For the better part of the 2000s, investors have had virtually only one avenue for growing their portfolios: stocks.
Or more precisely “equities”. This is a far cry from the 1980s and 90s when people who were risk averse could simply put their hard-earned money in the bank or a savings bond and collect a ton of interest. However, that all changed with time as the Federal Reserve slashed its lending rate to zero to combat the 2008 Great Recession.
Hence, the term “TINA” was born. TINA is an acronym that stands for “there is no alternative” – meaning that investors who are hoping to grow their net worth basically had no other choice but to invest in stocks.
A portfolio is supposed to be a mixture of assets that can be tailored to your individual risk profile. However, with bonds and other investments paying hardly anything more than inflation, it’s been difficult for those who don’t necessarily feel comfortable riding the highs and lows of the stock market (such as retirees) to earn the yields they’re hoping to receive.
… until now! Ever since the Fed began raising interest rates in 2022 to combat inflation, many of those discarded investment alternatives that were popular back in the day are having a big resurgence. And given how stocks lost 19.64% in 2022, that’s welcoming news to those who’d like to diversify from stocks and hedge their portfolios from any further losses.
So what are these investment options that defy TINA?
5 Alternatives to Stocks
Warren Buffett said it best when he stated, “The first rule of investing is don’t lose money. The second rule is don’t forget the first rule.”
Investors who are looking to add stability or expand their asset allocation without sacrificing yield may want to consider the following alternatives.
1) High-Yield Savings Accounts
Without a doubt, if you’ve got cash that’s just sitting around, then a high-yield savings account is the place to put it. Many of them are currently paying simple interest as high as 4% APR.
A few decades ago, all banks would pay you interest on your savings. However, that hasn’t been the case in years. Customers who want to receive interest will want to look beyond conventional big-name banks at places such as:
- Reputable online banks (i.e., Ally, Captial One)
- Local credit unions
- Brokerages (i.e., Wealthfront)
A high-yield savings account is the perfect place to stash your emergency fund. Because you need that capital to be liquid, it wouldn’t make any sense to tie it up in an investment where there would be fees for early withdrawals or a potential decrease in value. This allows you to earn a little interest while still being prepared for whatever life throws your way.
2) CDs
CDs or “certificates of deposit” are when you agree to lock up your money for a specific period of time (3 to 60 months) in exchange for a guaranteed interest payment. The advantage of a CD over something like a high-yield savings account is that the APR is higher – typically about one percent greater.
CDs are a great place to store money that you’re planning on spending right away but also don’t want to lose value. A good example might be a down payment for a vehicle or home.
If you’re worried about tying your money up for a year or so, then it may help to use what’s called a CD ladder. A CD ladder is simply a series of CDs that expire at various times throughout the year – for instance, every three months. Structuring your CD investments in this way helps to free up capital if needed as well as receive multiple interest payments throughout the year. Click here to learn more about how CD ladders work.
Similar to bank accounts, one of the nice perks of CDs is that they also come with FDIC insurance. In the event that your bank was to fail, the government would step in and reimburse your deposits (up to $250,000 per borrower per bank).
3) T-Bills
T-bills or “treasury bills” are another great way to generate yield for temporarily locking up your money. In fact, Warren Buffett often puts his cash into T-bills while he’s deciding what to invest in next.
T-bills are extremely short-term (ranging from 4 to 52 weeks) and typically pay a little higher than bank CDs. Just like a CD ladder, savvy investors can buy various T-bills and structure them into a ladder. T-bills can be bought directly from the U.S. government through their site TreasuryDirect.gov. Click here to learn more about investing in T-bills.
4) High-Yield Bond ETFs
When government and bank interest rates are high, this forces companies to be more competitive and offer better rates on the bonds they issue. This can be good for investors who are okay with a little risk and volatility because they’ll receive much better yields than they’d get with government debt.
Rather than buy these bonds yourself, a good way to capitalize on the opportunity is to buy a fund that will pick them for you. This can be done by seeking out a good high-yield bond ETF. Look to any reputable financial media outlet (such as this one) for the latest reviews and recommendations.
5) REITs
A REIT is a “real estate investment trust”. This is a company that buys and manages major commercial real estate such as retail space, office buildings, hotels, etc. In other words, you’d invest in a company that leases to major corporations like Walmart, Amazon, or Walgreens.
What’s attractive about REITs is that they’re good dividend payers. Whereas most stocks only yield about 2 percent per year, it’s easy to find REITs that pay in the 3 to 5 percent range.
REITs are also a nice way to diversify from stocks. While the stock market may be bouncing up and down, the tenants of REIT properties still must pay their rent, and that results in continual income for you as a shareholder.
Note, however, that REITs can be risky. Since publicly traded REITs can be bought and sold just like stocks, the share price will fluctuate in value. Be prepared for this before you think about investing in one.
Investing Starts with Saving
No matter what you decide to invest in, the first step is always coming up with the necessary capital. Unless you’re paying attention to your budget and ensuring that it’s on track, then that’s going to be difficult to do.
For this reason, use a helpful budgeting app like Buxfer. Buxfer connects to your bank and credit card accounts and pulls each transaction into a comprehensive report. That way you’ll always have a real-time summary of how much you’ve spent and what those purchases were for.
If you could identify just $100 of items in your budget that you don’t truly need, then this would be a great start. By diverting those funds into your investments instead, you’ll enable yourself to take advantage of any of these TINA alternatives above. Over the long term, that’s going to put you in a better position and give you the financial security you’re looking for.
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