Should I do bond laddering?

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cruiserguy2
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Should I do bond laddering?

Post by cruiserguy2 »

My advisors (2 of them), who I have a lot of faith and trust in, are suggesting that my wife and I let them set up bond laddering for some of our portfolio. Each of us would need to invest $250,000. Our portfolio is about 2 million and we are both 67 and retired. Currently we are roughly split 50/50 between stock and bond mutual funds and ETFs, some money market, etc. Nothing exotic. I like to keep things quite simple. Is bond laddering (Wasmer Schroder Bond Ladder Strategies is what's been proposed) something I should consider? I've read what I can find online about bond laddering and seem to see pros and cons, but nothing that helps me make up my mind one way or the other. I was told that we would each need to open a new Rollover IRA for this. Therefore, we would each have two rollover IRAs, we'd each have our Roth IRAs, and there's a joint taxable account. Our current bond funds seem to have expense ratios mostly between .03 and .22 %, although one is at .62 %. Wasmer Schroder fees start at 0.55 % for taxable bond ladder strategies, 0.35 % for municipal bond ladder strategies and 0.15 % for US Treasury bond strategies. I'm not crazy about setting up another account for each of us and I'm not sure what to think of costs, time commitment for the ladders, if it's an appropriate time in the economy to start this, etc. Or should we just stick to bond funds and say no to laddering? Can anyone with knowledge of bonds and bond laddering help me make a decision? I trust that my advisors aren't suggesting this for their benefit, but maybe I'm missing something. I'd love to leave things as they are, but want to do the best thing for our portfolio. Thanks for any thoughts.
mhalley
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Re: Should I do bond laddering?

Post by mhalley »

Why do you need another ira? All the major brokers have a bond desk. This makes me worry that there will be fees for buying the bonds, either straight up or bid/ask or something. Fees can be up to 5% as I recall.
https://www.investopedia.com/articles/f ... 0confirmed.
Addendum; maybe the separate account is due to the WS strategy, something that is new to me. Too bad they didn’t recommend this last year before bonds tanked. I think the rule of thumb is that if you don’t need the money before the duration of the bond fund then you don’t need to ladder.
I found this bogleheads post viewtopic.php?t=399531
And I agree I wouldn’t pay 55bp plus aum for this.
I think the worst bond fund bleeding is behind us, but crystal ball is cloudy.
dbr
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Re: Should I do bond laddering?

Post by dbr »

What do your advisors say is the benefit to you, stated in clear terms that you can understand are clearly to your benefit, not what they invent to tell you is your benefit when it may not be?

The first benefit, of course, is that the broker gets to do more processing of your money to generate income for them that will be paid for out of your wealth. This benefit is certain whether or not you gain anything by it. As mentioned the cost is not just ER but also bid/ask spreads, and that assumes there are no commissions, which normally there are not if there is a management fee but . . . Note Treasury bond ladders are not out of the reach of individuals on their own either at Treasury Direct or at a broker. Individual corporate bonds may well be something you should not be involved in. Also, how are you paying 0.62% for any bonds?
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cruiserguy2
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Re: Should I do bond laddering?

Post by cruiserguy2 »

I sure appreciate the replies so far. mhalley, thanks for the links to the articles. I was under the impression that we need separate Rollover IRAs because this money for the ladders would come from our existing Rollover IRAs. Maybe I am wrong on that. I truly don't know if we can have bond ladders within our existing Rollover IRAs. dbr, the advisors seemed to focus on "locking in higher rates" and a "cost savings" aspect. To answer your question, the .62% expense ratio is for PIMIX, Pimco Income Fund, where we only have about $40,000. In my research, I made notes regarding insisting on Treasury bonds if we should agree to any bond laddering, and also no corporate bonds of any rating. Some info sources seem to say (1) laddering may be suitable for "efficient" investment markets (Treasury bonds??), (2) now is a good time to be locking in rates that are short to intermediate-term with a bond ladder going out 4,5 or 6 years, and (3) now is among the best times to build a bond ladder, "perhaps more than any time in the last decade." Another source says the best time to use bond laddering is when interest rates are low and beginning to rise. Considering that I don't know much at all about bond investing, these bits of advice I've found online leave me confused as to what to do. As I said, I generally place a lot of trust in the advisors that I've had for a long time. This bond laddering suggestion caught me off-guard and I wanted to get some opinions from someone other than the advisors. Thanks again for any advice or opinions.
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Re: Should I do bond laddering?

