TINA Is Stupid

By John Mauldin 


In the 1980s, British Prime Minister Margaret Thatcher liked to say, “There is no alternative” to her market-driven economic reform ideas. 

She said it so much people began abbreviating it as “TINA.”

Whatever you think of Lady Thatcher’s policies, the slogan was certainly effective politics. 

If victory is inevitable, you can either cooperate or be left behind. 

But her phrase actually goes back further to an 1851 book by Herbert Spencer, who also famously coined “survival of the fittest.”

More recently, TINA has been applied to investing. 

You must buy stocks because TINA. 

You can’t make money any other way. Just close your eyes, buy and hold forever. 

Or at least through a full market cycle.  

Frankly, I think that’s stupid. It isn’t true. 

First of all, buying and holding stocks isn’t guaranteed to work no matter how long you give it. 

There have been periods where stock market returns were less than zero for 20 years. 

Starting in 1966, it took 16 years for the market to recover back to its original level and in inflation-adjusted terms it was 26 years. 

The first decade of this century was essentially flat (see chart below).

However, there is nothing like a roaring bull market to make everybody forget the past. We all know it’s different this time (note sarcasm). 

I mean, the Fed has the wind at our back, and all we have to do is to unfurl the sails and move ever forward. 

Thus TINA.

It helps if you somehow had the wisdom to avoid the 2000s up until the magic point of March 2009 and then jump in. 

But what happened if you weren’t quite so prescient and invested at the beginning of 2000?

If you invested $100 in the S&P 500 at the beginning of 2000, you would have about $394.90 at the beginning of 2021, assuming you reinvested all dividends (in 2013 dollars to average the currency fluctuation). 

This is a return on investment of 294.9%, about 7% yearly. 

This investment result beat inflation for a 152.6% cumulative real return, roughly 4.5% per year.

By the way, those returns assume you had no taxes, investment management fees, platform fees, ETF and mutual fund fees, etc.

The chart below shows what’s happening for the last 21 years, and the sheer awesome power of a roaring bull market for the last 12 years. 

Even with the “Greenspan put,” the first 10 years of the 2000s ended essentially flat. 

And then the financial crisis, QEs 1, 2, and 3, with Jerome Powell adding another still-continuing QE after the COVID meltdown. 

Please note: I’m not saying the returns are artificial or are not real because quantitative easing was involved. 

They absolutely are.


Source: in2013dollars.com


Source: in2013dollars.com


You need to be incredibly lucky to only invest in bull markets. The odds still aren’t great unless you a) have a longer time horizon than most people do and 2) don’t get scared out by the inevitable downturns.

But more important, and the point to this week’s letter, is that there are alternatives to the kind of stock investing Wall Street usually peddles. And some of them are, in my opinion, far more likely to help investors achieve their goals.

Typically, potential investors are shown stock market returns over 60 to 80 years, which includes three or four full cycles, and then take those returns projected into the future. 

Save your money you are told, accumulate $1 million, and then you can take 5% a year for a 30-year retirement. 

Just keep your money invested and it will grow faster than your withdrawal rate, because the average return is over 7%.

Well, not so fast. My friend Ed Easterling at Crestmont Research says it makes a great deal of difference when you start your retirement.

If you start at a time of high valuations (like now) the chance your money will run out before 30 years is also quite high. 

In fact, in the chart below, if you start at the top 25% of valuation quartiles you would run out of money in an average of 21.8 years. 

Your money only lasts 30 years 47% of the time. Not exactly good odds. 

Starting at low valuations? 

Well, the force is with you.


Source: Crestmont Research


But taking these risks is precisely what TINA advocates suggest you do. 

For something as serious as retirement, I think that’s insane. 

There is no reason to take such risks. 

You have alternatives.

Today we’ll think about this “TINA” nonsense and look at some of the alternatives TINA advocates claim, or at least pretend, don’t even exist. 

They do exist and you deserve to know about them.

Getting Lucky

Financial planning is really a giant math problem. 

You can know some of the variables: your current age, how much money you have right now, how much you can add to savings each year, when you want to retire (or buy that house, etc.). 

Others you can only guess: your lifespan, the inflation rate, market returns and volatility, future tax policies, and so on.

Nevertheless, a good planner can crunch all those numbers and inform you what level of return you need. 

Then, you can look for investments that give you the best shot at reaching it. Many investors go wrong by overreaching. 

If all you need is 5% annual gains and you’re plunging most of your money into, say, tech stocks or Bitcoin, you may get lucky and earn a lot more than 5%. 

