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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: of 76106  
Subject: Re: Minimum risk Date: 8/20/1999 9:20 AM
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The laddered maturity bond portfolio is usually considered fairly conservative. As long as the bonds chosen are investment grade and not likely to default, you can hold them to maturity. This means that you do not have to worry about fluctuations in interest rates and bond values.

If your ladder is set up to buy 5 year maturities, initially you would buy them so 20% matures each year for five years. You live off the interest. When the shortest bond matures, you buy a new bond with a five year maturity.

The effect is a five year moving average on interest rates. Your income changes only slowly--slowly upward when interest rates rise and slowly downward when interest rates fall. This gives you few worries about stability of income, but you have no inflation protection. So you will want to maintain an equity position in addition to cover that aspect.
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