Important For Your Retirement: How To Build Your Own Bond Ladder

seekingalpha04-05

I enjoy building my own pizza, just as I'm crafting a custom retirement recipe with a bond ladder and my choicest ingredients.A custom-built bond ladder is a retirement powerhouse, mitigating interest...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2425552449?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1943249530/image_1943249530.jpg","is_english":true,"pubTime":"2024-04-05 20:30","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2425552449","market":"fut","top_or_hot":-1,"title":"Important For Your Retirement: How To Build Your Own Bond Ladder","media":"seekingalpha","content":"<div>\n<p>I enjoy building my own pizza, just as I'm crafting a custom retirement recipe with a bond ladder and my choicest ingredients.A custom-built bond ladder is a retirement powerhouse, mitigating interest...</p>\n\n<a href=\"https://seekingalpha.com/article/4682120-important-for-your-retirement-how-to-build-your-own-bond-ladder\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Important For Your Retirement: How To Build Your Own Bond Ladder</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nImportant For Your Retirement: How To Build Your Own Bond Ladder\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-05 20:30 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4682120-important-for-your-retirement-how-to-build-your-own-bond-ladder><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>I enjoy building my own pizza, just as I'm crafting a custom retirement recipe with a bond ladder and my choicest ingredients.A custom-built bond ladder is a retirement powerhouse, mitigating interest...</p>\n\n<a href=\"https://seekingalpha.com/article/4682120-important-for-your-retirement-how-to-build-your-own-bond-ladder\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"IE0031619046.USD","symbol_name":"LEGG MASON ROYCE US SMALL CAP OPPORTUNITY \"A\" (USD) INC","start_time":0,"source_url":"https://seekingalpha.com/article/4682120-important-for-your-retirement-how-to-build-your-own-bond-ladder","article_id":"2425552449","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1943249530/image_1943249530.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2425552449","pubTimestamp":1712320200,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"I enjoy building my own pizza, just as I'm crafting a custom retirement recipe with a bond ladder and my choicest ingredients.A custom-built bond ladder is a retirement powerhouse, mitigating interest rate risk and regularly releasing capital for reinvestment.We discuss three bond issuers with up to 20% Yield-to-Maturity.Turn high interest rates to your advantage, build a high-yield, risk-balanced bond ladder today!","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"IE0031619046.USD":"LEGG MASON ROYCE US SMALL CAP OPPORTUNITY \"A\" (USD) INC","RILYO":"B. Riley Financial Inc","IE00B7SZL793.SGD":"Legg Mason Royce - US Small Cap Opportunity A Acc SGD-H","RILYZ":"B. Riley Financial Inc","RWAY":"Runway Growth Finance Corp.","IE00B66KJ199.SGD":"LEGG MASON ROYCE US SMALL CAP OPPORTUNITY  \" A\" (SGD) ACC","RILYN":"B. Riley Financial, Inc.","RWAYZ":"RUNWAY GROWTH FINANCE CORP 8.00% NOTES DUE 31/12/2027","BK4135":"资产管理与托管银行","IE00B19Z4B17.USD":"LEGG MASON ROYCE US SMALL CAP OPPORTUNITY \"A\" (USD) ACC","BK4127":"投资银行业与经纪业","OXLC":"Oxford Lane Capital Corp","RILYM":"B. Riley Financial Inc","OXLCL":"Oxford Lane Capital Corp","RWAYL":"Runway Growth Finance Corp","OXLCM":"Oxford Lane Capital Corp","OXLCN":"Oxford Lane Capital Corp. - 8.125% Series 2024 Term Preferred St","RILY":"B. Riley Financial, Inc.","BGSX":"Build Acquisition Corp","OXLCO":"Oxford Lane Capital Corp. - Term","RILYG":"B. Riley Financial Inc","OXLCP":"Oxford Lane Capital Corp. - Term","RILYT":"B. Riley Financial Inc","OXLCZ":"Oxford Lane Capital Corp. 5% Notes due 31/01/2027","RILYK":"B. Riley Financial Inc"},"translate_title":"对你的退休很重要：如何建立你自己的债券阶梯","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"US10Y.BOND":1,"RILYM":1,"RILYN":1,"RILYO":1,"RILYT":1,"RILYZ":1,"RWAY":1,"RWAYL":1,"RWAYZ":1,"BGSX":1,"US12M.BOND":1,"US2Y.BOND":1,"US30Y.BOND":1,"US3Y.BOND":1,"US5Y.BOND":1,"US6M.BOND":1,"US7Y.BOND":1,"RILYG":1,"OXLC":1,"OXLCL":1,"OXLCM":1,"OXLCN":1,"OXLCO":1,"OXLCP":1,"OXLCZ":1,"RILY":1,"RILYK":1,"US912797GK78.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GW17.BOND":0.6,"US912797HE00.BOND":0.6,"US912797HG57.BOND":0.6,"US912797HH31.BOND":0.6,"US912797GB79.BOND":0.6,"US912797FS14.BOND":0.6,"US912797FH58.BOND":0.6,"US912796CX52.BOND":0.6},"content_text":"I enjoy building my own pizza, just as I'm crafting a custom retirement recipe with a bond ladder and my choicest ingredients.A custom-built bond ladder is a retirement powerhouse, mitigating interest rate risk and regularly releasing capital for reinvestment.We discuss three bond issuers with up to 20% Yield-to-Maturity.Turn high interest rates to your advantage, build a high-yield, risk-balanced bond ladder today!porcorex/iStock via Getty Images Co-authored with Hidden Opportunities I love DIY projects. It feels like embarking on an exciting journey where your imagination takes the lead, and anything is possible. It's the joy of crafting something unique and tailored specifically to your tastes and