5% risk-free yields from the Treasury are calling our names
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The only sensible investment for years was in the stock market, as stocks have provided a tremendous annual return since the financial crisis.
It became such an accepted thought that the phrase "There Is No Alternative (TINA)" was coined.
The other historically popular investment option, bonds, offered terrible returns. Yields were near zero and usually lower than inflation. In some countries, they were even negative.
But that has all been changing.
Why the Investing Landscape is Changing
Goldman Sachs Group Inc. has dubbed the shift “TARA,” short for “there are reasonable alternatives,” while Deutsche Bank AG has endorsed “TAPAS,” meaning “there are plenty of alternatives,” and Insight Investment has come up with “TIARA,” or “there is a realistic alternative” to stocks.
The reasoning behind the changing investing options all comes back to one group: The Federal Reserve. I often credit them as being the most powerful organization in the world. And while that may be an exaggeration, they are up there when it comes to impactfulness.
Board of Governors of the Federal Reserve System (US) |FRED
In January 2009, the Federal Funds rate was near zero. As a result, stocks did well, and bonds did poorly. This trend continued for most of the decade since bond yields are based on the federal funds rate.
Now, in the past year, stocks have soured and bond yields have risen as the Federal Reserve has raised rates.
How Current Investments Look
Almost a year ago (May 2022), I wrote a similar article proclaiming there arefinally alternative investments to stocks. That article focused less on bonds, which along with stocks, are the one-two punch of accessible investment options over the last century.
Now is the time to consider bonds.
The stock market lost 20% in 2022. And for 2023, it'sanyone's guess how it will perform.
On the other hand, bonds offer returns not seen in over a decade.
Treasury
A three-month treasury (which is essentially risk-free) is offering a 5% return. (Bear in mind all these numbers are annualized).
The same applies to the two-month, four-month, six-month, and one-year.
Stocks have been moving sideways for 2023. And it's hard to get a read on what they will do.
What I'm Doing With My Money
I wish I could say I am invested in bonds. But I'm not. Not yet at least.
For 2023, I have been stockpiling cash. I learned my lesson the hard way from 2020–2022 about diving too quickly into the stock market.
I am still dollar cost averaging into the market, but at a lower quantity than previously. But now, I have a decent cash pile ready to deploy.
And I deployed some this past Friday (3/10). Seeing that $SPY was down 4% for the week, I bought in. It alsohelped my thesis to see $VIXhit $28 and close around $25.
But I still have plenty of ammo in that cash pile. I will continue monitoring the market and volatility and deploy cash when appropriate.
I'm also watching Treasury markets constantly. I haven't bought in yet because I want to see the Fed's latest message after their next meeting on March 21–22.
For now, cash is piled up and continues to be piled up. Some of it is being put in the stock market, with hopes the market dips a little more to keep buying in. And the possibilities for treasuries are looking more and more likely.
$Micro 10-Year Yield - Mar 2023(10Y2303)$ $Micro 2-Year Yield - main 2303(2YYmain)$ $SPDR S&P 500 ETF Trust(SPY)$
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