3 BUCKETS FOR YOUR INVESTMENT PLAN

Posted By: TmoStevens (Wealth Sage, 2009)

"In preparing for the global stock market recovery, I would suggest that you need to have a holding power. This implies a period of 3 years or more, because as investment fluctuates, you may not want to sell and take a loss but instead wait for the market to recover," Yap Ming Hui, COO - Whitman Independent Advisors Sdn Bhd.

To have staying power, among other objectives, one should divide his cash into three (3) buckets - one each for low-risk moderate-risk and high-risk assets.

First Bucket (Low-Risk Asset):

This is also known as the "Liquidity Bucket", which comprises of low-risk assets with low-return such as, savings/current accounts, fixed deposits and bond investments.

This bucket should contain up to six months' expenses, mainly cash, to be used during emergency and when the going gets tough.

Second Bucket (Moderate-Risk Asset):

This consists of balanced investments, diversified investments and select property investments. The purpose of these fund is for retirement, children's education and also wealth enhancement.

The funds in this bucket should give consistent average returns and should also have limited donwside risk.

Third Bucket (High-Risk Asset):

This bucket consists of direct stocks, initial public offerings (IPOs), single country or theme funds and even the lottery.


If the first bucket of low-risk asset has not being achieved, you shouldn't start investing in high-risk assets, such as the stock market.

Likewise, putting too much in the first bucket is not advisable. Thus, any savings of more than six months' worth of expenses should go into the second bucket (i.e. the moderate-risk asset).

The allocation of funds between the second and third buckets, should vary depending on the individual as it depends much on personal, business and family objectives.

Nevertheless, the rest of your earnings or retirement savings should be kept in the second and third buckets to maintain and enhance wealth, because keeping cash would result in loss through inflation.

Adapted From: When To Make Investment? - Loong Tse Min StarBizWeek.