From a lump sum to a ladder, step by step

The lump sum mode takes a stated amount to invest and builds the rungs it buys — one per year, each sized so its redemption funds an inflation-uplifted draw — and the guide walks from the inputs to the rungs and the trades.

Start from the lump sum

The lump sum mode of the bond ladder designer begins with the money a reader has to invest. It takes four inputs: the length of the ladder in years, the lump sum to invest, an inflation assumption and a marginal tax band. From those it derives the affordable annual income draw and the rungs the lump sum buys. This guide walks from those inputs to the rungs, to the page's outputs, and finally to the trades that would book the ladder.

The lump sum is the anchor. Everything the mode produces — the number of rungs, how big each is, what each year's draw is — follows from how much money there is and how many years it is spread over. Change the lump sum and the whole ladder rescales; change the length and the same money is divided differently. Those four inputs are all a reader needs before the page can build anything.

One rung per year

The mode divides the window into one band per year and, for each band, looks for the conventional gilt whose maturity lands in that year. Where no conventional gilt matures exactly in the band, it takes the still-running conventional gilt whose maturity is nearest, so a rung never lands on a gilt that redeems before its band starts. If no candidate qualifies, that band carries an empty rung and contributes no income — the gilt universe does not always have a gilt for every year, and the page says so by leaving the rung out rather than inventing one.

Sizing each rung

Each rung is sized so its redemption principal funds that year's draw. The first year's draw is the figure a reader wants in the money of the first year; each later year's draw is that figure uplifted at the inflation assumption. The lump sum is spread across the rungs so that each rung's redemption, at par, covers its year's draw, with the rungs that carry a bigger uplifted draw taking a larger share. Each rung's allocation — its share of the lump sum — is set by its cost. The rung's coupon arrives as extra income while it runs, not as funding for the draw.

What the page shows

Once the inputs are set the page shows three things: a rungs table listing the suggested gilt for each year with its coupon, price, quantity and allocation; an income projection with one column per year; and two cash-flow charts showing the coupons and redemptions as paid and deflated to real terms. The rungs table is the ladder itself; the projection and charts are how it behaves across the window.

1. Enter the length, the lump sum, the inflation assumption and the tax band.
2. The page suggests one conventional gilt per year band and sizes its quantity.
3. Read the rungs table for each rung's coupon, price and allocation of the lump sum.
4. Read the income projection and the cash-flow charts for the yearly shape.

A lump sum worked through

The table is an illustration and not a quote from any gilt. It takes a £50,000 lump sum over five years at an inflation assumption of 3.0 per cent a year, and prices every rung at par to keep the arithmetic visible; the real designer uses each gilt's dirty price, so its figures differ. The first-year draw is the lump sum divided by the sum of the five uplift factors, about 5.309, giving roughly £9,418.

The five rungs sum back to £50,000, to within a pound of rounding. The draw is about £9,418 in the first year, rising with the assumed inflation each year after, and the price of every rung is the lump sum split across them. The figures are illustrative; a reader's own inputs will produce different rungs.

Booking the trades

A ladder previewed on the designer can be booked as trades: the Build action books one buy trade per rung at the report's mid clean price plus accrued interest, for the nominal the sizing produced. A signed-in reader books them into a portfolio; an anonymous reader is prompted to log in, because booking needs an account. A single trade can also be recorded by hand on the record-a-trade page, for a reader who prefers to enter each rung themselves. Either way the booked trades are what the portfolio and its cash-flow page work from.

Background, not advice

This guide explains how the lump sum mode turns a stated amount into a ladder of rungs and how those rungs might be booked. It is general background on how the figures are put together, not investment, tax or legal advice for any reader's circumstances, and it is not a substitute for professional advice. The worked illustration prices every rung at par and states its inputs; the real designer uses each gilt's own price, so its figures and a reader's will differ. The primary source for a real gilt's price, coupon and maturity is the gilt's own record and the day's market data.