TINA (There Is No Alternative)
As WT Wealth Management has stated over the last several years, many Americans are underfunded in their retirement accounts and many more live beyond their means. In response, over the past 10 years, investors have used heavy equity market exposure in their portfolios, more out of necessity than preference. There just weren't really any alternatives to equities.
American households have been a key buyer of US stocks since the global financial crisis in the mid-2000s. Investing has never been easier, aided by technology and smart phones apps, an investment account can be opened in minutes and trades are available at our fingertips. The equity markets have also been relatively safe over this period, with above average returns. This emboldened investors to take on additional risk for their appropriate allocation target.
More recently, since the start of the post-pandemic recovery, inflation made the cost of living even more challenging for many Americans. Couple that increase in prices with a near 20% decline in the S&P 500 in 2022 and American's are feeling the pinch... anxious about another possible downward move in the equity markets. Consecutive down years are rare, but can happen.
In response to fear about the equity markets and the reality of true alternatives finally in place, coupled with an aging demographic in the retiree space, US households could pivot away from stocks and the shift could result in a $750 billion sell-off in equities this year, according to Goldman Sachs. (1)
TARA (There Are Real Alternatives)
After more than a decade of low interest rates, many investors are now looking towards fixed income and yield-bearing assets in a different light. Since 2008 the yield on the 10-year treasury has only reached 3% on a few occasions and has spent more time under 2.5% than over 2.5%. (2)
Macrotrends.net – Historical Chart of the 10-year Treasury Rate from April 1, 2013 to March 31, 2023
In 2022 we moved significantly above 3.0%. This current level of rising yields in money-markets, treasuries and investment grade corporate bonds shows that, as far as equities are concerned, the era of TINA ("There Is No Alternative") has ended and that we now see TARA ("There Are Reasonable Alternatives").
With New Alternatives, How Can We Respond?
As an investment advisor and asset manager it's our job to adapt, persevere and overcome for the benefit of our clients. What was timely last year may not be timely next year. The way we know how to move, and allocate your accounts isn't based on our needs, but your needs.
Keep in mind, we still feel that for many Americans equities offer exceptional long-term risk/return trade-offs. Over the past 50 years, equities have generated an average annual return of nearly 10%. That's still more than double what a 10-year treasury yield bears today. (3)
But keep in mind, as we explained in our January article, How Rare Average Actually Is
, "over a lifetime of investing, that long-term 10% return will be made up of many years way above or well below that average."
Please schedule a time to review your entire financial plan with your dedicated advisor. Be prepared to really do some pencil sharpening and figure out exactly what your post-pandemic household costs are. We'll ask tough questions so we can provide the appropriate answers and help ensure you are appropriately allocated to maintain your standard of living, not only over the next 3-5 year cycle, but well into retirement.
- US households will sell $750 billion in stocks this year amid higher rates and sticky inflation
Business Insider Mexico
- 10 Year Treasury Rate - 54 Year Historical Chart
- What Is the Average Stock Market Return?
The Motley Fool