How do I build a bond ladder?

Bond ladders can be built with several different types of bonds including Treasurys, corporates, municipal bonds and others. Certain ETFs can be used to build a ladder as well. CD ladders are also common. In guiding your client in building an appropriate bond ladder, you will want to advise them to use higher quality, non-callable bonds.

Can you build a ladder with different materials?

Just like a real ladder, investors can build their ladders with different materials; in other words, different types of bonds or CDs. Moreover, investors can also utilize the potential tax advantages of municipal bonds, the credit guarantee of U.S. Treasuries, or the generally higher yields of investment-grade corporate bonds.

Why do people use bond ladders?

People sometimes use bond ladders to pay college tuition bills, for example, having the bonds mature just before school bills are due. Bond ladders also reduce interest-rate investment risk and reinvestment risk, Pfeffer says. By staggering when certain bonds mature, investors have interest rates locked in for the life of the ladder.