strategy compared the two approaches since my retirement and generated a LOT of discussion.  The Bucket Strategy outperformed by $241k, but was that an anomaly, driven by the abnormally strong market returns? 

To answer that question, and at the request of many readers, I’m doing the same comparison through The Lost Decade of 2000 – 2010, a decade-long period of poor market returns.  As requested, I’ve also added a 65/35 Portfolio into the comparison.

The rules will be the same as in the original post:

  • Portfolio at Retirement:  $1.5 M
  • Safe Withdrawal Rate:  3.3% ($50k/yr withdrawn from portfolio in Year 1)
  • Spending increases each year in line with CPI (from $50k in 2000 to $63k in 2010)
  • Annual rebalancing per each strategy’s methodology

How did the market’s poor performance impact the results? How badly did the portfolios get impacted?

To find out…read on.

During The Lost Decade of 2000 - 2010, which performed better: The Bucket Strategy or The 60/40 Portfolio? Today, we answer that question. Share on X

60/40 vs. Buckets During The Lost Decade

The Lost Decade was a brutal decade for stocks. Unlike our first comparison (2018 – 2025), market performance was ugly during the 2000’s, as shown below:

Regardless of the strategy used, all portfolios ended below their starting positions, though all remained above $1.2 million by the end of the decade (down from their $1.5 million starting position).

The opening positions are shown below.   As before, the Bucket Strategy allocation is determined by “Years of Spending.”  The cash in Bucket 1 is based on 3 years of spending @ $50k = $150k. The bonds in Bucket 2 represent 8 years of spending @ $50k = $400k. Note the addition of the 65/35 Portfolio (with cash at 5% instead of 10%). 

We’ll assume the following rebalancing methodology, consistent with our original comparison:

  • The 40% portion of the 60/40 Portfolio is consistently rebalanced to 10% cash and 30% bonds.
  • The 35% portion of the 65/35 Portfolio is consistently rebalanced to 5% cash and 30% bonds.
  • For rebalancing the buckets, we’ll aim to achieve 3 years of Cash and 8 Years of Bonds, as outlined in How To Refill Your Buckets in Retirement.   Buckets 1 & 2 can be drawn down if markets underperform.

Each year has been modeled in detail and is available in the Appendix at the bottom of today’s post.  Below is 2001 for both the Bucket Strategy and the 60/40 portfolio as an example of the methodology:

In 2001, only $11k was rebalanced from bonds to cash for The Bucket Strategy, reflecting the amount by which the bond return exceeded the target.  Since stocks declined 12% in 2001, no stocks were sold to refill the cash position.

By comparison, the 60/40 portfolio rebalanced $61k from bonds, allocating it to both cash and stocks to restore the prescribed asset allocation.

Buying the dip, indeed.

And The Winner Is….

As a quick reminder, the Bucket Strategy won the first head-to-head with an outperformance of $241,098 from 2018 to 2025.  The 60/40 was seeking revenge and found it, though by a smaller margin.

The 60/40 outperformed the Bucket Strategy by $94,636 from 2000 to 2010.

The 65/35 landed in the middle, $27,610 worse than the 60/40, but $67,026 better than the Bucket Strategy.  Annual results are shown below:

For you chart lovers, here’s the same data presented graphically:

It’s interesting to see the Bucket Strategy regained a brief lead as late as 2008 (stocks were down 36.6% that year, and the Bucket Strategy had a lower allocation to stocks at that time).  However, with the 60/40’s higher allocation to stocks, it regained the lead during the good years of 2009 and 2010 (with stock returns of +25.9% and 14.8%, respectively).

Asset Allocation

Whereas the Bucket Strategy benefited from a rising glide path in the original comparison (with stocks ending at 73% of the portfolio as the portfolio grew to $2.6 million), the reverse happened during the lost decade (when the overall portfolio declined to $1.3 million).   With the priority being to preserve cash and bonds at 3- and 8- year spending levels, the portfolio decline impacted the stock allocation, resulting in a 44% stock allocation at the end of the decade.   

