How a new breed of stock investor could save your stock portfolio
Posted On July 23, 2021
People are increasingly looking to invest their savings in companies that provide a good return on their investment, and that could help them retire later on.
In fact, a new wave of investment managers is using stock indexes as a tool to boost their portfolios and save their money.
The trend is a result of the rising cost of capital for many businesses, especially in technology sectors, as well as the rising demand for retirement savings.
In the past decade, the amount of stock investments that have made it onto the list of the most popular stocks to invest in grew from just 0.8% in 2012 to 1.1% in 2017.
A recent report by Vanguard Group Inc. shows that this number rose to 2.7% in 2018, as stock funds were a big part of the mix.
“The big trend we’re seeing is people want to diversify their portfolios, because they want to save and invest their money,” says Steve Scholz, an investment strategist at Renaissance Capital Management, which manages more than $1 billion in portfolios.
He says that a growing number of investors have begun investing in the stock market to boost retirement and other savings.
Investors are looking to use index funds as a way to build their portfolios for retirement, as they see a lack of financial planning as a major obstacle to investing.
“We’re seeing a lot of investors that are using index funds, because there’s a lot more risk taking, a lot less prudence, because of a lack to invest the money,” Scholx says.
In 2018, more than 60% of people who bought a stock mutual fund that invests in the index funds were either saving money in retirement or looking to reduce their risk, according to Vanguard.
Scholz says investors should also be wary of using index fund investments as a “safe haven” for their money, as investors often lose money on them.
“If you buy a stock fund and invest it into a bond fund, you’re basically just saying, ‘Here’s the money that I have to save in case of an emergency,'” he says.
“When you have that risk, that’s just a really bad idea.
If you’re trying to diversified your portfolio, you have to be really careful.”
Investors may also want to avoid using an index fund in a retirement plan, as some companies don’t allow it.
In some cases, they may also avoid buying mutual funds if they can find another strategy that can help them save more.
Scholi says that for most people, it will be better to diversize their portfolios through mutual funds, but some people may want to try a mutual fund to get some more return.