Post by grabiner »

cruiserguy2 wrote: Sat Aug 19, 2023 8:47 pm I sure appreciate the replies so far. mhalley, thanks for the links to the articles. I was under the impression that we need separate Rollover IRAs because this money for the ladders would come from our existing Rollover IRAs. Maybe I am wrong on that. I truly don't know if we can have bond ladders within our existing Rollover IRAs.
You can buy almost anything inside an IRA. If your IRA is at a brokerage, you can hold bonds and mutual funds in the same account
Some info sources seem to say (1) laddering may be suitable for "efficient" investment markets (Treasury bonds??), (2) now is a good time to be locking in rates that are short to intermediate-term with a bond ladder going out 4,5 or 6 years, and (3) now is among the best times to build a bond ladder, "perhaps more than any time in the last decade." Another source says the best time to use bond laddering is when interest rates are low and beginning to rise.
(1) is mostly correct, although the issue isn't efficiency but diversification and transaction costs. You don't want to buy a corporate bond ladder because of the serious loss if bonds default; this won't happen with a Treasury ladder. And small investors will pay more in spreads to set up a muni ladder than the management fees on low-cost muni funds (although a ladder might make sense for in-state bonds if you are in a high-tax state and there is no low-cost fund for your state)

(2) and (3) are not correct. They appear to be market timing statements, but in fact building a bond ladder is independent of market timing. You can build a Treasury ladder with bonds maturing in 1-10 years, or you can buy a Treasury bond fund with a 5-year duration. Both portfolios will have the same 1-year total return (minus expenses on the bond fund); if rates fall, the market values of your Treasury ladder will rise even if you don't plan to sell them. The difference is how the portfolios will change; the Treasury bond fund will still have the same duration next year, while the ladder will have a shorter duration unless you reinvest the principal of the maturing bond in a new 10-year bond (rolling the ladder).
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Re: Should I do bond laddering?

Post by chemocean »

I am currently building my own ladder in my traditional IRA at Schwab buying Treasury notes at acution.

At Schwab, I have to move the interest payments from bonds into a MM account on a regular basis, and have to have additional MM funds to purchase the next bond the day before the maturing bond settles. The expense ratio of 0.15% for treasuries is probably reasonable to deal with theses type of transaction activities. Probably in my mid-80s, I will get tired of dealing with this accounting and switch to a bond fund.

In this forum, I gather that a bond ladder and a bond fund will produce the same returns over a long time horizon. In the short-term, you will not lose money with a ladder if you redeem the bonds at maturity, but will lose opportunities to reinvest at higher interest rates in a rising interest market during the duration of the bond.
Likewise, you will not have gains in a falling interest market if you redeem at maturity, but your interest rate will not drop during the duration of the bond. With high interest rates now, I think your advisors are emphasizing locking in high interest rates by buying bonds in a ladder.
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Electron
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Re: Should I do bond laddering?

Post by Electron »

cruiserguy2 wrote: Sat Aug 19, 2023 2:31 pm Or should we just stick to bond funds and say no to laddering? Can anyone with knowledge of bonds and bond laddering help me make a decision? I trust that my advisors aren't suggesting this for their benefit, but maybe I'm missing something. I'd love to leave things as they are, but want to do the best thing for our portfolio. Thanks for any thoughts.
I would stay with bond funds. As others have suggested, a bond ladder would not be expected to outperform a Total Bond Market Index fund over time.

It might be worth reviewing your overall portfolio, asset allocation, and current selection of fixed income investments.