But you may also experience losses that prevent you from achieving an otherwise reasonable goal.

The other and perhaps more common problem is excessive goals that raise your return target, thereby forcing you to take more risk. 

If you are age 60 with no savings, and you want to stop working in 5 years, you will have an uphill climb. 

Those high tech-stock returns you hear about will seem pretty attractive. 

But in reaching for the stars, you run a high risk of falling back to earth. 

(The answer there is to dial back your expectations, but that’s not fun so few people do it.)

All this is much harder than it used to be because interest rates are so low. 

Not so long ago, those with modest goals could almost guarantee success with a portfolio of long-term bonds or CDs. 

Treasury bonds, blue-chip corporate bonds, even some tax-exempt muni bonds had decent returns and low-risk profiles. 

It was possible to invest a lump sum and be pretty certain of the outcome. 

You can still do that, but the outcome won’t help you nearly as much.

TINA advocates say none of this matters. Just buy stocks because nothing else is better. 

At least, that’s been the case for the last 12 years.

Let me state this clearly because it’s important. TINA advocates know stocks go down sometimes. 

They just don’t care. 

They’ve convinced themselves any losses are temporary. 

That may be true, especially for the last 12 years, but also irrelevant if the losses occur right when you need the money.

Artificial Reality

The non-TINA reality is both simpler and more complex. 

Stocks are a tool, but different jobs require different tools. 

If stocks are what you need, you still have to use them in a way that matches your goals and risk tolerance. 

(Note: I am not against holding stocks. I personally own a handful of stocks that are long-term investments for me. But that’s another story.)

Now, there are people who can buy a concentrated stock portfolio, ignore the ups and downs and hold on for years while they climb to a sustainably high level. It happens. 

But I can tell you, after decades in the business and thousands of client meetings, such people are rare. 

Having an advisor to encourage you through hard times helps, but then all too often they stop believing the advisor.

What most people really need is consistent growth. 

If your bogey is 7% annual returns, you’re better off getting as close as you can to 7% every year even if it means missing some upside in strong years. 

You’ll make it up by missing downside in other years. In other words, you want the predictability of bonds combined with the upside of stocks.

The statistical reality: You can end up in the top 10% of investors over 10 years if you simply are in the top 50% every year for 10 straight years. 

You don’t have to knock out the lights to win. 

Just avoid losing.

There was a survey done in 2000. 

The average investor expected to make 15% per year for the next 10 years. 

Oops. 

They got zero, especially after inflation. 

I daresay that if that survey was done today, it would have a similar higher expectation than a full market cycle average. 

Certainly nothing like 7%.

Portfolio strategists have long tried to deliver on that dream with ideas like the “60/40” stock/bond allocation. 

In theory, the bond part will gain value when the stocks are weak, thereby smoothing the overall return and reducing total portfolio volatility. 

A nice idea, and one that used to work fairly well. 

It hasn’t done so recently because yields are so low and the Fed’s QE has distorted bond prices beyond economic fundamentals. 

We can’t be confident they will zig or zag at the right times.

This new (and artificial) reality is becoming more obvious, and it’s a big problem. 

Trillions of dollars are invested in variations of the 60/40 idea. 

Almost every large pension plan and endowment keeps its money in some combination of stocks and bonds, but the bond part no longer behaves like it’s supposed to. 

Bond portfolios average 3% if you’re lucky. 

It’s probably more like 2% and in a rising interest rate market could be a lot less. 

It’s become dead weight, contributing little or nothing to overall returns and maybe even adding a new kind of risk.

Suppose, just for example, the Fed decides the economy is doing well enough to aggressively “taper” its various support programs. This could easily make stock prices fall (because liquidity will shrink) while long-term interest rates rise (because the economy is growing). That’s the worst of both worlds for a stock/bond strategy.

I’m not predicting that scenario, to be clear, though I think it’s possible. 

I mention it to illustrate how this new upside-down world may not work the way we expect.

Locked In

So what can you do? 

What’s the alternative to stocks?

One answer is stocks, but not all the time. 

“Market timing” is anathema to many financial advisors, and they’re not entirely wrong. 

Done badly (and most people do it badly) and with the wrong expectations, it will be worse than buy-and-hold. 

The key is to realize what timing can and can’t do. 

I don’t know anyone who captures all the upside and misses all the downside, but you don’t need to. 

Simply avoiding the worst part of major downturns helps. 

It helps even if it causes you to miss some gains when the cycle turns. 

Similarly, “rotation” strategies that stay fully invested but actively shift between market segments to follow momentum can have good results, too.

