Never heard of bond ladders?
Well neither had I until a few months back. I was running some tests on a sample bond portfolio and discovered a seeming paradox:
A portfolio that is long bonds may actually benefit from a sell off!
The explanation is that you benefit when you reinvest the coupons that your portfolio pays: the bonds you buy are cheaper.
This is a problem of reinvestment risk, and the concept of a bond ladder should be better known as a standard building block for a bond portfolio – it is one way to reduce reinvestment risk.
Here are some articles that give more details: here and here.
Here is an abstract of a more academic pay-per-view paper which discusses bond ladders as a nearly optimal investment strategy.
