This is a need to know strategy to protect in fluctuating interest rate markets. Building a laddered bond portfolio involves purchasing a series of bonds with different maturity dates, which are spaced out evenly over a defined period, such as 5, 10, or 15 years. This strategy allows investors to manage interest rate risk and potentially generate a steady stream of income over time.
To build a laddered bond portfolio, follow these steps:
- Determine the amount of money you want to invest in the bond portfolio.
- Choose a range of bond maturities, such as 1-5 years, 5-10 years, or 10-20 years, depending on your investment goals and risk tolerance.
- Research and select individual bonds or bond funds that match the maturities you have chosen.
- Invest an equal amount of money in each bond or bond fund in the portfolio.
- As each bond reaches its maturity date, reinvest the principal in a new bond with the longest maturity in the portfolio, thereby maintaining the portfolio’s ladder structure.
- Monitor the portfolio regularly and make adjustments as necessary to maintain your desired mix of bond maturities.
It’s important to note that a laddered bond portfolio is not risk-free and may still be subject to credit risk and interest rate risk. Investors should carefully consider their investment objectives and consult with a financial advisor before building a laddered bond portfolio.
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