A lot of investors use bonds for one simple reason: to generate income with lower volatility than stocks. One of the most common ways to structure this is through a bond ladder.
A basic Treasury bond ladder might look something like this: an investor splits capital evenly across Treasury securities maturing in one, two, three, four and five years. As each rung matures, the proceeds can either be spent or rolled into a new five-year Treasury.
Bond ladders can help match future liabilities or spending needs, such as retirement withdrawals or tuition payments. They can also improve cash-flow planning and liquidity management because investors know exactly when principal is scheduled to return.
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