In a sign of possible market inflation, a new report from Deutsche Bank predicts that a new group of retail investors is poised to pour as much as $170 billion from their government stimulus checks into the stock market.
Strategists at the German bank surveyed 430 on-line brokerage users between February 5 and February 9, 2021. Two-thirds of those polled were 44 years of age or younger. And, 37% of them direct their checks entirely into the stock market.
According to Deutsche Bank, “With potential direct stimulus payments of $465 billion being planned, this could represent a sizable inflow into equities ($170 billion).”
On Monday, the Dow closed up 174 points, or 0.53%, at 32,943. The S&P closed up 0.65% at 3968 and the Nasdaq closed higher than 1% at 13,495.
Meanwhile, data from Barclays indicates that $178.5 billion came into the markets in the first two months of the year. According to the British bank, 66% of new retail investors were under the age of of 35.
It’s a fearless group; more than 50% of Deutsche Bank’s respondents used options.
If you’re looking to invest, we advise–as always–caution and diversification. Nonetheless, as Trish Regan points out in a recent piece, it’s hard to beat the equities market over time. In fact, if you invested the equivalent of $1000 a year, adjusted for inflation, from 1970 — you’d have nearly $2 million today. And, that’s with just $105,000 invested. In other words, young investors are smart to get started.
For those that don’t want to roll the dice on specific stocks, here are some ideas to get started:
Ways To Begin Investing
LOW-COST MARKET INDEX FUNDS: We like index funds because they help diversify your investment. I realize some folks in the Reddit community and on Robinhood may want to put all their money on one stock, but I’m a traditionalist. S&P Index funds, or a Nasdaq or Dow index fund is a good way to go.
As for other ideas?
TECH: A lot of tech has been beaten down recently so, it’s worth finding some good names (preferably undervalued) in that sector.
GOLD: Gold is a great hedge against inflation and should be part of any diversified portfolio. Remember, gold has been a store of value for thousands of years and though bitcoin is seemingly unstoppable these days, gold is a commodity that has stood the test of time. We have an excellent primer on Trish Intel with some ideas for gold investors.
OIL: Oil is another commodity to watch. Though there’s tremendous pressure to wean ourselves off of fossil fuels, I suspect the world will continue to need oil in some way. With so much pressure on the industry from the ESG community, oil could quite easily become less available and therefore, more valuable. Moreover, as people increasingly get back to traveling (and taking long distance trips on planes) oil will still see demand.
DIVIDEND STOCKS: It’s a back to basics with good old fashion dividend stocks. Though I have my concerns about the country and its political-economic direction, I’m still confident that the American people will get this right. It’s the biggest reason why I’d never bet against this great nation — and its great companies.
The reality is: you need to be diversified. And, you need to be invested. It will always be bumpy…bear markets happen. But, if you’re a smart investor who believes in America, you will see those bear markets as your opportunity to buy low.
$25 A Week Into the Markets
So, do yourself a favor. Put a little money – even if it’s just $25 a week – into the markets. Find a low cost (ideally zero cost) brokerage house, and get started.
Some will say. that this recent rise of the retail investor marks the “top” for these markets — it’s possible. But, nonetheless, remember that will an active Federal Reserve and an active federal government, there are reasons to believe the party is well underway and unlikely to end anytime soon.