As the chart below shows, the Bucket Strategy did maintain a higher “safety buffer”, with the buffer never declining below 10 years in Cash and Bonds.  On the contrary, the 60/40 declined to a low of 7.6 years, and the 65/35 dropped as low as 6.4 years.

In essence, the 60/40 approach diverts cash/bonds into equities regardless of how many years of protection remain.  On the contrary, the Bucket Strategy prioritizes the protection of the “years of spending” target in Buckets 1 (cash) and 2 (bonds).  In theory, reducing the “buffer” late in a Bear cycle is wise, since it allows those funds to be diverted to discounted stocks.  In reality, you have to make sure you have the fortitude to stomach the smaller buffer timeframe in the middle of a Bear Market.

Ultimately, it comes down to your personal risk tolerance. 

A Reader Jumps In This Time

I’ve got to give credit to Justin, a reader of this blog.  In response to my original post, where I proposed doing this Lost Decade comparison, he took the initiative to do his own comparison.  As you’d expect, our 60/40 figures were aligned, but I was curious how his Bucket Strategy would compare.  Given the more subjective nature of rebalancing to protect Buckets 1 and 2, how different would his numbers be from mine?  

The answer:  They were amazingly close, with his ending value being only $19,819 different than mine.  Given that we both did independent rebalancing over a full decade, I was pleased with how closely we aligned.  The same conclusions can be drawn from both of our analyses, and the conclusion is this: 

Conclusion:  The Winner Depends on Market Direction

After having spent more hours than I care to admit on these two comparisons, my conclusion is that the Bucket Strategy outperforms in a rising market, and the 60/40 outperforms in a weak market.  That makes sense, given the Rising Equity glidepath experienced by the Bucket Strategy in a rising market, and the declining allocation to stocks in a down market. 

Regarding “Buying The Dip,” I was surprised to find the Bucket Strategy actually did buy the dip twice (2000 and 2008, both good years for Bond returns).  The 60/40 bought the dip four times (2000, 2001, 2002 and 2008, all of which were good years for Bonds). 

Ultimately, either of the two strategies is a sound approach to building your retirement paycheck, but you shouldn’t restrict your options to only these two approaches.  For a good overview of some other options, read the following Morningstar articles:

Do your research, pick the one that most resonates with you, and get on with living life.

Isn’t that what retirement is all about?

Your Turn:  What are your thoughts about the two comparisons (2018 – 25 and The Lost Decade). Were they helpful in better understanding the differences between the two strategies?  Let’s chat in the comments.

PS: For those new to my blog, the following are links to all of the articles I’ve written about the Bucket Strategy:

The Bucket Strategy Series:

Appendix – Annual Data

The Bucket Strategy:

The 60/40 and 65/35 Portfolio:

25 comments

  1. Great amount of work in this one, huh Fritz?! Data coming in TB, not MB. Ha. Good job, as always!

    I have a question for readers. If you have crunched your numbers and are already retired and pretty set in your annual spending….well, could you not just buy annuities for both you and your spouse to cover all essential expenses….then invest in equities, up to 100%, if you feel inclined? No risk in market is too great, as long as you are 100% confident in expense predictions. What do you educated investors think? I am assuming that the costs of an SPIA is not an issue. Simplification in your finances will be a facet you will appreciate as cognitive abilities do NOT improve with age.

    Blessings to all, Steve

    1. The SPIA will not be inflation adjusted which could be a major problem with a 30 year retirement. In a bear market with equities losing up to 50% of their value, even knowing your daily essentials are covered may not keep you for losing sleep as you watch your portfolio cut in half. It;s not a terrible plan, but I think there are many better ones.

      Best to you,

      Dan

      1. You can easily buy SPIA’s with inflation adjustments up to 3%/yr from many providers. Just check out immediate annuities website if you want to see real numbers.

    2. “If you have crunched your numbers and are already retired and pretty set in your annual spending….well, could you not just buy annuities for both you and your spouse to cover all essential expenses….then invest in equities, up to 100%.”

