The term bullet strategy refers to an investment approach involving the purchase of fixed income securities that mature in the same timeframe. The bullet strategy is oftentimes used by investors that need funds on a certain date.
The bullet strategy involves the purchase of fixed income securities with similar maturity dates. The term bullet is derived from the relatively narrow focus of the investment portfolio. The approach is frequently used when the investor needs the funds in a certain timeframe. For example, the bonds may be used to pay for a wedding, fund a college education, or pay off a mortgage.
When executing the bullet strategy, the investor will purchase assets over an extended period of time. This allows the investor to take advantage of any opportunities the market presents, as well as diversify their bond portfolio. Since interest rates may fall as assets are accumulated over time, the investor must closely monitor the market.