- Financial Fluency
- Posts
- Balancing Risk: The Barbell Strategy for Investment Success
Balancing Risk: The Barbell Strategy for Investment Success
Customising Asset Allocation to Your Risk Tolerance
Iain Shirlaw
March 14, 2025
In partnership with
Welcome to Financial Fluency - a newsletter designed to boost your understanding of financial terms and provide you with investment ideas for long-term financial success.
In today’s newsletter:
A Look at the Markets: Uncertainty!
Balancing Risk: The Barbell Strategy for Investment Success
Quote of the Day: Robert Arnott
What I’m Watching: Barbell Strategy
Word of the Day: Strategy
Whenever you are ready, here is how I can help you
Join over 4 million Americans who start their day with 1440 – your daily digest for unbiased, fact-centric news. From politics to sports, we cover it all by analyzing over 100 sources. Our concise, 5-minute read lands in your inbox each morning at no cost. Experience news without the noise; let 1440 help you make up your own mind. Sign up now and invite your friends and family to be part of the informed.
A Look at the Markets: Uncertainty!
What is the one thing that markets dislike the most?
Uncertainty.
And the new US President has certainly brought plenty of that. Financial markets have reacted badly to his tariff policies, which seem to change unpredictably - imposed one day, revoked the next, doubled without warning, and sometimes altered by a single tweet.
Will This Lead to a Recession?
Some analysts worry that prolonged uncertainty could push the economy into recession. While President Trump has not explicitly ruled this out, he remains focused on market performance.
Does Trump Have a Strategy?
It is not always clear, but I believe he is trying to:
Bring manufacturing back to the USA
Use market downturns as leverage to pressure the Federal Reserve into lowering interest rates (especially as the US faces significant debt restructuring this year)
What Are the Risks?
One of the biggest risks, in my view, is rising inflation. If inflation picks up, the Federal Reserve may struggle to justify rate cuts, which could hurt both businesses and consumers.
What About the Future?
With policies shifting from one moment to the next, making accurate predictions is impossible. However, one thing is certain—Trump judges both his own administration and other governments by stock market performance.
For this reason, I believe he will do everything he can to push markets higher - provided inflation remains under control.
Only time will tell.
As for me, my strategy remains unchanged. I see market drops - both in stocks and crypto - as potential buying opportunities.
iShares Core S&P 500 ETF (Accumulating)
iShares Core S&P 500 ETF - JustETF.com
The iShares Core S&P 500 ETF Accumulating is down over 12% in the last 30 days.
Vanguard FTSE All-Word ETF (Accumulating)
By contrast, the Vanguard FTSE All-World ETF is down slightly less at 9.4%. This makes sense because the US makes up around 60% of the index. The tariffs affect more countries than just the USA.
Vanguard FTSE All-Word ETF (Accumulating) - JustETF.com
21 Shares Bitcoin ETP
21 Shares Bitcoin ETP - JustETF.com
The 21 Shares Bitcoin ETP is down around 20% which is reasonable considering the known volatility of cryptocurrencies
We will review these performances at the end of the month.
Balancing Risk: The Barbell Strategy for Investment Success
Customising Asset Allocation to Your Risk Tolerance
In last week's newsletter, I said that I use a barbell strategy for investing.
Before we look at what that means, let's first remind ourselves what a barbell is.
A barbell is a piece of gym equipment used for lifting weights. It has weights at each end, with just the bar in the middle. Most of a barbell's weight is concentrated at the ends, while the middle remains relatively light.
Understanding the Barbell Strategy
In investing, a barbell strategy means allocating assets heavily at both ends of the risk spectrum.
An investor may allocate a significant portion of their portfolio to relatively low-risk assets, such as bonds, while also holding high-risk assets, such as cryptocurrencies.
This approach creates a strategic balance that protects capital while allowing for significant growth potential - potentially giving investors the best of both worlds.
Risk Classification
What you consider low, medium, or high risk depends on your personal risk tolerance. However, here's how I categorise different risk levels:
• Low risk: Bonds, bond ETFs, blue chip dividend stocks, and global stock ETFs (when held as a long-term investment - over shorter periods, global stock ETFs may fall into the medium-risk category).
