Chapter 6: Duration, the risk dial
2022 was the year the dial mattered. The broad US aggregate bond index, the one the word "safe" usually points at, fell 13.0%, its worst calendar year since its 1976 inception. Funds holding 20+ year Treasuries fell 31.4% (iShares, calendar 2022). Money market funds, holding paper that matures in days, barely noticed the same storm. One issuer stood behind most of those Treasuries and one rate cycle hit all of them; the entire difference between a shrug and a third of the money came down to a single number printed on every fund page. This chapter is about that number.
The rule, in FINRA's words
Duration is the risk dial: a number, measured in years, that tells you how hard a bond or a bond fund reacts when interest rates move. FINRA's rule of thumb compresses it into one sentence: for every 1-point change in rates, a bond's price moves in the opposite direction by about its duration number in percent. A duration of 10 plus a 1-point rise means roughly a 10% price decline.
Chapter 2 drew this as a seesaw, and the picture still holds. Rates sit on one seat, your bond's price on the other, and duration is how far out your seat is bolted. A money market fund sits practically on the pivot, so the plank can swing all it likes. A long-Treasury fund sits fifteen years down the plank, and the same swing becomes a catapult.
Turn the dial yourself
The core US aggregate bond fund carried an effective duration of 5.78 years on its iShares fund page as of June 11, 2026. Set the dial there and push rates up 2.50 points: the rule of thumb predicts a price drop of about 14.5%, because 5.78 times 2.50 is roughly 14.5, and a $10,000 holding becomes $8,555 on paper. The calculator below opens at exactly those settings, and its note prints the 2022 receipts beside the estimate: the aggregate index's actual 2022 return was −13.0%, and the 20+ year Treasury fund's was −31.4%.
The estimate and the receipts disagree a little, and the gap is the honest part. The rule of thumb is a straight line, while real bond prices bend; over big rate moves the straight line tends to overstate the damage, and the coupons a fund collects along the way soften the year's final number. Treat every output as a rangefinder reading, accurate to the neighborhood and silent about the house number.
Where the number comes from
No formula is required, because two plain forces set the dial. Longer maturity means a farther seat: the longer your money is locked into yesterday's rate, the more a rate change matters, so a 30-year bond out-swings a 2-year note every time. Lower coupons also mean a farther seat: when little cash arrives early, more of the bond's value sits parked at the distant end, exposed to the swing. Stack the two and you get the published numbers: the core aggregate fund at 5.78 years and the 20+ year Treasury fund at 15.39 years (both iShares fund pages, June 11, 2026). A 13-week bill sits at the other extreme, with a duration of roughly a quarter of a year, which is why Chapter 4's ladder never feels the seesaw.
Match the dial to the calendar
Everything practical about duration fits in one sentence: the duration number should be smaller than the number of years until you need the money. Money needed in 2 years does not ride a 15-year seat, and money parked for 30 years gains nothing by hiding in a 0.2-year seat forever. The bands below are the whole decision.
How do you find a fund's duration?
On the fund's own page, before you buy. Every major fund company publishes a line called effective duration in the fund's characteristics table, and it updates as holdings change: the iShares core aggregate fund showed 5.78 years and the 20+ year Treasury fund showed 15.39 years, both as of June 11, 2026. Brokerage quote pages list duration for individual bonds the same way. The lookup takes under two minutes, which makes Chapter 2's standing rule cheap to obey: never own a bond or fund whose duration you do not know. A fund that buries the number is telling you something too; the products that hurt people in 2022 all disclosed their durations the entire time, and the disclosure went unread far more often than it went missing.
Elaine's 2022 autopsy
Run her year through the dial and the mystery dissolves. Going into 2022, Elaine's bond money sat in a core fund much like the aggregate index, the kind that carries a duration near six years. Part of that money had a six-year-plus horizon and was seated correctly; the part she leaned on for monthly spending had a horizon measured in months, riding a six-year seat. Rates rose hard, the index finished the year down 13.0%, and her statements showed roughly what the rule of thumb says a six-year seat shows in such a year. None of that was the wound. The wound was the sale: near the bottom, she converted a predicted, paper decline into a permanent one on every dollar she pulled out.
The cure was already inside the fall. The same rate rise that knocked prices down pushed every new bill and bond's yield up, so the dollars that stayed kept collecting bigger coupons, and reinvested interest bought cheaper bonds at higher yields. By June 2026 the safe shelf paid well at every door: 3.73% on a 13-week bill (June 8, 2026 auction) and 4.45% on the 10-year note (June 11, 2026). Selling at the bottom traded away exactly that repair. The verdict is precise, and kinder than she expects: her fund did what its published number promised, and the only failure was the match between the number and her calendar. Chapter 12 files the complete case; her repair, the spending ladder with a date on every dollar, was Chapter 4.
Elaine kept her 2022 statements in a folder she stopped opening. This week she set the calculator to a six-year seat and a rate shock of the 2022 sort, and watched it sketch her worst year in half a second. The loss that had felt like a betrayal was a forecast, published on the fund page the whole time, in a number she had never been told to read. She says the dial gave her back something the year took: the difference between unlucky and unwarned. Her rungs now have durations she can recite from memory, and all of them are months.
Where the dial misleads
Three wrong turns keep the dial profitable for other people. First, "bonds are safe" as a blanket: bills near the pivot are calm, a fifteen-year seat is a catapult, and one word covers both only in marketing copy. Second, reaching outward for yield without pricing the seat: on the June 2026 board the 30-year pays 4.95% (June 11, 2026) against 3.91% for a 52-week bill, about one extra point a year, and the rule of thumb prices a single 1-point rate rise against a 15.39-year seat at roughly 15% of the money, years of the bonus gone in one swing. Third, panic-selling a dip the dial predicted: 2022's declines ran close to what published durations implied, and the sellers at the bottom, Elaine among them, paid the only bill that was optional.
Keep the duration number smaller than the years until the money is needed. When a yield tempts you outward, price the seat first with the rule of thumb; if one ordinary rate move would erase several years of the extra yield, the trade was never about your timeline.
Key takeaways
- Duration is the risk dial: per FINRA's rule of thumb, a 1-point rate change moves price the opposite way by about the duration number in percent, so a duration of 10 plus a 1-point rise means roughly a 10% decline.
- At the calculator's defaults, the core fund's 5.78-year duration (iShares AGG, June 11, 2026) and a 2.50-point rise imply about −14.5%, turning $10,000 into $8,555 on paper; 2022's actual receipts were −13.0% and −31.4%.
- The rule of thumb is a straight line and real prices bend, so treat it as a rangefinder; coupons soften real-year results.
- Longer maturities and lower coupons push the seat farther out; match the number to your calendar and 2022-style years become forecasts instead of ambushes.
- The 2022 damage was duration, never default; the rate rise that cut prices raised every new yield, and selling at the bottom was the only unforced error.
Sources: FINRA: Bonds, interest rate changes, and duration · iShares AGG · iShares TLT