Everyone wants to become rich but most assume that being rich will bring happiness and a plethora of luxuries that have nothing to do with boosting life satisfaction. Back in middle school, I finally urged myself to stop focusing on being rich. Once I did that, I became wealthy. I got my time back, more freedom to do whatever I wanted, earned more and was destined to find my career.
Since I was only a little nugget on the brink of puberty, by career I meant building my own brand and reputation, it has nothing to do with salary or a job title. I finally came over the hump of feeling the need to meticulously track my spending, creating budgets for everything, and count every penny to make sure I saved enough to have lots for no purpose. It can get very exhausting quick, might as well be a bank teller for life.
The truth is, you really donât need that much to live a happy existence. After $75k per year, your happiness will not skyrocket, it will in fact plateau and even dip especially if you are dealing with trouble at home, a nasty divorce, or even health-related problems. The biggest dilemmas in life cannot be treated with money. If only.
At the moment, millionairesâ portfolios are having their best bull run yet. With the major indexes up on average, 20% last year, and the rally continues to go up, there is no stopping, until some trepidation rolls in about a possible imitation to the dot-com crash in the early 2000s when investors were pouring money into hot tech stocks such as Pets.com and MySpace putting out of this world evaluations on these stocks that had no future of succeeding. And as a result, everything went caput, including these non-existent companies. Amazon survived becuase they had cash on hand. Without it, there would be no such thing. But if you were strategic like my family to avoid the speculation into these trendy but nonsense stocks, you are feeling the gains all the way till today and also dealing with the same anticipation.
Economy to Market And Back Again
With Biden officially taking office yesterday with a kinda smooth transition of power, there is a lot of work that needs to be done since he will have to erase almost everything Trump did. From racism, political division in the nation, COVID, climate change, foreign enemies on trade and most notably to investors the wealth divide, there is a lot that could affect the market fast but as always, Main Street and Wall Street have never heard of each other.
In the last year alone, while the majority of Americans were desperate for stimulus to help them survive, the 1% grew their net worth by an average of $5 trillion dollars. Although these individuals already grew their wealth pre-pandemic, it is interesting to note the psychology that goes into wealth building during items of crisis.
When times are good and salaries are rising, people spend more, when pandemics are raging, people are spending less. It should be the opposite and thatâs the difference in mindset between the rich and poor. Plan for the worst and hope for the best. Donât be naive and believe you will always be happy and never lose your job. Even the government, arguably the most stable industry, a new administration gets fired every 4 years.
During the worst economic times in order to not be affected, you must lay low during the good times and that is still possible living a good life, taking advantage of all the immense opportunities such as low-interest rates and borrowing, and record low inflation.
There is usually immense opportunity since the economy is never directly correlated to the market. A new administration doesnât affect markets in the long term, only certain factors help. With Trump, since he was pro-business, he wanted the American system to benefit himself, his companies first.
The Administration To Your Wallet
He lowered the tax rate which boosted the economy pre-COVID and didnât rush on stimulus, something he once again, doesnât need as a billionaire, yet at the same time, bankrupt dude. Biden on the other hand is all about stimulus and bridging that wealth gap. Heâs a Delaware Congressman that never built fancy golden toilet hotels or took part in scandals like most businessmen do to shelter money in tax havens abroad. He is doing the opposite which most republicans (corporate leaders and businessmen) object which includes increasing stimulus, taxes to help the poor and keep America somewhat equal.
What Millionaires are Feeling Now
If you become a millionaire during this pandemic, congratulations. Hitting that 7 figure mark is very rewarding and I can still remember when my parents reached that point but overall, our lives didnât change and our happiness didnât improve. We acted as if nothing happened in order to not get sidetracked into lifestyle inflation, the most common threat to bankruptcy, especially for lottery winners and sports players. Pretending that you only have what you need will set you up for success because it will allow you to take advantage of things in a more keen and desperate way. If you thought you were comfortable, you wouldnât be on the lookout for opportunities otherwise, losing your chances to make more. But at the same time, since you are already wealthy (classified with a net worth of $800k or more in the states), if you treat it well and donât abuse the power of being wealthy, you wonât feel the need to obsessively find alternative ways to make money, you will do it because you enjoy it and it provides an extra cushion to rely on in times of crisis, not for any competitive or gambling reason.
Bust?
