What’s a bond ladder?
This is an investment strategy used to create a diversified bond portfolio. You buy bonds across a “ladder” of maturities, or bonds that mature at different times. So if you had a ten-year investment horizon, you might buy bonds with maturities ranging from one to ten years. As the bonds mature, you replace them with securities at the back-end of your ladder, or those with the longest-date until maturity. By using a ladder, you never have all of your money locked up in one place. If rates go up, you’ll have money coming due to reinvest at the higher rate. If rates go down, you still win because you only have to reinvest a portion of your money at the lower rate. You have some flexibility regardless of where rates go. And you don’t risk losing any money as long as you hold the bonds until maturity. You can build a ladder with any type of bond. They’re really easy to build with Treasurys, which are available – fee-free – through the U.S. Treasury .