The Total Bond Market Index funds are actually very similar to a bond ladder. Bonds of different types and maturities are held and typically replaced as they approach one year to maturity. The expense ratio on VBTLX is 0.05%. The ETF version with symbol BND has an expense ratio of only 0.03%.

It's not clear if bond yields today are high or low. Bond yields were generally higher prior to 2008.

https://fred.stlouisfed.org/series/WGS10YR

The link below shows the current yield curve. Note that T-Bill rates are currently higher than longer term Treasuries.

https://home.treasury.gov/resource-cent ... nth=202308

I've been laddering T-Bills recently for a higher yield than Money Market funds and also for the state tax exemption. Setting up a ladder is relatively easy and you can buy at the weekly Treasury Auction through your broker. Note that Fidelity and Schwab both offer an Autoroll service for CDs and Treasuries.

Lastly, be aware that Treasury securities are exempt for any state income tax and may trade at a slightly lower yield as a result.
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cruiserguy2
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Re: Should I do bond laddering?

Post by cruiserguy2 »

Thank you again to all who have replied. I am seriously leaning against the suggestion of bond laddering. Your input is greatly appreciated and I'm glad I can pose a question on this site and get educated responses.
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Re: Should I do bond laddering?

Post by Parkinglotracer »

We bond ladder and do it ourselves for our low 7 figure portfolio in retirement at age 62. Easy thru vanguard brokerage. When one rung matures … we reinvest, rebalance, or Spend our bond proceeds. It does not isolate you from bond value changes due to interest rates but it does set you up with a maturing rung on a regular basis so you can redeem your bond for face value unlike a bond fund. Try it -bogleheads can show you how to buy a treasury security right thru the website in two minutes!

I would prefer not to pay to do this but it might be worth it.


Here is what our wiki says about it

https://www.bogleheads.org/wiki/Rolling ... bond_funds
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Electron
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Re: Should I do bond laddering?

Post by Electron »

An Internet search on Wasmer Schroder brings up a lot of interesting information.

https://pressroom.aboutschwab.com/press ... fault.aspx

Charles Schwab acquired Wasmer Schroeder Strategies in 2020 and assets under management have grown to more than $18 billion.

https://www.schwab.com/wasmer-schroeder

"Wasmer Schroeder Strategies are offered through a wide range of fixed income separately managed accounts across the duration, credit, and tax-efficiency spectrums."

The use of separately managed accounts (SMA) would explain the need to open the additional IRA accounts. The minimum account size appears to be $250,000.

Here is a document with detailed information on the strategies. I was not able to find any information on their track record which would be quite interesting.

https://www.schwab.com/public/file/P-12928432
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cruiserguy2
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Re: Should I do bond laddering?

Post by cruiserguy2 »

Thanks, Electron. I had seen those first two links/articles, but not the last one. I also figured that the SMA aspect explained the need for another IRA. Not sure what to think about that. I studied advertising years ago, so am usually skeptical about something new to me. Even though I have faith in my advisors, I wanted to seek opinions elsewhere. I've never felt like something was suggested that might benefit the advisors or Schwab, but this proposal did make me want to look into things before agreeing to it.
mrb09
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Re: Should I do bond laddering?

Post by mrb09 »

If you're looking at diversified corporate bonds with a set maturity date, there are term based ETFs that do that. There was a discussion at viewtopic.php?t=409654 . I'm doing that for a future gap year where I'm in-between two income streams.
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Electron
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Re: Should I do bond laddering?

Post by Electron »

cruiserguy2 wrote: Mon Aug 21, 2023 2:33 pm I also figured that the SMA aspect explained the need for another IRA. Not sure what to think about that.
That's a good question on the Separately Managed Accounts. There is quite a bit of information available online.

There may be additional work required when Required Minimum Distributions start or when rebalancing your overall portfolio.

I have IRAs at Vanguard and use their Automatic RMD Service to make the annual withdrawal near the end of the year. It might be worth investigating how RMDs would be handled with the two different types of accounts.
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Re: Should I do bond laddering?

