Reinvestment Risk

Reinvestment risk implies the potential risk of investing the future proceeds at a lower rate. It indicates that an investor will not be able to find the same rate of return as the old one on the new investment. The return could be significantly lower, based on what’s happening in the economy at large, though it could also be higher. One way to limit reinvestment risk is by using a technique known as laddering, which means splitting your investment among a number of bonds or CDs that mature gradually over a series of years.

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