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January/February 2024

Weigh in on the Barbell Strategy

Weigh in on the Barbell Strategy

You don't have to be a fitness buff to know that a barbell is a long bar with weights at either end that's used for strength training. But what do barbells have to do with investing?


A Different Approach
Investors who employ a barbell strategy choose investments that represent opposite ends of the risk spectrum while ignoring anything in the middle. Although this approach more commonly appeals to fixed-income investors, it may also be attractive to certain equity investors.


How It Works
Fixed-income investors create a portfolio consisting of half short-term bonds and half long-term holdings. With this strategy, investors can take advantage of current interest rates by investing in short-term bonds while benefitting from the higher yields offered by long-term bonds. When interest rates are rising, investors can reinvest in bonds paying higher rates as their short-term bonds come due.

Not Without Risk
Certain risks are inherent to bond investments. Interest rate risk is the potential for a change in interest rates to reduce the value of fixed-rate investments. As interest rates rise, bond prices typically fall, and vice versa. Inflation risk is the risk that rising inflation will lower the purchasing power of your bonds. Reinvestment risk is the possibility of reinvesting money from an investment at a lower interest rate.


A Barbell Strategy with Equities
Equities investors might use a barbell strategy to create a portfolio comprised of half stocks and half fixed-income investments. Another option is to pair the stocks of large, stable companies with riskier stock investments, such as emerging markets.


Look for Opportunity
Since this approach is closely tied to interest rates, the best time for bond investors to implement a barbell strategy is when there are significant gaps between short-term and long-term bond yields. Keep in mind that a barbell strategy requires frequent monitoring.


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Securities offered through Osaic Wealth, Inc., member FINRA/SIPC. Investment advisory services offered through Incompass Financial Partners, LLC. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth.
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