For investors seeking stability and regular earnings, fixed-income products like bonds and time deposits are good options.
If you’d like to build a dedicated portfolio of multiple fixed-income investments, there are 3 different methods you can consider. These are the bullet, barbell, and ladder strategies. Learn all about them below.
1. Bullet strategy
Are you investing for a goal with a specific timeframe in mind? Maybe you’d like to put a downpayment on a house in 5 years or build capital for a business that you’d like to open 3 years from now.
The bullet strategy may help you reach your goal within the timeline you’ve set. It involves investing in multiple fixed-income products that will mature at the same time, but you’ll stagger your investments at different times.
How does it work?
Let’s say you’re investing for a goal that you want to achieve in 10 years.
In 2026, you invested P50,000 in a bond that will mature in 2036.
In 2029, you invested another P50,000 in a different bond that will also mature in 2036.
You did this for a 3rd time in 2033 by putting in the same amount in a product with the same year of maturity. When that year comes, you can spend all the proceeds on the goal you’ve set.
Staggering allows you invest little by little, which can help you build your investments over time if you don’t have a huge amount to start with.
Additionally, if interest rates go up after your initial investment, you might be able to take advantage of higher rates on your succeeding investments.
Keep in mind that interest rates can also go down, which means you might need to accept lower rates later.
Read this article to learn how changes in interest rates affect different investments.
Who can consider this strategy?
Those who are investing for a time-based goal and prefer to grow their portfolio incrementally may want to follow this approach.
2. Barbell strategy
This method involves investing in short-term and long-term fixed-income assets, and not in medium-term ones. The maturities are at extreme ends of the spectrum, creating a barbell shape.
How does it work?
You’ll invest in a mix of short-term and long-term fixed income products, like 3-year and 10-year bonds.
This way, you might enjoy both the flexibility of short-term assets and the higher earning potential of long-term ones.
Generally, the longer it takes for an investment to mature, the higher it’ll pay to compensate investors whose money will be locked away for a certain period.
On the other hand, short-term products give you access to your money sooner. You’ll have the flexibility to reinvest in other products, possibly enjoy higher rates elsewhere, or spend the money if needed.
Who can consider this strategy?
You can explore this strategy if you want short-term access to some of your money while growing a portion of it over the long-term.
3. Ladder strategy
As its name suggests, the laddering method means your investments will be spaced out like rungs on a ladder. Some of the “rungs” are closer to maturity while others are farther away.
How does it work?
You’ll set up your ladder so that 1 of your investments will mature on a certain schedule, like every month or every year.
Say you have P60,000 to invest in time deposits. You’ll build the ladder by putting P20,000 each in 3 placements. One will mature in February, the 2nd in March, and the 3rd in April.
When the 1st one matures, you can keep the ladder going by starting another time deposit that will mature in May.
You may also choose to reinvest the money in a different asset or spend it according to your goals.
Like the barbell strategy, the ladder approach can help you enjoy both short-term access to your cash and long-term growth potential.
The difference of laddering is that it allows you to revisit your portfolio on a more regular schedule.
Who can consider this strategy?
This method is an option if you want to maintain flexibility via short-term assets and grow money in the long-term, while also having the chance to choose what to do with your money on a regular period.
