How Did the Bucket Portfolios Perform in 2024?

Bucket investors didn’t have to raid cash to provide their living expenses in 2024.

In a buoyant market in which stocks extended their gains from 2023, the bucket portfolios all got a boost from their ample US stock exposure, which consumes anywhere from 30% of assets for the Conservative portfolios to 40% for the Aggressive versions.

That strong performance makes life simple for retirees who are actively spending from their portfolios. Trimming those appreciated equity holdings can help supply living expenses for the year ahead (or even the next two years), which, in turn, will help alleviate stress if their portfolios hit a rough patch. Additionally, by trimming appreciated equity holdings, retirees can use those funds to top up bond and international stock positions that have likely slipped below their targets. Note that these portfolios are all geared toward investors’ tax-sheltered accounts. Investors in taxable accounts will both want to hold a more tax-friendly portfolio mix and be judicious about triggering a tax bill by selling appreciated securities.

Each holding in all six bucket portfolios delivered positive returns in 2024. But as with the Retirement Saver portfolios, positions in the Vanguard Total Stock Market Index scored the highest gains of all. Given that equities performed best (again) in 2024, it’s not surprising that the Aggressive portfolios, which hold roughly 60% of their assets in stocks, outperformed the more conservatively positioned Moderate and Conservative portfolios, which hold roughly 50% and 40% in equities, respectively.

Here’s a review of the Bucket portfolios and how they performed last year.

Mutual Fund Portfolios

Aggressive Bucket Portfolio (Mutual Funds)

8% Cash

8%: Fidelity Short-Term Bond FSHBX

7%: Vanguard Short-Term Inflation-Protected Securities Index VTAPX

10%: Fidelity Total Bond FTBFX

7%: Vanguard Wellesley Income VWIAX

15%: Vanguard Total Stock Market Index VTSAX

25%: Vanguard Dividend Appreciation Index VDADX

20%: American Funds International Growth and Income IGIFX

2024 Portfolio Return: 10.26%

2024 Blended Benchmark Return: 11.87%

Moderate Bucket Portfolio (Mutual Funds)

10%: Cash

10%: Fidelity Short-Term Bond

10%: Vanguard Short-Term Inflation-Protected Securities Index

12%: Fidelity Total Bond

3%: Fidelity Floating Rate High Income FFRHX

5%: Vanguard Wellesley Income

10%: Vanguard Total Stock Market Index

25%: Vanguard Dividend Appreciation Index

15%: American Funds International Growth and Income

2024 Portfolio Return: 9.44%

2024 Blended Benchmark Return: 10.40%

Conservative Bucket Portfolio (Mutual Funds)

12% Cash

10% Fidelity Short-Term Bond

10% Vanguard Short-Term Treasury Inflation-Protected Securities

15% Fidelity Total Bond

5% Fidelity Floating Rate High Income

3% Loomis Sayles Bond LSBDX

5% Vanguard Wellesley Income

20% Vanguard Dividend Appreciation Index

12% American Funds International Growth and Income

8% Vanguard Total Stock Market Index

2024 Portfolio Return: 8.57%

2024 Blended Benchmark Return: 8.79%

Performance Recap

The equity-heavy Aggressive mutual fund portfolio outperformed its Moderate and Conservative counterparts in 2024, thanks in no small part to its roughly 60% equity exposure. (The Moderate and Conservative versions hold roughly 50% and 40%, respectively, in stocks.)

Index fund enthusiasts can take heart in the fact that the Vanguard Total Stock Market Index was the best performer in these portfolios over the past year—a repeat of its 2023 showing. Vanguard Dividend Appreciation Index, the largest holding in any of the portfolios, lagged the broad market in 2024. The dividend-growth fund returned just 17% last year, versus a 24% gain for the broad market. And while international stocks delivered a fine showing in absolute terms, they generally lagged US names last year.

The fixed-income holdings in the portfolio all posted positive returns in 2024, with the higher-risk, credit-sensitive holdings in the portfolio generally delivering the largest gains. A dash of Fidelity Floating Rate High Income provided the Moderate and Conservative portfolios with a boost on the fixed-income side. And thanks to higher money market yields on offer today, the cash component of the portfolio outperformed most of the bond holdings. For the sake of modeling, I assume Vanguard Federal Money Market for cash returns. In 2024, that fund returned 5.23%. (That good yield is a reminder to check your cash holdings to ensure that you’re wringing as much from them as you can while the getting is good.)

