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The barbell strategy is an investment approach that involves dividing a portfolio into two extremes: low-risk, stable investments and high-risk, high-reward investments, with little to nothing allocated to middle-risk assets. The idea behind this strategy is to balance the potential for growth with the safety of capital preservation. On one end of the "barbell," an investor holds safe, stable investments such as government bonds. On the other end, the investor takes on high-risk, high-return investments like stocks or speculative assets. \
An investor might allocate 50% of their portfolio to long-term government bonds and the other 50% to high-growth technology stocks, avoiding medium-risk assets like corporate bonds.
• Balances safe, stable investments with high-risk, high-reward assets.
• Minimizes exposure to medium-risk investments.
• Commonly used in fixed-income investing but applicable to other asset classes.
It allows investors to protect their capital with safe investments while still pursuing growth through higher-risk assets.
The main risk is that the high-risk portion of the portfolio could underperform, reducing overall returns.
Unlike a balanced portfolio, which spreads risk evenly, the barbell strategy concentrates on the extremes of the risk spectrum.
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