Maturity Ladder bond portfolios over time
The XTB Maturity Ladder portfolio has one XTB maturing each year. It is very popular among advisers and for good reason as it:
- Delivers all the benefits of owning XTBs directly
- Provides a regular and reliable cash flow
- It is a buy and hold to maturity investment strategy which still provides flexibility for the investor when cash flows are paid
- The characteristic of regularly maturing bonds creates a different risk metric for portfolio construction. Many advisers and their clients find this feature attractive in a portfolio.
In implementing this strategy, advisers and their clients need to decide what to do with XTB proceeds as the underlying bonds mature. Do you take the money or re-invest?
Choices for consideration
The simplest choice is to take the proceeds and either spend it, or invest it elsewhere as envisaged when the Maturity Ladder portfolio was acquired.
For example: You may have invested with the intention to use the capital for mortgage repayments, school fees, an annual holiday, or some other known expense. For these investors, the choice is simple, continue by using the proceeds as planned. Each time an underlying bond matures in the Maturity Ladder portfolio, clients will receive the XTB Face Value (subject to no default).
However, many investors purchase a maturity ladder portfolio with the intention of re-investing the capital as it’s returned. This raises a number of key points for you and your clients to consider.
The original Maturity Ladder portfolio we recommended in 2016 is quite different to the Maturity Ladder portfolio we are recommending today. Many investors want to retain the characteristics of a maturity ladder portfolio they already own. They do this by adding a single additional XTB to extend the life of the ladder.
This is one of the reasons why we have created a series of Maturity Ladder portfolios, based on when you first invest:
- Maturity Ladder Series 1 has already had 3 repayments to investors in 2017, 2018 and 2019. Its final XTB repays in 2022.
- Maturity Ladder Series 2 first repaid investors in November 2018. Its final XTB repays in 2022.
- Late in 2017, we introduced Series 3. The first XTB repays its face value in October 2019 and its final XTB maturity in 2023.
- The latest Maturity Ladder, Series 4 has its first maturity in 2021. The final XTB matures in 2025.
Our approach is to create buy and hold to maturity portfolios, which give provide predictable outcomes. Therefore, it is practical for a client to simply reinvest proceeds back into their original Maturity Ladder portfolio. Alternatively, a client could invest in the newest series of the Maturity Ladder portfolio. This would result in a portfolio with a slightly longer dated maturity profile.
To make the options available as simple as possible, our decision tree takes you through the options available. The aim is to find the best possible outcome for each investor.
Find out more about the Maturity Ladder Portfolio
Try a Maturity Ladder Portfolio in the XTB Cash Flow Tool
Download a PDF of the Maturity Ladder Decision Tree