Everything You Need to Know About a Barbell Investment Strategy

Investors want maximum ROI. They may consider a wide range of options to accomplish their desired result, including a barbell investment strategy. Don’t let the name fool you. You don’t need to be a heavyweight investor to capitalize on such a strategy. 

This guide explains how this approach works and can also help you decide if this investment option is the best one for you.  

Understanding the Barbell Investment Strategy

A barbell investment strategy is designed to keep risk low and yields high. It involves the use of short- and long-term bonds over intermediate-term ones. This starts with understanding each type:

Short-term bonds

Short-term bonds generally have a maturity rate of five years or fewer. They are often considered safer than long-term bonds, because there is less exposure to interest rate fluctuations. 

Long-term bonds

Long-term bonds mature at least 10 years after they’re issued. These bonds tend to be riskier than short-term options. They provide a higher yield than short-term bonds, though, since they compensate for a greater risk of interest rate fluctuations. 

Active portfolio management is a must for those interested in a barbell plan. Investors must track the maturity dates of their short- and long-term bonds to achieve the best plan results. New bonds will need to be purchased as replacements when bonds mature in this approach. Doing so ensures that investors can optimize their returns. 

barbell on the ground at gym

The Benefits of a Barbell Investment Strategy

A barbell approach can be an excellent option for investors who want to avoid risk as much as possible. The strategy even allows you to take a “buy low, sell high” approach to investing. A few things to keep in mind:

  • This method is commonly used for bonds, but investors can also apply it to growth and value stocks. 
  • Maintaining a 50-50 balance of these stocks encourages investors to buy low and sell high based on how the market performs. 
  • Some investors also use this approach to purchase bonds and stocks. 
  • This requires comprehensive management, as these investors will try to buy more bonds or stocks when one group is underperforming and the other is exceeding expectations.

Barbell investing can be time-intensive, but the effort an investor commits to building a successful strategy can deliver significant rewards. That includes doing a thorough exploration of the risks involved so they don’t hamper your success. 

What Are the Risks of a Barbell Investment Strategy?

The time it takes to build a strategic plan can add up quickly. No matter how much time an investor spends creating their plan, there is no telling how interest rates may change before a bond matures. A barbell investment strategy won’t eliminate the risk of interest rate fluctuations. If you purchase a long-term bond at a low interest rate, for example, it can lose value if the interest rate increases. 

Keep in mind that intermediate-term bonds tend to offer better returns than short-term ones, too. This means your plan can force you to miss out on potential returns from intermediate-term bonds. Weigh the risks and benefits of this or any other approach before making any investment decisions. Doing so can help you decide if this plan or another investment option meets your expectations. Those unsure of how to get started should consider consulting with an investment management advisor. 

Choosing a Barbell Investment Strategy

Anyone ready to move forward with a barbell investment strategy will need to figure out the right time to launch the plan. This ensures they can capitalize on a flattening yield curve.  A yield curve refers to the difference between the yields of short- and long-term bonds. You ideally want a yield curve to be as flat as possible when you kick off your strategy. The flatter the curve, the less difference between the yields of short- and long-term bonds. You can still start this approach if a yield curve is steep. This indicates that long-term bonds yield are increasing faster than those associated with short-term options. 

The scenario above will require you to find the right balance between short- and long-term bonds to balance your portfolio. You may also want to meet with an independent financial advisor at this point who can offer tips to help you build your plan.  

5 Tips to Build a Successful Barbell Investment Strategy

An independent financial advisor can help you create your plan from the ground up. This advisor can provide tips to help you get the most value out of your strategy from the get-go, such as:

1. Review Your Investment Goals

Figure out what you want to accomplish. You can then work with an independent financial advisor to fine-tune your investment goals and define what steps are necessary to achieve them.

2. Consider the Duration of Your Investments

Select a combination of short- and long-term bonds. The maturity dates of bonds vary, so you’ll need to track them. This ensures you can purchase a replacement any time a bond matures. 

3. Be Hands-On

Watch your bonds and track interest rates. This will enable you to consistently see how your bonds are performing. It can also help you avoid missing your bonds’ maturity dates. 

4. Conduct Periodic Reviews

You can use periodic reviews to see how your bonds have performed quarterly, annually, and for the life of your strategy. These reviews allow you to verify that your plan is helping you accomplish your intended results. 

5. Stay the Course

Try not to panic and avoid rash decisions as you let your barbell strategy run its course. Those concerned that their bonds are losing value can share their concerns with an expert to plot any change in plans. 

Independent financial advisors are happy to assist you with your barbell investment strategy. They can monitor your plan’s results and provide personalized recommendations now and in the future. This ensures you can receive expert support to help you realize the returns you set out to achieve. 

Contact an Expert to Discuss Barbell Investing

You may wonder whether a barbell strategy is the best investment option at your disposal. An independent financial advisor can discuss the details of this and other types of investing. Bogart Wealth is an independent financial management team with your best interests at heart. Our firm employs financial advisors who delve into your investment goals and help you form a detailed plan to reach them. 

Our experts offer investment management services and can help you evaluate barbell strategies and other investing options. Contact Bogart Wealth to speak with an advisor about this or any other investment questions and concerns. 

Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bogart Wealth, LLC [“Bogart Wealth”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Bogart Wealth. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Bogart Wealth is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Bogart Wealth’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.bogartwealth.com
Please Note: Bogart Wealth does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Bogart Wealth’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. 
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