Ergo I'm looking for some informed opinions on how to build a good bond ladder, and specifically would like to know more regarding:
- Optimal length? I've seen 5 and 10 years mentioned most commonly. However I haven't seen any convincing arguments on any particular length.
- Optimal time between maturities? For a 5 year duration, people usually talk about yearly durations (i.e. a bond is coming to maturity every year). But for other lengths (such as 10 years), I've seen people suggest yearly and others suggest every two years. It sounds like if you use a yearly approach you are minimizing the possible fluctuations (up or down). This would suggest yearly would be more appropriate given the general purpose of a bond ladder as a conservative holding within an investment account (RRSP for example).
- Constituent bonds? If you stick with the safest Government of Canada bonds you trade some yield for safety. How low a credit rating would you go? I have no problem going with provincial bonds, but beyond that I don't know enough to know if corporate bonds are too risky or not. One book suggested some institutions invest only in BBB or better rated corporate bonds. Is this satisfactory? How much research must you do to be sure (and how do you do this research)? (FWIW, I use TDW, although I'm not sure what research info they have for corporate stocks & bonds.)
- Bell: On a related note re corporate bonds, I've heard the bond holders suing Bell lost: I only read the end of the lengthy Bell thread. As someone who hasn't heard all the details, what I would like to know is this: what is the impact exactly of this Bell buyout on the bond holders? Are they loosing everything or only loosing some part of their bond value? And how do I as a bond investor avoid a similar fate if I am investing in corporate bonds? (IE as a corporate bond investor, could I reasonably have avoided [or expected!] the losses the Bell bond holders now appear to be facing, as the judge in the Bell case seemed to imply?)