What is a Bond Ladder Strategy

A bond ladder is a bond investing strategy that attempts to reduce risks associated with fixed-income securities while managing cash flows for the individual investor. Under this strategy investor does not purchase one bond but he purchases 4 to 5 bonds of different maturities. So if an investor has $80000 than he will buy 4 bonds of $20000 rather than buying only 1 bond of $80000.

By adopting bond ladder strategy investor can control as well as adjust the cash flow according to his requirements. Suppose investor needs $20000 after 1 year then he will buy $20000 bond of 1 year maturity and invest rest $60000 in long term bonds which he cannot when he buy only 1 bond of $80000. Another advantage of bond ladder is that it smoothens out the fluctuations of interest rates because you have a bond maturing every year or at regular intervals.

One can create bond ladder wither by dividing the total amount in equal parts as explained in the above example or according to the maturities like investing $30000 in 1st year then $20000 in 2nd year and so on according to the investors preference.

Hence from the above one can say that bond laddering strategy is a very useful approach for those investors who want to manage their cash flows effectively and at the same time reducing interest rate risks arising due to fluctuations in interest rates.

1 comment… add one

Leave a Comment

Related pages

e trading advantages and disadvantagesadvantages and disadvantages of couponspayback period advantages and disadvantagesadvantages and disadvantages of oligopolymerits of marginal costingwhat is sundry assetstypes of financial guaranteesdifference between complementary and complimentarycost push inflation definition economicswho is autocratic leadermerit and demerit of deregulationdifficulties in barter systemdefine current liabilitywhy is deflation a problemdrawbacks of ratio analysispromissory note bill of exchangemixed economy in nigeriadisadvantages of delegation of authorityjournal entry for prepaymentthe difference between socialism and capitalismadvantages of lifodisadvantages of debenturesnormal goods vs inferior goodszero based budgeting pros and consfluctuating exchange ratesdisadvantage of social networkingdrawbacks of ratio analysisqip meaningstrengths and weaknesses of traditional economyadvantages and disadvantages of b2bdisadvantages of organisational structuredefinition of forfeitingadvantages and disadvantages of jit inventory systemwhat are the advantages and disadvantages of market economybenefits of centrally planned economyadvantages of discounted cash flowweakness of command economydistinguish between normal and inferior goodsprofitable ratioformula to calculate net worth of a companyoutstanding rent journal entrydirect and indirect quotationsbenefits of a mixed economyshort term loan advantages and disadvantagesdisadvantages of activity based budgetingmonopolistic competition meaningfactors influencing income elasticity of demanddcf valuation methodwhat is oligopoly marketwhat is autocratic leadershipwhat is the full meaning of fmcgdefinition of drawee and drawerwholesale banking definitionstable dividend policy definitionwhat are the advantages and disadvantages of market economytrade discount entryskimming pricing advantages and disadvantagestariff vs quotaadvantages and disadvantages of lifo and fifohypothecation and mortgage differencefmcg full formjournal entry for debtorswhat is the journal entry for prepaid rentdiff between micro and macro economicswhat does the law of diminishing marginal utility stateaman awasthifeatures of perfectly competitive marketdistinction between capital and revenue expenditurecost accounting fifo methodfactoring advantages and disadvantages