laddering investment & finance definition

An investment strategy in which bonds or certificates of deposit that have different maturities are assembled for a portfolio. For example, an investor with $50,000 might invest $10,000 in bonds with a two-year maturity, $10,000 in bonds with a four-year maturity, $10,000 in bonds with a six-year maturity, and so forth. Principal from matured bonds or CDs is either spent or reinvested in additional bonds or CDs with longer maturities at the top of the ladder. A laddered portfolio hedges interest rate changes by providing liquidity with short-term securities while at the same time providing a relatively steady source of income with long-term, fixed-income investments. Also called liquidity diversification, staggering maturities.