3 May, 2021

Retail investors borrowing money to buy stocks

I don’t think this is a good development. When individual investors are borrowing in order to increase their stock holdings it feels like the stock market bubble is ready to pop. It’s like gamblers using their credit cards or home equity lines of credit in order to roll the dice a few more times. I don’t think this will end well.

As of late February, investors had borrowed a record $814 billion against their portfolios, according to data from the Financial Industry Regulatory Authority, Wall Street’s self-regulatory arm. That was up 49% from one year earlier, the fastest annual increase since 2007, during the frothy period before the 2008 financial crisis. Before that, the last time investor borrowings had grown so rapidly was during the dot-com bubble in 1999.

Wall Street Journal

This comes at a time when I increased my holdings. I didn’t do it with borrowed money however and I’m not investing in “growth” stocks either. What I don’t want to see is the value of my holdings drop dramatically because of a market bubble that’s about to burst. It’s bad enough with the uncertainty surrounding a post-COVID-19 economy.

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About : Kevin Bae

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