Benefits Of A Laddered Portfolio
- Diversified portfolio of bonds
- Monthly cash flow
- Short-Term bonds for risk aversion
- Long-Term bonds for income
- Average maturity is the optimal place for income, security and diversification
- When short-term bond proceeds are used to buy maximum yield available, they are subject to risk tolerance
- No management fees
What Is A Laddered Portfolio?
A structured laddered bond portfolio can contain fixed-income and sometimes tax-free securities which strategically have different maturity dates. The premise behind purchasing several smaller bonds with varying maturity dates over purchasing one or two large bonds with a couple of maturity dates is to minimize risk due to interest-rate fluctuation and add liquidity.
Bonds within a laddered portfolio provide maturity dates that are evenly-spaced over a number of months or years so the bonds ideally mature at regular intervals. As a result, interest payments (a.k.a. “coupons”) may provide a steady fixed income and perpetual reinvestment helps to curb interest-rate risk.