Bond Ladder Length

[GravitySucks]

So I have all my essential spending (insurance, taxes, couple hundred pounds of rice and beans, twenty cases of decent craft beer.) covered for the next eight years by a bond/CD ladder. In addition too that I have the meat of my fixed income in an intermediate bond fund with an average duration of 4.5 years.
I'm thinking of increasing each wrung on the ladder to cover all expected expenses, both essentials and discretionary. Does it make sense to even bother with a ladder out longer than my main bond funds duration? Let alone make sense to bump the years out past the average duration of that fund to cover the discretionary expenses?
For those of you that ladder, how many years long is your bond ladder?

 

[Red Badger]

We only ladder a few years out with most CD's term at 18 months or less. This is based upon the thinking that interest rates will continue to rise. Also, we harvest some and reinvest others.

 

[jazz4cash]

I laddered out to a few years beyond FRA. I pick the best value I can find and pack whatever rung it fits. Right now I'm not going past 3 yrs.

 

[brucethebroker]

I think it depends upon the going rates. From what I see, it makes little sense to go out longer than 3 years, and the difference between 5 an 10 year rates is a joke. I guess if you really think rates are going down that would be smart, but everything I read shouts inflation and continued borrowing by the fed. Maybe a contrarian play here, dunno.

The sweet spot seems to be two years (2.8) and three 3 years (3.0), currently (brokered). Too much risk, IMHO, to jump to five years (3.3).

 

[njhowie]

I think it depends upon the going rates. From what I see, it makes little sense to go out longer than 3 years, and the difference between 5 an 10 year rates is a joke. I guess if you really think rates are going down that would be smart, but everything I read shouts inflation and continued borrowing by the fed. Maybe a contrarian play here, dunno.

The sweet spot seems to be two years (2.8) and three 3 years (3.0), currently (brokered). Too much risk, IMHO, to jump to five years (3.3).

I believe the Fed is going to take its foot off the brake pedal sooner than most folks anticipate. So I would be a contrarian in this sense. The higher rates go, the more pressure it will put on the economy. Couple this with rapidly increasing national debt, increasing oil, an overheated housing market, increasing geopolitical uncertainty and it's a dangerous cocktail.

I nibble on CDs here and there beyond 3 years when something (relatively) good pops up. Yesterday I did purchase a 6 year for 3.7%. That is a bit out there for most folks. However, in my portfolio, it replaced a maturing CD that was yielding less than half that amount. It's a guaranteed increase of over 100% in the income being generated from it. Last week, I even nibbled on a very strong 18 year municipal bond, as the taxable equivalent yield was 5.25%, which is acceptable to me at this time. It was a very small purchase relative to portfolio size, but fits within my objective to gradually build a rock solid income stream.

Look at the 40 year chart of the 10-year treasury yield. We likely are not reversing 30+ years of declining rates in a very short period. Even "normalizing" from where we currently are will likely be difficult.

It will be interesting to see how high the Fed and the market takes rates. I'll continue nibbling on the way up.

 

[foxfirev5]

Since I lack any ability to predict the future I'm sticking to my 5 year ladder. Even if the long term trend is upward we could easily have periods of declining rates as well. The ladder smoothes out the income and eliminates fretting over the next move in rates. Either way I don't see it as a big deal compared to other financial considerations, such as expense management.

 

[Golden sunsets]

We are laddered out to 2026 in our IRA's which represent the RMD's for each year (RMD's started in 2017 for us). In January of this year we decided to place our 2027 rung in a one year CD instead due to anticipated rising rates. We'll see what the landscape looks like when it matures next January. And at that time we'll have to decide what to do with the 2028 chunk we will convert from rebalancing. It may sit in short term funds as well as long rates beyond 5 years don't seem attractive. I did just increase one of our rungs by buying an additional amount of a bond we already owned for that rung as the yield had increased by about .75 basis points from the yield of the original purchase. Other fixed income money in our taxable is either in short term tax exempt bond funds which won't lose value or a CD ladder that for now will go out no further than 3 years. We are not fans of bond funds other than short term as those funds can lose value. We would rather purchase bonds and hold to maturity.


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[COcheesehead]

I am at 6 years, but really weighted closer to 3. I get a bit longer with each maturing bond I reinvest. The longer duration bonds have actually been increasing in value a bit.

 

[friar1610]

i have the remnants of a five year ladder still in place. But during the past 5 years or so I've been reluctant to commit to going out 5 years at rollover time because "everybody" knew rates would be going up. Also, Navy Federal CU had a few deals at maturities like 17 and 30 months that I jumped on to the detriment of a nice neat 5 year ladder. Even very recently i was reluctant to go out further than 3 years because the premium for doing so didn't seem worth it. And besides, "everyone" knows rates are goin up.

I would like to get a 5 year ladder back in place with CDs of equal values maturing in Jan and Jul but don't know if I ever will.

 

[jazz4cash]

i have the remnants of a five year ladder still in place. But during the past 5 years or so I've been reluctant to commit to going out 5 years at rollover time because "everybody" knew rates would be going up. Also, Navy Federal CU had a few deals at maturities like 17 and 30 months that I jumped on to the detriment of a nice neat 5 year ladder. Even very recently i was reluctant to go out further than 3 years because the premium for doing so didn't seem worth it. And besides, "everyone" knows rates are goin up.



I would like to get a 5 year ladder back in place with CDs of equal values maturing in Jan and Jul but don't know if I ever will.

Pretty much the same here but I still have a bit going out 6 yrs. There's no point in going out to a specific point in time like 5 yrs if they don't reward you for tying up funds for the longer terms. I think picking shorter terms has worked out well. Especially with the specials NFCU has offered. I had one mature today that I can roll over to the add-on CD with 26 months to run @ 2.71%. I could do a tiny bit better elsewhere but not worth the hassle.