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CD investing strategies: barbells

By Sheyna Steiner · Bankrate.com
Thursday, June 10, 2010
Posted: 3 pm ET

Ladders are one CD investing strategy to get higher than average CD rates, but there are other strategies for choosing maturities to populate your CD portfolio, for instance: barbells.

Barbells are a CD investing strategy that focus exclusively on short- and long-term maturities.

According to Donald Cummings Jr., managing partner at Blue Haven Capital, in Geneva, Ill., one reason that an investor might choose a barbell strategy is that they're betting the steepness of the yield curve will lessen.

"If you held a barbell at a 45-degree angle that might look like the present yield curve but if you pivot it in the middle rates come up short term but long rates might fall a little bit. If you push your left hand up and right hand down, that's what happen in a flattening yield curve environment," he says.

This is how it works: half of your portfolio would be in short-term maturities. The other half would be in long-term maturities. Graphically it ends up looking like a barbell because there are no intermediate term CDs.

For instance, "a million bucks coming due in thirty years and a million bucks coming due in three years," says Cummings. Or perhaps slightly less than $1 million if you're an investor more in my league than the big ones.

The upside of it is that investors can take advantage of higher yields out further out and still have some liquidity in the short-term for reinvesting.

Use this Bankrate calculator to gauge your CD earnings.

Have you ever used a barbell strategy with bonds or CDs? What else should investors know about using a barbell strategy?

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