Bond investors often talk about duration and maturity of bonds when evaluating a single bond or a bond portfolio. Generally speaking, duration and maturity are two key concepts in bond investing which refer to different aspects of a bond’s timeline and sensitivity to interest rate changes. With regard to this, it is worthwhile to look more closely at these two measures.   Duration The duration is a measure for the sensitivity of a bond (portfolio) to interest rate changes. It represents the weighted average time it takes for an investor to receive all the cash flows (interest payments and principal

As every investor knows, buy low, sell high is the way to generate profits in the securities markets. Nevertheless, a lot of (retail) investors are rather buying high and selling low. But why do these investors act this way? From my point of view these investors are driven by greed and fear. They invest late in a trend or in a security with a high upward momentum as they think this trend or momentum will continue and they want to participate from the exceptional return pattern from the past (greed = fear of missing out/FOMO). Unfortunately, past returns are no

Since the weightings of the constituents of a portfolio are constantly changing due to the fluctuation of prices in the securities markets, investors have to ensure that the weightings of the single asset types and classes (the asset mix) stays in line with their risk bearing capacity (risk tolerance) and the respective guidelines of their portfolio. The process of realigning the portfolio with the guidelines or benchmark of a portfolio is called rebalancing. That said, rebalancing is a simple and well-known technique to help the investor to stick to his investment plan by regularly aligning the constituents of a portfolio

When it comes to the basic rules on how to create a portfolio for an investor, the strategic (long-term) asset allocation (SAA) is the most important part. This is because the SAA determines the risk/return profile of the portfolio over the long run and needs, therefore, to be aligned with the risk-bearing capacity of the investor. (Please see the article: “What is investment risk” for more details on this topic) Since this alignment is superordinated to the whole portfolio construction and monitoring process, the evaluation of the risk-bearing capacity is the first step when tailoring a portfolio for a specific