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It’s almost a cliché that retail investors are always late to an investment boom – but the outsize exposure of household savers to frothier elements of frenzied markets since lockdown means they are feeling the hit from this bust more than most.

A string of surveys and investment flow snapshots show that retail investors have significantly ramped up holdings of tech stocks and cryptocurrencies, which are now joined at the hip more than ever.

Having marched to the top of the hill first on the way up, they are the markets tumbling fastest on the way down.

According to Vanda Research, nine of the top 10 stocks in a weighted average retail investor portfolio are U.S-listed tech, and account for more than 50 per cent of the entire portfolio. The portfolio is deeply out of the money, down 31 per cent since its peak in December.

The wilder world of crypto may not be retail investors’ natural habitat, but they are exploring. A Charles Schwab UK survey in March showed that 57 per cent of new investors hold crypto assets, and a Morgan Stanley survey published this week showed that 31 per cent of retail investors in the European Union held cryptocurrency.

Loading up on tech and crypto was probably a better bet when the Federal Reserve and other central banks were pumping the world full of liquidity, interest rates were near zero, and governments were mailing out stimulus cheques.

But that is not the case any more. The global liquidity drain is under way, the Nasdaq is down 30 per cent from its November peak, and bitcoin is down 60 per cent.

Eben Burr, president of Toews Asset Management, says retail investors want to buy yesterday, but the closest they can get to that is buying the thing that did well yesterday. And that’s illogical and irrational.

“There is more pain ahead in the short term, 100 per cent. If the market decline continues, it will become too painful, and retail investors will bail,” Mr. Burr said. “Everyone has a breaking point.”

Institutional investors now control the lion’s share of the bitcoin and crypto universe, but retail investors’ nominal holdings are still higher than ever, and rising.

The Morgan Stanley survey showed that 16 per cent of EU retail investors’ holdings is in cryptocurrencies, more than rental property (14 per cent), bonds (10 per cent) and commodities (8 per cent).

A survey last month by retail investment platform eToro showed that one in three retail investors plan to invest in crypto over the next 12 months, up from 18 per cent in October. Even baby boomers are on board – 11 per cent percent of those aged 55 and over plan to invest in crypto in the coming year.

In some ways, this should come as little surprise, given how much crypto has been seared into the public’s consciousness.

Hollywood star Matt Damon fronted a commercial for the trading app titled “Fortune Favors the Brave” in October. And only this week, as cryptocurrencies plunged and many stablecoins “broke the buck,” former English footballer Michael Owen tweeted that his new non-fungible tokens (NFTs) “will be the first ever that can’t lose their initial value.”

U.S. Senator Elizabeth Warren last week wrote to pension fund Fidelity questioning the “appropriateness” of its decision to add bitcoin to its 401(k) retirement plan options because of crypto’s “significant risks of fraud, theft, and loss.”

The current market turmoil has brought these concerns into sharp focus. Blockchain analytics firm Glassnode said on Monday that bitcoin at US$33,600 puts 40 per cent of investors exposed to bitcoin under water.

Meanwhile, Morgan Stanley’s Sheena Shah points out that everyone who bought bitcoin over the past year is in the red when it trades below US$28,000. On Thursday it fell as low as US$25,400.

“Mom and pop” investors may not be able to hold out for much longer. U.S. household debt jumped US$266-billion in the first quarter to US$15.84-trillion. That’s US$1.7-trillion higher than at the end of 2019, before the pandemic.

Meanwhile, the glut of household savings accumulated during lockdown as government stimulus cheques rolled in is quickly disappearing. The U.S. personal savings rate fell to 6.2 per cent in the first quarter, the lowest since 2013.

But crypto enthusiasts such as Anthony Scaramucci, founder and managing partner of SkyBridge, see it differently. He likens the current volatility to the early days of Amazon stock, which had several large drawdowns in its first decade of existence.

“Investors should be willing to stomach it. Everyone says they’re long-term investors until they see short-term losses,” ex-U.S. president Donald Trump’s former director of communications told Reuters

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