Time Segmentation Strategies

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on July 04, 2023

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What Are Time Segmentation Strategies?

Time segmentation strategies are financial planning approaches that divide an investor's portfolio into separate time-based segments, each with its own investment objectives and risk profile.

These strategies help investors manage their investments more effectively by aligning their portfolio with their specific financial goals and time horizons.

The concept of time segmentation recognizes that individuals have varying financial goals with different time horizons, such as short-term needs (e.g., emergency fund, near-future expenses), medium-term goals (e.g., buying a house, funding education), and long-term objectives (e.g., retirement, legacy planning).

By segregating the investment portfolio into distinct segments, investors can tailor the investment strategy and risk management based on the specific time requirements and objectives of each segment.

It's important to note that time segmentation strategies should be tailored to individual circumstances and reviewed periodically to account for changes in financial goals, risk tolerance, and market conditions.

Types of Time Segmentation Strategies

Bucket Strategy

The bucket strategy is a popular time segmentation approach that divides a portfolio into three distinct "buckets" based on the investor's time horizon and financial goals.

Short-Term Bucket

The short-term bucket typically includes investments with low risk and high liquidity, such as cash, money market funds, and short-term bonds. This bucket is designed to cover immediate expenses and provide a safety net for unexpected financial needs.

Intermediate-Term Bucket

The intermediate-term bucket consists of investments with moderate risk and return potential, such as bonds, dividend-paying stocks, and balanced mutual funds. This bucket is meant to generate income and grow the investor's assets over the medium term, typically 3 to 10 years.

Long-Term Bucket

The long-term bucket contains investments with higher risk and return potential, such as stocks, growth mutual funds, and real estate. This bucket is designed for wealth accumulation and long-term financial goals, usually more than 10 years away.

Ladder Strategy

The ladder strategy is another time segmentation approach that involves creating a series of investments with staggered maturity dates.

Bond Ladders

A bond ladder consists of bonds with various maturity dates, providing a steady stream of income and principal repayments as each bond matures. This strategy helps manage interest rate risk and provides a predictable income flow.

CD Ladders

A certificate of deposit (CD) ladder involves purchasing CDs with different maturity dates, ensuring that a portion of the investor's assets matures and becomes available at regular intervals. This approach provides liquidity and helps manage interest rate risk.

Glide Path Strategy

The glide path strategy is a time segmentation approach often used in target-date funds, which gradually adjust the asset allocation over time based on the investor's target retirement date.

Target-Date Funds

Target-date funds automatically adjust the asset mix of stocks, bonds, and cash equivalents as the investor approaches their target retirement date, becoming more conservative over time.

Customized Glide Path Strategies

Investors can also create their own glide path strategies tailored to their specific financial goals and risk tolerance, adjusting their asset allocation as their time horizon changes.

Implementing Time Segmentation Strategies

Determining Investment Goals and Time Horizons

The first step in implementing a time segmentation strategy is to identify the investor's financial goals and associated time horizons. These goals may include retirement planning, funding a child's education, or saving for a major purchase.

Allocating Assets Across Time Segments

Once the investment goals and time horizons have been established, the investor can allocate their assets across the appropriate time segments. This allocation should take into account the investor's risk tolerance and the need for diversification within each segment.

Risk Tolerance and Time Horizon Considerations

An investor's risk tolerance and time horizon will significantly influence their asset allocation across time segments.

Generally, investors with longer time horizons and higher risk tolerance should allocate a larger portion of their portfolio to higher-risk investments, while those with shorter time horizons and lower risk tolerance should focus on more conservative investments.

Diversification Across Time Segments

Diversification is essential for managing risk within each time segment of a portfolio.

By investing in a range of asset classes and investment vehicles, investors can reduce the impact of poor performance in any single investment, enhancing the overall stability and growth potential of their portfolio.

Regularly Reviewing and Adjusting Time Segmentation Strategies

Investors should periodically review and adjust their time segmentation strategies to ensure they remain aligned with their financial goals and risk tolerance. This may involve rebalancing the portfolio, adjusting asset allocations, or reevaluating investment goals and time horizons.

