Laddering is an investment strategy that calls for establishing a pattern of rolling maturity dates for a portfolio of fixed-income investments, such as intermediate-term bonds or certificates of deposit (CDs). For example, instead of buying one Rs.15,000 CD with a three-year term, you buy three Rs.5,000 CDs maturing one year apart. As each CD comes due, you can reinvest the principal to extend the pattern, use the money for a preplanned purchase, or have it available to take advantage of a new investment opportunity or cover unexpected expenses. And if you ladder, you can avoid having to liquidate a large bond investment if you need just some of the money or reinvest your entire principal at a time when interest rates may be low.
Building a laddered portfolio means that you buy a collection of bonds with different maturities staggered over your investment time frame reducing your portfolio's sensitivity to interest rate risk.
A method of staggering the purchase of certificates or bonds whereby, when the investment matures, the funds can be reinvested in short or long-term investments depending on the current interest rate.
An investment strategy in which bonds or certificates of deposit that have different maturities are assembled for a portfolio. For example, an investor with $50,000 might invest $10,000 in bonds with a 2-year maturity, $10,000 in bonds with a 4-year maturity, $10,000 in bonds with a 6-year maturity, and so forth. Principal from matured bonds or CDs is either spent or reinvested in additional bonds or CDs with longer maturities at the top of the ladder. A laddered portfolio hedges interest rate changes by providing a relatively steady source of income with long-term, fixed-income investments.--Also called liquidity diversification; staggering maturities.
Purchasing bonds that mature at various intervals. This provides the investor with greater regularity of income. Advice: Bond laddering works by purchasing bonds with different maturities. For example, you might purchase 3 year, 5 year, and 10 year bonds. By doing this, you are giving yourself greater liquidity because your bonds will be maturing periodically. If you simply bought three 10-year bonds, you would have to wait 10 years to see any of your money returned to you. Bond laddering is a good idea for anybody who needs liquidity and a greater certainty of receiving their money at periodic intervals.
Creating a CD or bond portfolio with a combination of assets with different maturity dates. As each bond or CD matures, the proceeds are reinvested at the longest time interval to maintain the ladder.
To arrange alternating or overlapping deposits into investments, such as CDs, to vary and get a better the rate of return.
A technique for reducing the impact of interest-rate risk by structuring a portfolio with different instruments that mature at different dates.
Staggering deposits into investments such as CDs in order to vary and better the rate of return.
A technique that consists of staggering the maturity dates and the mix of different types of bonds.
A fixed income portfolio strategy in which assets are distributed evenly over a range of maturities.
Laddering is an investment technique that requires investors to purchase multiple financial products with different maturity dates.