Part of my personal strategy is using diversified trading strategies, not necessarily diversified stock portfolios. 

You used to be able to get diversification in various sectors of the market (small-cap versus large-cap, international versus emerging markets versus US, etc.). 

Now all stock market sectors seemed to move together in a bear market. 

I have personally identified a handful of ETF trading strategies and managers that I feel comfortable with.

Other alternatives exist, too. 

Sadly, some of the best hedge funds and private investments aren’t publicly available. 

Our government has decided they are too dangerous for small investors but “accredited investors” who meet certain income and net worth requirements can jump right in. 

Like TINA, that is also stupid. 

Wealth doesn’t prove intelligence, nor does lack of it mean one needs protection. 

Nevertheless, it is the law for now, so we have to follow it.

If you qualify, I have personally had pleasant results in “private credit” funds. 

These are non-bank, non-traded lending programs. Investors can get high single-digit returns (or more with increased risk). 

I don’t like to use the term fixed income to describe them, thinking of them as more cash flow investments. 

Typically, investors receive higher returns because they give up liquidity. 

Investing in these is a multi-year commitment. 

You can’t get your money back until the defined period ends. 

It’s not like a bond fund you can redeem, or an ETF you can sell on an exchange. 

You are locked in.

But it turns out that sacrificing liquidity, if you can do it, is an excellent way to boost your returns. 

The investment itself earns more but, maybe more important, it removes the temptation to bail out at the wrong time. 

Investors in a three- or five-year private credit fund actually stick around for the full period.

The same is true for many “alternative” private investments. 

The variety is endless. 

Name an asset class, and several hedge funds probably trade it. 

They may not trade it successfully, but if you can get those who do to take your money, you may have found a good opportunity.

In the last few years, new platforms have expanded access to hedge funds for smaller accredited investors. 

Let’s say a hedge fund has a $10 million minimum investment. 

A platform would create a feeder fund into it, taking investments as small as $100,000 and aggregating them for a fee. 

They offer access to funds with very long-term track records, some of the most famous managers in the world and potentially better returns.

I have had a portfolio like that for some time now. 

We change funds over time, but not very often. 

“Switching” is a months-long process. 

Some years the diversified portfolio doesn’t look very smart with low returns. 

Then again, last year everybody seemed to hit a homerun, at least in my portfolio. 

At least for one year, my portfolio looked brilliant. 

But over time it smooths out the returns and helps me achieve my goals.

There are literally scores of different alternative investment strategies. 

Besides private credit hedge funds, there are closed-end funds which offer decent returns (along with volatility), various funds utilizing a particular manager’s edge, and focused dividend yield strategies.

Many dividend-oriented ETF’s and mutual funds have scores if not hundreds of underlying investments which drag down the average return. 

There are very good dividend strategy managers who build concentrated portfolios of what they feel are the best dividend-paying companies (with US or international companies or both) and are worth the fees they charge. 

Over a full cycle, the better managers can outperform the market with about half the volatility. 

Pair them up with some of the private credit strategies I mentioned above? 

You have a real chance of getting that 7%.

Without being (too) promotional, at Team Mauldin we like to break our strategies down into two components: Core and Explore. 

In a presentation we might say that 80% of your assets should be in Core and 20% in Explore. 

You want 80% in low-volatility, steady-eddy investments that will get you back to your 100% in 4–5 years. 

Then you get more aggressive with your Explore bucket, diversifying into investments which have much higher return potential, where you are looking for multiples and not 7%.

That 80/20 is just an example. 

The older you are the less risk you should take. 

How much risk you should be taking when you’re young depends on what your income levels are. 

Are you going to inherit wealth? 

A hundred questions have to be asked to determine the right portfolio design for you. 

There is no one-size-fits-all which is why I never try to put something like that in a letter. 

Creating an “Explore” portion of your portfolio is complex, takes time, and a lot depends on your personality.

But in general, you need a plan. 

My companies offer some of these products and I have compliance restrictions which keep me from getting too specific. 

The broader point, whatever your net worth, is to not accept this TINA fantasy. 

You have lots of alternatives to simply holding stocks. 

You may need professional help finding and accessing them, but they’re out there.

In fairness, there are hundreds of good advisors who generally do the same thing we do, just with their own flavor. 

Do your own search, but I would suggest avoiding advisors whose idea of portfolio construction is to buy and hold traditional stocks and/or ETFs in a TINA-like fashion.

I mentioned Ed Easterling above. 

