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Author: louisjkim Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76420  
Subject: Re: Stable interest income for retired father Date: 3/15/2002 11:52 PM
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Paul - Thanks for your helpful reply on this topic. After research and reading some of the posted replies, I've narrowed my dad's options to laddered CD's or laddered investment grade corporate bonds. What makes me hesitate about corporate bonds is the risk - I really have no feel for their risk. With laddered corporate bonds, I'm basically allocating a fifth (assuming the lump sum is split among five corporate bonds at different maturities) of my dad's money on one issue - not really diversification. Your thoughts or a pointer to a good discussion or reference on this topic?

-Louis


>>>You wrote . .

The best you can do is probably a laddered maturity bond portfolio of investment grade corporate bonds. See the Bond and Fixed income board for more on how to do this. (Enter bond in the board box below and press find.)

You buy a series of bonds that mature in about 2 year intervals. As each matures, you buy another bond of 2 yrs greater than the longest maturity. This causes the portfolio to smoothe out changes in interest rates and tends to give gradual changes as rates change.

You can do the same thing in Treasuries or in CDs, but investment grade corporate bonds usually pay higher yield and are safe enough. I would split that $100K into 5 $20K chunks. This gives reasonable diversification.

Because interest rates are at historic lows, you might want to wait a while before buying bonds. Park the funds in CDs for the next year or so, then set up your ladder.

Avoid bond funds now. Interest rates are expected to rise. You'll take some NAV losses at least on paper. Buy securities with fixed maturity dates to avoid this problem.

Best of luck to you.
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