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Ladder Strategy

An investment strategy in which one invests in several securities with different maturities. When the first one matures, the yield may or may not be used to buy another security. It is used most often with bonds and certificates of deposit. Laddering protects the investor from interest rate risk by locking in interest rates at once.

Suppose one does not use laddering: one may invest $30,000 in a five-year bond with a 4% coupon. When the bond matures, prevailing interest rates may have dropped to 2%, making it impossible to achieve the same profit reinvesting in the same type of bond. Had this investor used laddering, he/she would have put, say, $10,000 into three bonds: a five-year bond at 4%, a seven-year bond at 5.5%, and a 10-year bond at 6%. That way, if prevailing interest rates drop to 2% in five years, this only affects the reinvestment of one third of the initial $30,000 investment. This practice is also called staggering maturities or liquidity diversification.


An investment strategy in which bonds or certificates of deposit that have different maturities are assembled for a portfolio. For example, an investor with $50,000 might invest $10,000 in bonds with a two-year maturity, $10,000 in bonds with a four-year maturity, $10,000 in bonds with a six-year maturity, and so forth. Principal from matured bonds or CDs is either spent or reinvested in additional bonds or CDs with longer maturities at the top of the ladder. A laddered portfolio hedges interest rate changes by providing liquidity with short-term securities while at the same time providing a relatively steady source of income with long-term, fixed-income investments. Also called liquidity diversification, staggering maturities.


Laddering is an investment strategy that calls for establishing a pattern of rolling maturity dates for a portfolio of fixed-income investments. Your portfolio might include intermediate-term bonds or certificates of deposit (CDs).

For example, instead of buying one $15,000 CD with a three-year term, you buy three $5,000 CDs maturing one year apart. As each CD comes due, you can reinvest the principal to extend the pattern.

Or you could use the money for a preplanned purchase, have it available to take advantage of a new investment opportunity, or use it to cover unexpected expenses.

You can use laddering to pay for college expenses, with a series of zero coupon bonds coming due over four years, in time to pay tuition each year.

And if you ladder, you can avoid having to liquidate a large bond investment if you need just some of the money or to reinvest your entire principal at a time when interest rates may be low.

References in classic literature ?
No," she answered; "Ellen is afraid to mount the ladder.
Then the under hostler said he had asked Dick to go up the ladder to put down some hay, but told him to lay down his pipe first.
And then Jurgis went limp, and caught himself on the ladder.
There was a slight noise from the direction of the dim corner where the ladder was.
So I held on till all the late sounds had quit and the early ones hadn't begun yet; and then I slipped down the ladder.
It opened my eyes to the horrible pit, but to no ladder upon which to get out.
I followed still, up a very narrow staircase to the attics, and thence by a ladder and through a trap-door to the roof of the hall.
We were both of us nodding ere any one invaded our retreat, and then it was Joseph, shuffling down a wooden ladder that vanished in the roof, through a trap: the ascent to his garret, I suppose.
He mounted another step threateningly as if it were his energetic intention to jump down and deal with her; but as she came toward him he evidently thought better of it and stood on the top step of his ladder shaking his fist down at her.
This ladder leads to a man-hole made in the hull of the Nautilus, that corresponds with a similar hole made in the side of the boat.
The three men brought the carriage up quietly, and took out of it a little man, stout, short, elderly, and commonly dressed in clothes of a dark color, who ascended the ladder very carefully, looked suspiciously in at the window of the pavilion, came down as quietly as he had gone up, and whispered, 'It is she
Immediately the window was opened and a ladder of rope was let down from it.