Laddering is an investment technique that requires investors to purchase multiple financial products with different maturity dates.
Laddering avoids the risk of reinvesting a big portion of assets in an unfavorable financial environment. Each "rung" of the ladder is a bond of a specific maturity date and the "height" of the ladder is the difference between the shortest maturity bond and the longest maturity bond. The more rungs in your ladder (10 or more is best), the better the diversification diversification, the more stable your yield, and the higher your average yield. For example, a person has both a 2015 matured CD and a 2018 matured CD. Even if the interest rate drops fairly low in 2015 when one certificate is to be renewed, half of the income is locked in until 2018.
Laddering can free up capital as needed. A person may purchase a shorter term bond in the event that he needs the capital soon to fund his children's tuition while purchasing other longer term bonds that mature later as retirement spending in a more favorable rate, assuming the economy is experiencing a normal yield curve during this time.
Laddering can also be used as an overall retirement planning approach for all of your retirement investments. The idea is you separate your CD's, cash, 401K, annuities, etc. into different "ladders" or "buckets" or "baskets" depending on the when the asset is expected to be liquidated to fund the retirement revenue stream. Low risk assets that you plan to first use at retirement usually have an expected lower rate of return. Higher risk assets would be placed in a basket used at the end of retirement.
This strategy provides a solid framework for investing for retirement. There are software packages available to help aid retirement planning using laddering strategies such as www.NestEggSoftware.com
Laddering also describes a process where, in order to purchase shares at a given price, investors must also agree to purchase additional shares at a higher price. This artificially inflates the price of the stock and allows insiders to buy at the lower price, with a guarantee that they will be able to sell at a higher price. This practice is illegal.