Different investment gurus hold diametrically opposite views on cash allocation: Duan Yongping stays fully invested, Buffett keeps 10% in Treasuries, and Taleb advocates the barbell strategy. Starting from age and financial situation, the article explains why "It depends," and teaches you to use the barbell strategy to balance a safety cushion and risk investments, achieving an antifragile asset allocation.
Author: Bill Qian
From the perspective of asset allocation, I have found that different influential figures hold diametrically opposite views on how much cash a person should actually hold (including cash equivalents such as government bonds).
Duan Yongping says he is always fully invested in stocks because he does not like holding cash. Dalio says, "Cash is trash," because the U.S. dollar, or any currency for that matter, is being issued at an accelerating pace. Buffett's view is that in the will he leaves to his heirs, he would recommend allocating 10% of assets to short-term Treasury bonds and 90% to the S&P 500 index. Meanwhile, Taleb, the author of The Black Swan, proposes a barbell strategy: allocate 90% of assets to cash and short-term Treasury bonds as the left side of the barbell; the right side of the barbell is extremely adventurous, using 10% for bets with very high upside.
Later, I figured it out: It depends, it depends on who is asking the question.
I think Taleb's barbell strategy may be a good framework for thinking about this question. Build a portfolio that is heavy at both ends and thin in the middle: the left end is extremely safe and can provide a safety net for our lives; the right end takes on adventure to pursue upside returns. This structure is what he likes to call "antifragile," because accidents cannot destroy the safety cushion on the left end, yet they may ignite the potential returns on the right end.
In addition, one rather counterintuitive point is this: in a world where asset correlations are increasingly high, the middle-ground things with moderate risk and moderate return may offer insufficient returns, but when tail events arrive, the risks they carry are not small at all.
And the barbell strategy itself is not just a financial investment portfolio. We can put the logic of allocating various resources, such as time and career, into this strategic model as well.
For example, for a 25-year-old young employee at a major tech company, the left side of his barbell strategy is youth and time, a healthy body and mind, stable salary income, and expectations for future cash flow. In this case, he may not need to hold too much cash, because time and future cash flow already constitute the current safety cushion on the left side.
At this point, after learning the right knowledge, he can invest his savings into long-duration, highly volatile risk assets, whether it is the Nasdaq, Bitcoin, or semiconductor stocks, or invest in his own education, try vibe coding or run a self-media side hustle, or even try to become a stand-up comedian.
In life, even just joining a city common-interest group on weekends, or attending a gathering organized by friends, is a form of right-side thinking. Because it is like opening a blind box, you never know where you might meet interesting people or gain important inspiration and information.
Here, the left side of the barbell comes from this young person's time (youth), health, low debt, and money sufficient to cover living expenses for a period of time; while the right-side investments, whether putting in funds or developing a side hustle, may generate future upside returns.
But if a middle-aged person thinks about this model, the manifestation may be different.
For most middle-aged people, their careers are already more than halfway through, or have entered the so-called "mature period." After all, opportunities for further promotion are limited, and younger people may be gradually acquiring the ability to replace them in their positions. If they are not civil servants, many middle-aged people working in private enterprises often find it very difficult to return to the traditional workplace once they lose their jobs.
Therefore, the left side of their barbell strategy should be to prepare sufficient cash savings early on, and not allocate too many assets because of the temptation of potential returns on the right side, only to discover when risks appear on the right side that their left-side safety cushion is simply not enough.
The safety cushion on the left side actually has two functions: one is to help us get through difficult times; the other is to provide enough oxygen for the "volatility" on our right side to breathe, so that we are not forced to exit when we should least be selling due to too much pressure.
Buffett's allocation advice of "10% cash + 90% S&P" is actually a barbell strategy. The reason his left side is so "small" is that he said this to his own family. At his level of wealth, 10% in cash and Treasury bonds is enough to ensure that his descendants can still live without worry even if the S&P is cut in half by 50%, which is why he said 10% cash.
But for most ordinary middle-aged people, what may be more important is to start from their own actual situation, ensure that their left-side safety cushion can cover the living expenses of themselves and their families in the worst-case scenario, and then think about: on their right side, how much allocation share is still left for risk investment?
The author of The Psychology of Money once said a very classic line: The most important point in Personal finance is "personal"; this is a very, very "personalized" subject. I think this view also applies to how we apply the barbell strategy. Because every person is unique, from personality, endowments, preferences, and values, to the cortisol levels they experience under pressure, everyone is different.
I remember the Asian actress Lucy Liu in the movie Kill Bill said on a program that she came from a poor background, and later saved a lot of money. She called this money F*ck You Money, because this money can buy freedom, independence, and the right to say "no."
The money we spend can buy life experiences and beautiful memories; while the money we do not spend gives us the right to choose and refuse in this world.