While equities have historically been an important driver of long-term growth, bonds can play a different role within a diversified portfolio. Depending on an investor’s goals, risk tolerance and time horizon, bonds may help provide income, support capital preservation objectives and diversify sources of portfolio risk.

For investors with near-term spending needs or lower risk tolerance, certain types of bonds, including shorter-duration bonds, may serve as a stabilizing component of a broader investment strategy. The role and effectiveness of any bond allocation will depend on market conditions, interest rates and the characteristics of the underlying investments.

• Income Generation – Many bonds provide regular interest payments that may help support portfolio income needs.
• Diversification – Bonds may help diversify a portfolio because their performance can differ from that of equities, although diversification benefits vary by market environment and bond type.
• Capital Preservation – Certain types of bonds may help support capital preservation objectives, depending on market conditions and issuer quality.
• Goal Alignment – Bond maturities can be structured to help align with anticipated spending needs or financial milestones.

Understanding Bond Ladders

A bond ladder is a strategy that spreads bond maturities across multiple dates rather than concentrating all bonds in a single maturity year. As bonds mature, proceeds can be used for spending needs or reinvested based on prevailing market conditions.

Potential Benefits of a Bond Ladder

For some investors, a bond ladder may:

• Provide periodic access to principal as bonds mature.
• Reduce concentration in a single maturity date.
• Help manage reinvestment timing across different interest-rate environments.
• Align portions of a portfolio with anticipated future cash-flow needs.

Bonds and bond ladder strategies are subject to risks, including interest-rate risk, issuer credit risk, inflation risk and reinvestment risk. Bond values can fluctuate, and there is no guarantee that any bond allocation or ladder strategy will achieve its intended objectives or outperform other investment approaches.

Let’s talk about what you need your portfolio to do and build a plan around it.