Bond Ladder

A portfolio of fixed-income assets called a “bond ladder” is one in which each instrument has a very different maturity date.

A bond ladder uniformly distributes the maturity dates of the bonds over a period of several months or years, allowing for regular reinvestment distribution of the proceeds as the bonds mature.

To reduce interest-rate risk, boost liquidity, and diversify credit risk, it is preferable to buy a number of smaller bonds with different maturities as opposed to a single large bond.

An investor just needs to invest the same amount of money in a variety of ETFs, each with a different stated maturity date, in order to construct an ETF bond ladder.

A portfolio of fixed-income assets called a “bond ladder” is one in which each instrument has a very different maturity date.

To reduce interest-rate risk, boost liquidity, and diversify credit risk, it is preferable to buy a number of smaller bonds with different maturities as opposed to a single large bond.

Callable bonds are not the best choice for creating a bond ladder because the issuer can redeem them before maturity.

A bond ladder uniformly distributes the maturity dates of the bonds over a period of several months or years, allowing for regular reinvestment distribution of the proceeds as the bonds mature. Bonds are typically bought by investors as a conservative means of generating income. However, buyers of bonds with longer maturities typically need to do so in order to obtain a greater yield without compromising the bond’s credit quality. The investor would be exposed to three different categories of risk as a result: interest rate risk, credit risk, and liquidity risk.