Understanding Bonds - Question 99

What does “laddering a portfolio” mean?

“Laddering” is a strategy for protection against interest rate risk when buying tax-free or taxable bonds that have different maturities. Think of a portfolio with bonds that have varying maturities as resembling rungs of a ladder. By purchasing bonds that mature at set intervals, the investor has diversified in case of changes in interest rates. In addition the investor can plan for income and reinvest principal at set intervals.