What is a “note ladder” (and why not just buy one note)?
A ladder is a portfolio of multiple notes with different maturity dates. Instead of putting 100% into one term, you split across 2–3 rungs (e.g., 12, 24, 36 months).
Benefits vs a single note:
- Cash-flow planning: Interest payments plus periodic principal return reduce timing risk.
- Flexibility: At each maturity, you can reinvest at current rates—or use cash for planned expenses.
- Risk management: Diversifies across terms instead of “all-in” on one maturity window.
As always, specific coupons, minimums, payment frequency, and dates vary by offering. Rely on each offering’s documents.
How to build a note ladder in 5 steps
1) Define your objective
- Income now: Favor more near-term rungs and the payment frequency you prefer.
- Flexibility later: Include 24–36 month rungs for potentially higher coupons and staggered principal.
2) Pick your ladder “shape”
Common structures using 12–36 month terms (no 6/9/18-month rungs):
- Balanced core (12/24/36 months): Classic 3-rung mix.
- Barbell (12 and 36 months): Near-term cash plus longer coupons.
- Short core (12/24 months): Simpler 2-rung ladder emphasizing earlier liquidity.
3) Allocate across rungs
Example starting points (tune for your goals):
- Even: 33/33/34 (for 12/24/36)
- Income-tilted: 40/35/25 (front-loaded to 12/24)
- Yield-tilted: 20/30/50 (back-loaded to 36)
4) Match payment frequency
Confirm the schedule in the offering docs.
- 12-month notes: Often monthly (confirm in documents).
- 24-month (2-year) & 36-month (3-year) notes: Paid quarterly.
Build a simple calendar so cash-flow aligns with your bills or reinvestment cycle.
5) Set your reinvestment rule
Pre-commit to a simple rule to avoid hesitation:
- Roll forward: When a rung matures, add a new 24–36M rung (extend the ladder).
- Keep duration: Re-buy the same term you just harvested (maintain ladder length).
- Hybrid: Split maturing principal between near- and longer-dated rungs.
A practical 3-rung template (illustrative only)
Let’s say you plan to allocate $200,000 across three fixed-rate notes. (Numbers below are for illustration—see live terms on /investments. Accrual begins per the offering’s Effective Date.)
| Rung | Target Term | Allocation | Payment Freq. | Role |
| 1 | 12 months | $70,000 | (often) Monthly | Near-term cash & first principal return |
| 2 | 24 months | $65,000 | Quarterly | Mid-term rung; coupon potential |
| 3 | 36 months | $65,000 | Quarterly | Longest term; often higher coupon potential |
Cash-flow outcome (conceptual):
Monthly income from the 12-month rung (if monthly per docs), and quarterly distributions from the 24- and 36-month rungs. Principal returns at months 12, 24, and 36; on each maturity, apply your reinvestment rule.
Rolling reinvestment: the engine behind laddering
Reinvestment is the core feature that makes a ladder work:
- If rates rise: Maturing rungs can be redeployed at potentially higher coupons.
- If rates fall: Longer rungs may preserve higher earlier coupons.
- If plans change: Take principal from the next maturity rather than breaking a longer commitment.
Choosing your ladder length (12–36 months)
- 12-month heavy: Maximum flexibility; lower duration.
- 12/24 mix: Balanced yield/liquidity trade-off for many income investors.
- 24/36 spine: Potentially higher coupons; good for those comfortable with a longer horizon.
Implementation checklist
☐ Confirm you’re an accredited investor
☐ Review live note terms, coupons, minimums on /investments
☐ Select 2–3 rungs spanning 12–36 months
☐ Allocate per your target shape (even, income-tilted, yield-tilted)
☐ Verify payment frequency for each offering (24 & 36 months are quarterly)
☐ Note cutoff dates and the Effective Date for accrual
☐ Document your reinvestment rule for maturing principal
☐ Track payment dates in a simple calendar
Common mistakes (and simple fixes)
- All short or all long. Mix near-term and longer rungs to balance flexibility and yield.
- Ignoring cutoffs/Effective Date. Missing a cutoff or misreading the Effective Date can shift first accrual/payment.
- No reinvestment plan. Decide in advance how you’ll roll maturing principal.
- Mismatched cash-flow. Confirm frequency and dates line up with your needs.
- Skimming documents. Payment conventions, fees (if any), extensions, and triggers live in the offering docs.
FAQs
Is a note ladder the same as a bond ladder?
Conceptually yes—staggered maturities for cash-flow and flexibility. Here, the instrument is a private note, so you must rely on each offering’s documents.
How many rungs should I use?
Two to three is common. Too few = lumpy cash-flow; too many = complexity. Start simple, adjust later.
Monthly vs quarterly payments—does it matter?
It affects cadence and budgeting. 2-year and 3-year notes pay quarterly; 12-month notes are often monthly (confirm in the specific offering).
What if rates change after I invest?
That’s the point of laddering. As rungs mature, you can reinvest at current rates or take cash.
Can I exit early?
Notes are generally designed to be held to maturity. Liquidity terms, if any, are governed strictly by each offering’s documents.
Compliance & disclosures
For accredited investors only. This content is for informational purposes and is not investment, legal, or tax advice. All investments involve risk, including loss of principal. Actual terms—including coupon, payment frequency, accrual conventions (Effective Date), minimums, fees (if any), maturity, and investor rights—are governed solely by each offering’s documents. Review all materials carefully before investing.
