Fearless Factor

Image source: Songquan Deng- Shutterstock

What's going on?

Fresh data out on Monday showed US retail investors stock holdings just hit a record high, but its all funds and games until someone loses an eye

What does this mean?

According to investment bank JPMorgan, the percentage of US households financial assets devoted to stocks hit 41% in April the highest level in history. That heady enthusiasm comes at a time when US stock prices are hitting one record after another, fueled by a faster-than-expected economic recovery and boosted further still by an expectation-busting earnings season. Throw in the government stimulus checks that fueled a record rise in household incomes last week, and it looks like retail investors have had the means and the motive to buy, buy, buy.

Why should I care?

For markets: Bubbles are back on the agenda.
Retail investors have also increasingly been trading using leverage that is, borrowing money to magnify their bets. In fact, recent data showed that the amount of money theyve borrowed from brokers to buy into markets hit its own record high last month. And since investing on borrowed money carries a lot of risk, contrarian investors eyeing a market thats being bumped up by those very investors might be about to start yelling bubble again.

For you personally: Show bonds some love.
The more money investors spend on stocks, the less they have for bonds. Some are even questioning why with yields still so low they need them in their portfolios at all. But just as a friendly reminder, bonds which offer a more dependable return than stocks still serve an important role in a well-diversified portfolio: they act as a hedge against a falling stock market, and they’ll serve you well if the contrarians are proved right

Originally posted as part of the Finimize daily email.

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