Laddering

Laddering is a strategy for investing in bonds that involves buying bonds of different maturities. This can help to reduce risk and improve returns.

When you ladder your bonds, you spread out your investment over time. This means that you will have some bonds that mature sooner than others. When a bond matures, you will receive the principal amount back, plus any interest that has accrued.

If you invest all of your money in bonds that mature at the same time, you will be more exposed to interest rate risk. This is because if interest rates rise, the value of your bonds will fall. However, if you ladder your bonds, you will be less exposed to this risk.

For example, let's say you invest $10,000 in bonds. You could buy five bonds, each worth $2,000. You could then buy one bond that matures in one year, one bond that matures in two years, one bond that matures in three years, one bond that matures in four years, and one bond that matures in five years.

When the one-year bond matures, you will receive $2,000 back. You can then use this money to buy another bond that matures in one year. This will help to keep your investment balanced.

If interest rates rise, the value of your bonds will fall. However, because you have bonds that mature at different times, you will not be as affected by this. You will still receive the principal amount back on the bonds that mature, and you can use this money to buy new bonds at the higher interest rates.

Laddering can be a good strategy for investors who are looking to reduce risk and improve returns. However, it is important to remember that there is no guarantee of returns with any investment.