For those who want to simply lock in a fixed rate, receive coupon payments with a fixed sum of money and want to go about their business, price fluctuations in the fixed instruments markets are no big deal. But price fluctuations are a big deal for those investors who do not have direct exposure to bonds and hold them to maturity, it is a big deal for those who hold them through mutual funds or ETF’s.
So what sort of options are there for investors who are interested in owning bonds to maturity?
Well, fixed income experts like Max Salk might point you in the direction of bond ladders.
What Are Bond Ladders?
Bond Ladders seems as if they are complicated instruments but they really are just a way of buying bonds in a manner that optimizes for varying maturity dates. Max Salk and other professionals advise individuals to invest in bonds that mature sooner, to collect their coupons and then re-invest these coupons and the initial principle into fresh bonds that may produce better yields. As such, if rates were to fall, then the investor would be able to have the peace of mind knowing that they will have income coming in at higher rates for a set period of time while rates may fall in the present.
As such, investors would want to be aware of interest rates as they are going up and would want to purchase bonds to have higher yields.
Individuals can be certain that they will get the best options if they are implementing a simple bond ladder strategy. This laddering technique doesn’t just have to be for bonds, they can be utilized for CD’s, T-Bills, Muni’s and junk bonds as well.
How you create ladder will vary and be totally based upon your needs and wants, each investor and their needs will vary.