How To Sensibly Invest in GameStop, AMC, Crypto, and Other High-Risk Markets

Investing can get boring. For years, I did everything by the book:

• Dollar-cost average into low-cost ETFs (exchange-traded funds) and set-and-forget
• Buy safe blue-chip stocks that offer decent dividends and, once again, set and forget

I invested with a long-term goal of gradually growing my nest egg and eventually saving up enough for a slightly earlier-than-usual retirement. 

But the thing is, once I put everything in place, I got really, really bored.

I saw things like crypto taking off, meme stocks rising to the top (and falling), and the Singapore Airlines stock hitting an all-time low during COVID-19 times (I wanted to buy it so bad).

Through all of these, I sat by the sidelines with my “safe” and “responsible” investment portfolio. Will I ever get a chance to invest in these once-in-a-lifetime opportunities, or am I just going to have to let them pass me by?

My set-and-forget style of investing has worked out well—and I still believe it is the best way to invest—but as someone who’s passionate about investing, I just can’t take the boredom of it anymore.

And that’s when I found a unique concept in the financial world called the “Barbell Strategy”.

 

What Is the Barbell Strategy?

The Barbell Strategy is a contrarian style of investing that turns everything we know about traditional investing on its head. Here’s a definition of it from DBS:

“A barbell strategy is an investment portfolio strategy with exposures at two ends of the risk spectrum with little in between.”

The theory behind it is this. There are 3 groups of investments.

Left Side of Barbell (Zero Risk, Low Returns)	Middle of Barbell (Moderate Risk, Moderate Returns)	Right Side of Barbell (High Risk, High Returns)
Fixed Deposits	ETFs (like the S&P 500)	Cryptocurrencies
T-Bills	Blue-Chip Stocks	Meme Stocks (AMD, GameStop etc.)
Singapore Savings Bonds	REITs	Starting a Business
		Day Trading

Traditional investment knowledge says we should invest in the middle of the barbell. But a possible issue with this, is that we are putting our entire portfolio at risk for a moderate gain. Sure, the risk is quite small, but it’s still there—the S&P 500 dropped by 25.4% from 3 Jan 2022 to 12 Oct 2022.

With the Barbell Strategy, you are weighing your investment portfolio on both sides of the spectrum, meaning super low risk and super high risk.

It says to allocate most of your investment portfolio (80 to 90%) to zero-risk investments and a small percentage (10 to 20%) to extremely high-risk, high-reward investments.

ALSO READ: Best Fixed Deposit Rates in Singapore (May 2024)—Rates Up To 3.75%, Minimum Deposits From $500

That way, you protect the majority of your portfolio but can still take advantage of those once-in-a-lifetime investment opportunities.

I know, I know—this sounds totally wacko and a recipe for disaster. But I’ve implemented it in the past year, and here’s how it went.

 

 

Was the Barbell Strategy Successful?

I took all my money out of ETFs and shifted it to align with the Barbell Strategy.

I don’t want to reveal my entire net worth, so I’ll use percentages to discuss my performance over the past year.

First of all, to determine if the Barbell Strategy was successful, we need a benchmark. 

This benchmark will be the average return of the S&P 500 over the last 30 years. That’s 9.90% p.a. (7.22% p.a. when adjusted for inflation).

So, the number to beat is roughly 8% p.a. in growth. If I beat this number, the Barbell Strategy could potentially deliver me better returns on average than if I used a traditional form of investing, such as dumping everything in ETFs.

Here’s what my allocation looked like:

90% of investment portfolio: State Bank of India (SBI) Fixed Deposit

10% of investment portfolio: Day trading in the Forex markets

P.S. Before I go further, I need to share a caveat. Day trading is extremely difficult, and it took me over 10 years to do it successfully. So don’t try it on a whim.

My SBI fixed deposit return was 3.75%. Remember, only 90% of my portfolio earns that rate. So, this works out to 3.38% growth overall.

Miraculously, I made a 100% gain on my capital by day trading, which translates to a 10% growth on my portfolio.

Result after 1 year: 3.38% (Fixed Deposit) + 10% (Day Trading) = 13.38% p.a.

This is where the genius of the Barbell Strategy lies: By risking only 10% of my investment portfolio (since 90% of it was 100% capital guaranteed in a fixed deposit), I made a 13.38% return, which beats the 8% benchmark that I would expect from risking 100% of my capital in an ETF like the S&P 500.

 

 

The Elephant in the Room

Of course, I am well aware that I may not be able to replicate the 100% I made on the high-risk component of my portfolio. But if you’re thinking about that, you’re missing the point.

The point of the Barbell Strategy is that it allows us to take risks in a responsible manner. We may make money. We may lose money. But even if we lose, we only lose a small portion of our investment that has been accounted for. The upside, though, is practically infinite.

With the Barbell Strategy, you now have a way to sensibly invest in stuff that others would label “gambling”, like GameStop & AMC shares, new and emerging cryptocurrencies, and more. You can capitalise on unique investment opportunities as they come your way.

And it is really so impossible to make a 100% gain on the high-risk component of your portfolio?

Heck, if you had just invested in Bitcoin in the past year, you would have made a 150% gain on that by today (31 May 2023 – 31 May 2024).

ALSO READ: Cryptocurrency in Singapore: 7 Things to Know Before You Start Buying

Will I Continue Using the Barbell Strategy?

If anyone ever asks me about the best way to invest, I’d still say put your money into a low-cost ETF like the S&P 500 and set and forget.

But personally? That’s not for me. I already have a nest egg to rely on in times of emergencies, and honestly, I want to have a little fun by being an active investor, as that’s my passion.

I’ve just created my new allocation moving forward—here’s what it looks like now:

Ultra-Safe Component

45% of investment portfolio: State Bank of India (SBI) Fixed Deposit at 3.35% p.a.

45% of investment portfolio: Syfe Cash+ Guaranteed at 3.75% p.a.

P.S. I don’t put everything in Syfe despite the higher rate because they don’t offer Singapore Deposit Insurance Corporation Limited (SDIC) protection.

High-Risk Component

10% of investment portfolio: Day trading the Forex markets

 

What Results Can You Expect From the Barbell Strategy?

I don’t know what the next year will bring. I know for sure that I’ll be making around 3.5% p.a. on 90% of my portfolio. But the high-risk component (10%) is up in the air.

What I do know is that this year, I’m excited to invest in the markets. The Barbell Strategy isn’t the smartest way to invest by a long shot. It might even be counterproductive. But if you’re passionate about investing and want to do it actively, it opens you up to a world of opportunities.

With your 10%, you could basically wait for Roaring Kitty to tweet about GameStop, AMC, or whatever silly stock floats his boat and immediately buy into it. You could start that baking business you always dreamed of. You could even try investing in art or something whacky like that.  It’s not an excuse to gamble, but it allows you to try new things, have a little fun, and take some risks. With the Barbell Strategy, the world is your oyster (to invest in).

 

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