Definition
A bond ladder spreads investments across multiple maturity dates (e.g., 1, 3, 5, 7, 10 years). As shorter bonds mature, proceeds are reinvested at the long end. This strategy provides regular liquidity, reduces reinvestment risk from rate changes, and creates a natural hedge against rising or falling rates.
lightbulb Example
Invest $100K equally in bonds maturing in 1, 2, 3, 4, and 5 years ($20K each). Each year, the maturing $20K is reinvested in a new 5-year bond at current rates, maintaining the ladder.
verified_user Key Points
- Reduces reinvestment risk from rate changes
- Provides regular liquidity from maturing bonds
- Natural hedge against rate uncertainty
- Can be built with Treasuries, corporates, or CDs