investor the option to re-invest the entire proceeds from the maturing
bonds, keep the interest and re-invest the original principal, or use the
money for other purposes.
Another benefit is that the portfolio can be adjusted as the yields on
bonds move up or down. For example, if yields move up, the proceeds
from maturing bonds are re-invested in higher yield bonds; should they
move lower, the investor can choose to invest in longer term bonds
(which have better yields) or other types of securities producing higher
returns. A side benefit of the ladder portfolio is that the average yield on
the investment continues to climb higher as the proceeds from the
maturing bonds are put back into the portfolio. The ladder portfolio
represents a conservative strategy with attractive returns and low risk.
A drawback associated with bonds is their high unit prices, such as
$1,000 or $5,000. While this may not sound like a high price to a
wealthy investor, it puts bonds beyond the reach of the small investor.
However, this does not mean that the average investor must sit on the
sidelines when it comes to bonds. Mutual funds offer a good variety of
bond funds covering a wide range of preferences from conservative to
speculative and from focused to diverse, requiring less cash to get
involved. Other mutual funds may have bonds as a part of their makeup,
providing a good degree of diversification across several markets
such as stocks and money markets (a collection of short-term
instruments).We will cover mutual funds in a later chapter.
Savings bonds are another type of bond requiring little money to
obtain. Any bank will sell you savings bonds (issued by the Treasury
Department) starting as low as $25. Remember that with savings bond,
the face value indicates the bond value at maturity and they are sold at
a discount to their face value. Don't be fooled by many companies
offering you for example $500 in savings bonds as a promotion to do …