Invest
The ‘bucket strategy’ and the need for a rethink
The “bucket strategy” of investing needs a rethink in such a low-rate environment, according to an investment expert.

The ‘bucket strategy’ and the need for a rethink
The “bucket strategy” of investing needs a rethink in such a low-rate environment, according to an investment expert.

The deputy head of fixed income at Schroders, Stuart Dear, has conceded that it’s a “serious challenge for investors to generate income using traditional approaches” as often advised by members of the financial sector.
The “bucket strategy” sees investments allocated to three asset buckets: equities, diversified but defensive, and cash.
“As the income and capital from the cash bucket is used for day-to-day expenses, the income generated by the riskier buckets flows down to top up the cash bucket,” Mr Dear outlined.
“This problem is compounded further on platforms where the rate paid to investors for cash accounts is nearing zero after fees,” he said.
Schroders is predicting that while 1 percent has commonly been seen as an effective floor for the cash rate in Australia, “rates can go lower still – even to zero, given the global experience”, according to Mr Dear.
“And it’s likely that cash rates will be kept at low levels for a considerable period of time, exacerbating the challenges facing retirees, and indeed any investors, seeking the benefits of cash,” he continued.
He has advised investors to consider other alternatives in the environment, which is offering very little return on cash.
“For example, a diversified, defensively oriented fixed-income strategy that offers periodic income and daily liquidity could be a good substitute for part of the cash bucket.”
But the trade-offs for swapping out this reliance on cash must also be considered, Mr Dear said, as by investing in alternative options to cash, “investors are likely to be taking on more risk”.
“As such, they should choose options that can generate higher returns while preserving the liquidity and relative certainty of return they require – both key features of cash.”
About the author

About the author


Cash
Tips to finding a middle ground between equities and term deposits
With record-low interest rates and a volatile sharemarket, mature Australians looking to protect their assets while maintaining their income are being driven to fixed-income products, an industry expe...Read more

Cash
What’s next for paper money?
How many times in the past week have you actually had to pull out your wallet to pay for something? And out of those times, did you actually go to use cash? ...Read more

Cash
Last rate day of the year revealed
The Reserve Bank of Australia has announced its decision on the official interest rate for December, following predictions of a hold. ...Read more

Cash
RBA hands down rate decision on cup day
The Reserve Bank of Australia has announced its decision on the official interest rate this month, following predictions of a potential cut to rates. ...Read more

Cash
RBA hands down rate decision for Budget day
The Reserve Bank of Australia has announced its decision on the official interest rate this month, following predictions of a potential cut to rates. ...Read more

Cash
New $100 banknote rollout a ‘big logistical exercise’
The Reserve Bank has announced a release date for its much-anticipated new $100 banknote. ...Read more

Cash
Big 4 banks forecast October rate cut
Two of Australia’s largest financial institutions believe the Reserve Bank of Australia will reduce rates on 6 October to help support the federal budget due out the same day. ...Read more

Cash
RBA open to new record-low rate
The Reserve Bank has flagged the possibility of a rate adjustment, albeit a small possibility, as the country recovers from the COVID-19 pandemic. ...Read more

Cash
Tips to finding a middle ground between equities and term deposits
With record-low interest rates and a volatile sharemarket, mature Australians looking to protect their assets while maintaining their income are being driven to fixed-income products, an industry expe...Read more

Cash
What’s next for paper money?
How many times in the past week have you actually had to pull out your wallet to pay for something? And out of those times, did you actually go to use cash? ...Read more

Cash
Last rate day of the year revealed
The Reserve Bank of Australia has announced its decision on the official interest rate for December, following predictions of a hold. ...Read more

Cash
RBA hands down rate decision on cup day
The Reserve Bank of Australia has announced its decision on the official interest rate this month, following predictions of a potential cut to rates. ...Read more

Cash
RBA hands down rate decision for Budget day
The Reserve Bank of Australia has announced its decision on the official interest rate this month, following predictions of a potential cut to rates. ...Read more

Cash
New $100 banknote rollout a ‘big logistical exercise’
The Reserve Bank has announced a release date for its much-anticipated new $100 banknote. ...Read more

Cash
Big 4 banks forecast October rate cut
Two of Australia’s largest financial institutions believe the Reserve Bank of Australia will reduce rates on 6 October to help support the federal budget due out the same day. ...Read more

Cash
RBA open to new record-low rate
The Reserve Bank has flagged the possibility of a rate adjustment, albeit a small possibility, as the country recovers from the COVID-19 pandemic. ...Read more