Investing after the ladder?

[Trailwalker]

Outside of the TIPs ladder, we are 80% equities and a mix of corporate bonds and treasuries for the rest.

 

[mxbuz]

I have been accumulating quite a bit of cash from maturing or called bonds. I'm just heading into retirement and kind of like the idea of having a reliable amount to cover basic needs along with SS. I would need 20 - 25% of my portfolio for a 20yr Tips ladder starting in three years. How would you go about building your ladder if starting today? Would you buy all at once or some other strategy? Thanks for any suggestions.

 

[COcheesehead]

I have been accumulating quite a bit of cash from maturing or called bonds. I'm just heading into retirement and kind of like the idea of having a reliable amount to cover basic needs along with SS. I would need 20 - 25% of my portfolio for a 20yr Tips ladder starting in three years. How would you go about building your ladder if starting today? Would you buy all at once or some other strategy? Thanks for any suggestions.

Laddering is a strategy in and of itself.

 

[pb4uski]

For those of you rolling your ladders would not a fund that matches the duration of your ladder get you to the same point? Within a reasonable amount anyway?

Perhaps, but IMO one has more choices with a ladder of target-maturity ETFs, especially if you need to invade your portfolio for cash needs.

For example, let's say that rather than own a government bond fund with a duration of 4.9 years like VGIT that I put together a ladder of target-maturity government bond ETFs (IBTI to IBTQ) that mature from 2028 to 2035, They have broadly similiar metrics... duration of 4.9 years vs 5.05 years and portfolio YTM of 3.9% vs 3.67% and SEC yield of 3.80% vs 3.79%.

Then, interest rates go up 200bps and the market value of both portfolios decline by about 10% (200 bps * duration of ~5). Now you have a need for cash from the portfolio for 10% of the portfolio.

With VGIT, I have no choice but to sell, which is the equivalent of selling a smigden of every bond in the fund from the ones maturing earlier that have less declines in value and those maturing much later that have more significant declines in value and accepting the 10% loss.

With the bond ladder, I have choices. I can sell the 2028 ETF that only has a loss of 4.46% and avoid some of that 10% loss. And vice versa if interest rates have gone up 200 bps... I have choices.

I prefer investment options that give me choices, and managing a portfolio of 8 ETFs isn't a big deal.

 

[SJhawkins]

Pb4uski,

Thanks, I do agree. I do like the options of individual issues give me for the reasons you noted.

Have to admit I feel a bit spoiled now with about half of our next 10 years in ibonds and the rest in a TIPs ladder gives us a lot of flexibility.

Only part that really gives pause is my older self and for who may have to deal with what I created if it comes to that. I had the pleasure of helping out a couple of family member towards the end. One was easy, one was just say more challenging. Probably is making me skew towards the more simple then necessary to be honest.

 

[pb4uski]

I hear you. I'm part way through transitioning from 40-50 individual bonds to three 7 rung ladders of Treasuries, corporate and high yield target maturity bond ETFs to simplify and make management easier for DW and DD. In theory all they should need to do when a rung matures is to reinvest the proceeds in a new rung at the end of the ladder.