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h. Planning Point: Markets are very efficient, so it is unlikely that abnormal returnscan be generated.i. Planning Point: Research has shown that in some periods actively managedfunds outperform and in other periods passively managed funds outperform.j. Investments with long time horizons will overlap and make investment in activelymanaged funds attractive (for example, hedge funds).k. Net worth takes on a different meaning during decumulation. A client whosewithdrawal requirements are “more significant” is in a much different position thana client whose withdrawal requirements are “less significant.”(1) It is a function of absolute and relative risk tolerance.(a) Absolute = X dollars in stock(b) Relative = X percentage in stockLO 7-2-3: Products used in the bucket approach to retirement incomeplanning1. Overview: The bucket approach to retirement income planning calls for special attentionto be paid to investment products used for the “near-term” bucket. Buckets beyondthe near-term bucket can use many of the products that were discussed early in thiscompetency and the products used with systematic withdrawals. (Video: What productswork best with the bucket approach to retirement income planning? Littell, Lemoine,Kitces, Guyton)2. The bucket approach uses more investment accounts than the systematic withdrawalapproach.3. The client and planner want to identify and work with the short-term money bucket, sothese assets must be specifically identified and segregated.a. The short-term bucket is less likely to be able to use institutional shares becauseof the lower amount of resources devoted to it.b. The short-term bucket will rely on a more retail approach.c. The short-term bucket needs to remove volatility for the client.d. The short-term bucket is usually more cash heavy.4. In the aggregate, the systematic withdrawal approach and bucket approach may havea similar asset allocation model.a. The long-term buckets are typically subject to more volatility because the “safe”assets are clustered in the near-term bucket and the long-term bucket includesmore of the “risky” assets.5. The short-term bucket identifies where the cash flows come from for the next set ofyears in the client’s life.6. Short-term buckets invest in:a. Cashb. Individual bondsc. Bond UITs with clear maturity datesd. Fixed annuities with fixed maturity time horizons7. Short-term buckets not only identify that the portfolio will liquidate what it needs, they alsoidentify where the money will come from for the next few years, and they specificallyidentify the assets which are to be liquidated.a. The client using a short-term bucket knows exactly where the cash is coming from.7.22