A bond ladder is a portfolio of fixed income securities in which each security has a significantly different maturity date.
In the bond ladder, the maturities of the bonds are spread evenly over several months or years, so that proceeds are reinvested at regular intervals as the bonds mature.
The purpose of buying several smaller bonds with different maturities, rather than one large bond with one maturity date, is to minimize interest rate risk, increase liquidity and diversify credit risk.
To build a bond ETF ladder, an investor simply needs to invest an equal amount of money in several different ETFs; all with a different specific maturity date.
Because callable bonds can be redeemed by the issuer before maturity, they are not ideal when building a bond ladder.
A basis point is a standard measure of interest rates and other percentages in finance.
– One basis point is equal to 1/100th of 1%, or 0.01% (and 0.0001 in decimal).
In fixed income investing, the current yield on a bond is the annual return on the investment, including both interest and dividend payments, which is then divided by the current price of the security.