• Medium risk: Individual stocks and stock ETFs, especially when held for the short term.
• High risk: Cryptocurrencies and high-growth technology stocks.
Of course, your definitions may vary, but this is how I approach it.
Personal Benefits
Even though my portfolio contains high-risk assets, I find this strategy gives me the greatest peace of mind.
If all my assets were in the low or medium-risk categories, I would feel that I was missing out on potentially higher returns from the high-risk category and potentially not reaching my retirement targets.
Conversely, if all my assets were in the high-risk category, the high volatility could put my whole portfolio at risk.
Who Should Consider This Approach?
It should be noted that this strategy does not work for everyone. Many people cannot cope with the volatility and potential losses of owning any high-risk assets.
I can because I understand the importance of counteracting the devaluation of currency, as we have discussed in many previous newsletters.
Practical Implementation
In order to implement this strategy you have to be aware of what your personal attitudes to risk are.
Review your current portfolio and your emotional reactions to market movements in all market conditions - we all love it when our portfolios rise in value! Remember that this strategy will only work for long-term investing. If you may need money in the short term you should reduce your exposure to high-risk assets.
Only you can assess your own risk tolerance.
Conclusion
The barbell investment strategy offers a thoughtful approach to balancing safety and growth. By deliberately positioning assets at opposite ends of the risk spectrum, you create a portfolio that can weather various market conditions while still participating in potentially transformative investment opportunities.
As always, none of this is financial advice. Everyone should invest according to their personal circumstances, risk tolerance and financial goals.
Quote of the Day: Robert Arnott
Robert Arnott
This quote resonates deeply with my own investing journey, especially as I've implemented my barbell strategy.
I've found that my greatest investment returns have almost always come from decisions that initially made me nervous - like allocating a portion of my portfolio to cryptocurrencies when most traditional advisors warned against them. The low-risk portion of my barbell feels comfortable and safe, but it's the high-risk portion that has the potential to deliver exceptional returns that help counteract currency devaluation over time.
The barbel strategy allows be to step outside my comfort zone without losing sleep at night.
What I’m Watching: Barbell Strategy
This video explains the barbell strategy very well.
However, the end talks about a cryptocurrency barbell strategy. Since I view all crypto investments as high risk this is really a barbell within a barbell.
By that I mean, it is a barbell strategy to manage your high-risk assets.
Word of the Day: Strategy
Strategy - noun - countable - a detailed plan for achieving success in situations such as war, politics, business, industry or sport
Implementing an effective investment strategy requires understanding both market fundamentals and your personal risk tolerance.
Word Family:
Noun - strategy, strategist (person)
Adjective - strategic
Adverb - strategically
Strategic - adjective - relating to the identification of long-term or overall aims and interests and the means of achieving them
The barbell approach represents a strategic allocation that balances capital preservation with growth potential.
Investors who think strategically often outperform those who react to short-term market movements.
Unlike tactical decisions that address immediate concerns, a well-developed strategy provides a framework for consistent decision-making across various market conditions and helps investors maintain discipline during periods of volatility.
Whenever you are ready, here is how I can help you:
We provide Business English lessons and Cambridge and IELTS preparation courses. You can book an online lesson over Zoom here:
You can book a free 20-minute consultation with Iain over Zoom here:
Why not subscribe to our sister Business Fluency newsletter for English students interested in understanding essential business terms and concepts and providing you with practical strategies to boost your business and career prospects?
Tell us what you thought of this newsletterYour opinion is important to us. You can also suggest topics for future newsletters and ask Financial questions. |
Disclaimer:
This newsletter is for informational and educational purposes only and should not be construed as financial advice. The information contained herein is generic and does not take into account your individual financial circumstances. You should always consult with a qualified financial professional before making any investment or financial decisions.
Additionally, the authors and/or publishers of this newsletter may hold investments in securities or other financial instruments mentioned herein. These are included for illustrative purposes only and should not be taken as a recommendation to buy or sell such securities or financial instruments.