DEFINITION of 'Bucket'

1. A group of swaps with similar or identical maturities.

2. Any group of securities with a similar level of risk. An investment strategy called the "bucket approach," developed by Nobel Memorial Prize winner James Tobin, recommends dividing investments into high-risk and low-risk "buckets" and then trying to achieve the highest possible return for each bucket.

BREAKING DOWN 'Bucket'

1. Buckets can be used to assess the sensitivity of a portfolio of swaps to changes in interest rates. Once risk (called "bucket exposure") has been determined (through a process called "bucket analysis"), the investor may choose to hedge that risk if it is cost-effective to do so. A strategy called immunization can be used to create a perfect hedge against all bucket exposures.

2. Tobin's strategy called for alloting stocks between a "risky bucket" and a "safe bucket". However, other proponents of the bucket strategy use up to five buckets in their variation of this approach.

RELATED TERMS
  1. Bucketing

    A situation where, in an attempt to make a short-term profit, ...
  2. Bucket Shop

    1. A fraudulent brokerage firm that uses aggressive telephone ...
  3. Tobin Tax

    A means of taxing spot currency conversions that was originally ...
  4. James Tobin

    An American economist who won the Nobel Memorial Prize in Economics ...
  5. Roll Rate

    The percentage of credit card users who become increasingly delinquent ...
  6. Q Ratio (Tobin's Q Ratio)

    A ratio devised by James Tobin of Yale University, Nobel laureate ...
Related Articles
  1. Retirement

    A Sanity-Saving Retirement Stock Portfolio

    The market rollercoaster has many retirees calling it quits on stocks. Big mistake.
  2. Managing Wealth

    Which Withdrawal Strategy is Best?

    The bucket strategy and systematic withdrawal strategy are similar in theory but differ greatly in practice. Here's a comparison.
  3. Retirement

    Do You Have Too Much Stock in Your 401(k)?

    Is there an ideal percentage of U.S. stocks for a 401k? Explore the implications of the volatile stock market on your retirement accounts.
  4. Financial Advisor

    Top Tips for Retiring in a Bear Market

    What you need to know if you have the unfortunate timing of retiring in a bear market.
  5. Financial Advisor

    Why Near-Retirees Shouldn't Sweat the Volatility

    With the stock market bumpy, some folks nearing retirement might be nervous. Here's how to create some wiggle room for your portfolio.
  6. Retirement

    Tips For Retiring In A Bear Market

    Retiring in the midst of a bear market can strike quite a blow to your retirement savings.
  7. Small Business

    Strategic Asset Allocation: What Percent Belongs in Startups?

    The ability to now invest in an emerging class of individual startup securities motivates investors to rethink their strategic asset allocations and achieve better outcomes.
  8. Retirement

    Why Early Retirees Should Reconsider the 4% Rule

    Although retirement rules of thumb can be helpful with long-term goals, retirees need flexibility and risk awareness. Sometimes the 4% rule doesn't apply.
  9. Financial Advisor

    How to Prep Your Portfolio for Down Markets

    Down markets are a reality that can kneecap your retirement withdrawal plans. Minimize the pain with these strategies.
  10. Financial Advisor

    Top Tips for Maximizing Retirement Withdrawals

    There can be significant tax advantages to taking withdrawals from one retirement account over another. Here's how to help clients plan.
RELATED FAQS
  1. What are some risks a company takes when entering a currency swap?

    Read about the risks associated with performing a currency swap, including counterparty credit risk in the event that one ... Read Answer >>
  2. What would motivate an entity to enter into a swap agreement?

    Learn why parties enter into swap agreements to hedge their risks, and understand how the different legs of a swap agreement ... Read Answer >>
  3. What are the benefits of engaging in a currency swap?

    Read about the benefits of engaging in a currency swap, such as when companies in different countries want to borrow funds ... Read Answer >>
Hot Definitions
  1. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  2. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  3. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  4. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  5. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  6. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
Trading Center