It’s almost always a cliché that retail investors are always late in the investment boom – but the massive exposure of household savers to the frothier elements of frenetic markets because the shutdown means they are feeling the blow of this crash more than most.
A series of surveys and investment flow snapshots show that retail investors have significantly boosted their holdings of tech stocks and cryptocurrencies, which are now more hip than ever.
Having climbed to the top of the hill first on the way up, the markets were deteriorating faster on the way down.
According to Vanda Research, nine of the 10 largest stocks in the weighted average retail investor’s portfolio are US-listed technology companies, representing more than 50 percent of the entire portfolio. The wallet is out of money, down 31 percent since its peak in December.
The wildest crypto world may not be the natural habitat for retail investors, but they are exploring. A UK survey conducted by Charles Schwab in March showed that 57 percent of new investors own crypto assets, and a Morgan Stanley survey published this week shows that 31 percent of retail investors in the European Union own cryptocurrency.
Loading up on technology and cryptocurrencies might have been a better bet when the Federal Reserve and other central banks were pumping the world full of liquidity, interest rates were close to zero, and governments were mailing stimulus checks.
But that is no longer the case. Global liquidity is being drained, the Nasdaq is down 30 percent from its November peak, and Bitcoin is down 60 percent.
Eben Burr, president of Toews Asset Management, says retail investors want to buy yesterday, but the closest they can get is to buy something that was good yesterday. This is illogical and illogical.
“There is more pain in the short term, 100 per cent. If the market downturn continues, it will become very painful and retail investors will bail out,” said Mr. Burr. “Everyone has a weak point.”
Institutional investors now control the lion’s share of the bitcoin and cryptocurrency world, but the nominal holdings of individual investors are still higher than ever, and they are on the rise.
The Morgan Stanley survey showed that 16 percent of retail investor holdings in the EU are in cryptocurrency, more than rental property (14 percent), bonds (10 percent) and commodities (8 percent).
A survey conducted by retail investment platform eToro last month showed that one in three retail investors plan to invest in cryptocurrency over the next 12 months, up from 18 percent in October. Even baby-boomers are on board — 11 percent of those 55 or older plan to invest in cryptocurrency in the next year.
In some ways, this should come as no surprise, given the amount of cryptocurrency in the consciousness of the public.
Hollywood star Matt Damon launched a commercial for trading app Crypto.com titled “Fortune Favors the Brave” in October. And just this week, with cryptocurrencies plummeting and many stablecoins breaking out, former England footballer Michael Owen tweeted that the new non-fungible tokens (NFTs) “will be the first ever that cannot lose their initial value.”
US Senator Elizabeth Warren wrote last week to Fidelity Pension Fund questioning the “appropriateness” of its decision to add bitcoin to 401(k) retirement plan options due to the “significant risk of fraud, theft and loss in cryptocurrencies.”
The current market turmoil has sharply focused these concerns. Blockchain analytics firm Glassnode said Monday that the $33,600 bitcoin price is putting 40 percent of investors exposed to bitcoin underwater.
Meanwhile, Morgan Stanley’s Sheena Shah notes that everyone who has bought bitcoin over the past year is in the red when trading below $28,000. On Thursday, it fell to $25,400.
“Impulsive” investors may not be able to hold out for much longer. US household debt jumped $266 billion in the first quarter to $15.84 trillion. That’s $1.7 trillion higher than it was at the end of 2019, before the pandemic.
Meanwhile, the glut of household savings that accumulated during the lockdown with the start of government stimulus measures is rapidly disappearing. The personal savings rate in the United States fell to 6.2 percent in the first quarter, the lowest level since 2013.
But crypto enthusiasts like Anthony Scaramucci, founder and managing partner of SkyBridge, see it differently. He likens the current volatility to the early days of Amazon’s stock, which saw several major pullbacks in its first decade of existence.
Investors must be willing to put up with it. “Everyone says they are long-term investors until they see short-term losses,” the former director of communications for former US President Donald Trump told Reuters.
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