If you are a serious investor and thinking about retiring, or simply want to understand the markets, you should read everything at Ed’s Crestmont Research site, plus his books, especially Unexpected Returns

Then, and only then, talk to your financial advisor. 

I’m really quite serious about that. 

Most advisors rely on some form of TINA. 

It’s hard to predict anything in this zero-rate, rising inflation world. But you still have some good choices.

Washington DC, Maine, and Colorado

My schedule is firming up somewhat. I plan to go to Washington DC for a few days before heading out to Bangor, Maine and then Grand Lake Stream for Camp Kotok, the annual fishing and economic fest. 

This year my youngest son Trey (who is now 26) will once again accompany me, which he has done for most years since he was 12. 

Then I will go to Steamboat, Colorado for a speaking engagement before heading back to Puerto Rico.

Trey will be coming to Puerto Rico in late July along with a friend he feels should “meet the parents.” 

Tiffani and my granddaughter Lively will show up a few days later. 

Shane and I are really looking forward to that. 

Her son Dakota has been with us for the last week or so.

I get asked all the time about what it’s like to live in Puerto Rico. 

I have to say that it is far better than I ever imagined it would be. 

The weather is typically fabulous, although it will get hot in August, but ironically nowhere near as hot as it does in Texas. 

I have met so many new friends. 

Shane is at the beach nearly every day snorkeling and getting her exercise.

I have a great gym and I even get in a little golf. 

I am looking forward to traveling some again, but it is nice to come home to paradise.

And with that, let me hit the send button and wish you a great week. 

Take some time to meet with friends and avoid fewer people.

Your happy masks are no longer mandated here analyst,



John Mauldin
Co-Founder, Mauldin Economics

Latin America isn’t booming, but that could change

Populism and the pandemic have interrupted the region’s commodity-linked prosperity

Ruchir Sharma

In Colombia violent protests against the government are improving prospects for its leftwing rivals © Luis Robayo/AFP/Getty


For all the Marquezian dramas of civil and class war, colonialism and corruption that have wracked Latin America, history shows that its economic fate rises and falls with just one thing: the prices of oil, iron ore, copper and other commodities.

Now, despite a recent dip, commodity prices are up sharply since early last year, but Latin economies are not. 

They are expected to shrink by 1 per cent this quarter as the global economy expands by 5 per cent. 

Plot commodity prices against Latin American GDP growth and lines that moved together for decades have suddenly parted ways. 

Why? 

The pandemic and populism.

Seven of the world’s 10 highest Covid-19 death rates are in Latin America. 

The toll is fuelling support for anti-establishment politicians in an unusually busy campaign period, with 11 Latin countries holding elections this year. 

Brazil and Colombia follow next year. 

In many cases, the right was in power when the pandemic hit, so rising discontent is benefiting candidates on the left or the far left.

A Marxist-Leninist is poised to become Peru’s next president. 

A communist is among the frontrunners to replace right-of-centre Sebastián Piñera in Chile. 

Violent protests against Colombia’s government are improving prospects for its leftwing rivals. 

In Brazil the posturing of rightwing populist Jair Bolsonaro is helping his radical alter ego, ex-president Luiz Inácio Lula da Silva, establish a lead in the polls.

Fear of what comes next is holding back investment at a vulnerable time. 

The 2010s were a lost decade. 

Growth was undermined by falling prices for commodities, which make up more than half of exports in most of the region’s economies. 

Foreign investors started to shy away from Latin American stocks and bonds when commodity prices collapsed, and have yet to return. 

Pessimism shrouds the continent. 

Over the long term, commodity prices rise no faster than inflation, and that has left resource-dependent Latin America essentially dead in the water. 

My research shows that Brazil, Chile, Mexico and Colombia are no richer in per capita income, relative to the US, than they were in 1850 (when comparative records begin). 

Argentina, Peru and Uruguay are significantly poorer. 

The average Argentine income is now 33 per cent of the average American income, down from 55 per cent in 1850.

Nonetheless, in decades when commodity prices boomed, so did Latin America. 

When prices rose sharply in the 1970s and 2000s, so did the pace of growth, and the number of the region’s economies growing fast enough to see their average incomes converge with the US. 

In decades when commodity prices stumbled, so did Latin America, most recently in the 2010s.

Given the cyclical nature of commodity prices, however, a bad decade was often the harbinger of a better one to come. 

In the 2010s weak prices discouraged investment in oilfields, mines and other raw material production worldwide. 

Supplies are tight, inventories are low. 

