A:

The barbell strategy is an investment strategy that involves purchasing both short-term and long-term bonds and securities but no intermediates (such as in a "laddered" approach).

The thinking behind this strategy is to help you, as an investor, diversify your portfolio and increase the probability of higher returns. The long-term investments will provide the benefit of higher interest rates and increasing value over time. Maintaining some holdings in short-term bonds will provide you with flexibility to take advantage of interest rate changes.

When using this strategy, you'll want to keep your long-term bonds but be poised to make changes to your short-term investments (buy or sell as needed) if interest rates change. Evaluate your portfolio's performance and then consider selling and reinvesting your long-term investments when they reach approximately the half-way point to maturity.

For more on this read, A Guide to Portfolio Construction.

This question was answered by Katie Adams.

RELATED FAQS

  1. What is the relationship between the current yield and risk?

    Discover the relationship between a bond’s current yield and risk, and how investors can use it to benefit their overall ...
  2. How does the bond market react to changes in the Federal Funds Rate?

    Discover how the bond market reacts to changes in the federal funds rate. The risk-free rate of return is a major factor ...
  3. How do I use the holding period return yield to evaluate my bond portfolio?

    Find out how to use the holding period return yield formula to evaluate the performance of bonds in your portfolio, and view ...
  4. What is the relationship between current yield and yield to maturity (YTM)?

    Learn about the relationship between a bond's current yield and its yield to maturity, including how the market price of ...
RELATED TERMS
  1. Long-Term Debt

    Long-term debt consists of loans and financial obligations lasting ...
  2. Accelerated Return Note (ARN)

    A short- to medium-term debt instrument that offers a potentially ...
  3. Next Generation Fixed Income (NGFI) Manager

    A Next Generation Fixed Income (NGFI) manager is a fixed income ...
  4. Next Generation Fixed Income (NGFI)

    Next generation fixed income is an innovative approach to investing ...
  5. Class 3-6 Bonds

    Several classes of noninvestment grade bonds held by an insurance ...
  6. Impact investing

You May Also Like

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: iShares Barclays Aggregate ...

  2. Investing

    Go Green with a Investment in Green ...

  3. Investing

    Short-Term Funds or Fixed Deposits: ...

  4. Term

    Long-Term Debt

  5. Investing Basics

    How To Create Capital Protected Investment ...

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!