Jimmy H. from Jackson, MS asks: Hello Mitch, I’ve been tracking some data about individual investors pouring money back into the stock market, via ETFs and individual stocks. Do you see this trend as a bullish signal?
Mitch’s Response:
Thanks for writing. By many measures, individual investors have been enthusiastic about equity markets for years now – basically since the stimulus checks arrived in 2020.
Just using Q1 as an example, from 2017 to 2019 individual investors bought an average of about $15 billion or so in stocks and ETFs in the first three months of those years. In Q1 2021 and 2022, the number soared to $80 billion, as fiscal stimulus money was sent directly to households. Stimulus checks and related savings are largely gone, but investors have hardly wavered from staying active in equity markets. In Q1 2023, there were $77.7 billion in net purchases of stocks and ETFs. Earlier this week, Charles Schwab reported that customers opened over a million new brokerage accounts with $132 billion in new assets.
Looking for a Guide to Planning an Easy Retirement?
In our exclusive guide, Retirement Made Easy2, investors can get insight on how to create a long-term financial plan that helps generate stable income and minimize risk. The guide will also answer critical questions like:
- How much should you be saving?
- What is the best long-term approach?
- How do you hire the right money manager?
- And more…
If you have $500,000 or more to invest and want to learn more about retirement planning, click on the link below to get your free guide today!
Download Your Copy of “Retirement Made Easy” Today!2
Your question is whether this trend is a bullish signal, but I’d hesitate to read that deeply into it. After all, individual investors have been pouring money into equities and ETFs for years now, and 2022 was a bear market basically from start to finish.
I do think there is some useful information to parse from this data, however. One point that I’d note is that options trading has declined meaningfully over the past couple of years, which to me is a signal that investors are growing more thoughtful about risk levels within portfolios. Options trading made up about 18% of the overall market in July 2020, a figure that dropped to 12% at the end of Q1 2023. Investors in Q1 were also net buyers of ETFs and net sellers of individual stocks, which may be a shift to emphasizing diversification over concentrated portfolios.
Generally speaking, I view the growing numbers of individual investors and robust purchasing activity in equity markets as a positive. The stock market has historically been one of the best wealth generators available for long-term investors, and the more people who invest as a means to grow wealth over time, the better.
What concerns me about some of the trends listed above is that individual investors tend to want to generate outsized returns quickly, which leads to risky behavior. That means many inexperienced investors are engaging in day trading, options trading, and other strategies for which they have no track record. Research tells us again and again that the average investor tends to underperform the broad equity markets over time, and it’s for this reason.
With that being said, investors, especially those looking to retire soon, are probably wondering what the best option is for their portfolio.
Well, even in a volatile market, I recommend that investors focus on factors that contribute to a well-diversified, low-risk retirement portfolio. Our exclusive Retirement Made Easy Guide3 can help you reach your goals!
It also provides answers to critical questions like:
- What is the best long-term approach?
- How do you manage your retirement income for taxes?
- How much should you be saving?
- And more…
If you have $500,000 or more to invest and want to learn more about retirement planning, click on the link below to get your free guide today!
Disclosure
1 Wall Street Journal. April 21, 2023. https://www.wsj.com/articles/individual-investors-are-still-hungry-for-stockswhile-shunning-risk-952a8125?mod=markets_major_pos12
2 ZIM may amend or rescind the “Retirement Made Easy” guide for any reason and at ZIM’s discretion.
3 ZIM may amend or rescind the “Retirement Made Easy” guide for any reason and at ZIM’s discretion.
DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.
The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.