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March 20, 2023 at 03:42 PM
Harold Evensky, 80, long saluted as “The Dean of Financial Planning,” created at least two well-known and widely adopted investing strategies.
One of the two is “not something to make money from. It’s to protect people from panic selling; [the other] is to provide a somewhat better return and is particularly helpful in a volatile market,” he tells ThinkAdvisor in an interview.
The founder of Evensky & Katz/Foldes Wealth Management explains both strategies, speaking by phone from a cruise ship in the North Atlantic.
He calls his bucket approach, which he created in 1985, “a very inexpensive behavioral insurance policy.”
The other investing methodology, his “core-and-satellite” strategy, comprises two different types of investments and can capitalize on market volatility, when there are “more interesting potential opportunities out there,” he notes.
Evensky and wife Deena Katz Evensky, who merged her own planning practice with Harold’s in 1990, are both now retired and consultants to the Miami-based firm. Harold continues with speaking engagements and participating in seminars.
In 2014, Foldes Financial Management, led by Steven Foldes, merged with the Evenskys’ practice.
Harold started his career at Bache & Co. in 1967, moved to Drexel Burnham Lambert and, in 1985, went independent.
ThinkAdvisor recently interviewed the retired professor of practice of the Texas Tech University Personal Financial Planning Department while the Evenskys were aboard a ship celebrating their 34th anniversary (with “a really nice dinner and a really great bottle of wine”).
About bucketing, Harold — who, by the way, is also known as “The Father of the Bucket Strategy” — says: “In the event of a disastrous market, if you have the bucket approach in place, you don’t have to sell from your investment bucket and worry about where the grocery money is coming from.”
Here are highlights of our interview:
THINKADVISOR: In 1985, you created the bucket strategy to protect assets. Because of stock market volatility and serious talk of a recession on the way, is it particularly effective now?
HAROLD EVENSKY: Yes. It’s a very, very inexpensive behavioral insurance policy. The power of the bucket approach is behavioral.
We had it in place in 1987 [on Black Monday] when it looked like the world was coming to an end. We had it in place during the Great Recession.
It’s not something to make more money from. It’s to protect people from panic selling.
It’s strictly about: When things are bad, you don’t feel forced to sell at big losses.
But it’s not because you anticipate something. It’s because at some point, markets are [going to be] volatile, and it’s likely to be a jittery time.
If you have the bucket approach in place, then you don’t have to worry about where the grocery money is coming from.
How many buckets do you recommend clients have?
My [strategy] has just two buckets; other [advisors] have more because [firms] think it’s a good sales piece.
But the more complex you make it, the more it’s going to cost, and the harder it is. I’m not a big believer in the complex.
Please elaborate on what your approach entails.
The idea is to determine what your necessary cash flow needs are for important items for a year. That doesn’t mean a cruise; it means things like a mortgage, insurance payments and basic needs.
Offset that against whatever outside income you have, such as Social Security. Whatever that number is, you set aside one year of it in what I call the cash bucket.
Any money you’re going to need in the next five years, you shouldn’t be investing. You should keep that very liquid. That’s the idea of the cash bucket.
The power of this cash-flow reserve is behavioral. People who use it won’t get panicky.
What else can you use the cash bucket for?
Say you’re rebalancing your investment portfolio: If your stocks are way down and bonds are flat, and you need to sell some bonds and buy stocks to bring it back to your investment policy, you can take a portion from your cash bucket.
