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Encyclopedia of Municipal Bonds: A Reference Guide to Market Events, Structures, Dynamics, and Investment Knowledge by Joe Mysak

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L

laddering

Using an investment strategy known as laddering, a bond buyer purchases securities maturing in incremental steps over a short time horizon. If the investor has $1 million, for example, he or she would buy $200,000 in bonds coming due in two years, four years, six years, eight years, and 10 years. If inflation rises, the thinking goes, the owner reinvests the money from the maturing bonds at progressively higher interest rates.

This is perhaps the most popular strategy recommended by brokers to individual investors. Not everyone believes in this cautious approach. For those looking to maximize their stream of tax-exempt income, buying bonds now with a 15-, 20-, or 25-year maturity may make more sense, because they can double their ...

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