Best Way to Establish a Bond Ladder

[nico08]

Hi. I'm reading The Bond Book by Annette Thau. I am thinking about setting up a bond ladder. Thau recommends purchasing 1 year, 3 year and 5 year bonds in the first year and then replacing these bonds as they mature.

What is the best way to purchase these types of bonds? I have Vanguard, T Rowe Price and Treasury Direct accounts. I have only used Treasury Direct to purchase I bonds thus far. If Treasury Direct is the best route, how/where can I view the rates for these types of bonds on the Treasury Direct site? I want to know the details about the bonds before I make the purchase. And I would like to pay the least amount for these bonds with the highests returns.

Thank you for your help.

 

[njhowie]

You want to do it through a brokerage account, whether Fidelity, Schwab, or TD Ameritrade.

Vanguard, Treasury Direct, and TRP will not be able to offer you what the brokerages can when it comes to bonds.

 

[COcheesehead]

You want to do it through a brokerage account, whether Fidelity, Schwab, or TD Ameritrade.

Vanguard, Treasury Direct, and TRP will not be able to offer you what the brokerages can when it comes to bonds.

Follow njhowie’s advice. Use a brokerage account. If you do not understand bonds, I would reach out to the bond desk at the brokerage, they may set up a ladder at no additional charge. Fidelity will provide this type of service.

 

[madatrub]

Fidelity does it for free, and even offers online bond ladder setups, including the ability to roll them.

 

[jazz4cash]

I’m reading The Bond Book also. You must be further along than I am. The info is pretty good but it is very dated (pre-internet) so that is distracting to me. I already have a fixed income ladder in place. It consists of some bonds, CDs, Treasuries, and MYGAs. I buy whatever type of fixed income that provides the best value for a given time frame. 1,3, and 5 years sounds about right to start out, but I’d consider going a bit longer depending on your needs.

 

[daylatedollarshort]

It is pretty easy on Fidelity with brokerage or retirement accounts. We just follow the trade fixed income screens. Clicking there leads to another screen where you can see all the yields for the different kinds and maturities of bonds laid out on one screen (except for TIPS which on only on their own pages) and then you can pick and choose what you want to buy. (I haven't used their online ladder option.)

 

[COcheesehead]

One of the biggest advantages of bonds is at the time of purchase you know, short of default or being called, exactly what’ll you make, what you’ll be paid at maturity and when that will happen.
So I use that to my advantage and created a ladder to bridge us to a very specific financial event - social security. I don’t worry about income in the meantime because the ladder throws off all we need and then some to cover our retirement budget.

 

[nico08]

Hi. Thank you for the help. I have a Fidelity Visa and Cash Management account. So I was able to use Fidelity bond ladder tool. That helped me, it gives suggestions for the investment to put in the rungs of the ladder. It lets you choose how many rungs you want within the ladder, the credit rating of the fixed income investments, the type of fixed income investments, etc. The sample five year ladder I created has an average yield of 2.92 percent, five rungs, an average maturity in years of 3.01.

I believe there are multiple editions of The Bond Book. I borrowed the third edition 2011 from the library.

 

[jazz4cash]

Third edition? That’s good to know since I am struggling more and more with some outdated references.

 

[gayl]

You want to do it through a brokerage account, whether Fidelity, Schwab, or TD Ameritrade.

I just did my 1st ever ladder at Schwab but in CDs and for only 12 months. The website (not available on app) split the amount into 4 equal shares and showed all the options. Then I picked which ones I wanted and could pick rollover or not. Picked not as I wasn't sure how I'd feel in a year. Too simple. Sure I'm missing something but its better than the money market account rate it was in

 

[Happyras]

I did a custom ladder, now merged Schwab to Fido. My longest duration bond or cd is 1 year, my average duration is .4 years. Going forward I am keeping it to very short term durations as we accelerate in fixed income rates short term.