Post by WhitePuma »

You already have a bond ladder- it’s called a bond index fund.
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WoodSpinner
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Re: Should I do bond laddering?

Post by WoodSpinner »

OP,

I do a Non-Rolling bond ladder of TIPS to match our Cashflow needs. We were able to easily set it up ourselves once we had done the projected Income and Expenses to determine Cashflow. Bonds are bought on the secondary market and will never be sold — the coupons and principle payments will be spent.

That said, if they are talking about a Rollong Bond ladder, I would stick with a fund, it’s much cheaper and simpler to manage.

WoodSpinner
Last edited by WoodSpinner on Tue Aug 22, 2023 10:09 am, edited 1 time in total.
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cjcerny
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Re: Should I do bond laddering?

Post by cjcerny »

Bond laddering is the opposite of keeping it simple. Stick with a bond index fund if you want to keep it simple.
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cruiserguy2
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Re: Should I do bond laddering?

Post by cruiserguy2 »

I am about 90% certain I will not do this Wasmer Schroeder bond laddering that was proposed. I really do prefer to keep things simple. For my wife and I, it has always worked well for each of us to have a Rollover IRA and a Roth IRA. In addition to those, we have a joint brokerage account. We are a few years from taking RMDs, but that is something we need to be looking at -- what to do now or over the next 6 years, in order to make the tax situation as desirable as possible later. How a bond laddering arrangement, within new IRAs, would affect RMDs was one question I was going to ask the advisors. I've pretty well decided I will not need to ask questions, only inform them that I want to stick with bond funds in our current IRAs. Thanks again to all who have helped me on this issue.
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Re: Should I do bond laddering?

Post by watchnerd »

Parkinglotracer wrote: Mon Aug 21, 2023 6:00 am We bond ladder and do it ourselves for our low 7 figure portfolio in retirement at age 62. Easy thru vanguard brokerage. When one rung matures … we reinvest, rebalance, or Spend our bond proceeds.
Yep, super-easy to DIY a bond ladder at Vanguard as the bond desk even has a ladder-building tool.

I certainly wouldn't pay someone an annual management fee for it.
Global stocks, IG/HY bonds, gold & digital assets at market weights 75% / 19% / 6% || LMP: TIPS ladder
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Re: Should I do bond laddering?

Post by Parkinglotracer »

cjcerny wrote: Mon Aug 21, 2023 4:20 pm Bond laddering is the opposite of keeping it simple. Stick with a bond index fund if you want to keep it simple.
I used to feel the same way. Once I started laddering it was psychologically empowering to have a bond mature, return its face value on maturity regardless of interest rate fluctuations, i could reinvest it in another bond rung, I could rebalance into equities, or I can spend it in retirement. It does take a little more work than a bond fund though. Determining what a bond fund will be worth when you planned to spend it isn’t simple.
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Re: Should I do bond laddering?

Post by BigJoeAllen »

It might be worth reviewing your overall portfolio, asset allocation, and current selection of fixed income investments.

The Total Bond Market Index funds are actually very similar to a bond ladder. Bonds of different types and maturities are held and typically replaced as they approach one year to maturity. The expense ratio on VBTLX is 0.05%. The ETF version with symbol BND has an expense ratio of only 0.03%.

This was very good info for me, as I have been considering this bond ladder thing too. Based on this and others pointing out laddering is not simplifying anything - which is want I want - simple, I am going to stick with my vbtlx etc.
Thanks all.
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Re: Should I do bond laddering?

Post by ebeb »

BigJoeAllen wrote: Sat Oct 21, 2023 10:24 am
This was very good info for me, as I have been considering this bond ladder thing too. Based on this and others pointing out laddering is not simplifying anything - which is want I want - simple, I am going to stick with my vbtlx etc.
Thanks all.
Be careful about bond funds as you will know the final yield you got only after selling the fund. Bond ladders you can know the YTM while buying. :annoyed
80% VOO | 20% BND+Cash | Don't believe Nobody because Nobody knows nothin' - Anon
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Re: Should I do bond laddering?

