Dick Young
- COMPOUNDING
- INTEREST
- DIVIDENDS
- DURATION
While no one can predict the future direction of interest rates, examining the “duration” of each bond, bond fund, or bond ETF you own provides a good estimate of how sensitive your fixed income holdings are to a potential change in interest rates. Investment professionals rely on duration because it rolls up several bond characteristics (such as maturity date, coupon payments, etc.) into a single number that gives a good indication of how sensitive a bond’s price is to interest rate changes. For example, if rates were to rise 1%, a bond or bond fund with a 5-year average duration would likely lose approximately 5% of its value.
BY FIDELITY LEARNING CENTER
If you’re willing to fight for Main Street America, click here to sign up for my free weekly email.