I found Fido to have a better bond access than Schwab, and better visibility of tools. Their fixed income analysis tools are pretty simple to access and clear to use. However, both firms are shy on disclosing directly the real costs of trades. I find my basis cost to be higher (YTM lower) than I expected for new issues. For secondary market trades I expect to be subject to market depth and bond trade costs, so this whole auto roll feature has me concerned with over paying "automatically".

 

[COcheesehead]

I don’t use an auto roll. That only works for treasuries and CDs. I have a muni ladder and pick my own bonds.

 

[daylatedollarshort]

I did a custom ladder, now merged Schwab to Fido. My longest duration bond or cd is 1 year, my average duration is .4 years. Going forward I am keeping it to very short term durations as we accelerate in fixed income rates short term.

I found Fido to have a better bond access than Schwab, and better visibility of tools. Their fixed income analysis tools are pretty simple to access and clear to use. However, both firms are shy on disclosing directly the real costs of trades. I find my basis cost to be higher (YTM lower) than I expected for new issues. For secondary market trades I expect to be subject to market depth and bond trade costs, so this whole auto roll feature has me concerned with over paying "automatically".

I built our short term Treasury ladder over time by buying at auction, which I believe avoids any transaction fees at Fidelity. I don't use the auto roll either. I like to know exactly what I'm buying and any associated costs. It is not like I have $5B to invest so it doesn't take much time to just replace my rungs as they mature.

 

[NomDeER]

You want to do it through a brokerage account, whether Fidelity, Schwab, or TD Ameritrade.

Vanguard, Treasury Direct, and TRP will not be able to offer you what the brokerages can when it comes to bonds.

I'm new to buying bonds. I just ordered my first Treasury bills yesterday using my settlement account at Vanguard. Can someone please explain why it was not good to use Vanguard? The Vanguard rep told me there was no fee for buying the treasuries. Also, if I'm going to open a brokerage account for future purchases, does anyone have suggestions for whether Fidelity, Schwab, or TD Ameritrade would be best?

Thanks!

 

[MarieIG]

I'm new to buying bonds. I just ordered my first Treasury bills yesterday using my settlement account at Vanguard. Can someone please explain why it was not good to use Vanguard? The Vanguard rep told me there was no fee for buying the treasuries. Also, if I'm going to open a brokerage account for future purchases, does anyone have suggestions for whether Fidelity, Schwab, or TD Ameritrade would be best?

Thanks!

I did too! (also at Vanguard).

I have an account at TD Ameritrade. One thing I noticed, they pay almost no interest for the settlement fund. I didn't care before because it was hard to get noticeable interest elsewhere, but that is changing so I am less than pleased about that.

 

[Bergamo]

I'm new to buying bonds. I just ordered my first Treasury bills yesterday using my settlement account at Vanguard. Can someone please explain why it was not good to use Vanguard? The Vanguard rep told me there was no fee for buying the treasuries. Also, if I'm going to open a brokerage account for future purchases, does anyone have suggestions for whether Fidelity, Schwab, or TD Ameritrade would be best?

Thanks!

Of course you can do this at Vanguard if you have a brokerage account. No need to open another account at Fidelity, Schwab, or TD Ameritrade.

The comment by njhowie above is not correct.

 

[Bergamo]

I did too! (also at Vanguard).

I have an account at TD Ameritrade. One thing I noticed, they pay almost no interest for the settlement fund. I didn't care before because it was hard to get noticeable interest elsewhere, but that is changing so I am less than pleased about that.

The settlement fund is paying 1.14% as of June 17th.

 

[MarieIG]

The settlement fund is paying 1.14% as of June 17th.

TD? I'll call them up tomorrow. I don't see mine earning anything. I'll report back . . .

 

[MarieIG]

TD? I'll call them up tomorrow. I don't see mine earning anything. I'll report back . . .

I texted with a customer rep from TD Ameritrade this morning which told me that the interest on the sweep account was 0.01 percent.

 

[Bergamo]

TD? I'll call them up tomorrow. I don't see mine earning anything. I'll report back . . .

Vanguard.