Weighted Average Maturity - WAM

See: WACC.

It's about bonds, not Shmoop writers.

You have a portfolio of bonds which lovingly produce cash income to you in the form of semi-annual interest payments. Some come due in 2 years; some in 5, some in 10, some in 20, etc. Add 'em all up. Adjust by size of issue (that is, the $2 million coming due in 2 years has a much higher weighted average than the $1 million coming due in 5 years).

So do the math: duration (i.e. years from coming due) times the amount coming due, and you get the weighting. Maybe, in this portfolio, that weighted average is 3.7 years.

What does it mean? It just means that the weighted midpoint of your portfolio is a bit under 4 years, and that 8 years from now, the lion's share of your bonds will have matured and paid you back your principal, and you'll have to go yield-hunting to get that dough reinvested.

Unless you're really nervous about Everything, in which case you just find a big, fat, empty mattress and stuff it with soft, comfy $20s.