      I did a variation of this plan a few years ago as my husband and I were heading into our mid-60s and retirement EXCEPT we self-annuitized for 20 years by creating a TIPS ladder, which solved better for inflation and my desire to control assets (the ladder sits in his and my IRAs). I figured our annual spending would stay roughly the same in retirement and planned that the TIPS ladder we funded, along with Social Security (both of which have some inflation protection), would cover our annual spending for 20 years, while the rest of our savings could bob around in broad U.S. and int’l ETFs for those 20 years. The TIPS ladder ends at age 86 and then the ETF money would start getting tapped (maybe we’d put it into an annuity shortly before then for ease of monthly payouts, I don’t know).

      I think it is a good plan for us, but as Dan Wick says in his comment, there are definitely better plans if you are risk-tolerant and want to die with more money. Also, here are two realities I didn’t really envision. Even with that 20-year TIPS/SS floor, my husband has always had cash in the bank and wants it still (I think he would put it under the mattress, if he could). So we have more in checking, money markets, and CDs than I’d planned, less in the stock market.

      And lastly, in the past year I feel like inflation has become a political football where it could be falsely reported and not correctly passed along to our TIPS payouts. I have no idea if that could really happen, but it feels possible. What I do know is that we just got a home heating oil bill that was the highest—by far—that we’ve ever received. And gasoline prices in my area are very high, too. This has to hit our food supply chain at some point, which relies on trucks or trains to transport goods. Hopefully, these will be short-term spikes, but they are real bills that have to be paid, and I’ll be watching to see if/when the official U.S. inflation numbers reflect what many personal budgets and business budgets are experiencing. Time will tell.

      1. Elkay, we also took the approach of building a TIPS ladder as part of our Bucket 2. While, in theory, a SPIA would accomplish a similar goal of securing a floor of income, I went with the TIPS to better hedge inflation. I also like the flexibility of layering in TIPS by year, which allows for adjustments in the year we expect our SS to kick in.

        Many ways to skin the cat…

    3. I’m aiming to take care of my future self. I bought a SPIA three years ago. Currently, the SPIA plus my Social Security more than covers my expenses. I know this will not always be the case. I plan to add more annuity income as time goes on and inflation eats away at my income. My entire portfolio (currently 50% fixed income/50% equities) is allocated towards various reserves. So I am not withdrawing anything from it at this point. Long-term care reserves, future annuity reserves, and unplanned healthcare reserves, etc. I’m very comfortable with that. I am systematically simplifying my finances to account for the decline in my financial abilities over time.

  2. Thanks Fritz. I loved this post. I’m a 60/40 guy. We’re retired at 59 and our portfolio’s yield covers our annual spending. If we followed the bucket method we’d have way more in stocks than I’m comfortable with because we have a low spending rate ( buckets 1 and 2 would be relatively small) and in a large drawdown I’d hate to see that portfolio diminish that much. I guess a lot of the choice between allocation comes down to psychology and specific situations. It’s great to see both strategies side by side. I’m sure AI could easily measure outcomes during different periods if you just plug in the numbers. I’m going to try that and see what happens.

    1. Thanks for the kind words on the post and the comparison, I think it’s been helpful to better understand both. I’m pleased that, in hindsight, I went with the Bucket Strategy, but I’ll admit I’ve come to recognize it doesn’t protect as well against SOR risk as a straight 60/40 (assuming the Lost Decade is a good model of what SOR would look like). Fortunately, my retirement started with 8 good years in the market, so I’m ahead of where I would have been with the 60/40. I’m not surprised by your AI results of 2000 – present, tho I’d argue that, since I started in 2018, I’ll likely outperform the 60/40 for at least the first 10 year period (better starting point for Buckets than 2000 was). By then, I may consider switching to the 65/35 for ease of use/cognitive decline.

  3. While I established my initial bucket allocations by average spending each year, the reality is my year to year cash outflow is highly variable so managing to 65-35-5 is easier to do. I do relook at the average every few years and adjust %s accordingly. I also rebalance to a range around target rather than absolutely to target. This avoids some of the drag of taxes. My mind sees the bucket “picture” more clearly than 60-40. Good reinforcement to see that both approaches work very well over the long term.

    1. Great point about spending volatility being a point in favor of 65/35. As mentioned above, I may move to a 65/35 as I get closer to SS kicking in. Easier to manage, less spending to cover from the portfolio (with SS underway), and less risk of cognitive decline. Always good to have options.

