# Learn About Weighted Average Maturity (WAM) in Debt Portfolios

## What Is Weighted Average Maturity (WAM)?

Weighted average maturity (WAM) is the [weighted average](https://www.investopedia.com/terms/w/weightedaverage.asp) amount of time until the mortgages in a [mortgage-backed security (MBS)](https://www.investopedia.com/terms/m/mbs.asp) mature. This term is used more broadly to describe maturities in a portfolio of debt securities, including corporate debt and municipal bonds.

Weighted average maturity (WAM) shows how long it takes for a portfolio's securities to mature, weighted by how much is invested in each. A longer WAM means a higher interest rate and credit risk compared to MBS with shorter WAMs. A higher WAM means it takes longer for the mortgages or bonds in a portfolio to mature. WAM is used to manage debt portfolios and to assess the performance of debt portfolio managers.

WAM is closely linked to [weighted average loan age (WALA)](https://www.investopedia.com/terms/w/wala.asp). WAM and WALA are both used to estimate if an investment in an MBS will be profitable. However, WAM is a more widely used measure for the maturity of MBS pools.

### Key Takeaways

*   Weighted average maturity (WAM) measures the average time for securities in a debt portfolio to mature, weighted by investment amount.
*   Portfolios with longer WAMs typically carry greater interest rate and credit risk.
*   WAM is inversely related to weighted average loan age (WALA), another metric used to evaluate mortgage-backed securities.
*   Investors use WAM to align bond investments with their desired time frames and risk levels.

## Detailed Breakdown of Weighted Average Maturity (WAM)

WAM is calculated by finding the percentage value of each mortgage or debt in the portfolio. The number of months or years until the bond’s [maturity](https://www.investopedia.com/terms/m/maturity.asp) is multiplied by each percentage, and the sum of the subtotals equals the weighted average maturity of the bonds in the portfolio.

WAM is used as a tool to manage bond portfolios and to assess the performance of portfolio managers. [Mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp), for example, offer bond portfolios with a variety of WAM guidelines, and a fund portfolio may have a WAM as short as five years or as long as 30 years. The investor can choose a bond fund that matches a particular investment time frame. The fund’s investment objective includes a benchmark, such as a bond index, and the benchmark portfolio’s WAM is available for investors and portfolio managers. A portfolio manager's performance is evaluated based on the rate of return and the WAM of the bond portfolio.  

> **Tip**
>
> Bond laddering is an investment strategy that involves purchasing bonds with different maturity dates, which means that the dollars in the portfolio are returned to the investor at different points over time. A laddering strategy lets owners reinvest bond proceeds at current rates over time, reducing the risk of reinvesting when rates are low. Bond laddering helps income-focused investors keep a stable interest rate on their portfolio, and they use WAM to evaluate it.

## Step-by-Step Example: Calculating Weighted Average Maturity

Assume, for example, that an investor owns a $30,000 portfolio, which includes three bond holdings.

*   Bond A is a $5,000 bond (16.7% of the total portfolio) and matures in 10 years
*   Bond B is a $10,000 investment (33.3%) that matures in six years.
*   Bond C, a $15,000 bond (50%) with a maturity of four years.

To compute WAM:

1.  Identify each bond's percentage value relative to the total investment (e.g., Bond A is 16.7%).
2.  Calculate the years until each bond's maturity.
3.  Multiply each bond's percentage by its years to maturity.
4.  Sum these values for all bonds to find the Weighted Average Maturity.

## Comparing Weighted Average Maturity (WAM) and Weighted Average Loan Age (WALA)

Weighted average maturity (WAM) and weighted average loan age (WALA) are both used to estimate the likelihood of an investment in a mortgage-backed security being profitable. However, WAM tends to be a more broadly used measure for the maturity of pools of mortgage-backed securities.

It measures the average time it takes for securities in a debt portfolio to mature, weighted in proportion to the dollar amount invested in the portfolio. Portfolios with higher weighted average maturities are more sensitive to interest rate changes.

WALA is actually calculated as the inverse of WAM: WAM computes the percentage value of each mortgage or debt instrument in the portfolio. The number of months or years until the bond’s [maturity](https://www.investopedia.com/terms/m/maturity.asp) is multiplied by each percentage, and the sum of the subtotals equals the weighted average maturity of the bonds in the portfolio.

## What Is a Mortgage-Backed Security?

A mortgage-backed security (MBS) is a collection of mortgages pooled together and sold as an investment product. Investors purchase shares that provide payments similar to those of bonds.

## How Is Weighted Average Maturity Different From Weighted Average Loan Age?

WALA is the inverse of WAM. It is calculated by multiplying the initial value of each mortgage by the number of months since the loan was originated.

## What Is the Purpose of Weighted Average Maturity?

WAM helps estimate the likelihood of an investment in an MBS being profitable. By knowing the WAM, an individual can invest in a fund that fits their desired time frame.

## The Bottom Line

Weighted average maturity (WAM) is a crucial tool for managing bond portfolios and assessing portfolio performance, reflecting the lifecycle of securities within the portfolio. A longer WAM indicates higher exposure to interest rate and credit risks, due to the extended time for securities to mature.

A practical application of WAM is when selecting bond funds to match an investor's desired time frame and risk tolerance. There is an inverse relationship between WAM and weighted average loan age (WALA), playing complementary roles in investment analysis. WAM is primarily used in mortgage-backed securities to estimate profitability and manage investment strategies efficiently.

> **Article Sources**
>
> 1.  Financial Industry Regulatory Authority. "[Regulatory Notice - 21-02 - MBA Dissemination - Attachment A](https://www.finra.org/sites/default/files/2021-02/RN-21-02_MBA_Dissemination_Attachment_A.pdf)," Page 2.
>     
> 2.  Fidelity. "[Understanding Money Market and Bond Fund Terminology](https://institutional.fidelity.com/app/proxy/content?literatureURL=/9903527.PDF)."
>     
> 3.  Morgan Stanley. "[Short Duration Income Portfolio](https://www.morganstanley.com/im/en-us/liquidity-investor/product-and-performance/bond-funds/limited-duration-portfolio.html)."
>     
> 4.  Charles Schwab Corporation. "[Bond Ladders](https://www.schwab.com/fixed-income/bond-ladders)."
>     
> 5.  Janus Henderson Investors. "[Q1 Fact Sheet](https://cdn.janushenderson.com/webdocs/FactSheet_JAAA_ETF_2022_03_exp_2022_07.pdf)," Page 2.