Barbell Investing
« on: February 07, 2019, 10:43:11 AM »
What is meant by Barbell Investment Strategy?

Barbell Investment Strategy: This portfolio investment approach involves investing most of your investment portfolio (85-90%) in extremely safe securities (i.e., short-term government bonds) and the remainder (10-15%) in risky long-term investments. The barbell provides low safe return on one side, risky high return on the other.

Nassim Taleb, author of the 2007 bestselling book The Black Swan, which focuses on extremely rare and unpredictable events, argues that Barbell investing is a very conservative approach that protects investors from black swan events that would dramatically negatively impact portfolio returns. Using the barbell strategy, the maximum loss for the investor would be the risky side of the barbell.

This approach was originally used when constructing bond portfolios - very short term securities and a range of longer term securities. The short-term side is exposed to very little interest rate and default risk, while the long-term side is more volatile. For a stock portfolio, the conservative side would hold very liquid large cap stocks on the safe side, and on the aggressive side, smaller speculative stocks.

If you have utilized a barbell approach, please share your comments with other readers.

Thank you.