Bonds Laddering And Bond ETFs

What is it (Bond Laddering)?

It is an investment strategy that involves buying bonds with staggered maturity dates so that they mature at regular intervals. This approach helps manage interest rate risk, provides predictable income, and ensures access to liquidity over time.

We would also invest your capital in bonds from different sectors if we are doing corporates. Maybe we do financial services, maybe we do tech, maybe we do energy, etc…

Pros:

Reduces interest rate risk: If rates go up, you’ll be reinvesting maturing bonds at higher yields.

Regular cash flow: You’ll have money coming in at set intervals.

Diversifies maturity risk: You’re not locked into one rate or timing.

Customization: We can customize the portfolio to your liking.

Bond ETFs:

We can also use bond ETFs from iShares if we do not want to hasle with the actual bonds themselves. We can use portfolio math and algebra to get the right mix of bond ETFs based on the duration we want. If Bond ETF A has duration of 2.6 and Bond ETF B has duration of 5.8 we would use algebra to get the percentage mix between the two to get the duration desired. Duration measures a bonds sensitivity to interest rates so it is important we get correct duration for the client and portfolio we are managing.