Post by Sandtrap »

watchnerd wrote: Mon Aug 21, 2023 8:21 pm
Parkinglotracer wrote: Mon Aug 21, 2023 6:00 am We bond ladder and do it ourselves for our low 7 figure portfolio in retirement at age 62. Easy thru vanguard brokerage. When one rung matures … we reinvest, rebalance, or Spend our bond proceeds.
Yep, super-easy to DIY a bond ladder at Vanguard as the bond desk even has a ladder-building tool.

I certainly wouldn't pay someone an annual management fee for it.
+1

15 percent of our Vanguard Brokerage Account is in a DIY Treasury Bond Ladder, 3 mos, 6 mos, 1 year, etc.

The rest is in a hybrid "boglehead basic/simple" low cost index funds which include Total Bond Index, etc.

To op: congratulations on finding trusted Financial Advisors that give you peace of mind on your retirement portfolio/assets.

Your decision to pass on the Bond Laddering is a helpful one.
Good luck in your efforts going forward.

Consider posting for a portfolio review in "forum wiki format" by senior portfolio reviewers to get more insights.
j :D
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TenthmanDC
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Re: Should I do bond laddering?

Post by TenthmanDC »

I'm curious if y'all have looked at the Wealthfront Bond Ladder product to see if it changes any of your answers.

Seems to make ladders a lot simpler/more accessible for smaller investors.

(Long time lurker, first time poster. Thanks for the patience!)
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Electron
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Re: Should I do bond laddering?

Post by Electron »

awshields wrote: Fri Jun 07, 2024 9:01 pm I'm curious if y'all have looked at the Wealthfront Bond Ladder product to see if it changes any of your answers.

Seems to make ladders a lot simpler/more accessible for smaller investors.
An Internet search on Wealthfront Bond Ladder turns up a lot of interesting information.

Here is a whitepaper with an excellent overview of the product. The process is more complicated than I expected.

https://research.wealthfront.com/whitep ... nd-ladder/

The next link is a discussion on reddit with twenty comments.

https://www.reddit.com/r/wealthfront/co ... ?rdt=42376

There is an annual fee of 0.25% after the first six months. That is not unreasonable with short and intermediate term Treasury yields at current levels.

I purchased a lot of T-Bills over the last two years and learned quite a few things. At one point I had a T-Bill maturing almost every week and it became quite a bit of work. Vanguard does not have an auto-roll service and it took some effort to place a purchase order that would settle on the same day as the maturing security. I wanted to avoid maturing principal being invested in the brokerage settlement fund which was not tax-exempt in my state. In most cases I was buying through the Treasury auction for the slightly higher yield.
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Re: Should I do bond laddering?

Post by Mando19 »

I am retired and recently got concerned about bond market risks and uncertainty. Since CD rates are on par with bond returns, I created a 5 yr CD ladder that removes my concern. Just a comment that CD’s are another no/low fee option to consider.
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Re: Should I do bond laddering?

Post by BirdFood »

cruiserguy2 wrote: Sun Aug 20, 2023 8:45 pm Thank you again to all who have replied. I am seriously leaning against the suggestion of bond laddering. Your input is greatly appreciated and I'm glad I can pose a question on this site and get educated responses.
I think Treasury bond ladders are great. I will be putting almost all of my bonds in Treasury bond ladder(s), most of those TIPS.

But I don't see any reason at all to pay someone else to do it for me, especially at .15 percent. Maintaining these ladders should take me an hour or two a year. For an expert, I'd think that would be more like minutes. (I could spend more time optimizing it, or having more and more closely spaced rungs, etc., etc.. But would the expert be spending that extra time?)
asahopkins
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Re: Should I do bond laddering?

Post by asahopkins »

Electron wrote: Sat Jun 08, 2024 4:25 pm
awshields wrote: Fri Jun 07, 2024 9:01 pm I'm curious if y'all have looked at the Wealthfront Bond Ladder product to see if it changes any of your answers.

