You have $100,000 invested into each rung of the ladder for your ongoing income needs. You also have another $100,000 spread across four different maturity dates to meet your future expenses. When the bond in year 1 matures you would have $25,000 for your daughter’s wedding, and you could re-invest the other $100,000 into a bond that matures in Year 9, extending out the ladder.

Of course, bond ladders are not the only way to invest in fixed income. Some investors chose to use mutual funds or ETFs instead. Such an investment doesn’t have a maturity date, but it does provide diversification to help protect against default risk, and can provide regular income. There are also investments have features of both bonds and funds, term maturity bond funds like iShares iBonds® ETFs. These seek to provide regular income and known maturity dates like a bond, along with the benefits of an ETF such as diversification and exchange liquidity.

No matter the vehicle you choose, bonds are likely to be a healthy part of your retirement portfolio.


Matthew Tucker, CFA, is the iShares Head of Fixed Income Strategy and a regular contributor to The Blog. You can find more of his posts here.

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