Benefits of Time Segmentation Strategies

Mitigating Sequence of Returns Risk

Time segmentation strategies can help mitigate sequence of returns risk, which occurs when poor investment returns early in retirement have a disproportionate impact on the sustainability of an investor's retirement income.

By allocating assets across different time segments, investors can better manage this risk and improve the likelihood of meeting their financial goals.

Enhancing Flexibility and Control

Time segmentation strategies provide investors with greater flexibility and control over their investments by aligning their portfolio with their specific financial goals and time horizons.

This enables investors to manage their investments more effectively and make more informed decisions about their financial future.

Customizing Investment Strategies Based on Individual Needs

Time segmentation strategies allow investors to tailor their investment approach based on their unique financial goals, risk tolerance, and time horizons. This customization can lead to more effective investment management and improved financial outcomes.

Managing Cash Flow Needs During Retirement

For retirees, time segmentation strategies can help manage cash flow needs by ensuring that assets are appropriately allocated across different time segments, providing a predictable income stream and access to liquid assets when needed.

Benefits of Time Segmentation Strategies

Integrating Time Segmentation Strategies With Financial Planning

Retirement Planning

Time segmentation strategies can play a crucial role in retirement planning, helping investors ensure they have sufficient income to meet their retirement needs while managing risks associated with market fluctuations.

Education Funding

For investors saving for a child's education, time segmentation strategies can help manage the investment risks associated with tuition expenses and ensure that funds are available when needed.

Estate Planning

In the context of estate planning, time segmentation strategies can help investors manage the tax implications of transferring wealth to their heirs, ensuring that assets are allocated in a tax-efficient manner.

Major Purchases and Financial Goals

Time segmentation strategies can also be used to plan for major purchases or other financial goals, such as buying a home or starting a business.

By aligning assets with specific time horizons, investors can better manage the risks associated with these goals and improve their likelihood of success.

Potential Limitations and Risks of Time Segmentation Strategies

Predictability of Market Performance

While time segmentation strategies can help manage investment risks, they cannot entirely eliminate the unpredictability of market performance. Investors should be prepared for the possibility that their investments may not perform as expected, necessitating adjustments to their strategies.

Inflation and Interest Rate Risks

Time segmentation strategies may be subject to inflation and interest rate risks, which can erode the purchasing power of an investor's assets and affect the value of their investments.

Investors should consider incorporating inflation-protected investments and managing interest rate risks within their time segmentation strategies.

Overemphasis on Conservative Investments

There is a risk that investors may become overly conservative in their investment approach, particularly as they approach their financial goals. This may limit their portfolio's growth potential and result in insufficient assets to meet their financial objectives.

Seeking Professional Guidance

Role of Financial Advisors in Time Segmentation Strategies

Financial advisors can play a vital role in developing and implementing time segmentation strategies, helping investors tailor their approach to their unique financial goals, risk tolerance, and time horizons.

These professionals can provide guidance on asset allocation, risk management, and other aspects of time segmentation strategies.

Collaborating With Tax and Estate Planning Professionals

In addition to financial advisors, collaborating with tax and estate planning professionals can help ensure that time segmentation strategies are implemented in a tax-efficient manner and aligned with an investor's overall estate planning goals.

These professionals can provide expert advice on tax implications, legal considerations, and other relevant aspects of time segmentation strategies.


Time segmentation strategies are an essential tool for investors seeking to manage their investments more effectively and align their portfolio with their specific financial goals and time horizons.

By dividing a portfolio into separate time-based segments, investors can better manage risks, enhance flexibility, and tailor their investment approach to their unique needs.

Integrating time segmentation strategies with financial planning, seeking professional guidance, and staying aware of potential limitations and risks can help investors achieve their financial goals and build lasting wealth.

Ultimately, time segmentation strategies are a valuable component of a comprehensive financial plan, providing a structured approach to managing investments and navigating the complex financial landscape.

Time Segmentation Strategies FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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