Investing

Living with a Maturity Ladder Portfolio

  • 12.FEB.2018
  • Ian Martin,  XTB

Maturity Ladder bond portfolios over time

The XTB recommended Maturity Ladder portfolio is very popular with IFAs 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 investment 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 IFAs and their clients find this feature attractive in a portfolio.

 

However, IFAs and their clients are faced with choices because of this characteristic of maturing bonds. Do you take the money or re-invest when distributions are made?

Choices for consideration

The simplest choice is to take the distributions and either spend it, or invest it elsewhere as envisaged when maturity ladder portfolio was purchased.

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 as you intended.  Each time a bond matures out of your portfolio, you’ll receive the Face Value.

However, many investors purchase a maturity ladder portfolio with the intention of re-investing the capital as it’s returned. This brings up a number of key points.

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.

This is one of the reasons why since first launching our recommended portfolios, we have created a series of Maturity Ladder portfolios, based on when you first invest:

  • The Maturity Ladder Series 1 portfolio has already had repayments in 2017 to investors and its final XTB repays in 2022.
  • Maturity Ladder Series 2 will first repay investors in November 2018, and its final XTB also repays in 2022.
  • Late in 2017, we introduced Series 3 of our Maturity Ladder recommended portfolios.
  • The first XTB in Series 3 repays principal in October 2019 and has a final maturity in 2023.

 

Our approach

Our approach is to create buy and hold portfolios, which give certainty of outcome. Therefore it is quite practical to simply invest distributions back into the Maturity Ladder portfolio that you invested in. 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 profile.

To make the options available as simple as possible, our decision tree takes you and your clients through the options available to them, with the aim of finding the best possible outcome for each investor.

Decision tree for investors living with a maturity ladder portfolio

 

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.

Events

  • 20Aug 2018

    YTMF05: NAB BBSW+0.85% 20 MAY 2019

    This is the coupon date

  • 21Aug 2018

    YTMIPL: INCITEC PIVOT 5.75% 21 FEB 2019

    This is the coupon date

View Calendar
View Insights

Top insights stories

Corporate bonds and the pursuit

Read Article
Insights

Bonds vs bond funds

Read Article
Insights

Your Money Your Call: Bonds.

Watch now
Insights

CommSec Executive Series Interview

Watch now
Insights