Bond Ladder.

In plain English

A bond ladder is a strategy where you buy several bonds that mature at staggered dates instead of all at once. As each bond matures, you get your principal back and can either spend it or buy a new long-dated bond at whatever rate exists then. This spreads out your exposure to interest rates, so you are not locked into one rate for everything. It also gives you cash coming back to you on a predictable schedule.

01Why it matters

A ladder means you are never forced to reinvest all your money at a bad moment, and you always have a bond maturing soon if you need the cash, which lowers the sting of rising or falling rates.

02The math, step by step

Suppose you have 50,000 dollars. Instead of buying one 5-year bond, you buy five 10,000 dollar bonds maturing in 1, 2, 3, 4, and 5 years. Each year one bond matures, and you reinvest that 10,000 dollars into a new 5-year bond at the going rate. After the ladder is fully built, you have one bond maturing every year and you capture whatever rates are available over time rather than betting on a single one.

03What this is NOT

04Receipts

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