What Is a Bond Ladder?
A bond ladder is a portfolio of bonds whose maturity dates are spread out at regular intervals — one bond maturing each year, say, instead of all of them maturing at once. Each bond is a "rung", and together they form a ladder stretching from the near term out to your longest maturity.
The idea is simple but powerful. Instead of guessing when interest rates will peak and betting your whole bond allocation on that call, you spread your money evenly across many maturities. Some of your money is always maturing soon (giving you cash and flexibility), and some is always locked in at longer, usually higher, yields. You capture an average of the rate environment rather than a single point in time.
The Anatomy of a Ladder
Split your capital into equal portions. Buy a bond maturing in year 1, another in year 2, and so on out to your longest rung. Collect coupons from every rung along the way. When the year-1 bond matures, reinvest that principal into a fresh long-dated rung — and the ladder rolls forward.
How Reinvestment Works
The reinvestment step is what turns a one-off set of bonds into a self-sustaining ladder. Each time the nearest rung matures and returns its principal, you buy a new bond at the far end of the ladder. Because you are always adding at the long end and removing at the short end, the ladder's average maturity stays roughly constant, and you are never forced to reinvest your entire bond allocation at a single moment.
Toggle "Reinvest matured rungs" in the builder to see the two modes:
- Rolling ladder (reinvest on): as each rung matures you roll it out to a new long rung, so the ladder — and its income — persists indefinitely. This is the classic income-generating ladder.
- Wind-down ladder (reinvest off): you let each rung mature and take the cash. The ladder shrinks over time and fully unwinds when the longest rung matures. Useful when you have a known future spending date.
Bond Ladder vs Bond Fund
Both give you diversified bond exposure, but they behave very differently — and the right choice depends on whether you value certainty or convenience more.
| Feature | Bond Ladder (individual bonds) | Bond Fund / ETF |
|---|---|---|
| Maturity | Each bond has a fixed maturity and returns par | No maturity — perpetual pool of bonds |
| Price when rates rise | Hold to maturity and you still get par | Fund NAV falls; loss is realised if you sell |
| Cash-flow schedule | Known coupons and known maturity dates | Distributions vary; principal never "matures" |
| Diversification | You build it rung by rung | Instant, across hundreds of bonds |
| Ongoing cost | No management fee (just trading costs) | Expense ratio every year |
| Effort | Buy and reinvest each rung yourself | Fully hands-off |
A ladder shines when you want predictable income and return of principal on a schedule — retirement spending, a house deposit in eight years, a college bill. A fund shines when you want broad exposure with zero maintenance and don't mind that its value floats with the market. For the full picture, see our bond investing guide.
Worked Example: A $100,000, 5-Rung Ladder
Suppose you have $100,000 and build a 5-rung ladder across 1 to 10 years, at an average yield of 4.5%. The builder spreads the rungs evenly, so they mature at roughly years 1, 3, 5, 8 and 10, with $20,000 in each.
- Annual coupon income: each $20,000 rung at 4.5% pays about $900 a year, so the whole ladder throws off roughly $4,500 annually.
- Weighted average maturity: with equal $20,000 rungs the average is simply the average of the maturities — around 5.4 years.
- Year 1: the nearest rung matures. With reinvestment on, you roll that $20,000 into a fresh 10-year rung and the ladder keeps paying ~$4,500. With reinvestment off, you pocket the $20,000 and the ladder's income steps down.
If yields on new 10-year bonds are only 3.5% when you reinvest, that rolled rung now earns $700 instead of $900 — that gap is reinvestment risk in action, and it is exactly why a ladder spreads reinvestment across many years rather than betting it all on one.
Match the Ladder to a Goal
If you have a specific future expense, size the longest rung to mature just before you need the cash and turn reinvestment off. If you want a durable income stream, keep reinvestment on and let the ladder roll. The builder above lets you test both instantly.
Risks to Watch
1. Reinvestment risk
When a rung matures, prevailing yields may be lower than when you started, so the new rung earns less. A ladder spreads this risk across many maturities but does not remove it — in a sustained low-rate environment, the ladder's income drifts down as rungs roll over.
2. Credit concentration
Individual bonds carry the issuer's credit risk. A ladder built entirely from one issuer, or one sector, concentrates default risk on every rung. Diversify across issuers and quality, or use highly rated government bonds for the core of the ladder.
3. Liquidity and minimums
Individual bonds can be harder to sell mid-life than a fund, and many have minimum purchase sizes (often $1,000–$10,000 of face). Make sure each rung is large enough to buy the bonds you want without overconcentrating.
Callable Bonds Can Break a Rung
If a bond is callable, the issuer may redeem it early when rates fall — handing your principal back exactly when reinvestment is least attractive. Check call features before slotting a bond into a rung, or the ladder may not roll the way you planned.
Frequently Asked Questions
Track Your Real Bond Ladder
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