Taking a break from stocks

What's up, Graham? It's guys here. So, I think it's really important that we talk about a concerning new trend that's just started to surface in the stock market over the last few weeks.

And listen, I get it. These last few months have been rather eventful for a lot of investors out there. We've just recently seen brand new record highs across nearly the entire market. Real estate prices are out of control across the country.

And if you're wondering what's going on with your portfolio and why prices seem to be rising so quickly, here's what's going on: More money has entered the stock market in the last five months than the previous 12 years combined. So chances are, if you've literally just held your money in the markets until now, you've probably made a pretty good profit.

However, as things begin to normalize, it's starting to turn into a concern for investors as far as what to do next. But the head of the Federal Reserve is saying our economy is at an inflection point, while Morgan Stanley cautions about an early warning sign as stocks hit record highs. That's causing a lot of small investors to actually take a break from the stock market.

Believe it or not, the entire investor attitude has begun changing, as Americans now believe that investing in real estate is a better choice than the stock market. So, we should absolutely cover what's going on in the markets right now, the early warning signs to keep an eye on, and how to invest your money while retail investing begins slowing down.

But before we begin, we got to talk about this article right here. They found that you have not yet smashed the like button for the YouTube algorithm. And when you look into this even further, it was found that 100% of people who hit the like button have absolutely zero regrets of doing so, and they get a picture of this baby hamster as a thank you.

All right, so because we have a lot to cover, we should start by talking about just how much money has entered the stock market in the last year and whether or not it's a concern that more and more people are sitting on the sidelines and taking a break from investing.

Like I mentioned earlier, Bank of America found that investors have put more money in the stock market during the last five months than the last 12 years combined. Trading volume also increased 40% in the first quarter, as investors began buying up overlooked distressed companies that would benefit from a reopening economy.

Lately, the expectation has just been that as our economy reopens, investors will start to spend more money. That money will help businesses which have been shut down over the last year. And if we invest in those businesses now, we'll stand to make a lot of money when everything returns back to normal.

Well, that, of course, combined with low interest rates, has caused the entire world's market cap to hit its highest point ever at 111 trillion dollars. So why is it then that investors are taking an unexpected break from stocks and all of a sudden preferring real estate?

Well, to answer that and exactly what's going on, we got to put on our detective hats and begin scouring the internet. Also known as, I just did a whole bunch of research and this is what I figured out. See, initially, the thought was that when Americans received their $1,400 stimulus check, a portion of that money would flow back into the stock market like it did in August of 2020.

But today, that doesn't seem to be really happening. Instead, Vanda Research found that daily purchases of U.S. equities dropped in late March just as stimulus checks began hitting bank accounts. Overall, there was less speculation in the stock market, and the main reason for this was due to the upcoming fear of potential inflation and rising interest rates, which would cause stock prices to go down.

So almost in preparation for that, retail traders have begun to take a break from investing in order to wait for the market to drop. Basically, if we break it down even further, here's what's going on: Investors are worried that as the economy reopens, people will begin spending all of that saved money. That will cause inflation to go up, which will cause interest rates to rise sooner than expected.

Higher interest rates eat away at corporate profit margins, and that will cause the stock market to go down. And that will make you, as an investor, sad. This article even goes further on to say that the recent fall of growth stocks spooked small investors, and when the value of their portfolios drop, their buying habits change.

Or in other words, the more the stock market goes up, the more money they invest, and the more the stock market goes down, the less money they invest. That seems pretty simple, right? Well, here's where things start taking a rather unexpected turn. The attitude towards the stock market has recently begun to shift, and now Americans believe that housing is a better investment than the stock market.

And that's something we should absolutely dive into further because the reasoning behind this, once you hear it, starts making some sense. A recent study from the Federal Reserve Bank found that 90% of respondents preferred owning their primary residence rather than investing in the stock market.

They also favored the idea of being a landlord, with over 50% of them saying that they would choose a rental property over stocks. So, of course, if you see something like this, you gotta wonder why. After all, housing is the most expensive it's ever been in history. The barrier to entry to buy a house right now is so unbelievably high, unless you have a perfect credit score and a down payment.

And you would think that since the stock market saw such a huge increase over the last year, that would be the clear winner, right? Well, you'd be wrong. When investors were asked about their preferences, the single biggest reason they preferred housing was one very simple term, and that would be stability.

Everyone needs a place to live, and having the assurance of owning a home just gives you the peace of mind that no matter what happens, a landlord is never going to try to jack up your rent or kick you out. Besides that, housing was seen as less volatile, since the price won't fluctuate 10% day by day. It was also seen as more affordable than renting, and people believed it would give them a higher return long term, with plenty of leverage and favorable tax savings.

Now, as a landlord and real estate investor myself, I tend to agree with a lot of those points. I prefer real estate for its stability, and I enjoy the fact that no matter what happens, property has a tangible function that doesn't go away. As the market value goes down, I could still live in the same property, whether it's worth a hundred thousand dollars or a million dollars, and I could still choose to rent it out if I don't want to live there anymore.

Property values also don't change minute by minute, so I'm never so fixated on trying to perfectly time the market peaks and lows. And stop it all off, paying down a mortgage also acts like a forced savings account, as you build up equity in the property every single month. That's why it's not surprising that most people see the returns of real estate over the last year.

They see the benefits of locking in a low-interest rate mortgage that they could then pay off over 30 years, and they get the comfort knowing that they're always going to have a place to live. It's evident from the survey that the biggest selling point to real estate isn't so much how much money you could make, but instead, the psychological boost you get from owning a place that you could call yours.

