Therefore, for a fund, duration is the point of indifference. If your bond fund has a 5-year duration and the yields on its bonds rise by 1%, the fund loses 5% of its value. But if you hold the fund for 5 years and yields don't change again, you make up for the 5% loss by earning an extra 1% over 5 years; your 5-year return is the same as if the rate increase didn't happen.The biggest reason to value duration is it is the easiest way to measure the risk of losing a portion of your principle. A duration of 5 means a 1% rise in the interest rate will result in a 5% loss of principle. My best advise on the term of bonds to purchase is two years or shorter.
Statistics: Posted by grabiner — Sun Dec 03, 2023 9:35 pm — Replies 16 — Views 1537