Decisions
45 min

Barbell allocation

Put most of what you hold in something very safe and a small part in high-variance bets, avoiding the moderately risky middle.

Time cost
45 min
Output
An allocation with the safe end’s failure conditions stated.
Steps
5

Use when

  • You cannot estimate the risk of medium-risk options with any confidence.
  • The upside is unbounded and the downside must be capped.
  • A small number of large wins would matter more than a steady average.

Do not use when

  • The medium-risk option is genuinely well-understood — then it may simply be better.
  • You need steady income rather than optionality, which the barbell does not produce.

Inputs required

  • A definition of safe that survives the bad case
  • Bets whose downside is capped at what you commit

Procedure

  1. 01

    Size the safe end first

    How much must survive any outcome? That share goes into something genuinely low-variance. Typically 80–90%.

  2. 02

    Check the safe end is safe

    Test it against the scenario that would hurt the risky end. If both fail together, it is not a barbell — it is a concentrated position in disguise.

  3. 03

    Cap each risky position

    Each bet at the risky end must be able to go to zero without touching the safe end. That cap is the whole structure.

  4. 04

    Spread the risky end

    Several uncorrelated small bets rather than one. The point is exposure to a large win, and you do not know which one it will be.

  5. 05

    Avoid the middle deliberately

    Medium-risk positions carry real downside without real optionality, and their risk is the hardest to estimate. That combination is what the structure exists to exclude.

Characteristic failure mode

A safe end that is not safe. The structure only bounds the downside if the conservative portion holds under the same conditions that destroy the risky portion — and correlated failure is common.

Worked example

Someone allocating their working time across a year.

  1. 0185% to reliable work that covers costs.
  2. 0215% across three speculative projects, each able to fail entirely.
  3. 03Check: would the reliable work also disappear in the scenario that kills all three? No — different sector.

Result

Costs are covered in every scenario, and there is exposure to three uncapped outcomes. No position in the middle, where a project would be large enough to hurt and too small to matter.

Where to go next

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Maximin