Best Financial Tips for Retirement Income Direct Rollover Portfolio & Asset Management in Arkansas

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As a financial advisor I am often asked the following question. What is the best strategy to generate income during retirement? I believe that using a Laddered Bond Strategy is one of the best and simplest strategies to use for income during retirement.

How Does a Bond Ladder Work?

A bond ladder works by spreading investment dollars among bonds that will mature at different intervals (usually between three and 10 years from now). In a normal interest rate climate shorter maturities will yield less than longer term securities. Think of the individual bonds as rungs on a ladder. As each individual bond (rung) matures, your principal is made available for reinvestment at current interest rates or your principal can be used to meet any financial need that you may have.

The value of a bond ladder is the ability to reinvest the principal from the maturing bond (bottom rung) into a longer term bond with a higher yield. The new bond will then become the top rung of your ladder.

Bond ladders are typically built using a variety of fixed income securities such as: Government bonds, Municipal bonds, corporate bonds, and fixed annuities.

When Should You Use a Bond Ladder?

A Strategy for All Interest Rate Climates

Since a bond ladder enables you to invest your assets over time, your portfolio will be less affected by interest rate volatility. The Federal Reserve raised interest rates 17 consecutive times during the last interest rate cycle. With interest rates near zero at the time of this writing, which way do you think interest rates will move in the future: up or down? As bonds come due, you are able to reinvest your principal into bonds of intermediate or longer term maturities, where yields are higher.

Interest rate changes will affect you less with a bond ladder. Here´s why:

• If interest rates go down over the next few years, you will already have locked in higher rates—and the current market value of your fixed income portfolio will be rising.

• If interest rates stay the same, you will be earning longer term yields, so your return should exceed what you would be earning if you left your investment short term.

• If interest rates go up, the current market value of your portfolio will be falling. However, as each rung (bond) matures, you will have money to invest at higher rates.

The Benefits of Building a Ladder

Liquidity

With a ladder, bonds will be maturing regularly. Proceeds can then be reinvested in the ladder or taken out in cash if needed.

Stability

In periods of rising interest rates, a bond ladder offers greater protection from declining market value than a portfolio consisting of solely long term bonds. In periods of declining interest rates, your ladder rises in value—and you will still have the higher rates already purchased.

Diversification

The ladder approach allows you to be invested in a variety of bonds to provide diversification, reducing both credit risk and reinvestment risk. In addition to selecting a number of different maturities, you can select from a variety of investment types or quality ratings.

Customization

You are in the driver´s seat with your bond ladder program. Your bond ladder can be designed today to help meet your current financial needs, whether for savings or income generation. Laddering a portfolio is a dynamic process that gives you the opportunity to restructure as your needs and objectives change in the future.

For more information on bond ladders please call Braden Hill at 479-631-9700 or visit www.PinnacleHillsFinancialServices.com