This week, I got the chance to catch up with my colleague J-Rod for our monthly Lifetime Income Report Pro State of the Market call.

On the call, we talked about how to use my barbell investment strategy to play the stock market rebound we’ve seen this year.

This approach helps you strike a balance between cyclical stocks that benefit from economic growth and other investments that pay you no matter what’s going on in the economy.

I’m excited to share a portion of our conversation with you today. Just click on the video below to watch a clip from our call.

Video Notes:

So how do we play this market rebound? Well, I think it makes sense to invest in more cyclical stocks right now, which are simply stocks that benefit from a recovery in the economy. 

Basically, certain areas of the market do well when the economy is growing, and they do poorly when the economy is shrinking. 

So we want to put some of our investments into these stocks that do very well when the market is expanding.

There are some big questions right now as to whether the economy is expanding or not. I don't have a crystal ball, so I can't tell you exactly what's going to happen with the economy this year. 

We have a lot of issues with employment, inflation, the Fed tightening rates, international affairs, China, Ukraine, and so forth. 

There are just a lot of question marks out there. So we don't really know whether the economy is going to expand or whether we're going to have a recession this year. 

But we don't have to know that right now. What we want to look at is what other investors are expecting to happen. 

Because if investors are expecting a strong economy this year, they're going to be buying the cyclical stocks, and so we want to be in those stocks so we can make money. 

Then if things change, we can adjust and adapt. 

And that's what investing really is all about: making sure we're adapting to what the expectations are currently and thinking about what could change over the next few months.

So today we're going to spend a good bit of time on some cyclical areas of the stock market that I think you can invest in safely. 

And we'll also avoid the cyclical areas that I think are too speculative, that I think are too aggressive and still have a lot of risk. 

What this means is we're going to put more of our capital into cyclical stocks. What it doesn't mean is jumping into the most popular, more risky stocks. 

Now, many of these stocks are up 80% to 100% over just the past few weeks. I mean, it really has been astounding to see how some of these speculative stocks have rallied. 

The thing you got to realize is that nothing has necessarily changed with these companies. 

Is the company really worth 80% more than it was worth at the beginning of the year? Is the company really worth 100% more than it was at the beginning of this year? 

The answer is probably no. And so if that's true, then we want to be very careful about not putting money into these areas.

Now, think about this in terms of risk and return. 

Yes, some investors have made a lot of money in a short time with these speculative and I think very dangerous stocks. 

But these are the kind of stocks that you can wake up one morning and they're down 20% overnight. 

Or if something changes in the Fed… if the GDP report comes in weak… if China starts moving troops toward Taiwan… these stocks could be down 50% over a week.

So yes, there are some opportunities that we have missed this year. But I'm okay with missing opportunities that carry so much risk that they could really hurt you with a moment's notice. 

Typically, when I look at how I invest my own family's money, I use a barbell approach. 

We've talked about this a little bit before, but a barbell approach where you have two different sides of how you're investing. 

One side is very steady, very safe, very conservative. These are companies that generate profits year in, year out. These are companies that pay you dividends, so you get cash flow from these companies. 

And these are companies with stable businesses so you can sleep at night knowing that they're going to be okay. 

Proctor & Gamble, Chevron Texaco, many, many of the healthcare stocks, even retail stocks. These are good solid companies that are going to be around for a long time.

And then on the other side of the barbell, we have more aggressive plays. You want to have less capital on this side. 

How much capital you put into either side depends on you and your risk tolerance, how safe you want to be, and how comfortable you are taking risk. 

But you want to have most of your capital on the safe side, and then a certain amount depending on your risk tolerance in more aggressive plays. 

We've said many times that income plus growth equals boom.

If you can set up a portfolio of stocks that give you income, that's great. If you can add some extra growth on the side, that's even better. 

And when you put those two categories together, you wind up with wealth that's growing and even exceeding inflation.

It’s wealth that's helping you do the things that you want to do with your family and create wealth for generations to come. 

So that's really what we're after here, and that barbell approach can help you with that. 

It can really add to your performance by adding some aggressive stocks here and there where they make sense with a small portion of your capital. 

So if they don't work out, you're not hurting yourself, but you are giving yourself plenty of room to make money when these speculative or more aggressive plays play out.

The bottom line is that cyclical stocks right now are good and they're doing very well. 

While we still want to be invested in the secular stocks that make money all year round, we also want to have some of our money allocated towards cyclical growing stocks that benefit from a growing economy. 

That's what we're focused on for this month. We'll be circling back next month to talk about what new opportunities are popping up. 

And we can revisit some of these stocks too and figure out what's working well, what's not, and how we need to adapt. 

Because remember, adapting is how you preserve and grow your wealth.