needs, whether it's a piece of furniture, a piece of art, or a homemade gift. With DIY, you not only get to explore your creativity but also create items that truly reflect your personality and style. If you are a DIY investor like me, today's discussion around the strategy of building a bond ladder would be of interest to you. We are utilizing this elevated interest rate environment to build a bond ladder that aligns perfectly with our goals and aspirations. But before we dive in, let us quickly review the fundamentals of fixed income. Definition of Fixed Income  Fixed income refers to investments that provide a regular stream of income at predetermined intervals. These investments typically pay a fixed amount of interest or dividends, and examples of fixed-income securities include sovereign bonds, municipal bonds, corporate bonds, certificates of deposit ('CD'), treasury securities, and preferred stocks. These often have a par value that they get redeemed at (as applicable), unlike equities, and with the exception of preferred shares, those regular payments cannot be paused without entering a default. Hence, fixed-income securities are considered lower risk compared to equities (stocks) because they offer a steady income stream, making them an excellent fit for income investors, particularly retirees. Note: 1. Preferred stocks are considered equity, but few within this asset class have a maturity date. Hence, term preferreds make a good fit in our bond ladder alongside our debt holdings. 2. Some corporate bonds have a provision to defer interest payments for a certain period as described in the prospectus. In this case, the deferred interest will accrue and compound on each subsequent interest payment date, until paid. This makes them similar to a cumulative preferred for that deferral period. Background on Bond Ladders A bond ladder is a portfolio of individual CDs or bonds that mature on different dates. It's a prudent strategy because it gives you income regularly while protecting you from changes in interest rates. Instead of buying all your bonds to mature at once, you spread them out evenly over different years, thereby locking in different interest rates on each. This way, your portfolio will protect you from sudden dips and surges in interest rates. By sticking to your plan and reinvesting the money from bonds that mature, you can handle interest rate changes better. A highly popular question is whether one should invest now or wait for rates to drop or rise. We specifically saw this question a lot when we recommended several preferred shares last year, and our answer has been to be a persistent buyer of discounted, income-paying securities. This is because it is extremely difficult to predict when interest rates will rise or fall or what the rates will be in five years. No one knows (not even Fed Chair Powell), and if anyone pretends they do, they are lying.  Nobody can predict interest rates, the future direction of the economy or the stock market. Dismiss all such forecasts and concentrate on what's actually happening to the companies in which you've invested. - Peter Lynch, former manager for Fidelity Magellan fund  Note: Due to technical correctness, we will interchangeably refer to our bond ladder as a maturity ladder, as we hold several term preferreds in that matrix. Benefits of a Bond Ladder As discussed above, a bond ladder serves two goals. Mitigate interest rate risks (renewal risk): Suppose you had several CDs maturing in 2021. A mass renewal at that time would have been a disaster for your income stream. Building a bond ladder helps maintain a consistent income stream by spreading out the reinvestment of maturing funds over time. The same logic applies to the risk of locking in a lot of capital in 3-month, 6-month, and 1-year CDs or savings accounts. When the Fed trims rates, you may have to substantially (and suddenly) raise your portfolio risk level to maintain your income level or face the risk of a significant reduction in your payments. Manage your cash flows: A bond ladder allows you to control when you receive income from your investments. By diversifying maturities, you can lock in current yields on only a portion of your investment, ensuring a steady flow of cash over time while minimizing the impact of interest rate fluctuations on your overall portfolio. Building the Ladder A custom bond ladder is basically like choosing what to put on your plate at an all-you-can-eat buffet. Just as you choose various dishes at a buffet to suit your tastes and dietary preferences, with a custom bond ladder, you select instruments with different maturities to align with your financial goals and risk tolerance. A portfolio with a suitable balance of risk and quality is key to maintaining a livable income stream. For example, having exposure to only CDs creates significant cash flow dependency on interest rates. However, having a balanced portfolio with guaranteed instruments, municipal bonds, investment-grade and non-investment-grade corporate bonds, and preferred shares provides a good balance of portfolio yield and risk level. Municipal bonds also offer some tax advantages that are worth considering. Notably, for non-U.S. investors, there is no U.S. tax withholding on bond interest payments. Author's Creation In the above