Currently, most millionaires are wary of where the market is headed. Since Congressional gridlock is over, a new presidential cabinet is set, bank earnings outperformed, the $1.9 trillion dollar stimulus is being pushed into the economy and small caps are making their comeback, majority of investors with a $1 million or more in a brokerage account believe that the stock market is in a bubble or close to being one. This time feels like the middle of Christmas and New Yearâs Eve. We experience it every year but still donât know how to wrap our heads around this time so we go full throttle and take advantage of what is out there. In the stock market that means taking advantage of large-cap underpriced US stocks and international trades. In real life, this means taking advantage of Black Friday or any additional deals that are left on the shelves at department stores before they the stores literally go bankrupt during this recession.
The difference between a boom and bust can easily be mistaken. The dot-com was a bust or also known as a bubble which was a massive downslide in a bearish run and a boom is well, the opposite, something that we cannot anticipate the end towards as this rally is making investors more and more skeptical by the day. A boom is what a bubble is before it bursts. A bubble is a situation when one particular thing becomes overvalued. This surge in asset prices is driven by exuberant market behavior as we are seeing currently.
Sentiment Looms
Only 9% of millionaires surveyed by E-Trade think the market is nowhere near a bubble. The rest of the affluent investor set:
16% think weâre âfully in a bubbleâ
46% in âsomewhat of a bubbleâ
29% think the market is approaching one
So is running away from the market or parking money in cash a better bet?
Depending on your age, risk tolerance, short/long term goals, income streams, and cash preference, it is up to you to decide but there is no doubt that every millionaire to stay a millionaire believes in cash. It is king after all and donât let a 17-year-old Robinhood fanatic persuade you otherwise. It is a necessary cushion to have because emergencies arenât impossible. Just like you canât buy insurance when you need it, liquidating your assets and paying hefty fees in capital gains to sell your stocks in order to have cash for an emergency would be a poor move especially if you need it immediately, the bank isnât that fast. Not only you are reducing the amount of supplemental income you are getting from investing, you have to struggle to survive and manage that cash.
Sixty-four percent of millionaires are bullish, and that is up 9 percentage points from Q4 2020, and that compares to 57% of the broader investor universe that remains bullish.
Among these investors, the percentage that said their risk tolerance has increased in Q1 went up by 8 percent points (from 16% to 24%). The majority (63%) said it remains at the same level as last quarter. Only 13% of millionaires said their risk tolerance has declined, this is a warry sign of how far we can go in the market until a drop.
Whatâs Next
Having a game plan whether you are playing a sport to your finances is always a necessity. I would advise taking care of your finances first, then football practice after. Amid these rising bubble fears, the way risk tolerance has increased significantly in the first quarter of 2021 makes me confident that we will see stocks to end Q1 2021 with more gains. This build-up is not only healthy, it is playing with our minds so a backup is key for any downfall.
Personally, I believe we will see better than average or almost the same returns as we did in 2020. 2021 will be pretty much the same, hopefully with a lower death count and herd immunity, but there is no going back to Spring break or cruises just yet. Yet back in the stock market front, at home stocks are lagging since investors are more than eager to go travel. With our portfolios beating expectations, the wealthy have nowhere to go. Most of their money in regular times is spent on travel and leisure but now dealing with cabin fever, how many more homes could they purchase? Itâs just reinvested into the stock market!
More Bullish Sentiment = More Change
With risk in the economy on top of the risk with our bets, more investors are tweaking their portfolios making the transition into value and growth stocks (buy high, sell high), small-cap stocks, and depressed sectors like energy and financials with a bearish sentiment on big tech. Even if small-caps have underperformed the S&P500 since 2018 according to data from CFRA, investors are still optimistic they will perform in 2021. This change also presents an opportunity to look to the future and beyond the USâ borders into the international market. Chinaâs economy is booming as the second-largest economy in the world and could be the only member of the G8 that had GDP growth in 2020. as itâs gained full control of mitigating the virus. That is the one area the US is lagging terribly on. Everyday on CNN on the side of the screen, the death rate inches higher and higher at an unprecedented rate. Regarding at home stocks, they have seen strong returns and in the most popular sectors health care (66%) and tech (53%) are the biggest gainers but there is time for some different type of optimism which means normalcy. These gains are more modest given current valuations and I believe there is more opportunity in cyclical sectors where stimulus and vaccine deployment drive more significant valuation growth.
The fun part about business is that everything is unexpected. Sure you can make the plans, set the goals and be the wiz trader with all the experience, but until you find out a way to indefinitely know whatâs coming, weâre all in the same boat. But if there is anything to learn about what the wealthy are up to these days, they are trying to take advantage of all they got before the hefty taxes, inflation and overvalued speculations about stocks deepen. Iâm talking about you BitCoin and Tesla.