A bond ladder is a portfolio strategy where an investor purchases bonds with different maturity dates, creating a staggered schedule of maturities. For example, you might buy bonds maturing in 1, 3, 5, and 10 years.
This strategy provides several benefits: regular cash flow as bonds mature at different intervals, reduced interest rate risk since not all bonds are affected equally by rate changes, and the ability to reinvest maturing bonds at current rates.
When a bond in the ladder matures, the proceeds can be reinvested in a new long-term bond, maintaining the ladder. This approach provides a balance between income stability and flexibility, making it popular among retirees and conservative investors seeking predictable cash flow.