ORLANDO, Fla., May 12 (Reuters) – It’s almost a cliché that retail investors are always late for an investment boom – but household savers’ outsized exposure to frothier elements of frenzied markets since the lockdown means they feel the hit of that bust more than most.
A series of surveys and snapshots of investment flows show that retail investors have significantly increased their holdings of tech stocks and cryptocurrencies, which are now more hip-bound than ever.
Having first walked to the top of the hill on the way up, these are the markets that tumble the fastest on the way down.
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According to Vanda Research, nine of the top 10 stocks in a weighted average portfolio of retail investors are US-listed tech and make up more than 50% of the overall portfolio. The portfolio is deep out of the money, down 31% since its peak in December.
The wilder world of crypto may not be the natural habitat for retail investors, but they are exploring. A Charles Schwab UK survey in March showed that 57% of new investors hold crypto assets, and a Morgan Stanley survey released this week showed that 31% of retail investors in the European Union held cryptocurrencies.
Stocking up on tech and crypto was probably a better bet when the Federal Reserve and other central banks were pumping the world full of cash, interest rates were near zero, and governments were sending stimulus checks.
But this is no longer the case. The global cash drain is underway, the Nasdaq is down 30% from its November peak and bitcoin is down 60%.
Eben Burr, chairman of Toews Asset Management, says retail investors want to buy yesterday, but the closest they can get is to buy the thing that did well yesterday. And that is illogical and irrational.
“There is more pain in the short term, 100%. If the market decline continues, it will become too painful and retail investors will flee,” said Eben Burr, chairman of Toews Asset Management. “Everyone has a breaking point.”
Institutional investors now control the lion’s share of the bitcoin and crypto universe, but the nominal holdings of retail investors are still higher than ever and growing.
Morgan Stanley’s survey showed that 16% of EU retail investors’ holdings are in cryptocurrencies, more than rental property (14%), bonds (10%) and commodities (8%).
A survey conducted last month by retail investment platform eToro showed that one in three retail investors plan to invest in crypto in the next 12 months, up from 18% in October. Even baby boomers are on board – 11% of people aged 55 and over plan to invest in crypto in the coming year.
In some ways, this should come as no surprise, given how much cryptography has been seared into the public consciousness.
Hollywood star Matt Damon featured an ad for the crypto.com trading app titled “Fortune Favors The Brave” in October. And only this week, as cryptocurrencies plunged and many stablecoins “broke the ball”, former England footballer Michael Owen tweeted that his new non-fungible tokens (NFTs) “will be the first to not lose their initial value”.
U.S. Senator Elizabeth Warren wrote to pension fund Fidelity last week to question the “appropriateness” of her decision to add bitcoin to her 401(k) retirement plan options due to “significant fraud risks.” , theft and loss” of crypto.
The current market turmoil has brought these concerns to the fore. Blockchain analytics firm Glassnode said Monday that bitcoin at $33,600 puts 40% of investors exposed to bitcoin underwater.
Meanwhile, Morgan Stanley’s Sheena Shah points out that everyone who’s bought bitcoin in the past year is in the red when it’s trading below $28,000. On Thursday, it fell as low as $25,400.
Mom and pop investors might not be able to hold out much longer. US household debt jumped $266 billion in the first quarter to $15.84 trillion. That’s $1.7 trillion more than at the end of 2019, before the pandemic.
Meanwhile, the glut of household savings accumulated during the lockdown as government stimulus checks are rapidly disappearing. The U.S. personal savings rate fell to 6.2% in the first quarter, the lowest since 2013.
But crypto enthusiasts like Anthony Scaramucci, founder and managing partner of SkyBridge, see things differently. He compares today’s volatility to the early days of Amazon stock, which saw several major declines in its first decade.
“Investors should be prepared to take it. Everyone says they are long-term investors until they see short-term losses,” the president’s former communications director told Reuters. Trump.
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(Views expressed here are those of the author, columnist for Reuters.)
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By Jamie McGeever; Additional Contributions by Medha Singh in Bangalore; Editing by Andrea Ricci
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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias by principles of trust.