March 1, 2023

Bond Ladder Strategy | Handling Interest Rate Uncertainty

For investors, capital preservation and a steady income stream are key benefits of having an allocation to fixed-income investments.

How can you reduce risk amid uncertainty about interest rate trends?


With a Bond Ladder strategy.

Benefits of a Bond Ladder 

A Bond Ladder is a structured portfolio of bonds that mature at different times in the future.

  1. Capital Preservation – Offsets uncertainty from changing interest rates with a diversified portfolio of bonds maturing over the short, medium, and long term.
  2. Potential for higher yields – Benefits from rising interest rates by seizing opportunities to reinvest when interest rates rise

How a Bond Ladder Strategy Works

  • Janet has a balanced portfolio with approximately 40% allocated to fixed income 
  • Interest rates are currently rising


Janet’s advisor recommends a portfolio that uses a core Laddered Bond strategy complemented by an allocation to High Yield and Emerging Markets Fixed Income securities.  The core Bond Ladder portion is invested in a concentrated set of bonds with five different maturity dates.

When Bond A matures after one year, the proceeds can be reinvested into a new longer-term bond with a higher rate of interest.

This process can be repeated as Bonds B, C, D and E mature, creating a "laddered" portfolio of bonds spread across a range of maturity dates.

Bond E

$10,000

Maturity: 10 Yrs

2.00%

Bond C

$10,000

Maturity: 3 Yrs

1.00%

Bond A

$10,000

Maturity: 1 Yr

0.50%

Bond D

$10,000

Maturity: 5 Yrs

1.50%

Bond B

$10,000

Maturity: 2 Yrs

0.75%

Janet's portfolio faces reduced risk thanks to staggered maturity dates and is positioned to take advantage of rising rates.

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