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Safe Withdrawal Rate: 3.3% ($50k/yr withdrawn from portfolio in Year 1)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
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:
