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TINA Is Dead

John Yeigh

OVER THE PAST FEW weeks, my wife and I did something we hadn’t done in four years: We bought bonds.

Specifically, we parked some money in one- to two-year Treasurys paying 4.3% to 4.6%—the highest rates in 15 years. Our portfolio now approaches 5% bonds, and we plan to buy more. We’re waiting to capture higher rates following the expected Federal Reserve rate increases.

Bonds represent a seismic shift for us. In early 2020, I even wrote that the 60% stock-40% bond portfolio seemed dead, thanks to near-zero interest rates. But today, bonds are back, and it’s TINA (there is no alternative to stocks) that now appears dead.

We recognize that our bonds are losing to inflation in the short term. Still, as retirees, we may be hurt less by inflation because many of our costs are either fixed or in decline, including housing, transportation and education. Also, inflation should eventually come down.

In 2021, I also wrote about our use of covered calls on high-dividend stocks as a sort of bond proxy. In today’s bear market, this approach has held up well because the stocks involved haven’t been crushed like technology stocks. In fact, some of these “value” stocks remain near all-time highs, despite the market downturn.

Our bond-proxy approach resulted in our portfolio regularly having a stock allocation of more than 90% through much of the 2021 TINA era. This year, we thought it prudent to reduce our stock exposure due to a mix of personal and market changes.

We bought a second home in January. This required some stock sales, plus we now need to maintain a larger stash of operating and emergency cash. We have also ramped up our vacation spending after a two-year pandemic hiatus. On top of that, inflation provides another reason for a larger cash cushion, as we strive to make sure we have enough money on hand to cover our expenditures.

Concurrent with our house purchase, interest rates started to rise after 21 months of being near zero—ever since the March 2020 pandemic start. In early 2022, the Federal Reserve began ramping up interest rates, Russia invaded Ukraine and inflation was rampant. These developments have all boosted the odds of a recession.

As a result, we lowered our portfolio’s stock exposure by some 13 percentage points, so it’s now closer to 80%. Unlike HumbleDollar’s editor, we got there by selling long-term stock holdings on the way down rather than buying in hopes of a rebound. I rationalize this “investment sin” as a lock-in-less gains, limit losses, rebalance and risk-reduction measure. Maybe we should have done more.

In the big picture, our small allocation shift from stocks to bonds and cash doesn’t change much, other than to make my wife and me feel slightly more comfortable about our risk exposure. Each 10% move away from stocks probably only impacts near-term wealth by a couple of percent in either direction—depending on good news or bad on issues such as inflation, Ukraine, corporate earnings and interest rates.

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