It’s that time of year when we all take stock of our lives and come up with a list of resolutions to make ourselves better for the coming new year.  On the financial side of things may I offer a few suggestions.

• If you do not have a formal written financial plan get one.
• Your plan should include steps to reach your financial goals that can be broken down into action steps.  Take one step every day.  It doesn’t have to be a huge step, but you should do something positive every day.
• Be more generous and giving. Helping others will make you happier than focusing only on yourself. No matter how bad things may seem at times, you don’t have to look far to find someone with far more needs than you.
• Spend money on experiences instead of things. Look around your house, look in your closets you probably have more things than you need anyway. There is a fine line between the things we own and the things that own us.
• Be thankful for what you have. Focusing on being grateful for the blessings we have makes our journey through life a happier and more pleasant trip. Focus on how far you have come not how far you have to go.
• Learn something new. Learn a new language, learn a new hobby or craft. Keeping your mind active will reduce the time you waste worrying about things you cannot control.
• Visit someplace new this year.  Travel opens our minds and the memories will never go away.

Duration has a special meaning in the investment world.  It is a measure of interest rate sensitivity in bond portfolios.  You can calculate the duration for an individual bond or for a portfolio of individual bonds and you can derive an average duration.  Why is this important?  Because in a rising rate environment, like the one we are just entering, the duration will give you an idea of how much your principle will decline for a given increase in interest rates.

If your bond portfolio or your bond fund has an average duration of 6 years then you can expect the value of the portfolio to drop by about 6% for every 1% increase in interest rates. The Pimco Total Return Bond Fund with assets of around $246 billion dollars is one of the largest bond mutual funds in the United States. With an average duration of 5.26 years you could expect about a 5% drop in the funds value if interest rates rose by 1 percentage point. Or you could expect a 1.25% drop in value if interest rates rose by just 0.25%.
Given that most bond funds have a yield of around 3% you can see that even small changes in interest rates can wipe out months of dividend income. So you should be aware of the duration of any bonds or bond mutual funds you own.
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Then ask yourself if the risk is worth the reward at this point