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Subject:  Building a Bond Ladder Date:  3/9/2004  4:00 PM
Author:  TMFTwitty Number:  9595 of 35876

Building a Bond Ladder

By Dave Braze
March 9, 2004

A bond ladder is a catchall phrase for a strategy to manage fixed-income (or interest-paying) investments. The term "fixed income" means the security will pay a set rate of interest, established when the instrument was first sold, so the annual income or earnings is the same (or fixed) throughout the life of that security.

Fixed-income securities have maturity dates. When they mature, we get our original investment back, which is used to purchase new securities. If all our money is invested in securities that mature in the same year, then at maturity we must reinvest at whatever interest rate prevails at that time. If interest rates have fallen since our original purchase, then on reinvestment we must either accept less interest income or invest in another security that has a greater risk. That's called reinvestment