As the global economy rebounds, demand is rising for commodities of all kinds, particularly those required in electric cars and greener homes and buildings.

Recent wobbles aside, commodities appear to be entering a new “supercycle” of rising prices. 

Latin American countries, as major exporters of soyabeans, green metals and other commodities, should benefit more than most. 

Peru and Chile alone supply 40 per cent of the world’s copper.

The hope for the region is that the commodity boom proves strong and long enough to overcome doubts about the new wave of populists. 

Financial crises have a way of moderating the behaviour of even the most committed radicals.

Lula took office after the crises of the 1990s and surprised many by focusing, at least in his early years, on keeping inflation in check and controlling his spending impulses. In Mexico, President Andrés Manuel López Obrador has borne out investor fears in many ways save for a critical one: budget discipline. 

His refusal to spend heavily on pandemic relief has alarmed some but left Mexico less indebted than many other emerging nations.

The current crop of socialists and communists could prove less successful at the polls or less radical in office than widely feared. 

If the political dramas do recede, Latin America would be free to be itself; a region of commodity dependent economies, rising with global prices, so long as the upward swing lasts.


The writer, Morgan Stanley Investment Management’s chief global strategist, is author of ‘The Ten Rules of Successful Nations’ 

Commodities dented by worries over Delta variant and China’s economy

Broad rally in raw materials prices loses momentum in the face of ‘growing uncertainties’

FT Reporters

Opec and its allies failed to reach an agreement on raising oil production earlier this month © REUTERS

From crude to copper and corn, commodity prices slipped on Monday, knocked by the spread of highly infectious coronavirus variants and concerns about slowing growth in China, the world’s biggest consumer of raw materials. 

Brent, the international oil marker, fell as much as 1.7 per cent to $74.27 a barrel, while copper dropped 1.1 per cent to $9,390 a tonne — leaving it more than $1,000 below the record high reached in May.

Gold was also weaker as the dollar rose, something that makes the previous metal more expensive for holders of other currencies. 

It fell 0.6 per cent to $1,800 a troy ounce. 

Corn was trading at $6.23 a bushel, down 20 per cent from this year’s peak in May, as some market bulls retreated owing to the recent rains in the US midwest.

The rapid spread of the Delta coronavirus variant and signs of slowing growth in China are clouding the outlook for commodity markets, which have enjoyed a blockbuster run over the past year. 

There is also increased uncertainty about oil supply after Opec and its allies failed to reach an agreement on raising production earlier this month.

“Infections are on the rise in several countries around the world and if restrictions need to be added or reinstated again, they could have an impact on economic growth, and consequently on oil consumption,” said Louise Dickson, oil markets analyst at Rystad Energy.


Over the weekend, finance ministers from the G20 warned that the rapid spread of the Delta variant was casting a shadow over the improving economic outlook in Europe.

Meanwhile, analysts at JPMorgan said on Monday that modelling of the UK Delta outbreak suggested a hospitalisation level that could require reintroduction of some restrictions.

Oil prices hit a three-year high of almost $77 a barrel last week in the wake of the Opec impasse before reversing course on concerns that the latest spat could eventually lead to increased output from members.

Stephen Brennock, analyst at brokerage, PVM said the disagreement between the so-called Opec+ group could be a precursor to a “pump-and-grab scenario, meaning a lot more oil potentially gets put on the market”. 

He said it was not surprising that hedge funds had gone on the “defensive” and reduced their bullish bets on crude to a six-week low.

Industrial metals were also under pressure on Monday as investors weighed Beijing’s decision on Friday to cut the reserve ratio requirement (RRR) for all banks so they can lend more.

China’s central bank estimates this could release Rmb1tn ($150bn) in long-term liquidity to the market.

Warren Patterson, head of commodities strategy at ING, said the RRR cut could provide some support for raw materials, which have been under pressure as investors have cooled on the so-called reflation trade.

“However, the impact from the latest China RRR cut may prove to be shortlived as the macro market is still faced with growing uncertainties,” he said.

Economists at Morgan Stanley said the RRR cut was a response to the “recent growth hiccup” in China amid a resurgence of coronavirus, supply chain disruptions, and a further moderation in domestic consumption.

Better weather in the US has led to hedge funds and other speculators to take profits on their positions in corn over the past few weeks. 

Dave Whitcomb at Peak Trading Research said there was also seasonal selling by financial investors. 

“July is the most negative month of the year for agriculture markets,” he said.


Neil Hume, David Sheppard and Emiko Terazono in London 

Why is a heatwave broiling parts of America and Canada?

