Investors can use target maturity bond exchange traded funds in a bond laddered strategy to help circumvent rate risk in fixed-income portfolios.
Bert Whitehead, founder of Cambridge Connection Inc. and Alliance of Cambridge Advisors Inc., argues that holding a portfolio of bonds with set maturities at regular intervals over a 10- to 15-year period is the best way to provide clients with a steady and stable income stream in retirement, reports Jeff Benjamin for InvestmentNews.
With interest rates set to rise as the Fed winds down its bond purchasing program and looks to hike rates to rein in inflation, a bond laddering will help a fixed-income portfolio. [Target Date Bond ETFs Reduce Rate Risk]
“A rising-rate environment is when bond ladders are designed to shine,” J. Brent Burns, president of Asset Dedication, said in the article. “When rates are flat or rising you have control over how far out on the yield curve you want to go, but you do need to be comfortable knowing that rates could rise.”
Carolyn McClanahan, director of financial planning at Life Planning Partners Inc. points to investment-grade municipal and corporate bonds as good investments for laddered strategies.
“For us, it’s all about the yield curve, and right now most of what we’re buying for ladders is between seven and 10 years [maturity],” McClanahan said in the article. “When I started doing this back in 2005, when rates were more favorable, we were grateful we went out so far [on the yield curve]with our ladders, but we’re not going out as far now because rates are still low.”