  4. As discussed, AI had 60/40 outperforming by a fair amount from 2000 to present day. Bottom line, simply having a workable strategy means you’re ahead of the game.

    1. Yeah, but what can AI tell us about 2018 – 2038? That’s what I really care about. Wink. I’m not surprised that 60/40 outperforms from 2000 – present, given the Lost Decade. Fortunately, I started the Bucket Strategy at the “right” (lucky) time, and benefited from that rising equity glide path. Perhaps it will make sense to migrate to a 65/35 within the next few years for a variety of reasons outlined in earlier comments, I’m considering it.

  5. Thanks for continuing to show the numbers and comparison for these withdrawal and allocation methods Fritz. As an early retiree I find this encouraging.
    Good partnership with the blog and I am glad you still find the time to continue contributing.!

  6. Fritz, thanks for doing this work.

    Unfortunately, a 10 year period is probably too short to draw any real conclusions.

    My understanding is that the bucket strategy creates a physiological safety net to keep a retiree from making the foolish mistake of panic selling equities at the worst time. If that is the goal, then it works.

    However, I haven’t seen anywhere that a bucket strategy will yield a higher CAGR or SWR. If I’m wrong on that please let me know. Ultimately I think the difference boils down to the cash drag of a bucket strategy and whether or not rebalancing equities annually or letting them run works out better in the long run.

  7. Nice works Fritz! If a person liked the 60/40 approach and wanted to be more hands off, could they just use a Target Date Fund that matched the allocation? Is there a downside to using a Target Date Fund for this?

  8. hi all, I ran some numbers for the portfolio 80/20 for the previous article for 018–2025 period.

    Since the comments were now closed, I wasn’t able to post in the original article. Here are my findings:

    The 80/20 Portfolio was the clear winner across the 2018–2025 period.
    Using the same methodology from the article (same $1.5M start, same 3.3% SWR, same CPI-adjusted spending, same market returns), the 80/20 portfolio ended at $2,944,144 — outperforming both alternatives:

    80/20 vs 60/40: +$542,058 (the 80/20 beat the 60/40 by roughly 23%)
    80/20 vs Bucket Strategy: +$301,222 (the 80/20 beat the Bucket Strategy by roughly 11%)

    For context, the article found the Bucket Strategy beat the 60/40 by $241k. The 80/20 extends that gap considerably because it keeps 80% in equities at all times — during a period where 6 of 8 years had stock returns above 17%, that extra equity exposure compounded powerfully.

  9. You can’t really compare these two until you come up with an objective set of rebalancing rules for the bucket strategy and what you do with buckets 1 & 2 in a down market. In the last “fight” of 60/40 vs. bucket in 2018-2025, you intentionally drew down buckets 1&2 in the down market years letting your stock allocation drift higher. In this analysis, you didn’t draw down buckets 1&2 and instead let the stock allocation drift to a much lower % of assets. Of course it would underperform.

    At the start of a lost decade it makes lots of sense to have 10 years in cash and bonds to ride out a bad period. 5 years into that decade, do you really need to maintain that at 10 MORE years? I’d contend that you don’t as the market reversing increases in probability each year that it’s down.

    If you wanted to build more flexibility into the plan you could let bucket 1&2 be allowed to reduce to X years of spending as a lower bounds at which time you’ll sell stocks no matter what. Or, stick with a 60/40 and let everything just reduce proportionally on the way down.

    1. I use rebalancing rules of +/-25% of target, or +/-5% whichever is smaller. e.g. my target for equities (bucket 3) is 65% so rebalance at 60% or 70%. Within equities my small cap target is 8% and rebalance at 6% and 10%. I rebalance to range, not necessarily target. Cash is the exception with a target of 5% and range of 3-7%.