Even places that are typically cool need to grapple with the increased risk of extreme heat


LYTTON IS A pretty temperate place. 

Average daily highs for June are around 16.4°C (61.5°F). 

But on June 28th the village reported a high of 47.9°C (118.2°F)—beating its own record from the previous day of 46.6°C (115.9°F) which, at the time, was 1.6°C hotter than any temperature recorded anywhere in Canada, ever. 

(It was also the highest temperature ever recorded at a latitude above 50° North.) 

Lytton is not alone. Canada’s west coast and much of America’s Pacific north-west are baking in a heatwave. 

In Vancouver vaccination centres were forced to close or relocate. 

In Portland, Oregon public transport was partially suspended. 

The Twitter account for the city’s famous streetcars posted a picture of a melted power cable.


The heatwave is caused by a phenomenon known as a “heat dome”, in which an area of high pressure in the atmosphere stops the air beneath it escaping. 

Like a lid on a boiling pot, the dome forces air downwards, raising temperatures even further. 

The one currently hovering over the north-west is extremely unusual in both intensity and duration—such prolonged recording-breaking heat has not been seen since the heatwaves which caused North America’s “dust bowl” in the 1930s. 

But climate change, the consequence of the increase in greenhouse gases in the atmosphere resulting from human activity, is making weather events such as heat domes more likely. 

One of the main causes of heat domes in North America, according to America’s National Oceanic and Atmospheric Administration, is a sharp difference in temperature between the east and west of the Pacific over the preceding winter. 

The movements of water that create such gradients may be changing because of global warming, but the link isn’t clear. 

What is undeniable, though, is that a warmer climate overall—with average global temperatures now having risen by at least 1°C from pre-industrial levels—make the temperature spikes experienced in heatwaves that much more unbearable.

The north-west’s heatwave is all the more troublesome because the region’s climate is typically mild. 

Many homes do not have air conditioning, leading some local governments to set up specialised “cooling centres” in locations that do, such as stadiums, providing a space where people can work, get water and sleep. 

Others have lifted covid-19 restrictions at public pools. 

Meanwhile, power suppliers asked consumers to use less energy to avoid overwhelming the grid. 

Outdoor activities, including sports matches, have been stopped. 

Schools have been closed. Although temperatures are expected to subside in the coming week, similar heatwaves may recur throughout the summer. 

Typically, late July is the warmest time of the year.

The plight of North America’s north-west points to a deeper problem. 

People and infrastructure in urban areas, which absorb more heat than rural ones, are particularly vulnerable to high temperatures. 

Even in well-off countries, cities are often ill-equipped to cope with extreme heat (exceptions include urban areas in oil-rich Arab states). 

Keeping people safe in places like Portland has, essentially, meant grinding cities to a halt. 

Although heatwaves kill more people than more dramatic floods or hurricanes, few governments have policies and dedicated responses to deal with them. 

Even fewer have worked out how to deal with the inequalities that extreme heat exacerbates: they disproportionately impact those living in low-income areas, without green space, and also pose greater risks to people with poor underlying health. 

Little is known either about how to prevent the financial consequences of lost productivity. 

Dangerous heatwaves are still widely regarded as being risks for countries such as India, where spiking temperatures in 2015 killed thousands. 

But climate change means that more places are more likely to be exposed to them—of 122 studies of extreme heat events around the world, more than 90% found that they were worsened or made more probable by climate change. 

That means countries everywhere have to prepare, and fast. 

Wishful Thinking in a World Without Yield

The need for higher returns can breed desperation for anyone with a portfolio—large or small

By Jason Zwei

      Alex Nabaum


At first glance, the Pennsylvania Public School Employees’ Retirement System, one of the largest pension plans in the U.S., doesn’t sound anything like you or me. 

It commands $66 billion in net assets, spent $515 million last year on management fees, and has more than 40% of its net assets in exclusive investments like buyout, venture-capital and hedge funds.

Yet, at the most basic level, this gigantic retirement plan is just like you and me: It is struggling to raise returns in a low-interest-rate world.

That can breed desperation, and wishful thinking, for anyone with a portfolio large or small.

“The challenge we all face as investors is that the collapse in interest rates makes achieving historical rates of return very difficult,” says John Skjervem, chief executive of Alan Biller and Associates, an institutional investment consulting firm in Menlo Park, Calif. 

When cash and bonds yield close to zero, “stacking the traditional assets on top of that isn’t enough.”

For its part, the Pennsylvania school pension fund, also known as PSERS, for years has pumped billions into hedge funds and private equity. 

