Tags: Timing | right | laddered | bond

Experts: Timing is Right for Laddered Bond Portfolio

Monday, 23 Apr 2012 08:37 AM

By Dan Weil


Now represents a great time to set up a laddered bond portfolio, given the uncertainty prevailing about interest rates’ direction, many investment experts say.

“I look at a bond ladder as a very reasonable and appropriate way to manage your fixed-income portfolio,” William O'Donnell, head of Treasury strategy at RBS, tells MarketWatch.

A laddered portfolio is one that includes bonds (or bond funds) with a range of maturities. So your ladder might consist of one-year Treasury bills at the bottom and 30-year Treasurys at the top.

Editor's Note: Wall Street Insider: The System Is Rigged

When each bond matures, you replace it with another one of the same maturity.

A laddered portfolio protects you in all interest-rate scenarios. When rates are rising you will re-invest the money from your maturing bonds at higher rates.

And when rates are falling, your long-term bonds will still be paying you interest at the higher rates prevailing when you bought them.

Some economists think the Federal Reserve may have to push rates up soon, while others see another easing operation as the central bank’s next move. A laddered bond portfolio provides a margin of safety in either case.

If you don’t have $500,000 or so to put to work, and you don’t want to stick with Treasurys in your ladder, you’re probably best off purchasing mutual funds and/or exchange-traded funds, financial advisers say.

Funds offer you broad diversification at low costs.

Editor's Note: Wall Street Insider: The System Is Rigged






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