One of the virtues of constructing a bond ladder, where you own the bonds outright, is that you’re not confined to a mutual fund and/or ETF where the emotions of the group can rule the roost.
When you invest with groups, you become a groupie. If they panic and sell, that forces the fund manager to sell what you might feel are good positions simply to raise cash for those exiting the building. You don’t have a choice in the matter.
When it comes to bond ladders, you also have direct control over timing. In other words, as bonds come due, you can decide whether it’s time to change course to a different maturity or look for a different bond type, like Treasurys vs. corporates.
Bond prices swing just like stock prices do. From the day you purchase the bond, it’s being judged, fairly or unfairly, by Mr. Market. The nice thing about bonds, though, is that you have a special date on the calendar, like a high school graduation, when it’s going to mature. But like high schoolers, you might not always be happy with the prices day to day. Like stocks, bond prices are also exposed to human emotions. It’s surprising how they become productive adults.
When that big day comes for bonds—maturity—you then have a pile of money to redeploy. You can buy a new car as a gift, but that ruins the compounding machine.
At graduation or maturity, you can continue with your life plan, if you choose, and invest in a similar bond with yields you can sink your teeth into. You create a plan. You don’t have to time the market. You just keep moving forward, looking up to the next rung of the ladder. What’s the market giving you? You think.
Alternatively, when we have CDs maturing, and you’re not working with a trusted advisor, it may be taxing on your brain, making decisions on your own every time your bank cash balance grows. It’s like a new set of problems with whatever’s going on in the world, and it never seems like a good time. You have a life to live.
Action Line: Bonds, unlike stocks, have a set maturity date, offering some stability in an uncertain world. Notice I said some. No one said high school would be easy. But I believe in you. Let’s talk.
