Advertisement

Personal finance fear drives investor anxiety higher: Investopedia Editor-In-Chief

Investopedia Editor-In-Chief Caleb Silver joins Yahoo Finance’s Alexis Christoforous and Brian Sozzi to discuss what investors are doing now and why investor anxiety is spiking.

Video Transcript

ALEXIS CHRISTOFOROUS: Market volatility starting to creep back into this market. And we also see investor anxiety on the rise once again. That's according to Investopedia's Investor Anxiety Index. Joining us now to discuss what investors are doing right now is Investopedia editor-in-chief Caleb Silver.

Caleb, good to see you again. I love this kind of stuff, when you come out with this index, because it tells me about, you know, investor behavior and psychology. What did your latest index-- what was the big takeaway for you from your latest anxiety index?

ADVERTISEMENT

CALEB SILVER: Thanks for having me. What we saw, really, in April was this divergence, this great divergence of the stock market and the economy. And it became very personal for people.

So while the stock market rallied through April and has been kind of flat since, the anxiety happened on the personal level. So we weren't seeing anxiety terms spiking on our site around markets. It wasn't around bear markets or depressions. It was, instead, around personal finance things, like foreclosure, like bankruptcy.

So you could feel that shift becoming very personal to people on the economic front. Even as we saw the worst economic reports in the history of the United States passing, people were feeling it on the individual level. So while markets were kind of buoyed and hanging in there and seem to be going up today, that personal level of anxiety on the finance front is what's holding people back. And we see that spiking way ahead of the VIX last week even.

ALEXIS CHRISTOFOROUS: Yeah, that definitely makes sense. How does it break down in terms of age? I mean, are younger people more anxiety-ridden versus older investors?

CALEB SILVER: Well, anxiety has really been across the boards. But what we've found in terms of people putting their money to work was that younger investors, with less assets, obviously, because they're younger, have gotten a lot bolder. And they've been buying stocks, not just blue chips but have been buying some risky airline stocks. So they've been putting money to work.

Older investors, like older gen X, baby boomers, and on have become very conservative in the last couple of months, and the last six weeks in particular, running out of equity mutual funds, running out of equities, except for some blue chips, and hiding out in money market funds, which as you know are at a $4.8 trillion clip right now. That's the most on record. But it's the second most since 2008 in terms of percentage terms.

So people are hiding in fixed income. They're hiding out in money market accounts. And they're hiding out in high-yield checking accounts. But younger investors are using this time to buy stocks at a bargain.

BRIAN SOZZI: Caleb, what are the blue-chip stocks they are investing in? Because I think blue-chip stocks, that notion, or what they traditionally have, they have changed, especially in this environment where a lot of these blue-chip companies are getting rid of their dividends. And they may not even raise them up for the rest of the year.

CALEB SILVER: Isn't that weird? The stocks that are leading are the same stocks that have been market leaders, the FANG stocks, right-- Facebook, Apple, Amazon, Microsoft, and Google. But then you see older blue chips, like Johnson & Johnson, like an AT&T, like a Verizon still paying a little bit of a dividend there, safety stocks that are good for recessions.

But the sentiment in general has been, go big if you're going to go stocks with the companies that are actually having growth right now and doing pretty well. And we're seeing that not just with individual investors. That's what's driving the market higher. And we know sovereign funds are into those stocks, too, but also those old-school Dow 30 components that were safe and sound. And that we're seeing with the younger investors as well, who are also buying out of the other hand airline stocks, which have a very bleak future in front of them.

ALEXIS CHRISTOFOROUS: Yeah, I'm glad you brought that up, Caleb, because I saw that in the survey. It sort of caught my eye. Talk to me about those travel stocks and why it seems that investors, especially those younger investors, do see some value there? I mean, I would imagine it has something to do with the fact that they have a longer time horizon than, perhaps, some other investors do.

CALEB SILVER: Yeah. And you need a real long time horizon. They were buying those stocks as Warren Buffett was selling those stocks-- different reasons, different portfolio, different scales, different wallet size, obviously. But they were buying those, I think, out of belief that there's no way that these stocks could go lower because they've been decimated so much.

The travel industry will obviously rebound. We're starting to see little signs of that now. It's going to take a while.

Younger investors always have a little more time and patience. That's the magic of investing. The earlier you start, the more your money compounds over time. But they are waiting in some very risky territory.

And I was on this show about a month ago. They were doing the same thing but with pot stocks and oil stocks.

BRIAN SOZZI: Caleb, why do you think the investor anxiety has started to ratchet up? Since we last talked to you, the market has been-- it's been on a nice run.

CALEB SILVER: Yeah, I think it's because of that personal finance fear that people are having. We're starting to see signs that not-- the rich investing class is going to be just fine here. And if you remained invested, you're probably going to be all right.

But there are many people that were just on the edge of that. And so we've started to see signs that people are liquidating their 401(k)s even to buy groceries, to buy emergency supplies. Now, you can do that with the CARES Act and avoid that tax penalty for a few years. That may make some personal finance sense.

But the notion of liquidating your 401(k) to buy groceries is something that you and I-- Alexis, I know you-- we could never have dreamed of. But we're in this situation right now where layoffs are high, finances are tight, and people are taking out of their stock fund to take care of their basic necessities. That makes you anxious. And when you see, you know, a 15% unemployment rate in the US going up to probably 25%, that scares you pretty good.

ALEXIS CHRISTOFOROUS: Yeah, that'll scare you for sure. Caleb Silver, editor of Investopedia, editor-in-chief. Thank you so much. Always good to see you, Caleb.

CALEB SILVER: Thank you.