The Short Answer

The Pros and Cons of Bond Laddering

Karen Wallace, CFP®

Q: I hear a lot of investors talking about bond laddering these days. What does that mean and how does it work?

A: "Laddering" refers to holding cash equivalent or income-yielding assets of different maturities in a portfolio, with the goal of creating predictable streams of cash flow. You can build a ladder using certificates of deposit, bonds--anything that has a fixed payment amount. You then hold these securities until they mature--picking up any income produced along the way--and get back your principal amount back at maturity.