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 is a Portfolio?7 Views
Finance allah shmoop What is a portfolio Well this is
an artist portfolio The clay ashtrays they did in preschool
for mom They're sketches of birds and whatever else they
could see out of their bedroom window and this hot
mess all part of their body of work All right
Moving on All right Now here's An investor's portfolio four
hundred shares a coke one hundred grand worth of corporate
bonds from comcast shell and mickey d's Two hundred fifty
shares of whatever dot com and a bunch of other
names in here Well the whole thing comprises the portfolio
of investments that mr and mrs jones air making to
you know hopefully be able to retire on what else
is in here while they're home It's probably worth eight
hundred grand Now that shoebox in palo alto subtract there
three hundred grand in mortgage and five hundred k is
thie equity value They have now in their homes Right
What else Here's a thousand shares of the awesome yield
mutual fund in twelve hundred chairs have show me the
money index fund added all up that's their investment portfolio
that's everything they own or have as invested in assets
So it's a portfolio a broad based one and a
more narrow based portfolio might be just a given mutual
or index fund with like a focus on investing or
just a collection of a dozen stocks they owned in
a brokerage account like this one Why so many eggs
or investments Well because diversity is a good thing when
it comes to investments usually anyway unless you're zuk r
bezos or larry sergei if you found it facebook or
amazon or google well and the world looks a little
bit different from fifty thousand feet up in the air
in your private jet But for normal people like us
you know who don't know much about investing in internet
stocks Well then a diverse portfolio spreads risk and volatility
And if you're careful about not spending too many of
your beans well you two can go off into the
sunset Living a nice retirement playing with your own yacht 00:01:58.049 --> [endTime] for his rubber duckie
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