Now let's consider how to pick bonds and organise a stable portfolio. Portfolio theory for fixed income is slightly different from equities as there is little need to match or exceed the returns made by the rest of the market. Bond returns are measured in advance if they are bought at par, however, a bondholder will need to smooth out the fluctuations in capital which can occur when bonds move towards maturity. That is where the "bond ladder" method of organising a portfolio comes into its own.
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