There are a few ways that you can protect your retirement so that you have enough cash to live the life you want after you’ve finished working. And one of those methods that people use is laddering.
Laddering is a financial method that, in some cases, and if done properly, can help you mitigate risk and help you make smaller investment decisions instead of investing big chunks of cash all at one time.
It’s important to note that I am not a finance professional, and when it comes to protecting your retirement fund or making any financial decisions you should consult with someone who is.
What is Laddering?
Laddering is one of those financial terms that has a varied definition, even in the finance industry itself. But typically, when someone refers to laddering they are using it in reference to retirement planning.
Laddering can help reduce both your interest rate and your reinvestment risk, so at the end of the day, you could be in a better financial position than you were before.
It essentially refers to creating a financial ladder. You purchase a number of different financial products that are all the same—like bonds—but each product has a different maturity date.
The different maturity dates help to create a ladder with your finances so you can build up your fund. But it also helps to ensure that you can make smaller decisions throughout the growth of your fund.
How Does Laddering Help Protect Your Retirement?
It sounds all fine and dandy, but what does having the different maturity dates really do to help protect your retirement fund in the long run?
Laddering helps to reduce your risk because as your different financial products mature, the funds can be reinvested. But because you’re reinvesting smaller product sizes you aren’t having to risk a large amount of cash to reinvest.
Likewise, during certain periods like the holidays, interest rates often decline. But the smaller amount of cash that’s being reinvested means that you don’t have to invest a large amount of money at a lower interest rate.
Should You Consider Laddering Your Retirement Fund?
Laddering can help you protect your retirement fund, but it’s not the choice for everyone. It’s important that you make informed financial decisions, especially when it comes to the money you’re going to live with after you’ve finished working.
Therefore, before you decide to ladder your investments, you should definitely talk with your financial advisor or another financial professional to make sure that it’s the right decision for you.
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