Hey, Investors: Do You Barbell?
In the physical world, a barbell is a bar with two equal weights on either side that offset one another, creating a perfect balance. Apply this same concept to the investing world, and you have a very simple strategy (by the same name) used by some of the most sophisticated managers and investors. Some of the potential benefits of this strategy are hedging, risk reduction and smoothed returns.
Physical barbells are perfectly balanced. In the investing world, nothing is perfect, but taking two asset classes that tend not to correlate well and allocating between the two can offer some of the aforementioned benefits. When barbells work, one asset zigs while the other zags.
The most or 50/50 portfolio. But it is less common to hear about the benefits of barbelling – pitting stock against stock or bond against bond in order to achieve diversification.
