When it comes to your bond money, you want to live to fight another day. To make sure you do, I recommend that you keep the duration short and the credit quality high. Duration measures a bond’s sensitivity to interest rates. It’s the predicted percentage change in a bond’s price given a 1% change in interest rates. So if a bond has a duration of 2, and interest rates change by 1%, the price of the bond will change by 2%. A well-known financial publication recently produced a list of defensive bond funds. Only one of the funds had a short enough duration for my comfort level. So pay attention to duration when you’re doing your investment work. It’s easy to be led astray and reach too high for yield, especially with all the hype that you read or hear.
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E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at firstname.lastname@example.org.