9 months ago • 1 min
We’ve lived in a world of low interest rates for so long, we’ve almost forgotten that assets other than stocks can provide a good return. And that mindset won’t be easy to change. If, like me, you started investing in the past 15 years, you’ve never known a world where US interest rates ever reached above 2.5%. And that’s made your choices somewhat easier, since the only asset class providing a decent yield was stocks. But it also meant that in your hunt for yield, you likely were taking on disproportionate amounts of risks.
But things are changing: the popular stock-investing mantra “There Is No Alternative” (TINA) is giving way to “There Are Reasonable Alternatives” (TARA) and this chart shows why. Investment-grade credit, the US six-month Treasury bill, and the three-month cash deposit yields all offer competitive yields to the S&P 500, significantly above their median historical yields. The earnings yield of the market gives us an idea of what to expect for returns over the next 12 months, and at a current yield below its 6% median, stocks aren’t really expected to deliver inflation-busting returns.
So, there are safer, high-yielding alternatives to stocks that you could consider for your portfolio. But that doesn’t mean you should liquidate your stock holdings. Over the long term, stocks provide a greater opportunity for capital growth and returns. However, in the near term, you might want to consider increasing your allocation to other “risk-free” assets like cash and T-bills. It’ll allow you to earn a decent yield while you wait to buy the dip in the stock market.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.
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