Course: Investment Planning
Lesson 11: Fixed Income Investment Strategies

Student Question:

Good morning! This page in the lesson lists the Laddered Approach and the Barbell Approach as popular passive bond strategies. However, in the reading, on Page 312 (Money Education, 2nd edition), the Laddered Approach and the Barbell Approach are listed as active strategies. Can you help me clarify which is correct? Thanks!

Kaitlyn


Instructor Response:

Hi Kaitlyn,
 
Great question.  Bond laddering is generally a passive investment strategy in which the bond ladder is not actively managed after its construction.  In this passive strategy, bonds of different maturity dates are purchased by an individual and reinvested by the individual investor as the bonds mature.  Laddering can also be implemented using Bond ETFs. This is the general and most popular approach because it ensures the investor is always profiting from the current interest rate market, at least to some degree, and there is no investment management fee for holding individual bonds. 
 
However, an active trader can also use a laddering strategy to forecast market movements and buy/sell bonds before their maturity date within the ladder.  While the textbook is not incorrect, we believe the more common approach by far is the passive strategy. 
 
How completely does this address your question?
 
Onward and Upward,

Bruce