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The Bond Ladder Tool
Overview
What Is It?
The Fidelity Bond Ladder tool allows you to build a consistent flow of income* from a staggered fixed income portfolio based on bond maturities. As the bonds in your ladder mature, the income stream will change if you reinvest the proceeds into new bonds issued at different rates.
How Do You Get It?
There's no minimum investment required to create a bond ladder. However, at Fidelity, we believe that to achieve a reasonable level of diversification, you should consider a minimum investment of at least $100,000 ($200,000 in the case of a corporate bond ladder). Remember that diversification does not guarantee against a loss.
hypothetical example
Creating a Bond Ladder
This five-step process uses your search criteria to identify bonds that may fit your ladder. You can make side-by-side comparisons of yields, call dates, and ratings. Create a scatter graph comparing bonds with market yield curves. And decide, with the help of our Bond Ranking System, if a bond is well priced or too risky.
How Bond ladders can help
- Reduce Reinvestment Risk — If interest rates rise, you may be able to capitalize on higher rates by purchasing new bonds with money coming from expiring bonds. If rates fall, money reinvested would earn the prevailing (lower) yields but your ladder's existing longer dated bonds would continue to be locked into the initial, presumably higher, yields.
- Provide Dependable Income* — Depending on the bonds in your ladder, income payments could be scheduled monthly, quarterly, or semiannually.
- Ongoing Liquidity — Since the bonds in your ladder expire at regular intervals, cash can be available on a consistent, scheduled basis.
In general, the bond market is volatile, bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
*For investments of less than $100,000 ($200,000 when using corporate bond ladders), you may want to consider purchasing bond funds for purposes of diversification.
Fidelity Capital Markets Services is a division of National Financial Services LLC. National Financial Services LLC is a Delaware limited liability company and registered broker-dealer, and a Fidelity Investments company.
Dependable income is subject to the credit risk of the issuer of the bond. If an issuer defaults no future income payments will be made.
A bond ladder, depending on the types and amount of securities within the ladder, may not ensure adequate diversification of your investment portfolio. This potential lack of diversification may result in heightened volatility of the value of your portfolio. You must perform your own evaluation of whether a bond ladder and the securities held within it are consistent with your investment objective, risk tolerance and financial circumstances. To learn more about diversification and its effects on your portfolio, contact a Representative: 1-800-544-6666.
Fidelity Investments does not provide tax or legal advice so you may want to consult an attorney or tax advisor regarding the portfolio bonds you have identified before purchasing your ladder.
- Create a Bond Ladder (log in required)
- Call a Representative:
1-800-544-6666
