Barbell Investment Strategy: you lift a lot of weights, then just go around making people give you money for retirement. It's also a legit strategy for investing in bonds.
You know how a barbell looks? Big heavy weights on either end with just a bar in the middle. That's the outline of the strategy.
First a bit about bonds. Bonds come with durations, basically representing how long they continue to pay out. So you might have a 2-year bond or a 10-year bond or 30-year bond, etc. You can roughly categorize these durations as short (less than 5 years), intermediate (in the 5-to-10-year range) or long (more than 10 years).
In a barbell strategy, you buy short duration and long duration bonds, but stay away from intermediate-term ones. The benefit of long-term bonds is that the interest rate is higher. Since it's a bigger risk waiting all that time, you get paid a higher rate in order to wait. Short-term bonds have a low payout, but they carry the least risk. You have some visibility over the near term, so the chances are much lower that something unexpected will happen and trigger a default.
The theory behind the barbell strategy is that intermediate bonds carry the worst of both worlds. The durations are too long for any real visibility, but the rates are below what you'd get for longer-term bonds. By mixing the short and long terms in your portfolio, you balance the risk/reward equation, the theory says, so there's no need to mess with the intermediate stuff.
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Finance: What does it mean to rebalance ...1 Views
finance a la shmoop what does it mean to rebalance an account alright people
here's your account pretty broad-based equity portfolio and pretty pie chart -
they're nice going there editor's 17% bank and insurance 14%
telecommunications 9% consumer comestibles 6% drugs legal ones 11%
chemicals in commodities 8% transport and whoa 35% tech well just five years
ago Tech was only 15 percent of your portfolio and it performs better than
double the returns of the rest of the market in that time period so Wow what
time is it need a high tech watch to answer no its rebalancing time why well
because you want to just compound at market rates and yes Tech has been
amazing and wonderful and loving but Tech can get crushed in bad times as
well and the huge 37% exposure to it is well keeping you up at night and it's
see it's gotten up 2% there since we started this video it's just too much [girl waking up in bed at night]
risk attributed to one relatively narrow area of the investing economy even [pie with a risk tag on it]
though it touches everything well you're thinking about making tech more
representative of a balanced broad S&P 500 index fund where in that fund it [S&P 500 document]
represents on only say 11 or 12 percent so you sell some Apple you sell some
Google you sell some Amazon Facebook Netflix Microsoft and you buy a [company logos]
smattering of high dividend high yielding defensive stocks like Chevron [military plane flying]
for Dow Chemical and Bank of America it's kind of defensive in practice [company logos]
portfolio managers rebalance their portfolios all the time so they
represent the promise they made to investors when they raise the money in [scale with tech out-weighted by diverse products]
the first place to be a fully diversified fund taking only market risk
in the process and if they still need to do any rebalancing beyond that and well [people doing yoga in park]
then they just enroll in a hot yoga class
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