Money Talks: Bond Ladders: A Leg Up

Reprinted from PN September 2001
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Taking a disciplined approach to investing has proven its worth, whether you invest in stocks, bonds, or a combination. This is especially true in times of market uncertainty.

Dollar cost averaging, for example, is a strategy of putting the same amount regularly in the same investment. Many stock and mutual-fund investors use it to potentially lower their average cost per share and increase their long-term returns.

In fixed-income markets, a similarly disciplined strategy can give you the opportunity for steadier returns over time, no matter what is happening in the markets. This approach to building a bond portfolio is called bond laddering.

The ladder strategy involves dividing your money evenly among bonds that mature at different intervals. You begin by buying bonds in three successive maturity levels. For example, you might initially purchase those with maturities of one, two, and three years.

As each bond matures, you replace it with a new issue having a maturity equal to your longest initial maturity—in this example, three years.

This strategy provides a hedge against interest-rate moves. If rates drop, you still have higher yields with the longer maturities in the ladder. If they rise, the bonds that mature each year can be invested at higher rates.

A well-managed bond portfolio can mean the difference between just owning bonds and using them to meet your individual financial objectives. Talk with your financial advisor about how you can take advantage of proven investment strategies such as bond laddering and other opportunities in the fixed-income markets this year.

Rosemary Berkery is Merrill Lynch senior vice president and head of its U.S. Private Client Marketing Group. Visit the company's Families of Children With Disabilities Program Web site, Contact: David Cleary, financial consultant, Merrill Lynch Private Client Group, (800) 937-0405 / (949) 859-2932 /


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Money Talks: Bond Ladders: A Leg Up


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