Kim Githler, Chair and CEO at MoneyShow, has educated millions of investors, traders and financial advisors over the past 40 years.

Every quarter, our company runs an Investor Sentiment Survey to gauge how our investors feel about the market, what their predictions are and how certain factors are impacting their investment decisions. Despite rising inflation, increasing home prices and a difficult supply chain, leading economists predict the U.S. economy will see its greatest growth in nearly 40 years as the nation emerges from the Covid-19 pandemic. Retail investors remain cautiously optimistic with 78% of those surveyed predicting that the market is more likely to trade sideways or that another bull market has begun.

Stocks have been reaching all-time highs for more than a year, and there have been numerous warnings of bubbles from experts across Wall Street, especially when it comes to cryptocurrency, inflated stocks and non-fungible tokens (NFTs). Unsurprisingly, 64% of retail investors in our survey indicated that they have not invested in or have no plans to invest in cryptocurrency. Furthermore, 57% of investors believed that by the end of the year, value stocks will outperform growth stocks. While it appears some investors are adopting a high-risk, high-reward strategy, the majority remain steadfast in a long portfolio.

It appears most investors are betting that there is still money to be made in traditional indexes, speculating that they are still likely to make money so long as the government continues to inject stimulus money into the economy and the Federal Reserve continues to keep interest rates down. The S&P 500 and Nasdaq-100 are favored by retail investors, and they are bullish in their predictions of each index. With 74% of investors indicating that they believe interest rates will stay at their current levels, it’s likely retail investors will continue to skew cautious in their portfolio decisions.

As the survey shows, retail investors are cautiously optimistic on how the market will do by the end of the year. Clearly, thoughts of inflation and fears the Federal Reserve will increase interest rates will dominate the remainder of 2021. Our investors understand that when inflation goes above 4% and interest rates rise, equities decline.

The Federal Reserve upped the country’s money supply 20% from year’s end 2019 through the end of July 2020. While this kind of spending has often been followed by economic booms, the country is now also seeing inflation and a housing market that has become a windfall for sellers. However, the shortage of for-sale homes has become a nightmare for buyers that are, in some places, bidding $100,000 or more over the asking price and still losing to other buyers.

Furthermore, there are continuous supply chain shortages that likely won’t return to normal until the end of the year at the earliest, as countries like India struggle to vaccinate their population amid major outbreaks. While inflation hasn’t increased to shocking levels yet, it certainly could if the tight labor market continues to the point of pushing up wages and if the supply chain issues continue for too long. Additionally, some experts believe it is likely that the Federal Reserve will raise interest rates before the end of the year to curb inflation. Investors need to prepare their portfolios to ensure they are diversified and protected against market fluctuation.

Most of our investors are ahead of the curve, and taking a conservative approach, which is the same strategy I would take. This can involve diversifying and looking toward value stocks that provide dividends, along with tangible assets including real estate and gold bullion. These assets are generally less risky and more likely to retain value in the event of mass inflation or in the face of market instability. While there remains a plethora of high-risk stocks and cryptocurrencies that create millionaires (and can bankrupt them overnight), a more conservative portfolio strategy is important when economic and market stability remain on unstable ground following the events over the past year, and amid the uncertainty of events in the near future.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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Kim Githler
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