At Foundation Stone Financial Planning, when we work with clients we examine what we describe as “three money buckets” – which are essentially short term, medium-term and long-term investments or funds.
1: Your Contingency Bucket
This is the amount of money you require to manage if a bad event occurs.
Also known as a rainy-day fund – it’s there if you lose your job, fall ill, or if you need to manage if your investments have fallen in value until they recover.
If investing, your assets may have to get through peak-to-trough-to-peak when assets have negative values, and so you may need to draw from your contingency fund.
Your funds must be very accessible and the expected return from this pool is 0%, as bank deposits give no interest.
2: Your Growth Bucket
This is the main engine for growing your money to beat inflation while meeting your long-term lifestyle needs.
Your return is determined by your need for funds. The risk is very measured, and the portfolio must be properly diversified, meaning don’t put all your eggs in the same basket.
Your funds must be accessible on reasonable notice. Your expected return here will be 3 to 7%. If you draw from your contingency bucket, you can top it back up from the growth bucket.
3: Your Strategic/Speculative Bucket
Long term in nature (can be 15 – 20 years), it can include your own business.
These buckets often contain assets like property and there may be some debt associated with this bucket.
These assets may never end up being sold, and your targeted expected return would be above 7%.
Overall Risk
The overall risk is the combination of the 3 buckets, and by changing the size of the buckets you determine your overall risk.
Our job is to make sure that these 3 buckets, when combined, represent you and your overall risk exposure.
To chat with us about investment, email info@foundationstonefp.ie or call us on 087 609 367.
