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7. Investing in Mutual Funds > Manage Interest Rate Risk with Bond Fund Duratio...

Manage Interest Rate Risk with Bond Fund Duration

Use bond fund duration to find out whether your bond fund investments could tank if interest rates rise.

When you buy a bond, you receive ongoing interest rate payments based on the interest rate set when the bond was issued. That rate might be great or lousy compared to current market interest rates, but at least it’s guaranteed as long as you hold onto the bond. Bond prices are another story. They move in the opposite direction of interest rates, rising when interest rates fall, falling when interest rates rise. Bond investors made out like bandits in the 1990s when they sold their bonds after interest rates fell for several years in a row. However, bond funds don’t work like bonds. Bond managers don’t hold onto bonds, so you don’t get a guaranteed return as you do if you hold a bond until it matures. Bond fund values and the returns you receive change along wi....


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