ORLANDO (REUTERS) - It is almost a cliche that retail investors are always late to an investment boom - but the outsize exposure of household savers to frothier elements of frenzied markets since lockdown means they are feeling the hit from this bust more than most.
A string of surveys and investment flow snapshots show that retail investors have significantly ramped up holdings of technology stocks and cryptocurrencies, which are now joined at the hip more than ever.
Having marched to the top of the hill first on the way up, they are the markets tumbling fastest on the way down.
According to Vanda Research, nine of the top 10 stocks in a weighted average retail investor portfolio are United States-listed tech, and account for more than 50 per cent of the entire portfolio. The portfolio is deeply out of the money, down 31 per cent since its peak in December.
The wilder world of crypto may not be retail investors' natural habitat, but they are exploring. A Charles Schwab survey in Britain in March showed that 57 per cent of new investors hold crypto assets, and a Morgan Stanley survey published this week showed that 31 per cent of retail investors in the European Union held cryptocurrency.
Loading up on tech and crypto was probably a better bet when the Federal Reserve and other central banks were pumping the world full of liquidity, interest rates were near zero, and governments were mailing out stimulus checks.
But that is not the case any more. The global liquidity drain is under way, the Nasdaq is down 30 per cent from its November peak, and Bitcoin is down 60 per cent.
Mr Eben Burr, president of Toews Asset Management, says retail investors want to buy yesterday, but the closest they can get to that is buying the thing that did well yesterday. And that is illogical and irrational.
"There is more pain ahead in the short term, 100 per cent. If the market decline continues, it will become too painful and retail investors will bail," he said. "Everyone has a breaking point."
Institutional investors now control the lion's share of the Bitcoin and crypto universe, but retail investors' nominal holdings are still higher than ever, and rising.
The Morgan Stanley survey showed that 16 per cent of EU retail investors' holdings is in cryptocurrencies, more than rental property (14 per cent), bonds (10 per cent), and commodities (8 per cent).
A survey last month by retail investment platform eToro showed that one in three retail investors plans to invest in crypto over the next 12 months, up from 18 per cent in October. Even baby boomers are on board - 11 per cent per cent of those aged 55 and over plan to invest in crypto in the coming year.
In some ways, this should come as little surprise, given how much crypto has been seared into the public's consciousness.
US Senator Elizabeth Warren last week wrote to pension fund Fidelity questioning the "appropriateness" of its decision to add Bitcoin to its 401(k) retirement plan options due to crypto's "significant risks of fraud, theft and loss".
The current market turmoil has brought these concerns into sharp focus. Blockchain analytics firm Glassnode said Bitcoin at US$33,600 puts 40 per cent of investors holding it underwater.
Meanwhile, Morgan Stanley cryptocurrency strategist Sheena Shah points out that everyone who bought Bitcoin over the last year is in the red when it trades below US$28,000. On Thursday, it fell as low as US$25,400.
Mom-and-pop investors may not be able to hold out for much longer. US household debt jumped US$266 billion (S$371.4 billion) in the first quarter to US$15.84 trillion. That is US$1.7 trillion higher than at the end of 2019, before the pandemic.
Meanwhile, the glut of US household savings accumulated during lockdown as government stimulus cheques rolled in is quickly disappearing. The US personal savings rate fell to 6.2 per cent in the first quarter, the lowest since 2013.
But crypto enthusiasts like Mr Anthony Scaramucci, founder and managing partner of SkyBridge, see it differently. He likens the current volatility to the early days of Amazon stock, which had several large drawdowns in its first decade of existence.
"Investors should be willing to stomach it. Everyone says they're long-term investors until they see short-term losses," Mr Scaramucci, who was former president Donald Trump's director of communications, told Reuters.