Today’s recession taught us the importance of investing in financial literacy. Financial advisor Jeff Rose imparted the barbell investment strategy which prioritizes cash and high-risk investment.
What is Barbell Investment Strategy?
“Barbell investment strategy suggests the best way to strike a balance between reward and risk is to invest in the two extremes of high risk and no risk assets while avoiding middle-of-the-road choices,” Investopedia reported.
In short, barbell investment promotes two assets: one with extreme safe investment and the other is with a high risk.
Steps to Consider
The best way to adopt this strategy is when interest rates are rising and over allocation to credit. Investors have a chance to reinvest the proceeds of the short-term securities at a higher yield.
Here are the key principles that Rose discussed:
1. Consider that cash is king
Always remember to secure access with risk-averse investments such as savings accounts. During recession, cash matters. That’s why a lot of companies during the lockdowns aim to be liquid.
2. Get an insurance
It is ideal to obtain insurance especially when you are still young. Prioritize to attain different insurances that will protect your assets.
3. Limit your investments in stocks and bonds
Rose explained that stocks and bonds are the middle portion of the barbell. Keep in mind to invest no more than 10 percent of your money in the tradition.
4. Prioritize on high-risk, high return investments
Prioritizing the high-risk and high return investments is the other part of the barbell. This pertains to cryptocurrency and investing to small businesses.
These are the steps on how to execute barbell investment strategies imparted by Rose. The Barbel strategy is a great financial tip for young adults because it lowers the risk while providing higher yields. It’s ideal to limit the downside risk without giving up too much income.