Why It’s Time to Embrace TINA
When I was at college in England in the early 1980s, one phrase was heard over and over: There is no alternative, often known simply as TINA. It was Prime Minister Margaret Thatcher’s memorable rallying cry as she pushed through market reforms in the UK.
Amid the current stock market swoon, it’s a phrase worth resurrecting. For those of us looking to outpace the twin threats of inflation and taxes and see our money grow over the long haul, there’s no prudent alternative to stocks for the great bulk of our investment portfolios.
That doesn’t mean the stock market won’t occasionally generate stomach-churning short-term losses, as it is right now. It also doesn’t mean folks couldn’t potentially earn higher returns by investing in, say, rental real estate or business startups. But for those investing in publicly traded securities with an eye to amassing wealth over the long run, arguably stocks should be the go-to investment. Why? Consider the four other principal choices:
Over the 20 years through year-end 2021,1, 2 the Bloomberg U.S. Aggregate Bond Index had a total return — price change plus interest — of 4.3% per year,3 versus 2.3% for the Consumer Price Index.4 But past performance is almost never a guarantee of future results, and that’s certainly true in this case. We shouldn’t expect bonds to clock 4.3% in the years ahead.
Why not? The best guide to likely bond returns is the yield to maturity, and today the bonds in the Bloomberg index yield just 3%, on par with the expected inflation rate for the next 10 years.5 If we want our money to grow, after subtracting out inflation and taxes, bonds are unlikely to do the trick.
What about Series I savings bonds, which have lately enjoyed a flurry of good publicity? Despite today’s high stated yield, the bonds will only match inflation over the long haul, plus you can only invest $10,000 per year (though that rises to $15,000 if you have a $5,000 federal tax refund that you tell the IRS to stash in Series I bonds).6
That doesn’t mean we shouldn’t hold bonds. They’re often the prudent choice for money we’ll need to spend over, say, the next five years. But a big allocation to bonds looks less prudent if our time horizon is measured in decades.
From the time I started writing about financial markets 37 years ago, I’ve been hearing folks complain that yields on certificates of deposit, money market accounts and other cash investments aren’t what they used to be.
Guess what? Those good old days weren’t so good. When cash investments were offering high yields, inflation was often just as high and sometimes higher. For instance, back in late December 1979, you could have bought a one-year Treasury bill yielding 11.7%. But over the next 12 months, inflation ran at 13.5%.4 Deduct that — plus federal income taxes at 1980’s top marginal rate of 70%7 — and holding cash investments was arguably the road to ruin, despite the double-digit yields. Today, with inflation close to 8% and one-year Treasury bills yielding under 2%,8 things look no more promising, to put it mildly.
The term “alternative investments” covers a vast array of possibilities. Among publicly traded instruments, this grab bag includes everything from commodity funds to cryptocurrencies to gold to mutual funds that aim to behave like hedge funds. What do they have in common? All hold out the possibility of good absolute performance with the hope that those good results will occur when stocks are struggling. Will alternative investments deliver on this promise? No doubt some will, though I — for one — have no clue which will be the winners
Indeed, because it’s so hard to know how cryptocurrencies, commodities and their ilk will perform, financial experts typically suggest limiting these investments to no more than 10% of a portfolio. In short, alternative investments may indeed be an alternative to stocks — but only for a relatively small portion of a portfolio.
How about sitting out the current market turmoil in cash investments and then returning to stocks when things seem brighter? That’s unlikely to be a successful strategy, for two reasons. First, there’s no reliable way to know when to get out of the stock market — or when to get back in. Second, by the time things look brighter, stock prices will almost certainly be far higher, reflecting the good news.
Think back to what happened amid the coronavirus crash two years ago. I had a few acquaintances who exited stocks as news of COVID-19 first broke. Unfortunately, by the time the news got brighter and it felt safe to own stocks again, share prices were far higher — and these acquaintances missed out on major gains.
The stock market, I believe, offers a highly appealing proposition: If we diversify broadly and we’re willing to sit tight through occasional market unpleasantness, there’s a good chance that we’ll be richly rewarded. To pocket this reward, we don’t have to be highly intelligent or hardworking. In fact, we don’t have to do anything at all — except be like the Iron Lady and keep reminding ourselves that there is no alternative.