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Detailed help pointer - creating a bond ladder
Old 09-05-2018, 09:52 AM   #1
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Detailed help pointer - creating a bond ladder

I understand the principles of a bond ladder, and would like to create one. However, I cannot figure out the logistics of creating one (I've been using Vanguard for most of my portfolio for almost two decades, but find the section on purchasing individual bonds super confusing). I find my confusion surprising, as I am a retired techie and voracious inhaler of financial information, and generally learn these things quickly.

I read the recent thread re: Schwab/Fidelity/Vanguard, and am thinking I should move some of my assets to Schwab for the improved usability and local office.

Until I do that, however, can someone point me to step-by-step instructions? Again, I don't need help with what a bond ladder is, or why it's a good idea. I need detailed help figuring out which bonds and then how to actually acquire them.

Thank you!
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Old 09-05-2018, 10:11 AM   #2
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While I haven't done it, I think that Vanguard's bond desk will be able to help you... you'll need to call them.

A CD ladder might be easier and provide similar returns with no credit risk because of FDIC insurance.
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Old 09-05-2018, 11:11 AM   #3
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Originally Posted by PointBreeze View Post
I understand the principles of a bond ladder, and would like to create one. However, I cannot figure out the logistics of creating one (I've been using Vanguard for most of my portfolio for almost two decades, but find the section on purchasing individual bonds super confusing). I find my confusion surprising, as I am a retired techie and voracious inhaler of financial information, and generally learn these things quickly.

I read the recent thread re: Schwab/Fidelity/Vanguard, and am thinking I should move some of my assets to Schwab for the improved usability and local office.

Until I do that, however, can someone point me to step-by-step instructions? Again, I don't need help with what a bond ladder is, or why it's a good idea. I need detailed help figuring out which bonds and then how to actually acquire them.

Thank you!
Hmm. I'm interested in this also. I've been playing with the bond tools at Fido and find them to be comprehensive and easy to use, although I've never actually purchased anything there. DW has an account at VG so I logged in there to compare and found it fairly easy to generate a list of bonds and compile a ladder. While the VG site tools are functional, they are not as comfortable to me as Fido's. I didn't find any tutorials at VG or see as many informational popups.

I much prefer to navigate on my own to complete transactions vs. calling someone at the "bond desk", but this may be an area where a phone call is better than a web search.

I have noticed that I can purchase bonds at Fido if I already have the CUSIP # even when that particular issue does not appear using the search tool. It seems that it may be better to use other resources to locate the bonds I want (e.g. various bond broker sites or Fido's bond desk) and then search using the CUSIP #.
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Old 09-05-2018, 12:29 PM   #4
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I use Fidelity and it is remarkably easy to use, Just enter Research Bonds & CD's and FIDO will break out the bonds into credit quality and term, click on the type you want let's say US Treasury 10 years and all the individual options show up, click on the bond you want to buy and click buy for each bond = $1,000 in maturity value you have to look at the spread to see what you would pay to determine quantity. You have to decide what kind of quality you want and how you are going to make your selections and determine what cash flow you want by year.

If you totally do not know what you want to do then I'd recommend building a 10 year US Treasury Bond portfolio. Divide your money that is going into bonds by 10 percent and start buying 1 year treasuries, 2 year, 3 year etc until you have completely filled your basket. Every year take the bond that matures and invest in a new 10 year treasury. If interest rates go up your portfolio will continue to yield more or you could sell a bond for a loss if you'd like to offset gains and purchase a slightly different bond with the proceeds but in the same maturity/yield range, if interest rates fall you can have the pleasant decision of deciding if you'd like to book a gain if you have carryforward losses you'd like to eliminate and create a higher tax basis for your protfolio.
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Old 09-05-2018, 12:48 PM   #5
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Fido is the place to buy bonds. They have all the tools or they will do it for you. They only charge a $1 per bond. If I can do it, anyone can do it.

https://www.fidelity.com/fixed-incom...nd-ladder-tool
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Old 09-05-2018, 12:55 PM   #6
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Originally Posted by pb4uski View Post
While I haven't done it, I think that Vanguard's bond desk will be able to help you... you'll need to call them.

A CD ladder might be easier and provide similar returns with no credit risk because of FDIC insurance.
With no credit risk and held to maturity, then yes. If one takes on some credit risk, perhaps down to "A" or "BBB" which some do use on this site, then the individual bond ladder can provide better yields albeit with higher credit risk of course.
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Old 09-05-2018, 01:54 PM   #7
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I don't have a FIDO account that allows that, so I cannot compare.

I will agree with OP that Vanguard's bond page/tools are confusing and difficult. Actually, they suck. I have no advice since I haven't carried through with a ladder yet.
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Old 09-05-2018, 02:10 PM   #8
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I don't have a FIDO account that allows that, so I cannot compare.

I will agree with OP that Vanguard's bond page/tools are confusing and difficult. Actually, they suck. I have no advice since I haven't carried through with a ladder yet.