Seems to make ladders a lot simpler/more accessible for smaller investors.
An Internet search on Wealthfront Bond Ladder turns up a lot of interesting information.

Here is a whitepaper with an excellent overview of the product. The process is more complicated than I expected.

https://research.wealthfront.com/whitep ... nd-ladder/

The next link is a discussion on reddit with twenty comments.

https://www.reddit.com/r/wealthfront/co ... ?rdt=42376

There is an annual fee of 0.25% after the first six months. That is not unreasonable with short and intermediate term Treasury yields at current levels.

I purchased a lot of T-Bills over the last two years and learned quite a few things. At one point I had a T-Bill maturing almost every week and it became quite a bit of work. Vanguard does not have an auto-roll service and it took some effort to place a purchase order that would settle on the same day as the maturing security. I wanted to avoid maturing principal being invested in the brokerage settlement fund which was not tax-exempt in my state. In most cases I was buying through the Treasury auction for the slightly higher yield.
I don’t see what value the Wealthfront product would provide beyond the appropriate blend of a Treasury money market fund and a short term Treasury mutual fund or ETF. The complexity in the description may be accurate, but it’s also essentially a description of how the managers of a Vanguard MM or ETF manage the portfolio. Plus with the funds you don’t have to worry about integer numbers of $100 bonds. Makes me think they are adding complexity to make it seem like something you can’t duplicate with easier approaches. Am I missing something about the value proposition of this product?
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Electron
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Re: Should I do bond laddering?

Post by Electron »

asahopkins wrote: Sat Jun 08, 2024 6:33 pm I don’t see what value the Wealthfront product would provide beyond the appropriate blend of a Treasury money market fund and a short term Treasury mutual fund or ETF. The complexity in the description may be accurate, but it’s also essentially a description of how the managers of a Vanguard MM or ETF manage the portfolio. Plus with the funds you don’t have to worry about integer numbers of $100 bonds. Makes me think they are adding complexity to make it seem like something you can’t duplicate with easier approaches. Am I missing something about the value proposition of this product?
Some investors seem more comfortable with a Treasury ladder knowing that all securities can be held to maturity and return the full principal. In some cases, at least some of the money is needed in a known time frame.

There is always a chance that interest rates will rise in the short or intermediate term. In that case, the NAV of a bond fund may drop.

I agree with you that bond mutual funds or ETFs have advantages for the longer term investor.

Wealthfront appears to be putting together well structured ladders and making the overall task much easier for the investor. Personally, I would not like to pay 0.25% per year for the service. As I mentioned earlier, I did not like the effort required to ladder T-Bills maturing every week, but buying a few longer maturity Treasuries is not a problem. I recently bought three different 52 week T-Bills to defer income to 2025. One was purchased in the secondary market and the other two were purchased at auction. That task was very easy and I won't have to deal with any of them until a year after purchase.
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Re: Should I do bond laddering?

Post by dbr »

Frankly, I think the current enthusiasm on this forum for bond ladders for long term investors is a temporary aberration arising from an extreme case of rapid and large increase in interest rates that caused large losses in bond NAV. I don't think this justifies a "should" for the long term investor to hold ladders rather than funds.

That doesn't mean there is anything wrong with holding bonds in ladders if that is what a person prefers. Of course we have already commented that this is most practical with Treasuries and of dubious advice for corporates, munis, etc. where default risk needs to be diversified away, not to mention transaction costs.
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Re: Should I do bond laddering?

Post by Parkinglotracer »

dbr wrote: Sun Jun 09, 2024 7:24 am Frankly, I think the current enthusiasm on this forum for bond ladders for long term investors is a temporary aberration arising from an extreme case of rapid and large increase in interest rates that caused large losses in bond NAV. I don't think this justifies a "should" for the long term investor to hold ladders rather than funds.

That doesn't mean there is anything wrong with holding bonds in ladders if that is what a person prefers. Of course we have already commented that this is most practical with Treasuries and of dubious advice for corporates, munis, etc. where default risk needs to be diversified away, not to mention transaction costs.
I agree. I think it’s natural to try to actually or even just psychologically limit the interest rate risk of one’s fixed income portfolio. Not for everyone but it is for me. And the 13% decline in BND in 2022 only reinforced what I think is a prudent effort.