And that is something that you don't quite get with stocks. But in terms of where we go from here in the future of our investments between stocks and real estate, it's worth talking about the inflection points, as I mentioned earlier, and the warning signs from Morgan Stanley as everything continues going up in price.

First, on Sunday during an interview for 60 Minutes, Jerome Powell said that our economy is at an inflection point, as growth in job creation is poised to accelerate. That's thanks to widespread vaccinations, strong fiscal support, and strong monetary policy support, which basically just means they're keeping interest rates low and then pumping money into the economy by buying short-term treasury bonds.

But as long as things continue as they have been, even as our economy reopens and we temporarily see higher inflation, he's made it very clear that interest rates will remain low until 2023. But Morgan Stanley doesn't quite agree with this, and they say that there's an early warning sign that you should keep an eye on in terms of where markets are headed.

They say the dramatic reopening is going to be a lot more difficult than we're dreaming about, and that now there might be surprises that are not quite priced in. For example, even though it's exciting to think about everything returning to normal, behind the scenes, businesses are already starting to face supply shortages and everything from materials to labor.

And that could bring bad news when companies begin reporting earnings. Anecdotally, I could attest to this as well. I ordered a washing machine and a refrigerator directly from the manufacturer back in November, and still I've yet to receive them because the company has been backordered with no access to any of their products.

Even lumber and building materials have increased 180% in the last year due to both an increase in demand and businesses not yet able to operate at full capacity. I would expect this to extend throughout nearly everything, as demand outpaces supply in a lot of the items we use day to day.

And even though this might be kind of good news for businesses, the reality is they're going to be stifled in terms of how many sales they could make, and that will end up costing you more money until eventually things normalize. But now to address a major problem in the market and then what you could do about it, here's what you need to know.

First, it's concerning that investors are taking a break from the stock market because, to me, this represents more of an emotional response to pricing than a logical one. I know you're probably tired of me saying this by now, but really it's so true that the best strategy out there when it comes to investing is just to keep buying, and that's it.

Even though we may very well see a short-term drop in the market, it may very well continue going up, and anytime you pull your money out of the market, you risk missing out on those opportunities. The other surprising point when it comes to this is that right now, there's a lot of money sitting on the sidelines just waiting for a drop to start buying it.

But as of now, there's four and a half trillion dollars' worth of institutional and retail money and money market funds, which is the highest level in the last year. It's expected that this could continue pushing prices even higher, and any short-term drop in price would continue to be bought up along the way.

The CEO of JP Morgan, Jamie Dimon, also thinks that the economic boom may last through 2023, which could very well justify current levels since markets are pricing in growth in excess savings that make their way back into stocks.

But at the end of the day, the reality is that successfully opening the economy will be challenging, and it's impossible to tell how much of that is already priced in or if we're getting ahead of ourselves in terms of how quickly that will happen. From what I'm seeing, backorders, delays, and limited capacity will probably stifle growth for quite some time, and that's difficult to quantify when everyone else is forward-thinking in terms of how well our economy is going to reopen.

So my philosophy is really just this: keep enough cash on the sidelines so that if there is a drop in the markets, you know with 100% certainty that you have enough to buy in. But understand that money comes at the cost of potentially missing out on future gains if the market continues going up.

I've made the choice just to keep buying, no matter what happens, because chances are if you don't need the money for another 10 to 20 years, any short-term drop in price doesn't matter much anyway. But never keep too much cash in the sidelines because study after study shows that 66% of the time, investing all of your money right away is going to give you a higher return than slowly trickling into the market.

Real estate is also a fantastic way to diversify your money and add some stability to your portfolio. But don't think that it has to be one or the other. I'd use a combination of both stocks and real estate, if at all possible.

Sure, owning real estate could be expensive, and it's so much easier to throw a hundred dollars in the stock market than spend years saving up for a down payment. But ideally, you could make them both the goal to work towards. Plus, to help get you in the right direction, Public is going to be giving you a free stock worth all the way up to $50 when you use the link down below in the description, and you have a chance to earn a completely free stock of Tesla when you deposit $100 on the platform by April 16th.

Investing in stocks would be able to give you a liquid investment that you could continue buying into without any further work on your end, while investing in real estate gives you the advantage of stability, leverage, and the utility of being able to live there or rent it out. One is not necessarily better than the other, and it really just depends on how much time you're willing to invest.

So at the end of the day, I would not recommend taking a break from the stock market when instead you'll probably end up making more money by staying consistent. Keep buying in and not letting fears of stocks being at all-time highs slow you down. And even if prices do come down, that's just a natural part of investing and isn't something that you should be worried about.

Just make a plan today, stick with it, and then from there it's all about time and consistency. By doing that, you're gonna have the best chance of coming out ahead long-term, as long as, of course, you destroy the like button for the YouTube algorithm.

So with that said, you guys, thank you so much for watching. I really appreciate it as always. Make sure to destroy the subscribe button and the notification bell. Also, feel free to add me on Instagram; I posted pretty much daily. So if you want to be a part of it there, feel free to add me there.

As on my second channel, The Graham Stephan Show, I post there every single day I'm not posting here. So if you want to see a brand new video from me every single day, make sure to add yourself to that. And lastly, if you want that completely free stock, use the link down below in the description, and Public is going to be giving you a completely free stock worth all the way up to $50. Plus, you have a chance to earn a completely free stock of Tesla when you deposit $100 on the platform.

So at that point, it's pretty much like free money. Enjoy! Let me know what stock you get. Thank you so much for watching, and until next time!