Laddering For Higher, More Stable Returns

 

Laddering

Investing your money can be a daunting task, especially if you are unsure of which investment options to go with. On the one hand, you could invest your money into a low-risk savings account, but on the other hand, investing in the stock market could potentially provide a higher return on investment. While there is no one-size-fits-all approach to investing, there is a strategy that can provide both higher returns and lower risk. This strategy is called laddering, and it is a technique that you can use to optimize the returns on your investments while minimizing their risks.

Tommy Shek On Laddering For Higher, More Stable Returns

Laddering is a technique that involves investing your money in a series of fixed-term investments, says Tommy Shek. The terms can range from short-term investments, such as certificates of deposit (CDs) that mature in three months, to long-term investments, such as CDs that last five years or more. By investing in a ladder, you can get the benefit of higher-return investments while minimizing the risk of losing money. Here’s how laddering works:

Let’s say you have $50,000 to invest. Instead of putting it all into one investment option, you invest it in a series of CDs spread across different maturities. You might invest $10,000 in one CD that matures in three months, another $10,000 in a CD that matures in six months, $10,000 in one that will mature in one year, $10,000 in a CD that matures in two years, and the last $10,000 in a CD that matures in five years. By investing your money this way, you can earn higher yields than you would with a savings account, and you can get your money back in a relatively short amount of time.

Laddering works particularly well in a rising interest rate environment, where you can take advantage of interest rate hikes by rolling over your investments into higher-yielding instruments at maturity. Laddering ensures that you are always reinvesting parts of your funds to gain the benefit of higher returns. Read more..

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