Depending on your age and appropriate level of risk, a portfolio containing bonds that mature at staggered times may work best for you. This lower-risk type of investment platform is known as a “bond ladder approach” or “laddering.”
What are Fixed Income Securities?
According to fidelity.com, “Fixed income investments generally pay a return on a fixed schedule, though the amount of the payments can vary. Individual bonds may be the best known type of fixed income security, but the category also includes bond funds, Exchange Traded Funds (ETF’s), CD’s, and money market funds.”
Reasons to invest in fixed income securities
According to investopedia.com, “In addition to the benefit of capital appreciation, fixed-income securities provide investors with a steady stream of income generated from a portfolio’s balance. Bonds, preferred stocks, and CD’s all pay a steady dividend and interest payments to investors, creating a consistent cash flow to investors.”
What Does Bond Laddering Mean in Bond Strategies?
Bond laddering means that an investor buys bonds that mature at various staggered times, ideally creating a steady income for the investor. It’s said that bond laddering can help reduce bond risk. According to investor.com, a bond laddering strategy is to re-invest the money from the shortest term maturing bond into a longer maturing bond.
Corporate Bonds (Investment-Grade)
Investment grade corporate bonds are bonds that present a relatively low risk of default. Basically, a corporate bond rated by Standard & Poor at a “BBB” or higher is considered “investment grade.” Sources say that highly rated corporate bonds may be a good option for investing for steady income to fund living expenses in retirement.
Government Bonds
A government bond (sometimes called a sovereign bond) is a bond that’s issued by a national government. It generally pays out a periodic interest payment called a “coupon payment” and repays the investor the face value upon maturity. According to an article in U.S. News and World Report, you should invest in government and highly rated bonds if you want to reduce risk or volatility.
Municipal Bonds
Commonly called a “Muni bond” a municipal bond is a bond issued by a local government or one of its agencies. It’s generally used to finance various projects such as roads, schools, airports, seaports and infrastructure-related repairs. According to an article in U.S. News and World Report, municipal bonds can be a good option if taxes are a concern for you.
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