  10. This is a very interesting and well done analysis. I’d add two thoughts that also argue for a bucket approach to asset allocation. First, as a prior commenter stated, the bucket approach is intended to reduce the tendency to buy high and sell low, something that this kind of head to head comparison of won’t pick up. Second, I suspect that the most apt comparison might be between a bucket strategy and the perhaps more conservative allocation that many retirees might seek or that is in many target date funds. By design, a bucket strategy has one only invested enough in fixed income to meet specified short term and medium term needs, based on on a person’s forecast spending needs and other income, allowing for confident investment in more equities for longer term/growth/inflation protection needs. Thanks for the analysis Fritz and for the new. Blog post. It was great to read your voice again. 😀

  11. Thanks for all the hard work. Great job. Moral of the most recent posts is this – It doesn’t matter what plan you feel comfortable with, you just need to have a plan.

  12. I appreciate the analysis. Well done!

    Unless your wanting to leave large inheritances for your heirs, we have to remind ourselves what are biggest fears are. Having stock market returns from the last 10 years is most every retiree’s dream. Any reasonable allocation and retirement plan will perform well.

    Most retiree’s concern is sequence of returns risk during the Lost Decade or another similar event with low returns and/or inflation (1972). This makes the 60/40 portfolio, or possibly even a 50/50 portfolio, a very attractive option to consider.

  13. A rock‑solid analysis backed by thoughtful research and a clear, effective breakdown. Either strategy can work as long as you stay consistent, keep an eye on the plan, and make adjustments along the way. To me, choosing between a 60/40 approach and a Bucket Strategy is really splitting hairs.

    My hand stays on the tiller for those small, steady course corrections. Cash on hand maintains my comfort and confidence. At this stage, returns are starting to matter less as I become more intentional about actually spending down these funds. I have better control over one than the other.

  14. Fritz, thank you for this series on the bucket strategy. It finally helped me resolve a question I had struggled with for years: how to structure a portfolio during a period in which withdrawals are relatively high now, but should fall materially in 10 to 15 years once my pension and public retirement benefits begin around age 65. I live in Europe, so the institutional setup differs somewhat from the US.

    By way of context, I inherited some assets a few years ago. Because of a medical issue, I currently work only part time, and my income does not fully cover our living expenses and the costs of raising a child. As a result, I draw a modest monthly amount from those assets. What I could never frame properly was the glide path for risk: how much equity exposure is appropriate at each stage? Your series made that much clearer. I can estimate my withdrawals year by year over the next 20 years and align the portfolio accordingly: the first 2 to 3 years in cash or very short duration Treasuries, the next roughly 8 years in bonds, and the remainder in equities. What I find especially useful is that this framework can accommodate a funding need that is foreseeable but changes over time, whether because of my child’s age or because pension income starts later on.

    One question remains: how would you think about assets that do not fit neatly into the standard cash, bond, equity framework? I mean alternatives and hybrid exposures such as precious metals, bitcoin, listed real estate, energy and agriculture ETFs, volatility harvesting strategies, long short funds, diversified futures or CTA funds, global macro funds, or inflation related ETFs. I would ask the same about instruments that are formally fixed income but have substantial economic sensitivity, such as junk bonds, high yield bonds, preferred shares, or unhedged emerging markets bond funds.

    Put more generally, what is the governing principle for bucket assignment? Is it volatility, maximum drawdown, beta, sensitivity to growth versus rates, correlation structure, or some broader notion of economic risk? I am less interested in the classification of any single asset than in the rule of thumb behind the classification. The examples above mainly illustrate the problem, although I should add that I currently hold about 20% of my portfolio in such exposures because I see value in assets with low correlation to both equities and nominal bonds.

    I would be very interested in your thoughts.

  15. Really interesting comparison. It makes sense that 60/40 would outperform during a weak decade due to forced rebalancing into equities. The bucket strategy feels safer psychologically though. I often model fixed-income portions using tools like https://cdcalculator.tools/
    to understand how stable returns impact long-term planning.

  16. In reviewing your Bucket Tables for 2001-2010, I find what seems to be a small discrepancy.

    In the table entries for 2001-2010, you have increased the previous year’s spending allocation by the current year’s CPI inflation amounts, 2.8% for 2001, 1.6% for 2002, etc. But in real life, you wouldn’t know those percentages until the following year.

    Seems like you should have used the CPI number from each prior year.

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