I always compare the portfolios’ performance with a blended benchmark of basic index funds that matches the portfolios’ asset-allocation exposure. The goal is to see whether security selection has added or subtracted value; I would urge you to conduct the same exercise with your own portfolio. For 2024, the diversified portfolios failed to beat their simple blended benchmark of three index funds plus cash. The major culprit was the Vanguard Dividend Appreciation Index, which suffered for its lack of technology-sector exposure in a red-hot year for such stocks. I’m not bothered by its weak relative showing last year. However, investors who would like to maintain a minimalist portfolio consisting of basic index funds can reasonably do so; I’ve provided some model in-retirement portfolios along those lines.

Portfolio Changes

None. All of the holdings in the portfolios retain Morningstar Medalist Ratings of Bronze or better.

ETF Portfolios

Aggressive Bucket Portfolio (ETFs)

8%: Cash

8%: Vanguard Short-Term Bond ETF BSV

7%: Vanguard Short-Term Inflation-Protected Securities ETF VTIP

10%: iShares Core Total USD Bond Market ETF IUSB

4%: Vanguard High-Yield Corporate VWEAX

3%: iShares J.P. Morgan USD Emerging Markets Bond ETF EMB

25%: Vanguard Dividend Appreciation ETF VIG

15%: Vanguard Total Stock Market ETF VTI

20%: Vanguard FTSE All-World ex-US ETF VEU

2024 Portfolio Return: 10.61%

2024 Blended Benchmark Return: 11.40%

Moderate Bucket Portfolio (ETFs)

10%: Cash

10%: Vanguard Short-Term Bond ETF

10%: Vanguard Short-Term Inflation-Protected Securities ETF

12%: iShares Core Total USD Bond Market ETF

3%: Fidelity Floating Rate High Income

2.5%: Vanguard High-Yield Corporate

2.5%: iShares J.P. Morgan USD Emerging Markets Bond ETF

20%: Vanguard Dividend Appreciation ETF

15%: Vanguard Total Stock Market ETF

15%: Vanguard FTSE All-World ex-US ETF

2024 Portfolio Return: 9.98%

2024 Blended Benchmark Return: 10.17%

Conservative Bucket Portfolio (ETFs)

12%: Cash

10%: Vanguard Short-Term Bond ETF

10%: Vanguard Short-Term Inflation-Protected Securities ETF

20%: iShares Core Total USD Bond Market ETF

3%: Fidelity Floating Rate High Income

2.5%: Vanguard High-Yield Corporate

2.5%: iShares J.P. Morgan USD Emerging Markets Bond ETF

28%: Vanguard Dividend Appreciation ETF

12%: Vanguard FTSE All-World ex-US ETF

2024 Portfolio Return: 7.88%

2024 Blended Benchmark Return: 8.57%

Performance Recap

As with the mutual fund portfolios, the Aggressive ETF portfolio (60% in equities) outperformed the Moderate ETF portfolio (50% in stocks), which in turn bested the Conservative ETF portfolio (40% in stocks) in 2024. That was a repeat of their performance pattern in 2023.

The Aggressive and Moderate ETF portfolios performed slightly better than the analogous mutual fund portfolios in 2024, just as they did in the year prior. Meanwhile, the Conservative mutual fund portfolio returned slightly more than its Conservative ETF counterpart. But the return differential between the ETF and mutual fund portfolios continues to be small, an indication that their risk/return profiles are pretty closely aligned.

Like the mutual fund portfolios, the ETF portfolios lagged their ultra-minimalist benchmarks of cash plus total market index funds mirroring their asset-class exposures. Here again, Vanguard Dividend Appreciation, the largest equity holding, explains much of the underperformance. Its conservative positioning held it back relative to a total market index fund in last year’s rally. However, Vanguard Dividend Appreciation, plus exposure to shorter-term bonds helped the model portfolios hold up significantly better than the blended index-fund portfolio in 2022’s bear market. Given that retirees are often less risk-tolerant than people who aren’t actively spending from their portfolios, erring toward the side of conservatism seems reasonable. Retirees who are more comfortable with equity-related volatility could reasonably hold a minimalist ETF portfolio along these lines.

Portfolio Changes

No changes, though investors may want to do some rebalancing following 2024’s strong gains in equities.