✒ “Duration” is a measure of a bond’s lifespan taking into consideration the timing/amount of coupon payments. The longer the duration, the longer you have to wait for the coupon and principal payments, and the more sensitive the bond price will be to the changes in interest rates.
In equity investments, the P/E ratio can be thought of in duration terms. For example, the idea is that if a stock has a P/E of ten, based on recent earnings, it would take ten years to earn back the outlay of an investor who buys the stock today, assuming earnings stay constant. The P/E ratio is thus a crude measure of the stock’s duration.
Cash is by definition a short-duration asset. Were interest rates to go up sharply, cash holders would get the benefit quickly even as other assets suffer. So as the duration of your portfolio rises, it makes sense to raise your cash holdings too. By precisely how much will depend, as ever, on your risk appetite.