Investing is often made more complicated than necessary by the financial media and the self-styled “experts” featured in its coverage. So maybe it’s not surprising that, for many investors, bonds are a commonly misunderstood subject, because they really are even more technical and confusing than stocks.
Investors have many choices when deciding how to invest the bond portion of their portfolio. They can purchase individual bonds (and use those bonds to build a laddered portfolio), actively managed bond funds (where the fund manager attempts to beat the risk-adjusted returns of a designated index), bond index funds (where the fund manager tracks the returns of a designated index) or a laddered bond fund.
A bond ladder involves purchasing individual bonds with staggered maturities. An example would be a portfolio with bonds that mature each year for the next 10 years. You can use the proceeds from the bonds as they mature, together with the accumulated interest, to purchase more bonds, also with staggered maturities.
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