Term Deposits
25 November 2020

Share Investing and the lure of TINA

You have probably already met TINA – she, who is an acronym for There Is No Alternative, is just about everywhere these days. In the world of finance TINA means that there is no alternative: to get a reasonable investment return, you have to invest in shares.

In the recent past I have written on interest rates staying lower for longer. The sharp decline in interest rates since Covid-19 has meant that TINA has stepped back into the limelight and many people have said that you simply have to start investing in shares.

To some extent this is true – shares, along with property, (they are both equity investments) are the only asset classes that are providing investors with decent returns at the moment. This notion has been behind much of the rise in shares and property in the last few months – a lot of money has come out of bank deposits and fixed interest investments and gone into higher returning equity investments.

Of course, in many cases this makes sense – often enough, at present, dividend or rental yields are significantly higher than term deposits or other fixed interest investments. Many investors can certainly afford to own some shares.

However, this article is a plea not to take this too far – whether you are investing in a fund or managing a portfolio yourself, you need to be very careful of how much risk you can take.

In recent weeks, as global economies seem on the road to some recovery and vaccines for COVID seem more and more likely, I am hearing advisers tell their clients that they should load up on shares. They may be doing this by advising their clients to sell some of their fixed interest investments to buy more shares and listed property, or, they may be advising switching funds from (say) a conservative fund to a balanced one.

Again, this may be right for some people – you could argue that it is a sensible tactical move.

From an investment point of view, acknowledging the state of economies and markets and then responding by rotating out of some asset classes and into other, different asset classes may make good investment sense.

But it can very easily be taken too far. I have a concern that there are many investors who are too much under TINA’s sway and are starting to invest in shares too heavily.

I know the reasons for rises in share markets and I am moderately optimistic for shares – but investors should beware of diving too deeply into equities.

It is true that other asset classes are promising very low returns – fixed interest and cash return little and that is unlikely to change soon (and even when interest rates rise, they may not rise much).

However, to get rid of all (or nearly all) of your bank deposits and your fixed interest to buy shares is to forget the purpose of these assets classes: bank deposits and fixed interest give stability to a portfolio or a fund. They return little at present but they are more stable, and reduce the impact of an economic shock which may hit share markets hard.

I preach diversification (especially for retired people). Many people had relied on just one asset class (term deposits), but it seems to me that there are some people who have moved from concentrating their wealth in term deposits to concentrating it in shares. Do this to great extent and it is a very risky strategy.

This is a fairly nuanced message: yes, take a bit more risk but not too much. For example, I usually run my own portfolio with 50 percent in growth assets (i.e. shares and property). At the moment, I am happy to push this out, perhaps to about 60 percent shares and property, but I will not go further than that. I am always mindful that although times may seem to be on the improve, we can never be sure what’s coming just around the corner.

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Written by:

Martin Hawes

Martin Hawes is not a Financial Adviser or a Financial Advice Provider, and the views in this article are not intended to be financial advice. The views and opinions are general in nature, and may not be relevant to an individual’s circumstances. Before making any investment, insurance or other financial decisions, you should consult a professional financial adviser. Martin Hawes is a director and shareholder in Lifetime Income.

Some investors may be getting too bullish...

Some investors may be getting too bullish...