August 23, 2021

Today’s market often elicits the acronym TINA – there is no alternative – as in there is no alternative to stocks if you want to make money. I don’t agree. Taking on immense risk isn’t everyone’s cup of tea. To such people, I say take solace, there are alternatives.

Buying and holding stocks isn’t guaranteed to work, no matter how long you hold. There have been periods where market returns were less than zero for 20 years. For instance, beginning in 1966, it took almost 20 years for the market to recover to its original level. But when factoring inflation, the “return to zero” trip took 26 years. Similarly, markets can be stagnant, with minimal gains, but real losses when including inflation. The first decade of this century was essentially flat.

However, a long, pedal-to-the-metal bull market will make people forget all that stuff.

But remember, bull markets typically bring high equity valuations in the form of price-to-earnings (PE) ratios, so stocks are expensive. And believe it or not, PE ratios can play a role in your retirement. Crestmont Research has shown that, in essence, high valuations at the time of retirement coincide with a lowered possibility of retirement success and greater chances of running out of money in less than 30 years:

Taking big stock market risks is what TINA advocates. But some folks, like me, think having retirement success jeopardized by market whims is crazy.

Don’t believe TINA. There are alternatives.