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Finally, I’ve gotten around to building a ladder. I have procrastinated doing so because it seemed like a hassle; buy a one year, and a two, and a three, etc. Then after a year, roll the one year to a five, and on and on. If I knew how simple Fidelity made it, I would have acted sooner.
Looking for ultimate safety, We decided to use Brokered Certificates of Deposit (CD). As most everyone here knows, Brokered CDs are simply CDs purchased from a broker dealer, in our case, Fidelity. It’s not my purpose to go into detail about the differences between bank and brokered products. I’ll just say that the brokered CD can be a bit more flexible, though there are pros and cons. The size of our ladder should outlast a dreaded ‘lost decade’.
For those who have not yet built a CD or Bond ladder, here is the process at Fidelity.
Click on “build a ladder”
Select which account to fund the ladder
Click on the desired duration, (in our case, five years)
Input the ladders investment ($100K for example)
Press next
At this step Fidelity displayed the highest paying CDs for each duration (I believe this is updated every 15 minutes)
Choose if you want maturing CDs to be deposited back into your account, or if you want to purchase a new CD at the maximum duration of your ladder (again, five years)
Select “buy”, and you now own five $20K CDs.
The ladder is totally on autopilot. Easy Breezy.
We have money in VTAPX which is a short term TIPS fund. The shorter term reduces interest rate risk. This type of investment is best kept in an IRA rather than a taxable account.
We have three bond funds (all Vanguard ETFs) in our traditional IRA, all about 1/3 of our bonds: 1) BSV short term- for minimal volatility
2) VTIP short term tips- for above plus inflation protection
3) BND intermediate term for slightly higher returns
Yes, half of our bond position is in this fund, also inside the IRAs
Excellent!
Very helpful post, Dan.
So, I should just ‘Click on “build a ladder.”’ Who knew?
If you want to consider an easy to access ladder with bonds instead of CDs, check out IShares ready-made 5 year ladders: LDRC for corporate bonds, LDRT for US Treasuries, and LDRI for TIPS. These ladders hold 1,2,3,4,and 5 year IBonds and are reinvested for you as each year matures. Because they are bonds, the market value can fluctuate. I hold LDRC and it yields more than I could get from a CD ladder.
With a bit more work, you can build your own ladder with the underlying ETFs. This could allow you to create a ladder of a shorter or longer length.
Thanks Howard.
Here is a link to LDRC at Morningstar. A 0.10% net expense ratio and a effective duration of 2.71 looks great to me for a bond fund. I am still buying TIPS at auction but there will be a point in life when I will likely stop buying individual TIPS and just choose to use a low cost short duration TIPS fund like LDRI (0.10% ER, 2.74 effective duration).
Interesting. I’d like to see Morningstar do a qualitative analysis of the process.
I notice that LDRI has trailed the similar duration Vanguard Short-Term Inflation-Protected Securities Index ETF (VTIP) over the last 1yr, 3yrs, 5yrs… (VTIP does have qualitative analysis behind its silver rating.) Would you still choose LDRI because of the fact it holds bonds to maturity so is theoretically going to act like a ladder of individual bonds?
I am uncertain if I will choose LDRI or a treasury inflation product such as VTIP in the future and thus I used like in my statement. For now I plan to continue to annually buy 10 year TIPS at auction for our rolling ladder. The real return on 10 year TIPS currently is 0.50% or more higher than either LDRI or VTIP and I am assuming that better yield difference will continue because of the longer duration.
I am building our TIPS ladder inside our Roth IRAs to cover specific contingencies I am concerned about and other factors.
The first contingency occurs when either my wife or I dies. I will likely predecease my spouse but whichever of us dies first the survivor will then receive a SS benefit based on the higher earning spouse’s benefit and my wife’s current lower spousal benefit amount will effectively end upon the death of the first spouse. I am hopeful that the 10 years TIPS ladder proceeds paid out from Roth’s to whichever of us survives will be adequate to replace the SS benefit money that goes away when the first spouse dies and given how TIPS work should provide an inflation adjusted cash flow on a income tax free basis to the surviving spouse.
The second contingency I am concerned about is if somewhere around the year 2032 or so the SS trust fund becomes depleted and I need to replace the decrease in our social security benefit.
