Portfolio Clarity Foundations
Bond Duration
Definition
A measure of a bond's sensitivity to interest rate changes expressed as a weighted average time to receive cash flows.
Why it matters
It predicts how much a bond or bond fund's price will change when interest rates move. Higher duration means more sensitivity.
What most investors miss
The gap between what the term means and how it is usually applied.
They hold bond funds without knowing their duration. When rates rise long-duration bonds fall significantly in price.
How to read it
Check the duration of every bond or bond fund in the portfolio before interest rate decisions change the picture.
Multi-account lens
How this term reads differently across brokers and accounts.
Across accounts bond duration must be assessed at the portfolio level. A short-duration bond in one account may not offset a long-duration fund in another without seeing the combined picture.
Related terms
Terms that connect to bond duration.
Allocation
How the portfolio's capital is distributed across asset classes geographies sectors or individual positions.
Liquidity Profile
The distribution of the portfolio across assets ranked by how quickly they can be converted to cash without significant price impact.
Exposure
What the portfolio is economically exposed to once all positions are looked at together.
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