Bond ladder
A bond ladder involves buying bonds – or other fixed-income securities – that mature at equal intervals. For example, you could start by purchasing three bonds: one with a one-year maturity, one with a two-year maturity, and one with a three-year maturity.
When each bond expires, you’d then buy a new bond with a three-year maturity, repeating the process for as long as you plan to invest. In this way, you’ll have a three-year bond maturing each year.
Bond ladders allow you to invest in longer-term bonds while securing a degree of liquidity (because they mature at regular and predictable intervals). The main advantage to this is that longer-term bonds usually have higher yields over their lifespans, meaning that they’re more profitable.
The downside, however, is that you may reinvest the maturing principal at a lower interest rate, thereby earning a comparatively lower coupon payment from the newer bond.