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4 Individual Bond Strategies Barbell strategies. Barbell strategies are designed to help investors maximize income while maintaining liquidity. The portfolio divides its holdings into short-term and longer-term maturities. The longer-term portion of the portfolio should return higher yields, while the shorter-term portion is designed to provide lower risk and high liquidity. A well-diversified barbell strategy should help weather volatility in various interest rate environments. Exhibit 2 highlights the structure of a barbell strategy. The portfolio has two separate blocks of holdings. One end of the barbell will be represented by the 0–5 year maturity range. The other end will be represented with bonds in the 20–25 year maturity range. Short-term holdings serve to anchor the portfolio, and thus help lower its duration and overall volatility. One point to consider is that long-term investments can be more seriously impacted by changes in interest rates. Depending on the interest rate environment, an investor executing a barbell strategy could lose principal when rolling over the longer-dated end of the portfolio. It is also important to remember that there could be tax consequences as this strategy has more turnover than a buy and hold strategy. This is due to selling the longer maturity bonds as they roll down to the curve and reinvested again. Exhibit 2: Barbell bond strategy For illustrative purposes only. Not meant to represent any actual investment. Duration is a measurement, in years, that assesses the interest-rate sensitivity of a bond. Long-term bonds – year maturity range Short-term bonds – year maturity range Long-term bonds – year maturity range

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