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Jim Sims - Bond Ladder | Sensible Strategy Thumbnail

Jim Sims - Bond Ladder | Sensible Strategy

Jim Sims - Bond Ladder

Hey there everybody. Jim Sims with Signature Wealth Management Group. And I had an idea I wanted to share with you. A lot of our clients are wondering just exactly what to do with bonds. Given that interest rates are so low, and it admittedly it's very difficult to get a competitive yield or cash flow off of your bonds.

And if you have the fortitude to forego fixed income, I certainly understand that. But for those of you still wishing to have bonds in your portfolio, one very sensible strategy these days is called a bond ladder. And here's how it works. So suppose you've got a certain amount of money that you're willing to devote to the bond side of your portfolio. You start off by buying bonds in successive maturities.

So let's just say 2022, you put in $20,000. I'm going to shorten this a bit in 23, you put in another 20,024, another 20,000, and so on. And so on. Let me have one more year, 2025. And so with these bonds in consecutive years, each one effectively serves as one rung on the ladder.

So then when the year 2022 rolls around, if you need this money for your income or for your cash flow needs absolutely. The bond is going to mature and provide you that cash. But if you don't need it, then you turn around and roll it down your ladder to 2026. And so what this whole concept does? It does a couple of things.

First of all, it effectively locks in your cash flow in advance for the next four to five years. So you know where it's going to come from. That frees you up for everything. That's not this to invest it in what we might like dividend yielding stocks equities of some kind growth vehicles, et cetera. And if you get into periods of market turmoil, you don't have to worry about selling out those things at an opportune time, because you already got the next four or five years of your cash flow locked up.

An additional thing. If you're really looking at trying to maximize the attributes of bonds, yes, admittedly, you're not getting much yield now. But if interest rates go up significantly from this point, you've always got something coming due in the next couple of years that can be rolled on down the ladder to take advantage of higher interest rates in the future. If we get around to that. So again, simple concept bond ladder.

If you'd like some more information by all means, please follow the link at the bottom of the page page or look us up on our website. Thanks a lot.


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