While Americans are hoping 2021 is brighter than 2020, investors aren't anticipating a smooth ride for the stock market this year.
In fact, two-thirds of investors — 66% — believe the market is either 'fully' or 'somewhat' in the midst of a bubble, according to new research by online investing company E*TRADE. A bubble is a period in which stock prices rise far beyond their perceived value and typically fall rapidly or dramatically.
With uncertainty surrounding global events likely to continue for the foreseeable future, some investors are buckling down for the ride while others are looking for safer alternatives.
Volatility expected to continue
Last year was far from average, as global crises such as the pandemic sparked large swings in the stock market. Some Americans even fear that they won't be able to retire when planned due to economic turmoil during the pandemic.
A majority of investors believe that market volatility will continue. The E*TRADE survey found that 3 in 5 respondents — 60% — think that volatility will increase in the first quarter of this year.
When it comes to specific investor worries, the biggest perceived portfolio risk for 2021 is a recession, cited by 32% of respondents. That was followed by:
- The pandemic, cited by 30%
- A change in presidential administrations, cited by 25%
Despite the concerns, more than half of respondents — 57% — described themselves as 'bullish,' meaning they are optimistic about stock prices continuing to rise, overall. Some segments of investors have even taken an aggressive approach to investing throughout the pandemic, such as affluent women of color.
Some turning to real estate
Meanwhile, other investors are weighing different options when it comes to investing their money. When asked what type of investment they thought would do the best in 2021, the top choice was real estate, cited by 27% of respondents, according to a survey by online investment magazine Sophisticated Investor.
That was followed by:
- Stocks and bonds (25%)
- Gold and silver (18%)
- Savings account (11%)
- Cryptocurrencies (9%)
- Fixed annuities (5%)
- U.S. Treasury-issued securities (4%)
Women were particularly trusting of real estate, with 31% of all women respondents saying they had more confidence in real estate above all other investments this year compared to 24% of men. On top of that, 34% of women between the ages of 55 and 64 years believed real estate to be the safest investment.
Men were most trusting of the stock market, with 28% believing that stocks and bonds were the safest option in 2021. Men 55 and older were most bullish, with 31% naming stocks and bonds as the safest investment.
Millennials, meanwhile, were the most open to the idea of investing in cryptocurrencies, such as Bitcoin. While 9% of all respondents said they believed cryptocurrencies would be the safest investment in 2021, that rate jumped to 12% among millennials.
Methodology: E*TRADE commissioned market research firm Dynata to survey 904 investors who manage at least $10,000 in an online brokerage account. The survey took place between Jan. 1-7, 2021.
Sophisticated Investor surveyed 5,001 adults in December 2020. The survey identified millennials as those between the ages of 25 and 34.