Sales Professionals Should Prepare to Explain Duration Risk to Customers.  Compliance Professionals Should Quickly Make Sure Your Firm's Salespeople Understand The Topic.

[ by Melanie Gretchen ]

FINRA issued a new Investor Alert that seeks to clarify the importance of duration risk.  "Duration—What an Interest Rate Hike Could Do to Your Bond Portfolio" stresses that duration of a bond or a bond fund signals how much the price of a fixed income investment is likely to fluctuate when interest rates move up or down.

• For duration of a bond fund, investors should look on the fund's fact sheet. 
• For duration of individual bonds, investors should start by asking their investment professional or the issuer of the bond. 
• Investors also should note that just a bond or a bond fund with a 'low' duration is not necessarily risk-free.  Besides duration risks, bonds and bond funds are subject to inflation, call, default and other risk factors.

FINRA's Gerri Walsh, VP of Investor Education, had this to say on duration risk:  "With interest rates hovering near all-time lows, investors should make sure they know their duration numbers. Whether investors own individual bonds or bond funds, they need to understand that outstanding bonds with a low interest rate and high duration may experience significant price drops if interest rates rise."

[C-I Notes:   Among other things.  No longer can one buy an investment - any investment - and put it away and not bother to watching over it until, say, maturity or when it's time to sell.  Risk comes in many shapes and sizes.  And, just because FINRA issued the Alert for Investors doesn't mean that a Wall Street professional shouldn't read it. 

Think about the times someone told you to have chicken soup when you're not feeling well -  'It won't harm you, and it just may help you feel better'.]
 

For further details, go to [FINRA, 2/14/13].