I Must Have Missed "Redefinition" of "Ladder"

[Marc]

When I learned my finance, "ladders" of CDs, treasuries, and/or bonds was defined as:

Initially starting with multiple rungs (e.g., 13, 26, 39, and 52 weeks or 1, 2, 3, 4, and 5 years) of your preferred investment vehicle.

Then, as each matured, you would purchase investment of the longest rung on your ladder.

Then, after the end point of your initial ladder you would have a portfolio consisting of "only" multiples of the longest rung on your ladder maturing consistently to be reinvested at current rates but generating income all along the way.

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Now, I see people referring to ladders as continuously holding multiple investments of different maturities on their ladders permanently.

Was their a change of definition of a ladder?

thanks,

Marc

 

[USGrant1962]

When I learned my finance, "ladders" of CDs, treasuries, and/or bonds was defined as:

Initially starting with multiple rungs (e.g., 13, 26, 39, and 52 weeks or 1, 2, 3, 4, and 5 years) of your preferred investment vehicle.

Then, as each matured, you would purchase investment of the longest rung on your ladder.

Then, after the end point of your initial ladder you would have a portfolio consisting of "only" multiples of the longest rung on your ladder maturing consistently to be reinvested at current rates but generating income all along the way.

-------------

Now, I see people referring to ladders as continuously holding multiple investments of different maturities on their ladders permanently.

Was their a change of definition of a ladder?

thanks,

Marc

Your definition is the accepted one. People holding different maturities indefinitely simply have a portfolio of different maturities.

 

[Texas Proud]

Your definition is the accepted one. People holding different maturities indefinitely simply have a portfolio of different maturities.

+1


Can you show where people have changed the definition? IOW, using your definition you will be holding CDs with different maturities... sure, all were 5 years when you bought them but you are buying them every year... so you will have a 1, 2, 3, 4 and 5 year maturity in hand...

 

[JoeWras]

OK, OK. I agree with your definition, but I was also throwing around the term loosely.

Most of us put our ladders down on the ground about 10 years ago, and they sat there and got termites and rotted.

Suddenly, we need the ladder again and we have to build it on the fly. So I think you are seeing a lot of us building ladders that should eventually be long storey ladders, able to reach the roof. However, you are right in that some people are still building the ladder downward. Not sure why except for the fact that short term rates are intoxicating. The danger there is if rates go down, you missed locking in the longer terms.

With my treasury ladder, I've now lost all my 4 and 13 wk rungs, with only a few 26 wk rungs left. I've been leaning in on 1 yr bills and 2 yr notes. Yeah, call me a fool, but I started with 1 yr rungs last September, so I'll soon have a proper 1 year ladder, with my spare rungs being used to develop a 2 yr ladder.

And that's where I personally want to stop. 2 years.

 

[Marc]

+1


Can you show where people have changed the definition? IOW, using your definition you will be holding CDs with different maturities... sure, all were 5 years when you bought them but you are buying them every year... so you will have a 1, 2, 3, 4 and 5 year maturity in hand...

Actually the opposite; all will be different maturities initially and eventually all of the same maturity (e.g., five year) that mature at regular intervals.

 

[Al18]

I’ve been trying to extend my CD ladder to include 4 and 5 year CD’s, but the lower interest rates are not appealing. I’m sticking with 6 month to 36 month CD’s right now.

 

[Marc]

I’ve been trying to extend my CD ladder to include 4 and 5 year CD’s, but the lower interest rates are not appealing. I’m sticking with 6 month to 36 month CD’s right now.

Are you replacing the six month with 36 month CDs when they mature?

thanks,

Marc

 

[jazz4cash]

Actually the opposite; all will be different maturities initially and eventually all of the same maturity (e.g., five year) that mature at regular intervals.

Nope. The 5 yr you bought last year is now a 4 yr, etc. i think your definition is OK, but I never took a fixed income ladder to be a rigid formal construction. I buy the terms and instruments that offer value in my opinion. If a 2 yr maturity is a great value compared to a 3 yr, I go heavy on the 2 yr and light on the 3yr or skip that rung altogether. Using add-on CDs whenever possible can be a great tool depending on rate trends. Better to be flexible than rigid IMO.

 

[Marc]

Nope. The 5 yr you bought last year is now a 4 yr, etc. i think your definition is OK, but I never took a fixed income ladder to be a rigid formal construction. I buy the terms and instruments that offer value in my opinion. If a 2 yr maturity is a great value compared to a 3 yr, I go heavy on the 2 yr and light on the 3yr or skip that rung altogether. Using add-on CDs whenever possible can be a great tool depending on rate trends. Better to be flexible than rigid IMO.

An income ladder IS a "rigid formal construction." I agree with your approach but I wouldn't call it a ladder. I have been buying T-bills just to juice my FZDXX returns but I wouldn't call it a ladder even though there are 4, 8, 13, and 26 week T-bills in my current portfolio.

Thanks everyone for your input; I am glad that I am not going crazy (whatever my wife may say).

Again, thanks,

Marc

 

[jazz4cash]

I Must Have Missed "Redefinition" of "Ladder"

An income ladder IS a "rigid formal construction." I agree with your approach but I wouldn't call it a ladder.

Only if you choose to do it that way. Call it what you wish.

Edit: Also, I’m not constructing an income ladder. I’m constructing a ladder of fixed income products…..not the same thing.

 

[Al18]

Yes, 6 month to 36 month is what I’m buying now.

 

[Texas Proud]

Actually the opposite; all will be different maturities initially and eventually all of the same maturity (e.g., five year) that mature at regular intervals.

You are missing my point... a 5 year maturity that is 4 years old is now a 1 year maturity and you can call it a 1 year CD... IOW, it matures in 1 year...


So I can see where someone is saying I have a 1 year CD, a 2 year CD etc... when in fact they have a bunch of 5 year CDs that have staggered maturities...

 

[Rianne]

We're taking advantage of the current interest rates in 2023. Our rolling ladder has a few high-value CDs and treasuries maturing this year at various months. We'll extend those out longer this time with secured interest rates in the 4% range. I don't like callables and do like higher coupons that drop cash into our settlement account for income/spending/converting to Roth. If we don't need the income we'll ladder another CD. Most of these are in the tIRA but ~$100k+ is taxable.