What need is satisfied for an investor using bond laddering?

Bond laddering is a strategy that involves purchasing bonds with different maturity dates, which helps to minimize interest rate risk. When investors ladder their bond investments, they spread out the maturity dates so that a portion of the bonds mature at regular intervals. This allows the investor to reinvest the proceeds from maturing bonds in potentially higher-yielding securities if interest rates rise in the future.

By staggering the maturities, investors can also reduce the impact of interest rate fluctuations on their overall portfolio. If interest rates increase, the investor can purchase new bonds at these higher rates as bonds mature, mitigating the risk of holding long-term bonds that may lose value as rates rise. This tactic helps ensure that not all investments are subject to the same interest rate risk at once, offering both safety and flexibility over time.

This strategic distribution of maturity dates directly addresses the concern of interest rate risk, making bond laddering a popular method for investors looking to maintain a stable income while navigating the fluctuating bond market.