Municipal Bond Forum
Lengthen the maturity range
Q
I read your article, “The Myth Behind Laddering“, with great interest. I listened to the “experts” who recommended laddering. However, I didn’t invest equal sums in 2, 4, 6, 8 and 10-year bonds. When I had a sum to invest, I would invest it all in one bond – a AAA-insured bond with call protection. For example, I would invest $25,000 in a five-year bond, and as money accumulated from other investments, I would then invest in another bond maturing in six years. After many years, I have filled in all the rungs of the ladder going out 15 years. Was this a foolish way to invest in bonds? I am writing to ask you what to do in future investing. Also, how does the yield curve come into play in all of this? Although I have been investing in bonds for many years, it seems I am still a novice. I’m hoping your Web site will educate me.
A
James A. Klotz responds:
There is certainly nothing foolish about the strategy you have employed in building your municipal bond portfolio. Our approach differs in that we would have encouraged you to lengthen your maturity range to produce higher returns and more reinvestable income.
Today’s “flat” yield curve environment allows investors to find the equivalent of 30-year yields in shorter maturities, which reduces market volatility and risk.
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