Those strategies purport to be able to thrive even when public markets lag. 

The giant fund had less than 25% of its assets in publicly traded stocks at last year’s end, even after some of the biggest bull markets in history.

To help run its money, mostly in private markets, PSERS uses roughly 170 external managers. 

The typical public pension plan uses about 55 outside firms, up twofold since 2006 as institutions race to move money outside the public markets.

Although a few rare managers (and their clients) will earn superior returns, combining dozens or even hundreds of managers can be a recipe for mediocrity.

According to the Public Plans Database compiled by the Center for Retirement Research at Boston College, PSERS has four times as much of its portfolio in hedge funds and nearly triple the allocation to private-equity funds as other large public pension systems.

Even with such a high weight in these alternative assets, as of 2020 PSERS had returned an average of 7.7% annually over the prior 10 years. 

That ranked it 94th among 133 peers for which data was available.


The message for you and me? 

You can’t earn a higher return from alternative assets just because you need to. 

Only the earliest and most skillful (or luckiest) can get the best returns.

And while it’s flattering to join the exclusive world of private wealth management, just remember to ask: If funds with tens of billions in assets don’t earn superior returns this way, why should I believe anyone who says I can?

Richard Ennis, a consultant who has advised pension funds since the early 1970s, estimates in a recent research paper that underperformance at public retirement plans—mainly from overpaying for alternative-asset managers who could be replaced by cheap index funds—totals nearly $70 billion annually.

In a statement, PSERS said that it recently trimmed its exposure to private markets and has maintained “strong investment results and a watchful eye on risk.”

Another problem PSERS shares with many smaller investors is unrealistic expectations.

In mid-2009, the 10-year Treasury note yielded nearly 4%, whereas today it produces only a whisker more than 1.5% in income. 

Yet public pension plans have barely shaved their assumptions about how much their assets will earn.

In 2009, the typical pension system was reckoning on an 8% average annual future return. 

Even after 12 years of relentlessly falling interest rates, that assumption has dropped only slightly to 7%, according to the National Association of State Retirement Administrators.

PSERS is assuming it will get 7.25%. That’s roughly what it earned over the past decade—but much of that came from a bond market that now yields next to nothing.

Expectations built on little more than hope quickly become targets that are difficult to hit. They can also be hard to resist.

Pension trustees are often political appointees or come from other backgrounds without financial expertise, points out Olivia Mitchell, an economist who directs the Pension Research Council at the University of Pennsylvania’s Wharton School. 

So, she says, “it is not surprising that consultants, investment managers and actuaries can suggest ‘new’ investment options without emphasizing the additional costs, liquidity problems and risks.”

Against the backdrop of pressure to raise returns, six of PSERS’ 15 trustees recently demanded that its top two officials be fired. 

The pension plan is being investigated by federal authorities after it released an inaccurate report in 2020 that overstated its returns over a nine-year period. 

PSERS is also being investigated over multimillion-dollar investments in local real estate. 

A spokeswoman declined to comment on the investigations.

In the face of prolonged low interest rates, all investors face three basic choices, says Mr. Skjervem, the consultant who formerly managed roughly $100 billion as chief investment officer of the Oregon State Treasury.

You can raise your existing holdings of traditional risky assets like stocks, even though no one thinks they’re cheap.

You can add a bunch of new and exotic bets and hope they don’t blow up on you.

Or you can grit your teeth and stay the course, through a period of what may be lackluster returns, until interest rates finally normalize.

“People are looking for the silver bullet, the magic wand, the get-out-of-jail-free card,” says Mr. Skjervem. 

“There isn’t one.”

Computer security

To stop the ransomware pandemic, start with the basics

That will help stop other sorts of cyber-mischief, too


Twenty years ago, it might have been the plot of a trashy airport thriller. 

These days, it is routine. 

On May 7th cyber-criminals shut down the pipeline supplying almost half the oil to America’s east coast for five days. 

To get it flowing again, they demanded a $4.3m ransom from Colonial Pipeline Company, the owner. 

Days later, a similar “ransomware” assault crippled most hospitals in Ireland.

Such attacks are evidence of an epoch of intensifying cyber-insecurity that will impinge on everyone, from tech firms to schools and armies. 

One threat is catastrophe: think of an air-traffic-control system or a nuclear-power plant failing. 

But another is harder to spot, as cybercrime impedes the digitisation of many industries, hampering a revolution that promises to raise living standards around the world.


The first attempt at ransomware was made in 1989, with a virus spread via floppy disks. 

