Advisor Flipbooks

3 Individual Bond Strategies Ladder strategies. Ladder strategies are popular with investors looking for a steady income stream. A laddered portfolio is constructed by purchasing multiple bonds, each with different maturity dates staggered over a set number of years. The maturity ranges can be short (zero to three years), medium (up to 10 years) or long (up to 30 years). When each bond matures, the proceeds are reinvested in a new bond at the maximum maturity for the strategy to maintain the ladder's structure. This design helps investors manage the risk of rising or falling interest rates. If rates are rising, the maturing principal can be invested at higher rates. If they are falling, the portfolio is still earning higher interest on the longer-term holdings that have not yet matured. Unlike owning a single or pooled vehicle like a bond fund, the ladder has maturing bonds each year seeking to provide a consistent cash flow pattern available for reinvestment. As time passes, the portfolio includes bonds purchased in periods of both high and low interest rates. The portfolio income is expected to remain consistent, creating a steady stream of income. Exhibit 1: Ladder bond strategy For illustrative purposes only. Not meant to represent any actual investment. , , , , , Reinvest principal of , from maturing bond into , of new bonds that mature in •ve years, or • in this example. Today , , , , , • End of year

• Cover