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Bond Ladders - How Many Years?
Old 09-03-2018, 05:37 PM   #1
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Bond Ladders - How Many Years?

My past asset allocation has been heavily weighted towards equities. Over the last 2-3 months, I've been taking some profits and have begun to build a bond ladder using target maturity bond etfs.

The proceeds would be used to live on if there was a downturn in our equity investments.

DW and I are both 72. Currently have built the ladder up through December, 2024 (six years).

I'm interested in getting some input on whether six years is enough or not enough. I'm considering going out to ten years but that may be overkill.

So, how big should a bond ladder be to provide some reasonable protection against a downturn?
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Old 09-03-2018, 06:02 PM   #2
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I let the interest rates decide for me. I need to be rewarded for going out more than 5-6 years. I have found only one or two bonds that have paid to go long on. So for me I stay 5 ish years.
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Old 09-03-2018, 06:45 PM   #3
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I have an 8 years ladder covering essential expense, but I'm going to let that go to 5 years of full expenses by bumping the next year up when rebalancing and not buying any more rungs for the next 3 years.
I think I made a mistake going past 5 years.
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Old 09-04-2018, 09:33 AM   #4
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I started out with an 8 year CD ladder, in euroland however the interest curve is really bad so I kept shortening it.

For you info: 10 years out is typically 1.25%, 5 years 1.05%.

Given the inflation target and expectation of around 2%, no thank you on both. I should get at least 3% to fix it for that long in my view.
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Old 09-04-2018, 10:23 AM   #5
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Quote:
Originally Posted by misanman View Post
My past asset allocation has been heavily weighted towards equities. Over the last 2-3 months, I've been taking some profits and have begun to build a bond ladder using target maturity bond etfs.

The proceeds would be used to live on if there was a downturn in our equity investments.

DW and I are both 72. Currently have built the ladder up through December, 2024 (six years).

I'm interested in getting some input on whether six years is enough or not enough. I'm considering going out to ten years but that may be overkill.

So, how big should a bond ladder be to provide some reasonable protection against a downturn?
Ours is 4-6 yrs (CDs & Bond Fund) and was originally constructed to weather a downturn. However, as time goes by, it’s become more of a “Safety First, guaranteed income filling the gap to age 70” instrument.

IMO, 4-6 yrs annual expenses (or annual expenses gap after other guaranteed income) is plenty to weather a downturn. But, at age 72, you may want to consider the “Safety First” approach through your actuarial survival age as a couple. It just depends on your current risk tolerance.
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Old 09-04-2018, 10:48 AM   #6
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One thing to keep in mind with those target maturity bond ETFs... the return in the terminal year is usually poor as the proceeds from maturing bonds are invested in short term paper until the terminal distribution in December... when I owned some my solution was to sell about a year ahead of the terminal distribution. YMMV.
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Old 09-05-2018, 08:03 AM   #7
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Thanks, everyone, for the feedback. Some excellent suggestions on some things for me to consider! I will keep the current six year term for now but will monitor final year rates to possibly sell out a year early.
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Old 10-14-2018, 09:19 AM   #8
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Fidelity is offering an online seminar on using fixed income tools. They have some great resources for do-it-yourselfers.
https://www.fidelity.com/learning-ce...d-income-tools
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Old 10-14-2018, 10:51 AM   #9
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Quote:
Originally Posted by misanman View Post
... The proceeds would be used to live on if there was a downturn in our equity investments. ...
Essentially this is a bucket strategy, which I happen to like. Of course when you calculate your AA it will be changing as you draw down the bond ladder during a weak equity market. It will also be changing as equities recover. And so what? I don't think you need to care.

Buckets vs fixed AA draws a lot of debate around here, though. Maybe some will come in this thread, but if you're interested some searching here should give you plenty to read.
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Old 10-15-2018, 11:11 AM   #10
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