Tips for Money Management – What is the Barbell Strategy?
At Wirex, we want to help you to make the most out of your hard-earned money. There’s plenty of strategies out there, most of all to only invest what you can lose, but why not consider how you can split your assets into different products to ensure you’re always growing your wealth? Today, we’ll be discussing the theory behind the popular Barbell Strategy, and how you can apply it within Wirex.
Understanding Risk in Investments
In the wake of the 2008 global financial crisis, many investors have re-examined how they approach money and risk. Nassim Nicholas Taleb is one such person who’s spent decades studying randomness and how we try to understand it. In other words, how do we assess risk (and are we any good at it)?
According to Nassim Nicholas Taleb, the more data we consume, the more likely we are to encounter bad information, and see false patterns, meaning we can’t predict what is going to happen.
As a result, we need to be ‘antifragile’. Taleb says that “fragile” is the opposite of “antifragile,” not “strong.” When you exercise, you break your muscles down, but they grow back stronger. So when investing, spread your risk by having a little bit of everything in your portfolio—some low-risk investments and some high-risk ones.
For investors, he set about addressing these problems and antifragility with a new concept: "the barbell strategy." Taleb shows how investors can use this strategy and also provides a probability primer on how to assess risk in a world where most people are pretty terrible at it.
In short, we can’t predict market movements nor when volatility is coming, so we need to be prepared to profit from it whilst protecting ourselves from bad investments.
What is the Barbell Strategy?
If you look at any market, there are really only two types of assets: low-risk and high-risk.
A barbell strategy has two ends and a middle. At the two ends, you have highly volatile assets. In the middle, you have low-risk assets. The concept of a barbell strategy is investing your assets in either risky or safe assets with minimum allocation in between them. In other words, you can spend your money on two kinds of bets: either on low-risk bets that almost guarantee profit or on high-risk bets with potential for quick winnings (or great losses).
The barbell strategy essentially says that if you have a large percentage of your portfolio in the lower risk portion, it gives you a nice buffer against volatility. When volatility strikes, for example when the cryptocurrency market imploded in 2018 and sent most of its investors scrambling for the door, it barely touched people who had locked down their money into Vanguard 500 funds or something similar.
Where does crypto fit into the Barbell Strategy?
Crypto is often considered a highly risky investment, but with the potential for much larger gains. Given this, you may think that Taleb would suggest allocating just a small portion of these higher-risk assets to the barbell. But in the case of crypto, there’s a barbell within a barbell.
Different tokens are perceived to have different levels of volatility, where BTC and ETH are sometimes considered more reliable when compared to newer tokens. Within the smaller barbell, you may also want to split your allocation between what you believe to be riskier and less risky tokens to protect your portfolio.
How can I use the Barbell Strategy within Wirex?
We believe that the 80:20 ratio of higher-risk to lower-risk investments works well within Wirex, and we’ve created a whole host of products to meet these wealth management needs.
X-Accounts allows users to easily earn up to 20% APR interest on selected traditional and cryptocurrencies. All you have to is deposit your funds into an X-Account, to sit back and watch it grow. Interest is accumulated daily and paid weekly, and you have the option to withdraw at any time if you choose our X-Accounts Flexible plan, or after 30 days if you choose X-Accounts Plus and want higher interest rates.*
On the other hand, we offer plenty of options for trading in line with market volatility. Not only do we offer the ability to exchange up to 140+ tokens at the best in-house rates, but you can also invest your assets into a DUO for up to 400% APR yield.* This dual currency wealth product gives you the potential to earn high yield regardless of market ups and downs, just by selecting a pair of assets.
Start applying The Barbell Strategy within Wirex today!
Subject to your location, crypto products like Wirex DUO or X-Accounts may not be regulated. The value of your assets may change significantly and lead to a total loss, and there may be no regulatory recourse for any loss from such transactions. Tax may be payable on profit. Please do your research thoroughly.
The content of this publication should not be construed as an express or implied promise, guarantee or implication by Wirex that clients will profit or that losses in connection can be limited from reliance on any information. The content is purely educational and informative, not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice and should not be relied on for those purposes. Wirex is not responsible for any loss arising from any investment based on any perceived recommendation, forecast, or other information contained here.
None of the information in this article constitutes an offer (or solicitation of an offer) to buy or sell any currency (whether cryptocurrency or fiat) or product, make any investment or participate in any trading strategy