Hi Roger,
If you do have a ladder of corporate bonds, you've just created your own mutual fund. For example, look at the
Distribution By Maturity of Vanguard's Short-Term Investment-Grade Fund:
Under 1 Yr..........25.4%
1 - 3 Yrs............45.2%
3 - 5 Yrs............19.5%
5 - 7 Yrs..............4.6%
7 - 10 Yrs............2.1%
Over 10 Yrs..........3.2%
Total................100.0%
That looks quite a lot like a ladder, does it not?
Also remember that the value of those individual bonds you hold will fluctuate just like the bonds in the bond fund.
I took a quick look at corporate bond yields at Vanguard's bond desk and the bond yields look quite close to CD yields [at places like
Pen Fed]. CD's seem a lot easier to understand and cheaper to purchase. Annette Thau's
The Bond Book has lots of good info on corporates, as does
The Bond Market Association.
One problem with riding things out in a good MM account or 6 month CD's is that those have much more reinvestment risk of longer term CDs/bonds. Hence they're not as "safe" for those that want to generate income for periods longer than 1 year, or are trying to match liabilities for periods longer than 1 year. I think it is a better strategy to do the CD ladder thingee, which doesn't require you to make predictions. Hence, you don't have to be right or wrong for it to work out.
- Alec