How to adjust bond duration using cash?

[thisisallen]

it is frequently mentioned in the forum posts that people are adjusting their bond duration by holding more/less cash. Is there a simple way to understand what they are talking about and how to adjust for duration? Thanks.

[thisisallen]

appreciate the quick reply. I see the point. Could you possibly give an example how it works? (new at this...)

[MachineGhost]

appreciate the quick reply. I see the point. Could you possibly give an example how it works? (new at this...)

http://www.investopedia.com/university/ ... dbond5.asp

[buddtholomew]

A simple rule of thumb is to lookup the duration of your bond fund/s.

TLT has a duration of approximately 18 years.
Cash has a duration of approximately 0 years.

2000 invested
1000 in TLT or 50% of portfolio x 18 years = 9
1000 in cash or 50% of portfolio x 0 years = 0

Fixed income duration = 9 + 0 = 9

If you had 1500 in TLT and 500 in cash what is your duration?

13.5 years

[thisisallen]

Great. Seems so simple - once you're shown the answer.

[buddtholomew]

Everyone has to start somewhere.