Investing for your child? Just starting to invest? Thinking about putting your stimulus check into the stock market? In this episode of MarketFoolery, host Chris Hill and Motley Fool analyst Jason Moser dip into the Fool mailbag to talk stocks vs. index investing, when to deploy cash, and more. They weigh in on those topics, as well as the Deutsche Bank (DB 0.65%) survey on how $170 billion in stimulus checks could end up in the stock market.
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This video was recorded on March 8, 2021.
Chris Hill: It's Monday, March 8. Welcome to MarketFoolery. I'm Chris Hill. With me today, it's Jason Moser. Good to see you.
Jason Moser: It is me. It's good to see you. How's everything?
Hill: I got coffee. I'm good.
Moser: [laughs] You, man, I've got plowed through my coffee so early in the day. I mean, we're up at like 6:00 or something and the pot's already fired up and man, it disappears. I feel like you'd have to cut myself off at some point or else it's going to get out of control.
Hill: Just wait 'till your daughter starts drinking it. You're going to have to get two pots. [laughs] We've got kind of a family theme today, but we're going to start with this: the stock market may very soon be getting an injection from individual investors. This comes from a survey conducted by Deutsche Bank which shows people getting stimulus checks in the US say they may invest as much as 50% into the stock market, and it breaks out by age group, and probably what you would imagine in terms of respondents to this survey over the age of 55 thinking, I might put a little bit into the stock market but only in the neighborhood of 15%, 16%, whereas younger people are looking at much higher percentages, and all told, Deutsche Bank estimates that as much as $170 billion of these stimulus checks could end up being invested in the stock market. There are a lot of different ways we can go with this, Jason. What is your basic reaction? What's your gut reaction to this survey?
Moser: My gut reaction is I feel like this is the sword that could potentially cut both ways. I mean, I hope I'm wrong. It feels like we've seen a lot of news lately with all of the GameStop stuff and AMC and Reddit, whatnot. I mean, certainly, technology has brought investing to the masses in such a way that didn't exist, obviously, 10 years ago. I think it's great. I'm a big fan of it. I mean, I hope that we actually see people focused on investing as opposed to trading. I mean, the first thing that came to my mind. This shows you how I think and this is for better or for worse, so folks, just bear with me. The first thing I thought of was that Seinfeld bit where he's getting the reservation for the rental car and they don't have the car. I'm thinking, they can put it into stocks, but can they hold the stocks? Because that's really the most important part of buying stocks: it's the holding.
Hill: It's the holding.
Moser: Anyone can just buy them. I think that's the key is to buy them, but then buy them with the intention of holding. That's what I hope we see happens. I would imagine there is going to be a percentage of folks that do that. I hope it's a larger percentage than glass-half-empty I'm thinking about, but we'll see. [laughs]
Hill: Well, we talk all the time about when is the right time to sell a stock. A lot of times, the answer is when you have a better place for your money. I really hope people getting these stimulus checks weigh everything against that question: what is the best place for this money? Because for some people, it's paying off bills, it's paying off student loans, credit card debt, that sort of thing. To your point, for people who are younger with a longer time frame, with the right mindset, a question we've gotten a lot recently is some version of, hey, I bought this stock a year ago. It's quadrupled. Should I sell some of it so that I can buy other stocks? For some people, this is a way to fund some additional purchases in their portfolio.
Moser: Yeah. I think we look at this past year, 2020 was very uncommon for a lot of reasons. It was a great year to be invested, frankly. I mean, I think a lot of us feel that way, but a lot of success, a lot of growth was pulled forward, so we saw so many different companies where their shares doubled and tripled and quadrupled. I actually think that's a very good observation on a younger investor's part to say, hey, I invested in the stock; it's quadrupled. I'm thinking about maybe pulling some of that money out and then putting it into other ideas to diversify my portfolio. I mean, on the one hand, we talk a lot about watering your flowers and pulling your weeds as investors here at The Fool, but I also think there's some merit to, if you're a budding investor, take some of those gains so that you can spread that money out a little bit and diversify your portfolio a little bit. I think there's something to that because we need to make sure folks understand that 2020 wasn't exactly normal. If you look at the numbers, it's basically just a modest majority of Americans that actually own stocks. I think there's an April 2020 Gallup Poll showing about 55% of Americans own stocks, whether it's directly or as part of a fund. Now, you can go a little bit more granularly into that. There's Federal reserve data from 2016. It shows that actually, only about 14% of those families are actually invested in individual stocks. Most folks are invested, and they're getting that exposure via funds, 401(k), what have you, and that's great. We believe in all of that.
Whether it's individual stocks or funds, it's getting invested and staying invested, that's really the key, but if you look even further back and in 2002, that's where it hit its peak. I think 67% of Americans said they actually own stocks. Then we saw that number start pulling back to where it is today. The pandemic resulted in a lot of folks getting money in their accounts and really inflating this personal savings rate, which has been interesting to deliberate. It's understandable, because our behavior has been carved a little bit. We can't just go out and spend money the way we might normally do it, and maybe that's where the enthusiasm comes into play for folks who wanted to get that money into stocks. I'm a big supporter of it, I don't buy a lot of stuff, I'd rather just buy stocks. I feel like that's just more productive and longer term it's the better call, I think. So, hopefully the enthusiasm is coming from a place where folks are looking at long term implications here and thinking, hey, I've got this opportunity that I didn't really have otherwise to really kick start some longer term goals and that's what I would be encouraging these folks looking to put this money into the market; I would encourage them to look at it from that perspective.
