For most investors, it is a long climb to financial security. If you slip a rung or two along the way, you may be inclined to switch into investments that could provide a slightly higher current income yield. Of course, that generally means assuming a greater risk than you may be accustomed to.

Long-term bonds may pay almost twice as much interest as do short-term investments, but they may be susceptible to loss of principal as rates fluctuate.

This is because as general interest rates rise, the market value of existing bonds declines. Fortunately, there may be a way to reach your investment goals without risking your neck. One commonly used technique is called "bond laddering." The basic principle is simple: you purchase bonds with varying maturity dates to minimize the risks involved.

With the proper planning, a bond ladder can help you meet your future needs. For example, you may defray some of the cost of a child’s college education by arranging to have a certain amount of bonds come due when you need them.

Jones has a total of $25,000 for investment purposes. He buys five bonds with different maturity dates for $5,000 each. The bonds come due (mature) in two, three, five, seven and ten years, respectively. Jones figures the cash will become available at just the right time to help pay the tuition bills of his two children.

The bonds that are due sooner generally will have a lower rate of return than a bond maturing ten years from now. However, the overall effect will be a portfolio that combines the safety of a short-term vehicle with a more attractive interest rate.

Of course, you might be able to achieve the same basic result by buying long-term bonds with higher interest rates assuming that interest rates remain relatively low. However, if rates start to rise, your long-term bonds will no longer be worth as much. If the bonds are called or you need to sell them before the due dates, you may end up losing money.

With a bond ladder, you can take advantage of an upswing in interest rates by reinvesting the principal you receive as your earlier bonds mature. Also, if interest rates fall still further, you have locked in higher yields for longer periods.

Building a bond ladder is like any other investment strategy. You need to move cautiously and only after you have investigated all your options. While each "step" on the ladder is designed to meet specific needs, there are a couple of basic guidelines:

The rules may differ depending on the type of bonds you have acquired. The critical point: know all the details before you invest. As a general rule of thumb, you may want to concentrate on bonds that cannot be called.

For instance, you may string together a ladder made up of U.S. Treasury Bonds. The full faith and credit of the U.S. government back these Bonds. Furthermore, the interest income is free from all state and local income taxes.

On the other hand, be careful about using certain corporate and municipal bonds to build your ladder. Changes in the credit status of the entity that issues the bonds could mean that you would not receive your interest or principal on time. Even worse, the issuer may default.

You should consider this technique as just one component of an overall investment plan. By assembling a diversified portfolio, you reduce the risk of ever hitting rock bottom.