The laddered approach to fixed income investing
The aberrations and volatility of today’s securities markets can result in exceptional all-round investment opportunities. However, for many investors, investing in volatile markets can be difficult and confusing. Fortunately, there is a proven investment technique that is readily available to help you make the most of an ever-changing interest rate environment.
The “laddered portfolio approach” allows you to minimize the reinvestment risk that is associated with short-term fixed income investments. Quite simply, this strategy adopts a longer range outlook and diversifies the maturity structure of fixed income investments within your portfolio — thus enabling the total return of your fixed income investments to be less adversely affected by ongoing interest rate fluctuations.
Structuring a laddered portfolio with investments in successive maturities allows you to achieve more flexible management of your fixed income assets. The laddered strategy can help you accomplish the following goals:
- Achieve a potentially higher total rate of return
- Maintain liquidity within your portfolio
- Minimize interest rate reinvestment risk in falling interest rate envirments
- Provide flexibility to reassign short-term holdings to longer-term investments during periods of rising interest rates, in order to lock-in those higher rates.
The large variety of high quality, fixed income investments that are currently available enables you to choose and adjust the timing of investments within your portfolio to match your current and future income needs.
With the guidance of a professional Financial Advisor, you can implement a strategy like this one that will help you achieve a superior rate of return while simultaneously reducing risk.
If you would like to learn more about the laddered approach to fixed income investing, contact your Financial Advisor or the CARP Retirement & Savings Program Manager at 1 800 563-6623 .
Financial Tips courtesy of Merrill Lynch Canada Inc.