UnThreaded | Threaded | Whole Thread (4) | Ignore Thread Prev Thread | Next Thread
Author: HappyonPaxil One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75799  
Subject: Laddered Bond Portfolio Date: 3/8/2003 4:23 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
OF course this is my 1st post, so be kind, or I will have to run to the cabinet and take more medication.

When "laddered bond portfolio" is recommended, does this mean individual bonds, or mutual fund bond funds, or short-term bonds, or intermediate term bonds? I always thought individual bond purchases required more savvy than I have.

Can the board give me examples of a laddered bond portfolio?

Thank you,

Happy
Print the post Back To Top
Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 35854 of 75799
Subject: Re: Laddered Bond Portfolio Date: 3/8/2003 6:05 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 6
Welcome, Happy. Glad you asked that.

By the way, there is a Bond board in Fooldom where these things are discussed in detail. Enter Bond in the board box below and press find.

Briefly, a laddered maturity bond portfolio means that you own a series of bonds that mature at regular intervals. For example, you could own five bonds that mature each year for five years. Or you could own five bonds that mature every other year for 10 years.

Usually in this arrangement, you collect the interest off the bond portfolio, but as each bond matures, you buy a new bond of the longest maturity. You do this regardless of interest rates. The result is that your portfolio pays a five year (or 10 year) moving average of interest rate yields. You are protected from wide swings in interest rates. And as each bond matures you get your principal back, so market events are not a concern unless (two big points) 1) the credit worthiness of the issuer becomes questionable or 2) you are forced to sell prior to maturity.

This can be done with any investment that matures on a fixed date. That includes bonds of various maturities, and quality ratings, and CDs and other similar vehicles. It cannot be done with bond funds as they do not have fixed maturity dates (though some point out that fixed maturity bond portfolios do exist and could probably be used).

Owning bonds themselves is not for everyone. You probably want at least $5K in each issue. So $25K is the smallest laddered maturity corporate bond portfolio you would want to consider. But you could probably do CDs down to $500 if you wanted to.

If in doubt about bonds, CDs can work to begin. Or take a look at treasury bonds. They tend to be low yielding, but you can buy them directly from the US Treasuring and not have to pay the middlemen.

Corporate bonds may sound forbidding, but if you buy the better quality corporate bonds (those rated BBB or better are considered investment grade), you can probably rely on the bond rating agencies to help you find the good ones. Its the lower rated junk bonds you have to be very careful about. They too can be OK, but for most individuals only as part of a large diversified portfolio.

I hope that covers most of it. If any part needs more explanation, ask away.

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: yobria Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 35865 of 75799
Subject: Re: Laddered Bond Portfolio Date: 3/10/2003 11:50 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
If you're interested in an easy, low cost way to invest in bonds, a bond mutual fund may be the way to go. It's an instant ladder, as the bonds it holds have a range of maturity dates. Funds can also offer amazing diversification at a low cost. Check out, for example, Vanguard's Total Bond Market Fund, VBMFX.

The downside of a bond fund, as mentioned, is that it doesn't have a fixed maturity date. If you're going to need your original investment back in the short-med term, individual bonds or CDs may be the way to go. The longer your time horizon, the better choice a fund is.

Also, funds are more attractive for smaller bond portfolios (say, < $100,000), since the greater the investment, the higher your annual fund expense.

Nick


Print the post Back To Top
Author: 8128 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 35866 of 75799
Subject: Re: Laddered Bond Portfolio Date: 3/10/2003 12:32 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
I have never done either a bond ladder or invested in a bond fund, but it is my understanding that with a bond ladder you are reasonably assurred or recovering the face value of the bond at maturity. With a bond fund you lose this feature since there is no maturity date associated with the fund shares and the price may go up and/or down.

Jim Sullivan aka 8128

Print the post Back To Top
UnThreaded | Threaded | Whole Thread (4) | Ignore Thread Prev Thread | Next Thread
Advertisement