“There Is No Alternative”: TINA Explained.

Recently TINA has been applied to the investing world.

Have you heard of the term “TINA”?

It was introduced in the 1980s by British Prime Minister Margaret Thatcher. Thatcher liked to say, “There is no alternative” when referring to her market-driven economic reform ideas, and she said it so frequently that people abbreviated the expression to “TINA.”

 

Recently TINA has been applied to the investing world, where there is a common perception that the only profitable strategy worth considering at the present time is to invest in stocks. Given the prevalence of historically low interest rates, there is a view that you cannot make money any other way.

 

But how true is this? TINA proponents insist you should just buy stocks because nothing else offers meaningful returns. To these investors, the idea of portfolio construction centers almost exclusively around accumulating stocks, whether through an ETF, a mutual fund, or by buying company shares. However, this investment bias often has the effect of exacerbating the risk profile for the holder of the stocks, and may in fact limit the potential for long-term profit.

 

We need to remember there have been periods where stock market returns were less than zero for as many as 20 years. Starting in 1966, it took 16 years for the market to recover to its original level. In inflation-adjusted terms, it was 26 years and the first decade of this century was essentially flat.

 

While TINA followers recognize that stocks go down sometimes, they tend to minimize the impact and convince themselves that any losses are temporary. That may have held true in recent history, or even over the past decade, but it can be very painful if the losses occur at a point in life when the funds are most needed.

 

At SANDSTONE, we do not adhere to the TINA school of thought, and do not recommend that you allocate all of your capital to stocks. There are excellent investing alternatives to help you achieve your investment goals. It is important to know what they are.

Alternatives to Stocks

What options do you have as alternatives to stocks?

 

Fixed Income

With respect to fixed income, there are good alternatives to consider beyond the typical 10-year government bond currently paying around 1%. Private Credit Funds are non-bank, non-traded lending programs which yield high single-digit returns. Typically, investors receive higher returns because they relinquish short-term liquidity in favour of a multi-year commitment. Funds are not released until the defined period ends.

 

However, it turns out that sacrificing liquidity in this manner is an excellent way to boost your returns. The investment itself earns more, and often brings peace of mind as it removes the temptation to succumb to temporary market disruptions or liquidate assets at an inopportune time.

 

alternative private investments

In addition to Private Credit Funds, there are other private investment strategies and products that offer good diversification. A concentrated portfolio focused exclusively on stocks may work well on the way up, but it can handily eliminate your entire worth on the way down. Diversification is about reducing risk and enhancing return.

 

The other benefit of allocating part of your portfolio to alternative private investments is that these are less correlated with the public market, and less influenced by what the Fed is saying, or the President is tweeting. Having a healthy allocation to uncorrelated alternative private investments can not only enhance your return, but it can also reduce your overall volatility.

 

Besides cash and private credit funds, investment alternatives include:

  • Commodities – gold, silver, etc.
  • Real Estate – rental, farmland, etc.
  • Cryptocurrencies – bitcoin, ethereum, etc.
  • Peer-to-peer loans.
  • Direct investment in start-ups and private companies.
  • Various private funds utilizing a particular manager’s edge.

unintended consequences: a note on over-diversification

Most ETF’s and mutual funds have dozens, if not hundreds, of underlying investments, a good number of which may weigh negatively upon the average return. As bull markets evolve, many investors naturally increase their allocation to public equity in their portfolios. However, there is a point where over-diversification does not reduce further volatility.

 

The term ‘diworsification’ was coined by legendary investor Peter Lynch. He was referring to over-diversifying an investment portfolio in such a way that it negates the desired risk-return equation.

 

Bottom Line

Do not accept the frequently touted TINA theory of investment. The broader theme of this article is to not accept this so-called TINA imperative and assume you must buy stocks as the only way to achieve meaningful financial results. There are scores of alternative investment strategies that offer solid returns and stability.

 

By working with us at SANDSTONE we can help you identify and access them. Remember, it's what you pay!