Laddering means to structure the timing of when investments come due. It is a way to manage liquidity and longer-term stability with a portfolio of bonds or certificates of deposit (CDs).
To create a ladder, an investor in bonds or CDs with a sum of money could get started by dividing the money into portions and staggering the renewal dates. For example, you could divide a lump sum into three equal portions and buy one-year, two-year, and three-year securities. In this way, a known amount of money will be available each year when a security matures.
Another option would be to purchase CDs on a monthly basis so that, when your laddering strategy is fully implemented, you would never have to wait more than a month to cash in a CD.
Each time a security matures, the ladder could be continued by reinvesting in the longest-term investment in the ladder (in the first example, three years). So as the one-year securities mature, you would reinvest the money in three-year securities, or you could end the ladder by spending the money. With laddering, an investment in someone's portfolio is always getting ready to mature, which provides liquidity.
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