Besides a 5 year treasury bond ladder, I like I bonds, CDs, mm funds, HYSAs, tsp G fund, fixed income funds, and short term bond funds to limit the actual or just even the psychological effects of staying the course with our fixed income portfolios.
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Re: Should I do bond laddering?

Post by BirdFood »

dbr wrote: Sun Jun 09, 2024 7:24 am Frankly, I think the current enthusiasm on this forum for bond ladders for long term investors is a temporary aberration arising from an extreme case of rapid and large increase in interest rates that caused large losses in bond NAV. I don't think this justifies a "should" for the long term investor to hold ladders rather than funds.
Well, there's the other side of the same thing--that is, the rising interest rates mean that it's possible to buy ultra safe, fairly simple, and easily accessible Treasuries and actually earn something from them. I think a lot of people are aware that their HSA rates are not going to last forever and are looking around for similar rates for longer term but with bank-account safety and predictability. Bond funds don't have that predictability.

Also, the momentarily ultra-high iBond rates probably attracted a lot of attention to bonds in general, and individual bonds specifically.
dbr wrote: Sun Jun 09, 2024 7:24 amThat doesn't mean there is anything wrong with holding bonds in ladders if that is what a person prefers. Of course we have already commented that this is most practical with Treasuries and of dubious advice for corporates, munis, etc. where default risk needs to be diversified away, not to mention transaction costs.
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Re: Should I do bond laddering?

Post by TenthmanDC »

dbr wrote: Sun Jun 09, 2024 7:24 am Frankly, I think the current enthusiasm on this forum for bond ladders for long term investors is a temporary aberration arising from an extreme case of rapid and large increase in interest rates that caused large losses in bond NAV. I don't think this justifies a "should" for the long term investor to hold ladders rather than funds.

That doesn't mean there is anything wrong with holding bonds in ladders if that is what a person prefers. Of course we have already commented that this is most practical with Treasuries and of dubious advice for corporates, munis, etc. where default risk needs to be diversified away, not to mention transaction costs.
I want to offer a bit of a different perspective - for bond ladders in particular (hence my reason for resurrecting this thread!)

My HYSA has been a great place to park cash during the last few years and I got the benefits every time the fed bumped rates. I'm not holding a huge chunk of my portfolio there, but it acts as a holding tank - about 5% of my liquid assets are there. But now, I (along with others) don't expect the Fed to hold rates here and my cash haven is exposed to rate risk. A ladder helps defray that risk and works within my time horizon. It's actually more advantageous because of the tax treatment.

So my plan would be to downsize the HYSA, and put into the bond ladder now, while rates are still solid, and gain an extra year-ish of juiced returns before the well dries up.
tibbitts
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Re: Should I do bond laddering?

Post by tibbitts »

dbr wrote: Sun Jun 09, 2024 7:24 am Frankly, I think the current enthusiasm on this forum for bond ladders for long term investors is a temporary aberration arising from an extreme case of rapid and large increase in interest rates that caused large losses in bond NAV. I don't think this justifies a "should" for the long term investor to hold ladders rather than funds.

That doesn't mean there is anything wrong with holding bonds in ladders if that is what a person prefers. Of course we have already commented that this is most practical with Treasuries and of dubious advice for corporates, munis, etc. where default risk needs to be diversified away, not to mention transaction costs.
+1

Although I don't have data to back it up, I'd say that discussions of ladders (relative to discussions of bond funds) have increased by maybe 10x over the last few years. There was just not much mention of ladders before that - in fact there might have been more discussion of CD ladders than bond ladders back then. Of course now everybody will say they've been using bond ladders since Eisenhower was president but I have my doubts.

For several years now all my bond funds have been emerging market, high yield, or floating rate, and I don't know nearly enough about any of those to replace them with ladders even if I wanted to.
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