Protecting Principal, Maximizing Returns in a Shifting Landscape
Mark, a 55-year-old VP of Engineering, is ten years from his planned retirement and holds $3.2 million in RSUs at a pre-IPO company. He wants to allocate $500,000 to bonds for stability, but is concerned about rising interest rates eroding his principal. He needs a strategy that balances safety with opportunity in a volatile market.
Using the Bond Convexity Calculator, we identified bonds with positive convexity, minimizing downside risk and maximizing potential upside from rate fluctuations. We compared different bond options, revealing that a bond with a higher convexity of 1.2 would outperform a bond with a convexity of 0.5 if interest rates dropped by 1%. This allowed Mark to choose bonds strategically based on his risk tolerance and expectations for interest rate movements, creating a portfolio designed to thrive in multiple scenarios.
The Bond Convexity Calculator provided immediate, quantitative data for comparing various bond options, allowing for a data-driven investment decision. Paired with Tax Equivalent Yield, and Credit Spread calculators, a more complete picture of a bond's true potential was seen.
$25,000 potential increase in portfolio value over 5 years, compared to a less convex bond portfolio
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