example, notice how the portfolio income has relative stability through the changes in the Fed Funds rate. This is the power of a custom bond ladder. The above diagram is only an illustration of the concept. When investing in non-guaranteed securities, even a single maturity year should ideally have multiple maturing entities to adequately diversify your portfolio. I also want to mention that there are always investments that yield significantly higher than the Fed Funds Rate without much compromise on quality. For example, Oxford Lane Capital Corp (OXLC) issued an investment-grade baby bond at a 6.75% coupon in 2021, when rates were near zero. This allowed investors to lock in a healthy coupon for ten years! In short, a bond ladder is a powerful tool for fixed-income investors to have direct control over the release of principal and annual interest income to achieve much-needed protection against interest rate risks and renewal risks. Currently, we are recommending an increased allocation to fixed income. The situation may be more bullish for equities a few years out. By having a bond ladder, you put your capital to work now and control the release of that capital upon maturity to favorably allocate it to future opportunities as you see fit. Pick #1: OXLC Baby Bonds - YTM Up To 8.7% Oxford Lane Capital Corporation (OXLC) is a CEF (Closed-End Fund) that primarily invests in CLO (Collateralized Loan Obligations) equity tranches. The CEF issues subordinated notes and term preferred shares to leverage its portfolio and invest in more CLO equity. CEFs have statutory limits on their leverage levels, and are required to distribute 90% of their Net Investment Income to shareholders. As such, their preferreds and baby bonds make safer investments for income investors. Baby Bonds  6.75% Notes due 2031 (OXLCL) - 7.6% YTM 5.00% Notes due 2027 (OXLCZ) - 8.2% YTM  Term Preferred Stock  6.75% Series 2024, Cumulative Redeemable Term-Preferred Shares (OXLCM) - 7.7% YTM 7.125% Series 2029, Cumulative Redeemable Term-Preferred Shares (OXLCN) - 8.7% YTM 6.00% Series 2029, Cumulative Redeemable Term-Preferred Shares (OXLCO) - 8.7% YTM 6.25% Series 2027, Cumulative Redeemable Term-Preferred Shares (OXLCP) - 8.7% YTM  Pick #2: RILY Bonds - YTM Up To 19.8% B. Riley Financial, Inc. (RILY) is a diversified financial services firm that is omnipresent in everyday Wall Street affairs. Ironically, RILY, which specializes in salvaging and transforming beaten-down companies, has beaten-up stock due to largely unfounded short-seller allegations. In our previous article, we have explained how RILY is well-positioned to handle interest expenses and preferred dividends through its operating business with contractual revenues. As such, we find terrific bargains in its deeply discounted baby bonds. Baby Bonds  5.0% Senior Notes Due 12/31/2026 (RILYG) - 19.7% YTM 5.5% Senior Notes Due 3/31/2026 (RILYK) - 19.1% YTM 6.375% Senior Notes Due 2/28/2025 (RILYM) - 15.1% YTM 6.5% Senior Notes Due 9/30/26 (RILYN) - 19.6% YTM 6.75% Senior Notes Due 5/31/2024 (RILYO) - 13.4% YTM 6.0% Senior Notes Due 1/31/2028 (RILYT) - 19.3% YTM 5.25% Senior Notes Due 8/31/2028 (RILYZ) - 19.8% YTM  Pick #3: RWAY Bonds - YTM Up To 8.2% Runway Growth Finance Corp. (RWAY) is a BDC (Business Development Company) that provides flexible capital solutions to late-stage and growth companies seeking alternative ways to raise equity. BDCs are tightly regulated institutions with strict requirements to maintain an asset-to-debt coverage ratio of at least 200%. Additionally, they are required to distribute 90% of their earnings to shareholders, making the securities higher up in their capital structure safer income opportunities. RWAY currently has two baby bonds with attractively high yields. Baby Bonds  7.50% Notes Due 7/28/2027 (RWAYL) - 7.9% YTM 8.00% Notes Due 12/31/2027 (RWAYZ) - 8.2% YTM  Conclusion Below is a snapshot of my (Hidden Opportunities) personal maturity ladder that I began building since the start of the Fed rate hikes. My picks reflect my income requirements, risk appetite, and tax situation. I encourage you to utilize this interest rate climate to build a bond ladder tuned to your taste. Author's Creation We maintain a Maturity Ladder with 19 corporate bonds, baby bonds, and term preferreds with maturities up to 2029 and an average Yield-to-Maturity of ~10.5%. We are taking advantage of this elevated interest rate climate to fortify our bond ladder; we just added 3 new securities to our ladder since the beginning of the year and are adding the fourth this Sunday!  Just like that tailored tux/dress you wore for your wedding, you deserve a retirement that perfectly fits your needs. Embarking on a DIY project is a journey of self-expression and fulfillment, where every creation tells a story and bears the mark of your individuality. Embrace the power of a custom-built bond ladder today to fortify your retirement portfolio against interest rate fluctuations and unlock the flexibility to strategically reinvest released principal. With this structured approach, you can confidently navigate market changes and enhance the reliability and stability of your returns for years to come.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":1,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2425552449"}