So what exactly is so confusing? They do have a rate table just like Fido with rows for bond type and columns for term. Click a box and a list of those issues displays. You can then click buy or check the box to compare or create a ladder. Thatís what I see and today was the first time I looked for bonds at VG but Iím not saying they donít suck. I suspect the general confusion around bonds could be the problem (e.g. bid/ask, all the yields and pricing, call details, etc. ) Individual bonds are just more complicated than stocks and funds.
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Old 09-05-2018, 03:00 PM   #9
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So what exactly is so confusing? They do have a rate table just like Fido with rows for bond type and columns for term. Click a box and a list of those issues displays. You can then click buy or check the box to compare or create a ladder. Thatís what I see and today was the first time I looked for bonds at VG but Iím not saying they donít suck. I suspect the general confusion around bonds could be the problem (e.g. bid/ask, all the yields and pricing, call details, etc. ) Individual bonds are just more complicated than stocks and funds.
I suspect because most ignore a lot when buying funds and equites. Many details still apply to those as well.

Bid and ask is straight forward. Rarely do bonds sell for less than ask, so don't bother entering a bid below ask.
Yield is the percent you receive in interest once you factor in what you paid. So if you pay a premium for the bond, above $1000 per bond, your yield is less than the coupon (interest) rate. If you pay below par, your yield is higher than the coupon.

Call means they can pay for the bond prior to maturity.
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Old 09-05-2018, 03:25 PM   #10
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I don't have a FIDO account that allows that, so I cannot compare.

I will agree with OP that Vanguard's bond page/tools are confusing and difficult. Actually, they suck. I have no advice since I haven't carried through with a ladder yet.
I have accounts at both places. The bond pages/tools are similar at both.

I think one could take this one step at a time: Buy a bond first. Don't buy a bunch of separate bonds that make up a bond ladder.

Then buy another bond. Then another bond. Soon you will have a ladder.

Here is a link to a Fidelity video:
https://www.fidelity.com/learning-ce...nds/cd-ladders

Vanguard has a link to a video as well. And a button "My ladders and tools"

Instead of my "Buy a bond" above, one could change that to "Find a CUSIP" and away you go. You can have 2 browser windows open: One for finding the CUSIP and one to paste the CUSIP into the ladder tool.
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Old 09-07-2018, 06:00 AM   #11
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Thank you, everyone, for the quick and useful assistance!
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Old 09-07-2018, 02:59 PM   #12
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I use Fidelity and it is remarkably easy to use, Just enter Research Bonds & CD's and FIDO will break out the bonds into credit quality and term, click on the type you want let's say US Treasury 10 years and all the individual options show up, click on the bond you want to buy and click buy for each bond = $1,000 in maturity value you have to look at the spread to see what you would pay to determine quantity. You have to decide what kind of quality you want and how you are going to make your selections and determine what cash flow you want by year.

If you totally do not know what you want to do then I'd recommend building a 10 year US Treasury Bond portfolio. Divide your money that is going into bonds by 10 percent and start buying 1 year treasuries, 2 year, 3 year etc until you have completely filled your basket. Every year take the bond that matures and invest in a new 10 year treasury. If interest rates go up your portfolio will continue to yield more or you could sell a bond for a loss if you'd like to offset gains and purchase a slightly different bond with the proceeds but in the same maturity/yield range, if interest rates fall you can have the pleasant decision of deciding if you'd like to book a gain if you have carryforward losses you'd like to eliminate and create a higher tax basis for your protfolio.
Thank you very much for this well-written clear explanation of how to set up a bond ladder with US treasury.
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Old 09-07-2018, 03:09 PM   #13
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I would make one point that I've not seen debated. It seems to me that a bond ladder's strength lies in buying bonds in different years as they mature. That way you encounter different interest rate environments giving the ladder some diversity. For instance, suppose your 5 year bond is maturing and you buy a new 5 year bond. You now have perhaps a 5yr, 4yr, 3r, 2yr, and 1yr set of bonds bought at different yield curve situations.

If one sets up a ladder all at once, one is doing this in only one interest rate environment i.e. one snapshot of the current yield curve. I would think the purest way to set up a bond ladder is to buy the longest out maturity on the ladder and perhaps a few other points. But don't buy it all at once. This would take some patience and follow through.


I've never owned a bond ladder.
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Old 09-07-2018, 05:12 PM   #14
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I would make one point that I've not seen debated. It seems to me that a bond ladder's strength lies in buying bonds in different years as they mature. That way you encounter different interest rate environments giving the ladder some diversity. For instance, suppose your 5 year bond is maturing and you buy a new 5 year bond. You now have perhaps a 5yr, 4yr, 3r, 2yr, and 1yr set of bonds bought at different yield curve situations.

