TARA, TAPAS & TIARA might not be familiar investment terms, but with a looming recession, you’ll want to know these terms. Moreover, they’re newly coined terms that refer to a trend several prominent investment experts endorse. In short, I will tell you what these acronyms mean. Then I’ll give you several investment models that help you better manage the risk of investing in today’s economy.
🛰️Acronyms have been used for decades to shorten terms and help people remember things. For example, in 1940, the US Navy was developing a technology that would detect the presence of objects and measure their distance. They called it “Radio Detection and Ranging.” Well, that was a mouthful, so they shortened it to RADAR.
When the bull market ended
Similarly, TARA, TAPAS & TIARA are acronyms to jog your memory and encourage you to invest wisely. Ironically, they mean the same thing. Here is how TARA, TAPAS & TIARA came about. Since the 2008 “Great Recession,” the stock market has been on a tear! From June 2009 to December 2021, it’s up nearly 324%!
Since we all know that all good things must come to an end, 2021 kissed that bull market goodbye. For the first time in over a decade, stocks generally have been a poor-performing asset class.
Investments like bonds, emerging markets, commodities, and even cash have been better-performing asset classes. But just a short time ago, bonds were seen as senseless.
I’d have clients ask, “why even own bonds?” My answer was, “because they’re not stocks.” In other words, sometimes, to balance out risk, you should own an investment that doesn’t move lock-step with stocks.
But now the tables have turned, and alternative investments like bonds are making profits. That is where the acronyms TARA, TAPAS & TIARA have gained attention. But let’s back up one more step. In the years that stocks dominated, many investors thought that “there is no alternative” to stocks. And so, the acronym TINA became the buzzword when choosing investments. The talking heads on social media shouted that the stock market always goes up. They needed to be more interested in investing wisely. They wanted the biggest bang for the buck as fast as possible. I’ll refrain from naming names, but many talking heads have no investment expertise or expertise in giving investment advice. My-oh-my, how markets have changed and, as a result, quieted those short-sighted voices.
In come the experts investing wisely
Now, experts like Goldman Sachs, Deutsche Bank AG, and Wells Fargo are pushing a new narrative about the future of investing. All in all, they are interested in investing wisely. Goldman is talking about TARA or “there are reasonable alternatives.” Deutsche Bank likes using TAPAS, short for “there are plenty of alternatives.” And lastly, Wells Fargo seems fond of TIARA, the acronym for “there is a realistic alternative.”
Remember that all these acronyms are trying to do the same thing. They are trying to get YOU to look beyond stocks toward alternative investments. They hope to shepherd clients toward investment alternatives such as bonds, emerging markets commodities, and cash. But that list can vastly expand to include real estate, metals, agriculture, collectibles, etc.
TARA, TAPAS & TIARA familiar territory
But using other asset classes is nothing new. However, people mostly think about stocks when they think about investing. And catchy contractions like TARA, TAPAS & TIARA help people remember that there are alternatives for investing wisely. Given that, investors may need to consider asset classes other than stocks if they want to profit.
Here is the way that I approach investing wisely. I ask myself three questions. First, how much risk do I want to tolerate? Secondly, what’s my goal? Third, when do I want to be able to spend the cash from the investment? In reality, the answer to the second and third questions will help to determine the answer to the first question. How much risk do I want to tolerate?
So, to control the risk you experience in your investments, pay attention to how you allocate to different asset categories. Keep in mind that I’m not introducing a new development. In 1986, a landmark study done by Brinson, Hood, and Beebower showed that 97% of investment performance is attributed to asset allocation.
Models to guide you in investing wisely
With that in mind, I want to give you the models I use to develop an investment strategy for clients. There are seven models with seven investment alternatives. You will notice that the more risk that exists, the higher the allocation there is in stocks. The lower the risk, the higher the allocation is in alternative asset classes.
The intention of using alternative investments is not to get the highest return. My objective is to invest wisely to get the best return with the most reasonable risk based on a client’s preference. That might seem like I am being overly precise. But the term alternative investments or alternative assets has been used broadly.
With the TARA, TAPAS & TIARA concepts in mind, I am keeping the list of alternative investments to seven. But there can be many more. You can see that list on the free asset allocation model download below.
Hedge your bets done wrong
It’s easy to see the biggest reason to use asset allocation. It goes back to the adage that you don’t put all your eggs in one basket. If you drop that basket, you break all the eggs. On the other hand, you don’t want to own a bunch of investments with no objective. Regretfully, I have seen that strategy used too many times. Unknowingly, some people think they are investing wisely. But they are missing the bigger point, control risk.
I had a client that came to me once with fourteen mutual funds from different companies. Unfortunately, most of those funds were invested in the same type of investments. When the markets moved, most of the mutual funds moved together. I’ve seen the same thing happen in a company 401k. The retirement plan might offer ten investments. Similarly, some employees will buy ten percent of each fund without knowing how to allocate assets. The good news is that there is a more straightforward way to use investment allocation models.
When you look at the model I have created, you’ll see that the more conservative allocations have more alternative investments and a lower standard deviation.
What’s a standard deviation?
FYI, a fundamental way to look at standard deviation is that it is a way to measure the variability of an investment. Greater variability translates into more significant risk, and visa versa; lower variability is generally less risk.
I hope this information has been useful to you. The more you can grow your financial knowledge, the more in control you will be of your financial future. But as always, remember that this information is for educational purposes only. This information is not investment, accounting, or tax advice. For those things, you need to find yourself a good fiduciary advisor. 😉
Have a great week,
PS, here are some other great topics from my blog that may interest you.