The Laddered Approach
The volatility of the fixed-income market over extended periods can make it difficult for the average investor to attain reliable returns. By using a proven, low-maintenance, fixed-income strategy, it is possible to achieve a consistent, long-term return on your invested capital.
The laddered fixed-income portfolio approach to investing allows you to minimize the reinvestment risk associated with both short-term and lump-sum investing. Quite simply, this strategy adopts a long-range outlook and diversifies the maturity structure of the fixed-income investments within your portfolio. This reduces the effects of interest-rate fluctuations on your total return.
Structuring a laddered portfolio with investments in successive maturities allows you to accomplish the following goals with your invested funds:
- Achieve a potentially higher rate of return over time, by consistently "rolling" invested funds out to longer-dated, higher-yielding maturities.
- Maintain short-term liquidity, by always having maturities pending within your portfolio.
- Minimize reinvestment risk. In other words, reduce the risk of having to reinvest all of your funds at a time of low interest rates.
- Allow the flexibility of reinvesting maturing funds out to longer-term, higher-yielding investments during high-interest-rate climates.
There is a large variety of fixed-income investments available today. That variety allows you to choose the securities which best meet your needs with regards to the type of account (taxable or non-taxable), quality, and timing for your current and future income needs.
With the guidance of a professional Investment Advisor, you can implement an investment strategy, such as this one, that will help you achieve a superior rate of return while simultaneously reducing market risks.
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