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How to adjust bond duration using cash?
Posted: Tue Nov 01, 2016 10:51 am
by 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.
Re: How to adjust bond duration using cash?
Posted: Tue Nov 01, 2016 10:59 am
by thisisallen
appreciate the quick reply. I see the point. Could you possibly give an example how it works? (new at this...)
Re: How to adjust bond duration using cash?
Posted: Tue Nov 01, 2016 11:35 am
by MachineGhost
thisisallen wrote: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
Re: How to adjust bond duration using cash?
Posted: Tue Nov 01, 2016 1:13 pm
by 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
Re: How to adjust bond duration using cash?
Posted: Tue Nov 01, 2016 2:11 pm
by thisisallen
Great. Seems so simple - once you're shown the answer.
Re: How to adjust bond duration using cash?
Posted: Thu Nov 03, 2016 3:13 pm
by buddtholomew
Everyone has to start somewhere.