Bond Laddering

Bond laddering is an investment strategy that involves purchasing bonds with different maturity dates, creating a "ladder" of investments that mature at regular intervals. This approach balances yield, liquidity, and interest rate risk.

How Bond Laddering Works: Instead of buying $50,000 in 10-year bonds, you buy:

• $10,000 in 2-year bonds
• $10,000 in 4-year bonds
• $10,000 in 6-year bonds
• $10,000 in 8-year bonds
• $10,000 in 10-year bonds

Example 5-Year Treasury Ladder:

Rung	Maturity	Amount	Yield
1	1 year	$20,000	4.8%
2	2 years	$20,000	4.5%
3	3 years	$20,000	4.3%
4	4 years	$20,000	4.2%
5	5 years	$20,000	4.1%

When Rung 1 matures, reinvest in new 5-year bond at bottom.

Benefits of Bond Laddering:

1. Reduces interest rate risk - Not locked into one rate
2. Regular liquidity - Bonds mature periodically
3. Reinvestment opportunity - Capture higher rates if they rise
4. Predictable income - Know when bonds mature
5. Simplicity - Set it and (mostly) forget it

Ladder Building Options:

• Treasury bonds - Safest, liquid
• Municipal bonds - Tax-free income
• Corporate bonds - Higher yields
• CDs - FDIC insured alternative
• Bond ETFs - Defined maturity ETFs (iBonds)

Ladder Maintenance: When each bond matures:

1. Collect principal
2. Buy new bond at longest maturity
3. Maintain consistent rung spacing
4. Consider reinvesting at current rates

Ideal For:

• Retirees needing predictable income
• Conservative investors
• Those worried about rising rates
• Building emergency fund with better yields