One other factor I am considering is that by limiting our TIPS ladder to 10 years is that our children, who are our Roth beneficiaries, have, under current tax rules, 10 years to withdraw the remaining assets in the inherited Roth IRAs and such beneficiary distributions, if any, should be income tax free to them.
Thanks for explaining. That all makes sense, and you also hit upon something else I’ve been wondering about lately, which is holding bonds in a Roth account. I generally hold all our bonds in Traditional accounts, but will soon run out of room there, so will need to hold some in taxable or Roth – either paying taxes on the interest and leaving the Roth to grow tax free, or having less growth potential in the Roth in return for less tax now.
I have read that it makes more sense to have the bond ladder in your traditional account for two reasons:
1) Bonds have a lower return which leads to lower RMDs and thus taxes for you
2) Equities have a higher return, and the Roth assets are usually tapped last. Thus if the plan is for your beneficiaries to obtain your investment assets they will inherit a potential greater balance, and it will be tax free as apposed to inheriting a traditional account.
Completely agree, but our traditional accounts are almost full of bonds, so as that allocation increases, the additional bonds are going to have to live in either Roth or taxable.
I have TIPS in Roth and taxable. Knowing what I know now, I’d keep them out of taxable due to the phantom income that gets taxed every year.
Agree as far as TIPS go, but nominal bonds might still have a place in our taxable, again assuming no room in Traditional IRA or 401(k).
You hit on my thinking: it acts like a ladder. My understanding is that for each target maturity IBond, IShares buys up a basket of bonds that all mature in the same year and holds them to maturity. Once I have bought in, I have locked in my yield to maturity. Presumably a fund like VTIP has the potential for a greater gain…. or a greater loss.
Very true.
Dan, thank you for this. It was helpful. We have never done a CD or bond ladder, but this might help Spouse’s mom when the proceeds from the sale of her house come soon and she will need money for her care. Chris
I’ve been maintaining my own bond ladder for about 15 years. A mixture of muni, corporate and CD’s that goes out 7 years. It has served me well in generating income and maintaining a strong anchor for my portfolio. I can foresee building a TIPs ladder as I prepare for RMD’s in a few years.
Excellent info, if you like ladders for finance. I think it is too much work so I find investing in an internet bank like Ally, Marcus or Synchrony is much simpler and offers similar safeguards. The current rates are as high as 4%. This works for me.
I put money in Marcus a while back, but for the past couple of years Vanguard Federal Money Market fund has paid more. I now have a hundred bucks at Marcus.
I like the ease of simply keeping cash in Vanguard Money Markets. Three good choices include: VMFXX. (Randy, you reference this one), VMRXX and VUSXX.
My dad enjoyed going from bank to bank to bank in search of the best interest rates, and then repeating the process over and over as his CDs matured; it worked great for him as well.
That was my dad’s favorite hobby after fishing.
Awe, Harold, my dad loved fishing. Maybe we’re cousins.
Thanks for sharing. It indeed sounds very simple. Not sure if Vanguard also offers something similar as this.
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Thank you for this. I have to do this.
I did not know that Fidelity offered this service. It really is as simple as you described. Thank you for this posting.
And I always thought older people should stay off ladders. 😀
Especially if one is wielding a chain saw!
Thanks Dan. I’ve been considering a short rolling TIPS ladder, and now wonder about a short CD ladder, for a different purpose.
You mention brokered CDs can be more flexible. Do you know how painful (or not) it would be to exit brokered CDs early compared to bank CDs? I realize that used for lost decade protection it’s unlikely you’d need to do so, but perhaps it came up in your research.
There is a secondary market for brokered CDs, so no early withdrawal problems. However, like bonds, depending on current interest rates, you will either sell at a discount or at a premium. It’s a roll of the dice.
I’m a big fan of ladders — a three-year CD ladder and a ten-year individual bond ladder, to be exact. The one exception? When I’m teetering on the top step, wielding a chainsaw trying to tame the trees. That kind of ladder I could do without. 😉
There’s also a handy TIPS ladder tool out there: https://www.tipsladder.com
The developer of that free tool, Kevin Esler, was a presenter at the 2025 Bogleheads conference and discussed using the tool. The Boglecenter has posted a link to that 2025 Bogleheads University 501 YouTube video of that presentation as well as many of the other 2025 conference presentations.
Mr. Esler retired from a career in developing software and the free tool was a passion project he started for his own retirement planning and that he has now shared with the world.