Cybercrime is getting worse as more devices are connected to networks and as geopolitics becomes less stable. 

The West is at odds with Russia and China and several autocracies give sanctuary to cyber-bandits.



Trillions of dollars are at stake. 

Most people have a vague sense of narrowly avoided fiascos: from the Sony Pictures attack that roiled Hollywood in 2014, to Equifax in 2017, when the details of 147m people were stolen. 

The big hacks are a familiar but confusing blur: remember SoBig, or SolarWinds, or WannaCry?

A forthcoming study from London Business School (lbs) captures the trends by examining comments made to investors by 12,000 listed firms in 85 countries over two decades. 

Cyber-risk has more than quadrupled since 2002 and tripled since 2013. 

The pattern of activity has become more global and has affected a broader range of industries. 

Workers logging in from home during the pandemic have almost certainly added to the risks. 

The number of affected firms is at a record high.

Faced with this picture, it is natural to worry most about spectacular crises caused by cyber-attacks. 

All countries have vulnerable physical nodes such as oil pipelines, power plants and ports whose failure could bring much economic activity to a standstill. 

The financial industry is a growing focus of cybercrime: these days bank robbers prefer laptops to balaclavas. 

Regulators have begun to worry about the possibility of an attack causing a bank to collapse.

But just as costly is the threat to new tech as confidence in it ebbs. 

Computers are being built into cars, houses and factories, creating an industrial “internet of things” (iot). 

Insights gleaned from oceans of data promise to revolutionise health care. 

In theory, all that will boost productivity and save lives for years to come. 

But the more the digital world is plagued by insecurity, the more people will shy away from it and the more potential gains will be lost. 

Imagine hearing about ransomware in someone’s connected car: “pay us $5,000, or the doors stay locked.”

Dealing with cyber-insecurity is hard because it blurs the boundaries between state and private actors and between geopolitics and crime. 

The victims of cyber-attacks include firms and public bodies. 

The perpetrators include states conducting espionage and testing their ability to inflict damage in war, but also criminal gangs in Russia, Iran and China whose presence is tolerated because they are an irritant to the West.

A cloud of secrecy and shame surrounding cyber-attacks amplifies the difficulties. 

Firms cover them up. 

The normal incentives for them and their counterparties to mitigate risks do not work well. 

Many firms neglect the basics, such as two-step authentication. 

Colonial had not taken even simple precautions. 

The cyber-security industry has plenty of sharks who bamboozle clients. 

Much of what is sold is little better than “medieval magic amulets”, in the words of one cyber-official.

All this means that financial markets struggle to price cyber-risk and the penalty paid by badly protected firms is too small. 

The lbs study, for example, concludes that cyber-risk is contagious and is starting to be factored into share prices. 

But the data are so opaque that the effect is unlikely to reflect the real risk.

Fixing the private sector’s incentives is the first step. 

Officials in America, Britain and France want to ban insurance coverage of ransom payments, on the ground that it encourages further attacks. 

Better to require companies to publicly disclose attacks and their potential cost. 

In America, for example, the requirements are vague and involve large time lags.

With sharper and more uniform disclosure, investors, insurers and suppliers could better identify firms that are underinvesting in security. 

Faced with higher insurance premiums, a flagging stock price and the risk of litigation, managers might raise their game. 

Manufacturers would have more reason to set and abide by product standards for connected gizmos that help stem the tide of insecure iot devices.

Governments should police the boundary between the orthodox financial system and the shadowy world of digital finance. 

Ransoms are often paid in cryptocurrencies. 

It must be made harder to recycle money from these into ordinary bank accounts without proof that the money has a legitimate source. 

Likewise with cryptocurrency exchanges, which should face the same obligations as established financial institutions.

Cyber-insecurity is a matter of geopolitics, too. 

In conventional warfare and cross-border crime, norms of behaviour exist that help contain risks. 

In the cyber-domain novelty and confusion reign. 

Does a cyber-attack from criminals tolerated by a foreign adversary warrant retaliation? 

When does a virtual intrusion require a real-world response?

A starting-point is for liberal societies to work together to contain attacks. 

At the recent summits of the g7 and nato, Western countries promised to do so. 

But confronting states such as China and Russia is crucial, too. 

Obviously, they will not stop spying on the Western countries that do their own snooping. 

But a third summit, between Presidents Joe Biden and Vladimir Putin, began a difficult dialogue on cybercrime. 

Ideally the world would work on an accord that makes it harder for the broadbandits to threaten the health of an increasingly digital global economy.