Hill: Our email address is [email protected]. Question from Adam DeClerk, he writes, "My wife and I have decided to allocate a set amount of money each month to stock investing. My question is, should we put the full amount into our stock of choice each month, or should we keep some of that in cash for when the market dips a little?" It's a timely question given that, particularly if you've owned stocks trading on the Nasdaq the last couple of weeks, you may have noticed that it has dipped a little.
Moser: Just a tad. Thankfully, it seems like a lot of this has been more macroeconomic in nature and you're seeing a lot of talk about interest rates and inflation. That seems to be what is guiding a lot of what's going on in the market right now. It's less business centric, and that's what we like to see honestly, as investors. You know that the businesses are performing well. I mean, they don't really have any control over the greater economies, so to speak, and so they can oftentimes opportunistically add some of those favor positions. I do love where this question is coming from. I mean, to me, I always like keeping some cash. I don't think I'm ever fully invested. I think I always have some modicum of cash in my account. Sometimes it is a little bit better than others, and then we talk about this a lot, 5%, 10%, everybody is a little bit different. I think I try to keep it between 5% and 10% for the most part. I personally like the idea of not fully putting that cash to work and building up a little bit of a cash [...], so to speak, to be able to be opportunistic. I would not dig into the savings, I don't think that's what that is for. You've determined that that savings account is for emergencies, so I would let that serve that purpose. Then building out a little cash nest over time will make it so that you don't feel like you ever have to really dip into that emergency cash to begin with. To me, absolutely, build up a little cash nest egg and always try to focus on keeping some cash.
Hill: Another email from Cory Scott, he writes, "Hey, guys. I love the show, I'm a relatively new listener. I have a question about the account that I have for my three month old. Right now I'm contributing to a broad market ETF, but I'm wondering if it would be more beneficial to buy individual stocks for him." Obviously, we can't give personal advice, we can't give individual advice. I will just say, Jason, I would be tempted to keep it in the broad market ETF, at least for the foreseeable future. I think somewhere down the line, if you want to get your kid interested in investing than individual stocks, is a tremendous way to do that. But I don't know, I would stick to the broad market ETF for now, certainly until you've set up a nice base.
Moser: Yeah, I mean, three months, man, that's just terrific. That's just [laughs] getting him started young. I think I would probably take the other side of that coin, Chris. I like where you're coming from and honestly, I don't disagree with it. I'm in the same boat. We have a freshman and a sophomore in high school now. Our daughters are 14 and 16 years old and they've been investing since they were around, I think, six-ish. That's when we really got them started on that journey. Now, we had opened up 529s for them when they were born, so we were doing fund investing for them from day one, just from that perspective. But I will say, the one reason why I would jump into individual stocks sooner, is because it gives them that benefit of time. Then you think about kids, for the most part, they don't care about this stuff. Every once in a while you can show them like what their money is doing, but for the most part, they're not checking their stock prices every day. They're not terribly [laughs] concerned with what the market's doing, they just go on about whatever is important at that given age.
But I was looking back the other day through our daughters' portfolios. They each have their own custodial account portfolio, so when they're of age, they will inherit this account and it's their decision what they do with it. But they've been investing now for essentially about nine years. This is why I feel like individual stocks at least have a place. Because right now, they have I think around 13 distinct companies in their portfolio, they're sitting on a 9-bagger, a 7-bagger, a 5-bagger, three 4-baggers, [laughs] two 3-baggers, a double. Oh, and by the way, they each have a share of Amazon to boot. My point being is that the reason why they got all of those gains, I mean, those are 9-baggers, we're talking about companies that have gone up nine times in value. That only happens really with time. In an exceptional year like 2020, that resulted in some atypical gains. But for the most part, the reason why they've achieved those gains is because of time, it's because of those nine years. That nine years has given them the opportunity to just let those companies do their thing, and they're keeping it simple. It is companies like Starbucks, and Apple, and Disney, and Nike, and Under Armour, and so on.
I think the answer is both. I think it's really fun when the child gets old enough where you can start talking to them about investing in individual companies and framing it like you're a business owner, I mean, what kind of companies would you want to be a part owner of? That's how we've always framed it with our girls. Maybe for now, sticking with the fund to build up that foundation makes sense and then when that child is old enough, 5, 6, 7 years old, to start understanding all of the different brands they see around them and things that these companies are doing, then you can start framing that business ownership mentality and getting them into individual stocks. But I definitely think getting them into individual stocks at some point or another is a great move for a lot of different reasons, but clearly looking at just what that time can do, especially so early in life when they are just not concerned about it, it can result in some really mind-bending gains, then all of a sudden they see that and they're like, "Wow, that happened and I didn't do anything." [laughs] Like, they just see. It's probably the most impactful lesson, because I could tell you, our daughters every once in a while they'll look at their portfolios and they're just like, I'm a believer. We've got a couple of Fools for life, and it just really started with getting them at a young age like our listeners are doing.
Hill: Jason Moser, always good talking to you. Thanks for being here.
Moser: Yeah, thank you.
Hill: As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery. This show is mixed by Dan Boyd, I'm Chris Hill. Thanks for listening. We'll see you tomorrow!