BOND LADDERING A Strategy for Income

TYSON R. SMITH, AAMS®,AIF®,CRPC®,CRPS®,WMS® Senior Vice President Wealth Management RIAC - Retirement Plan & Institutional Advisory Council

Bond Laddering is an income strategy by which an investor purchases multiple bonds with sequential maturities in order to mitigate interest rate and liquidity risk while attempting to maximize current income. This type of strategy has certain characteristics that help make it work. I frequently use the laddering strategy to help clients with their cash flow needs.

Laddering bonds is simply buying bonds with sequential maturities. I have created a hypothetical illustration of a $1,000,000 bond ladder. I used round numbers to indicate sequentially higher rates as maturities went out into time. Please understand that the rates shown are not tied to any specific security and no offer is made or implied as to their availability.

• Bonds with shorter maturities generally pay less interest than bonds with longer maturities.

• Bond laddering reduces interest liquidity risk (the need for cash) by making cash available each year or two.

• Bond laddering can generate greater average interest by balancing long bonds with short maturity bonds.

The first day can be the worst day, when looking at total annual income. As time marches on, the shorter bonds are redeemed at maturity and then redemptions are reinvested out into the future.

In a rising rate environment, those longer bonds might be offered at higher rates. However, if we find ourselves in a flat or even declining rate environment, the same strategy can still work well, since Short Term bonds with lower interest rates are sequentially being replaced with Long Term bonds at assumedly higher rates.

This strategy can work for any type of Fixed Instrument; CD’s, Corporate Bonds, Fixed Annuities, Municipal Bonds, Government Bonds, orTreasuries. It is also possible to mix-n-match securities, depending on what is available at the time of investment or reinvestment. A client's tax situation might change over time and Tax-Free Municipal Bonds may no longer have the mathematical advantage they once did and Corporate Bonds might make more sense over time. Implementation of the best strategy is an important element to review frequently.

If you would like more information on Bond Laddering or other portfolio strategies, please give us a call and we can discuss in more detail.

Raymond James & Associates, Inc. (407) 883.4226 | www.TheTysonSmithGroup.com

Neither the information nor any opinions expressed constitute a solicitation for the purchase or sale of any security referred to herein. Investors should discuss the risks inherent in bonds with their Raymond James Financial Advisor. Past performance is no assurance of future results. This communication is intended to help improve the efficiency with which Financial Advisors obtain information relevant to their client's taxable fixed income holdings. Prior to transacting in any security, please discuss the suitability, potential returns, and associated risks of thetransactions(s) with your Raymond James Financial Advisor. This time-honored investment technique, in which an investor blends several bonds with differing maturities, provides the benefit of blending higher long-term rates with short-term liquidity. Should interest rates remain unchanged, increase, or even decline, a laddered approach tofixed income investing may help reduce risk, improve yields, provide flexibility and provide shorter-term liquidity. Risks include but are not limited to: changes in interest rates, liquidity, credit quality, volatility and duration. There is an inverse relationship between interest ratemovements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices rise.

Diversification does not ensure a profit or protect against a loss. Investments are subject to market risk, including possible loss of principal.

The information contained herein has been prepared from sources believed reliable but is not guaranteed by Raymond James & Associates, Inc. (RJA) and is not a complete summary or statement of all available data, nor is it to be construed as an offer to buy or sell any securitiesreferred to herein. Investors are urged to obtain and review the relevant documents in their entirety. Examples provided are hypothetical and not intended to reflect the actual terms or characteristics of any security. Additional information is available upon request.