I have a bond ladder and the terms are below

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Jennifer McCormick
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I have a bond ladder and the terms are below

Post by Jennifer McCormick »

I have a bond ladder made out of I-Bonds that does not suffer from mark to market issues. If I hold on I would not lose purchasing power, even during this market up and downs.
They can be cashed in essentially anytime at face value plus interest (so there is no opportunity risk). They also are tax deferred - you don't have to pay tax on income not received as in TIPS. Yes, they do not provide the same level of real return as TIPS, but that is the cost for simplicity and flexibility. And, an I-bond ladder takes much longer to build as you can only invest 10/20K per year. Is this a good investment in general for me?

admin
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Re: I have a bond ladder and the terms are below

Post by admin »

True, you can always get the principal back from a bond (that is a government bond) as the Treasury guarantees it. But there is more risk using a Bond Ladder of corporate debt - as there are no promises to getting repair from a company.
Jennifer McCormick wrote:
Thu Mar 12, 2020 1:56 pm
I have a bond ladder made out of I-Bonds that does not suffer from mark to market issues. If I hold on I would not lose purchasing power, even during this market up and downs.
They can be cashed in essentially anytime at face value plus interest (so there is no opportunity risk). They also are tax deferred - you don't have to pay tax on income not received as in TIPS. Yes, they do not provide the same level of real return as TIPS, but that is the cost for simplicity and flexibility. And, an I-bond ladder takes much longer to build as you can only invest 10/20K per year. Is this a good investment in general for me?

Leona O' Brien
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Re: I have a bond ladder and the terms are below

Post by Leona O' Brien »

I set up my 18 year ladder of zero coupon insured in-state municipal bonds back in the GFC when they each had yields of 5.5 to 6.5%. It's taken a decade for the first maturities (2023-2042 and a few even longer) to approach, which has worked fine for my retirement plan. With a short set of U.S. Treasuries for living expenses in the next three years until I hit RMDs and deferred pensions, I'm all set with the bond ladder now a personal annuity.
Impossible to do this type of bond ladder from scratch now, however, given low rates.
And I still need to have my growth portfolio for later years and my descendants, and will expand the gold miners (as hedge) and selective REIT exposure to provide a shield against rampant inflation which remains the lurking risk to bond ladders, probably sometime around 2030 when the accumulating federal debt gets out of control of both the Fed and the politicians. As a retiree, my basic costs are fixed (mortgage in low 3%s and property tax shielded in Property 13 in California), but $10 lettuce in later life is a scary thought.
Leona

admin
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Re: I have a bond ladder and the terms are below

Post by admin »

Hi Lena
We agree. Bond ladders are tough to do, and probably impossible with government debt. Anyone who wants to do a ladder bond ladder would need to invest in more high yield corporate debt for any yield. While that can be an option, there is of course more risk there.
Leona O' Brien wrote:
Wed Apr 01, 2020 8:48 am
Impossible to do this type of bond ladder from scratch now, however, given low rates.
Leona

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