The bucket approach to investing

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Imagine you don't know anything about investing. and you don't care much about learning all the complex investment terms But you would like to grow your money in some way or at least have a plan to manage your money You go to an asset management company and tell the investment officer you're curious about investment options and would like to earn how to make better investment decisions. He takes the time, with all enthusiasm, to show you brochures of all the investment products available to you. The investment products include mutual funds in all categories (Equity, money market, bonds), securities brokerage and pension management You calmly listen to all the rhetoric and when he's done. You smile, say thank you and leave. You leave more confused than when you arrived. Should I invest all I have in mutual funds? Which mutual fund should I invest in? Is it safer than investing in the stock market? If I invest all the cash I have right now, will I be cash strapped?  I'm also interested in investing in real estate, how do I make that happen? The barrage of questions continue all through the drive home Sound familiar? When wise investors think about investing, they think in buckets An investment bucket is an euphemism for explaining how to allocate your resources in categories. Thinking in buckets helps you plan effectively for your current needs, future needs and stage of life. Investment buckets specifically provides a deliberate way to allocate your resources into asset classes that suit your lifestyle and wealth objectives. The first bucket is your safety bucket. Everyone needs a safety bucket. and that's because life happens. The safety bucket is where you allocate funds for emergency expenses or opportunity funds (if you wish to call it that). For instance, when you receive an unexpected bill for repairs in your house, need to replace your car batteries or invest in a great business opportunity. Your safety bucket protects you from getting cash strapped. This is why investment experts advice that you keep at least 1-2 years living expenses in your safety funds and invest these funds in near liquid assets. That way, you don't find yourself cash strapped in an emergency or when  an opportunity shows up. Near liquid assets include fixed income securities, commercial fixed deposits or your regular savings account. The second bucket you should consider allocating to is your growth bucket. High returns come from taking high risks so you may consider investing in risk assets with funds in your growth bucket. Your primary goal should be to grow this bucket with a long term plan. Therefore, you can invest in long term securities, invest in real estate, your own business, third party businesses, equity stock portfolio. If you're really not a risk taker, you can stick with long term bonds. Your final bucket is your dream bucket. Do you have a bucket list of activities such as travelling the world, buying your dream car or going sky diving? or maybe you just need some money to splurge on your self with some spa visits or with friends at a fancy restaurant? You'll need money in your dream bucket to cover these plans. What you do with funds in your dream bucket is totally up to you. You can invest it in high risk assets or short term near liquid assets. Its your choice based on how often you need to access it or how fast you need to earn some interest in it. Once you allocate your funds into your bucket, you can proceed to making investment decisions on what asset classes suit your needs or plans. I shared this with a friend and she asked me if she could categorize an investments in her investment club  as a safety bucket or growth bucket. What do you guys think? Feel free to share your thoughts in the comment box below