How to Minimize Risks When Investing in Bonds
- 1). Divide the amount of money you wish to invest in bonds by six. A bond ladder can have any number of rungs, but six bonds can be arranged to provide an interest check every month.
- 2). Purchase Treasury Notes or Bonds maturing each year for six years with each portion of your bond money.
- 3). Select bonds that have different interest payment months. Treasury securities pay interest twice a year. The one year-to-maturity bond could pay interest in January and July. The two year note could pay in February and August, and so forth. The U.S. Treasury issues new debt securities every month.
- 4). Use the proceeds when the one year note matures to purchase a new six- or seven-year Treasury Note. You will now have a portion of your bond portfolio maturing each year, which can be invested in the longest maturity of your bond ladder.
- 5). Keep in mind longer term bonds generally pay higher rates than short term securities. The bond ladder will allow you to buy longer term bonds each year but still have short term securities that will mature soon if cash is needed or interest rates are increasing.
