2022 Theme: Retail Investor Pain - Update

We had a long time reader get in touch after our piece on retail investors last week with a great point.

"Investors are not just possibly underwater with a lot of their investments, they are also tapped out."

By "tapped out" he meant - we presume - that they have very few savings left to plow into the market.

Steady flows of retail money were a big driver of the market in 2021. It is unlikely to be there in 2022. We have written about these inflows previously here and here.

For the present, here is some additional data to support the idea that this the retail investment theme has changed:

This is a graph from the fabulous folks at Longview Economics comparing the % of US Households total assets that are invested in equity markets with S&P 500 (the index of large US publicly traded companies) underneath:

It makes for some tough reading:

  • As you can clearly see, we are at an all time high for the percentage of US household finances that are invested in stocks.

Typically, these peaks have, in the past, led to two highly correlated outcomes:

  1. Equity markets struggling

  2. And, many households exiting the market.

This is very painful to think about - let alone highlight - because it argues that, at least some US families are doing the very opposite of what they should.

They are literally buying high and selling low.

This isn't necessarily their fault. There are some people who need the savings they have invested in equity markets to live. Whether that is because "life happens" or because they were investing next month's living expenses for a quick return is unimportant.

Aside from reinforcing our point from last week about the tough choice facing retail investors- lock in gains or hold on for the long haul - it also underlines that, as a general rule, regular folks flooding into stock markets is a bad sign - for them and for stock market returns over the medium term.

As we said last week, what regular people do now is critically important to watch. As we know from the job market and rising wages, many people are employed and earning higher wages. This will hopefully allow many retail investors to stay invested and also reinforce the importance of remaining diversified and not trying to time the market.

Knowing when to invest isn’t as important as how long you stay invested.


Have questions? Care to find out more? Feel free to reach out at contact@pebble.finance or join our Slack community to meet more like-minded individuals and see what we are talking about today. All are welcome.


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