Financial markets are often taken too lightly. Especially in up markets, when trends are easy, and it feels more like a game than a long-term plan to invest into companies with earnings growth, cash flow, and of course building something you believe in and want to see succeed. With that being said, the recent volatility spike, and drop, has me thinking about the Three Bucket rule and keeping your “fun money” entirely separate from a long-term, well structured portfolio, and never mixing the two.

The three bucket rule is simple: it’s designed to separate your investments to reduce risk, bad decisions, and make a clear plan on the way money is allocated across three buckets. That way, one can maintain a long-term plan, while still approaching markets in an opportunistic way.

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Bucket 1: Long-Term Portfolio Optimization

This is the foundation of your portfolio — the stocks you want to hold for 5, 10, or even 20 years. It may also be indexes. It may also add in different asset classes for diversification for bonds, gold, crypto or other assets. These are your high-quality companies, or simple investment strategy to dollar cost average each month.

• Purpose: Wealth building through compounding
• Mindset: Patience > Prediction
• Turnover: Low. Ideally never.
• Risk: Diversification across uncorrelated assets.

Ask yourself: “Do I want to build a long-term, sustainable portfolio?”
If yes — it goes in Bucket 1.

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Bucket 2: Opportunistic Trades

This bucket is for the tactical stuff — special situations, swing trades, earnings plays, misunderstood stocks, and macro-driven bets. These positions might have shorter holding periods but still require research and strategy. If you’re into markets like me, it’s impossible to not want to trade some special events or moments. Or to look for interesting opportunities that suddenly arise. This is a bucket for exactly that.

• Purpose: Capture mispricing or momentum
• Mindset: Be nimble, but not reckless
• Turnover: Moderate
• Risk: Medium to high

These trades can outperform in bursts, but they should never compromise your overall financial health. Always define your risk before you enter. Never mix them into buckets 1 or 3.

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Bucket 3: The YOLO Money

I don’t care what anyone says, it’s important to acknowledge this simple fact: everyone has a moonshot idea about markets and this is bucket 3. Ideally, a small, small sum, but looking for epic payouts, but with tons of risk, of course. That’s fine. In my view, I think that’s healthy — if it’s contained.

• Purpose: Scratch the itch without blowing up your entire account
• Mindset: Pure speculation
• Turnover: High, but size is small
• Risk: Massive

It’s the sandbox where you can play — but not build your house. But it still accomplishes a few key things as it gives your portfolio moonshot potential, it also scratches that itch (if you get it), to make epic plays, but it also reminds you of the risk at hand as money can be lost fast. Keep it small.

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My View on the Three Bucket Rule

The genius of the Three Buckets Rule is its clarity. It helps you:

• Avoid the trap of treating everything like a trade
• Stay committed to your long-term portfolio
• Scratch the speculation itch without derailing your strategy
• Assess and allocate capital with purpose
• Have a broad plan that you can stick to with clear seperation of funds

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Three Buckets Rule: Portfolio Checklist

✅ Bucket 1: Long-Term Plan

“Would I be happy owning this if the market shut down for 5 years?”
“Do I have diversification to cover me in multiple market events?”

• ☐ Diversified across assets
• ☐ Indexes, ETFs, hard assets, bonds
• ☐ Durable competitive advantage (moat)
• ☐ Healthy balance sheets
• ☐ Strong free cash flow
• ☐ Aligned, shareholder-friendly management
• ☐ Low turnover intention

🎯 Goal: Build generational wealth through compounding and a long-term plan.
📈 Examples: S&P 500, Treasuries, gold or a large cap healthy company

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✅ Bucket 2: Opportunistic Trades

“Is this a clear short- to medium-term setup I’ve researched?”
“Do I have a risk-defined trade I can take?

• ☐ Catalyst-driven (earnings, macro, rotation)
• ☐ Defined entry/exit strategy
• ☐ Measurable risk/reward
• ☐ Time-bound thesis
• ☐ Not emotionally attached

🎯 Goal: Exploit dislocations or trends without attachment
📈 Examples: Earnings setups, sector rotations, value re-rates

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✅ Bucket 3: The YOLO Money

“Am I OK losing 100% of this for the thrill and the story?”
“But also, can it actually soar if things go right?”

• ☐ Pure speculation or moonshot
• ☐ Micro position (≤3% of portfolio)
• ☐ No regrets attitude
• ☐ Doesn’t derail core plan if lost
• ☐ Done for learning, engagement, or enjoyment

🎯 Goal: Scratch the FOMO or experimental itch safely, try to hit a grand slam while you’re at it
📈 Examples: Short squeezes, options and leaps, pre-clinical biotech, low-float trades

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