Fixed rate bond laddering

[elephanthunt11]

Hi all,

Just for context I'm 31 and the last 12 months have been my first experience of a non-zero rate interest environment in adult life...

I moved my cash buffer (dip-buying-money) from my SSISA to a series of fixed rate bonds to get a better rate of return.

The genius that I am realised that if I set the bond maturity dates at 3 month intervals, in a rising interest-rate environment, I can capitalise on the ever increasing rates and have a revolving flow of cash being paid out to me. Thinking I'd stumbled upon something revolutionary, I couldn't get my believe no one else was talking about this. I then discovered I'm not a 1000IQ having discovered something new; and this is in fact called 'bond laddering'. It seems the yanks have more content out there on bond laddering (and their "CDs") from what I see on youtube.

I know I'm only touching the tip of the iceberg when it comes bonds making up a part of my portfolio (if you can even call fixed rate savings accounts 'bonds' in the traditional sense of portfolio allocation)

So the conversation I'd like to hear more experienced heads talk on is:

A) whether a bond ladder is a good idea in a rising rate environment to confirm if I am right in my thinking

B) highlight anything I haven't thought of with respect to this and

C) (thinking aloud here) what bonds are best in respect to a decreasing interest rate environment? Fixed rate bonds whose maturity exceeds the current round of base rate rises?

I've done some research into money market funds and I understand "bonds" in the traditional sense which trade with live prices aren't so good in a rising rate environment, but, I know very little about these. So what do you guys do with your cash in different times?

Thanks all,
Elephanthunt

[Newroad]

Hi ElephantHunt11

This likely won't answer everything for you, but it will give you a good background

https://www.lemonfool.co.uk/viewtopic.php?f=52&t=27177&hilit=ladder

and some further links to explore.

Regards, Newroad

[formoverfunction]

Tim Mayes is a Professor of Finance at Metropolitan State University of Denver with over 25 years of teaching experience. He teaches, or has taught, corporate financial management, financial modeling using Excel, investments, and portfolio management.

http://www.tvmcalcs.com/about

Lots of fixed instruments on his site, not sure if there's a laddering calc, but I do use one of his YTM tools.

It's an old site, that's self singed so it might cause a problem for modern browsers.

https://www.investopedia.com/terms/b/bondladder.asp also has several articles on laddering.

You might find US sources more useful as there's a larger universe of bond in comparison to Sterling Corporate issues, so in general fixed interest is a more active element of their portfolio.

If you feel brave the FT, recently describes B&M as having the best balance sheet of UK Sterling Issues, YTM just over 7%. It runs til 2028.

You might also find this interesting, https://learn.wisealpha.com/ if you decide to step outside saving products. The lessons are free. WiseAlpha offers a fractional approach to high corporate bonds, I am a client and investor (via Seedrs) my high yield portfolio with them is yield 10%, with a YTM closer to 12%

There is also infrequent ORB issues, on the London Stock Exchange, and the LSE also has some some information on bond holding for retail customers.

Personally I find Investopedia useful, you might also want to check out Fidelity, US, https://www.fidelity.com/viewpoints/inv ... r-strategy

[mc2fool]

It's not really clear what the parameters are of what you want, and your use of the words "bond laddering" has led people to point you at doing so with traded corporate and/or government bonds (aka "gilts" in the UK), which may or may not be suitable for you, depending on your parameters.

With your references to "fixed rate savings accounts", CDs (certificate of deposit, which is US-speak for fixed-term fixed-rate savings), and the fact that you've posted in this board really all imply that those are the kind of things you're looking at. But either way:

You say "I moved my cash buffer (dip-buying-money) from my SSISA to a series of fixed rate bonds to get a better rate of return". Ok, so:

a) It sounds like you've given up on your "cash buffer" being "dip-buying-money" if it's in fixed rate fixed term accounts. Or is one of your parameters access to the funds by giving up some interest on withdrawals during the fixed term (those sort of a/cs seem to be becoming rarer).

b) Where did you move it to? Cash ISAs or outside of any ISAs altogether?

c) What is the duration of your "ladder"? E.g. have you divided your pot into 4 and put it into 1 year fixed term savings a/cs at 3 month intervals, and roll those over into the best a/c then available as each matures, or something else? Why not divide it into 12 and do it monthly? Or into 2 and every six months?

d) And, really, what is your overall goal here? Is it simply to try and maximise return by avoiding the frustration of putting it all into a 1 year a/c only to see the following week that had you waited a few days you'd have got a better rate? Or is the money becoming available at regular intervals an important parameter in itself?