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Old 10-24-2019, 11:19 AM   #1
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Duration

From time to time I forget exactly what duration is, even though I know that is an important thing to follow regarding my FI allocation. This is a pretty good article on the subject. The higher the duration, the more interest rate risk.

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The statistic used to measure this time-weighted interest rate risk is called “duration.” A higher time-weighted average—a higher duration—means more interest rate risk, and clearly it’ll take longer for you to get paid for a 10-year bond than for a five-year bond.
While duration can be calculated and expressed in different ways, at its core, it conveys the interest rate risk in a bond or a fixed income portfolio. Duration is literally an estimate of the change in a bond’s value in response to an overall change in interest rates.
https://www.etf.com/publications/etf...eklynewsletter
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Old 10-25-2019, 06:41 AM   #2
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Yes. Very valuable for comparing bond funds.
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Old 10-25-2019, 08:42 AM   #3
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Matching duration to the timeline for needing the money is often touted as a way to form a fixed income portfolio. Being retired may keep a person from investing directly in 30 year bonds due to timing for needing the money. Intermediate bonds are supposed to be the sweet spot for a balance of risk and return. YMMV.
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Old 10-25-2019, 09:15 AM   #4
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duration isn't a statistic, it's a fluid measurement regarding a fixed income investment's change in price due to a 100 basis point change in discount rate
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Old 10-25-2019, 09:19 AM   #5
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duration changes as interest rates change - generally duration is higher the lower the discount rate - that's called convexity

but yes, the higher the duration the higher the interest rate risk - even "stable value funds" have duration

duration can be thought of as the weighted average time to maturithy of the FI investment; for example, zero coupon bonds have a duration equal to the payment period

my guess is that if we ever have an interest rate spike, everyone will become familiar with duration, even those with stable value funds
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