How Bond Ladders Protect Cash Flow: In this short video clip from FinStream’s Bob Powell interview with Beau Kemp of Sensible Money, Beau discusses the current uncertainties in the market and how they affect investors. He emphasizes the importance of understanding one’s portfolio, the role of diversification, and the impact of behavioral finance on investment decisions, reviewing how bond ladders can protect your cash flow. A bond ladder is an investment strategy where you buy bonds with staggered maturity dates to spread out risk and provide regular income. For example, instead of investing all your money in one bond that matures in 10 years, you might buy bonds that mature in 1, 3, 5, 7, and 10 years. As each bond matures, you get your principal back and can reinvest it, typically in a new bond at the longest maturity in your ladder to keep the structure going.
This approach helps manage interest rate risk because you’re not locked into one rate for too long, and it provides liquidity as bonds mature periodically. It’s like setting up a conveyor belt of cash flows—steady payouts over time while reducing the chance of getting stuck with a bad rate if the market shifts. You can tailor the ladder to your goals, like matching maturities to future expenses, and it works with various bond types, like Treasuries, corporates, or municipals, depending on your risk tolerance and tax situation.