If one sets up a ladder all at once, one is doing this in only one interest rate environment i.e. one snapshot of the current yield curve. I would think the purest way to set up a bond ladder is to buy the longest out maturity on the ladder and perhaps a few other points. But don't buy it all at once. This would take some patience and follow through.


I've never owned a bond ladder.
I think you get started all at once with say - a 1yr, 2 yr, 3 yr, and 4yr, and then thereafter as a bond/cd matures each year you buy a 4 year bond/cd.

The Fidelity CD page presents ladders this way.
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Old 09-07-2018, 06:24 PM   #15
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I think you get started all at once with say - a 1yr, 2 yr, 3 yr, and 4yr, and then thereafter as a bond/cd matures each year you buy a 4 year bond/cd.

The Fidelity CD page presents ladders this way.

Yes, that is what I've seen. But it seems to be a poor way to diversify bond purchases across time. Example: suppose the yield curve is entirely flat, do you really want to time all your bond purchases to that yield curve? I've never seen this discussed pro/con.
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Old 09-07-2018, 10:00 PM   #16
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Yes, that is what I've seen. But it seems to be a poor way to diversify bond purchases across time. Example: suppose the yield curve is entirely flat, do you really want to time all your bond purchases to that yield curve? I've never seen this discussed pro/con.
I think it’s simply, for example, having the convenience of 1 year’s partial liquidity with (usually) higher rates of 4 year duration, as well as being able to keep up with more recent yields. Folks using this simple strategy ignore the yield curve.
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Old 09-07-2018, 10:08 PM   #17
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Yes, that is what I've seen. But it seems to be a poor way to diversify bond purchases across time. Example: suppose the yield curve is entirely flat, do you really want to time all your bond purchases to that yield curve? I've never seen this discussed pro/con.
What you describe disappears as your ladder rungs mature and are reinvested. It is also only an issue if purchased all at once. The reality of most ladders is bonds are purchased over time and thus during different yield curves and therein lies one of their advantages.
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Old 09-08-2018, 05:21 AM   #18
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Yes, that is what I've seen. But it seems to be a poor way to diversify bond purchases across time. Example: suppose the yield curve is entirely flat, do you really want to time all your bond purchases to that yield curve? I've never seen this discussed pro/con.
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If one sets up a ladder all at once, one is doing this in only one interest rate environment i.e. one snapshot of the current yield curve. I would think the purest way to set up a bond ladder is to buy the longest out maturity on the ladder and perhaps a few other points. But don't buy it all at once. This would take some patience and follow through.

I've never owned a bond ladder.
A few points:

1. The key point is that you really don't know where interest rates are headed for the long maturities. Sure, we can all see that in a few weeks, short term rates will very likely be raised another 0.25%. What happens to the 5-year, 10-year, and 30-year rates, it's anyone's guess. In general, over the past couple weeks, 5-year and longer term rates have fallen slightly. With laddering, you're taking the "timing" aspect out of it. You have a bond/CD maturing, you just roll it out to the far end, without any real fussing about it.

2. As far as diversifying bond purchases across time, nothing says you only have one bond/CD ladder, or that it is over any specific duration. Well, the size of your portfolio may say you have just one ladder or how many rungs there are to it. However, laddering is simply a methodology, to do exactly what you're envisioning - diversifying the purchases across time...as in months or years. As your maturities come, you'll be reinvesting and diversifying "across time".

3. The "purest" way to buy a bond ladder is in fact to buy it all at once. Again, you really do not know what will happen to rates tomorrow, next month, or next year. If we use your approach of buying the longest maturity first and then waiting on other maturities, you're likely taking the greatest risk. For the shorter maturities, you're missing out on yield while waiting. Is the additional rate increase you might get going to make a significant difference for a one year bond/CD? Not likely. However, on the longer maturities, any rate increase/decrease will have a bigger impact. If your view is that longer term rates are going higher, then your approach should be to delay those purchases. However, again, you need to counter that line of thinking with how quickly the long term rates will rise and the lost income in the interim.

4. By not purchasing the entire ladder together (or picking/purchasing individual bonds/CDs over a relatively short period), you are doing the equivalent of market timing.

5. Lastly, again, we really don't know where rates will go. Laddering takes the guesswork out of the picture.
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Old 09-08-2018, 05:23 AM   #19
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Fido is the place to buy bonds. They have all the tools or they will do it for you. They only charge a $1 per bond. If I can do it, anyone can do it.

https://www.fidelity.com/fixed-incom...nd-ladder-tool
+1. The bond desk people can help you set up a ladder. I have been doing it myself for the last couple years. Make sure you look at the "Yield to worst" in evaluating your choices.
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Old 09-08-2018, 10:38 AM   #20
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I personally buy only bond funds with maybe some individual TIPS. So I am actually buying into the current yield curve when I buy a fund. Not all that different from buying a bond ladder all at once. Oh well, at least itís an interesting thought.

I certainly donít mean to be critical of those choosing bond ladders.
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