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The barbell strategy: A simple concept to help you stay the course

By John R. Berry

As I write this, the S&P 500 is down almost 22 percent for the year. We are past the point where many investors get nervous.

No one, including me, likes their investments to go down in value.

A concept put forward by the trader and statistician Nassim Talib may help nervous clients strengthen their resolve when the market is dropping.

Meet: The Barbell Strategy

The essence of this idea is that you balance cash savings with your more volatile investments.









Cash is just cash, but the “more aggressive investments” for our purposes will be what’s appropriate for your situation. Namely, what you are comfortable with fluctuating. For example, this could be all equities, a mixed portfolio of stocks and bonds, your stake in a business, or a collection of rental properties.

Some clients are intuitively inclined to keep a large cash stash–it’s what helps them sleep better at night. Others despite their financial advisor’s recommendation to hold several months of expenses do not do this. Certain clients try to “hide” their money from themselves by investing almost all of it; others simply may find it difficult to generate savings on their existing income.

Let’s just use myself as an example. Retirement is well over a decade away, so with my risk profile most of my “aggressive” investments are in equities. I’d be well advised, though, to keep enough cash on hand to fund any expenses that will (or could) come before that, or at least save from my income toward those needs or goals.

My youngest son is now in college at The Citadel in South Carolina. This is happening now. My “happy golden years” fund is not the place to draw college tuition from.

Our anecdotal observation is that clients with appropriately large cash balances are less stressed about market volatility. They simply don’t need the money any time soon and can reasonably expect (with no guarantees) for their investment balances to rebound.

There is some scientific evidence to validate our hunch. In the journal Emotion, a trio of researchers in 2016 reported finding that “having readily accessible sources of cash is of unique importance to life satisfaction.”

Often with clients we plan out a “bucket” strategy, where money for different time frames is invested more or less aggressively. Some clients have 3 buckets, others have 5.

But maybe your season of life dictates that you just think about SOON and LATER. A strong barbell is better than a leaky bucket. While this may be suboptimal from an investment standpoint, if it motivates you to increase your cash reserves to avoid having to sell investments when they’re down (along with penalties and/or trading costs), I think it’s a good move.

John R. Berry is a Certified Financial PlannerTM professional and owner of Corner Post Financial Planning.




Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through ICA Group Wealth Management LLC, a registered investment advisor. ICA Group Wealth Management LLC and Corner Post Financial Planning are separate entities from LPL Financial.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal. No strategy assures success or protects against loss.