The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: evme on May 20, 2018, 11:24:45 PM
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Does anyone know the pros and cons of using a bond tent vs. a bond ladder? My financial adviser recommends a 15-year bond ladder with US treasury strips, but I'm wondering if a bond tent may be a better fit for my needs. I am FI but not yet retired. I plan to continue working for another 3-5 years.
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I had to look up the term bond tent, never heard it before.
This is a reverse glide path approach and theoretically it makes sense to reduce retirement date and sequence of returns risk. There quite a but of literature out there. I would assume the difference being having to hold individual bonds to maturity (I'm assuming this is what your advisor means by a ladder). This would lose the benefit of cheap/easy rebalancing, which is easily done with a bond fund.
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They aren't mutually exclusive. We don't know the details of your situation. My view is that a bond tent is a non-rolling bond ladder. Just start buying 5-year STRIPS or CDs, and once you retire in 5 years stop buying them and let them mature. Tadah! Bond tent. You should probably also have a small amount in intermediate or total bond fund that carries through.