This article was originally published at The Humble Dollar.
AT THE CRACK OF DAWN each day, I grab a cup of coffee, and then dig into the latest investment articles and research reports. Last week’s most intriguing insight: According to data from Emerging Portfolio Fund Research, investment flows into global stocks are on pace to hit $1.048 trillion this year.
To appreciate the magnitude of this year’s inflows, consider that 2017 ranks as the next strongest year—at a relatively paltry $300 billion. Other years, such as 2008, 2016 and 2019, featured significant outflows. But in 2021, it’s all aboard the stock market train.
In fact, investors have been pouring so much cash into the stock market that this year’s total could eclipse cumulative flows for the prior 20 years. Given this buying frenzy, it’s not surprising that stocks are up strongly in 2021, with the Vanguard Total World Stock Index Fund ETF Shares (NYSE:VT) gaining more than 15% through last Friday.
What’s driving the massive flood of money into stocks? The extra liquidity supplied by the Federal Reserve and other central banks has obviously helped, as has the bevy of government stimulus and recovery packages. These aggressive monetary and fiscal policies have no doubt also fueled run-ups in things like cryptocurrencies, nonfungible tokens and collectibles.
To be sure, corporate profits have rebounded impressively from last year’s depressed levels, helping to justify the stock market run-up. Moreover, not all sectors have benefited, which suggests the buying hasn’t been indiscriminate.
Niches like gold and emerging market stocks haven’t gotten much love this year. Long-term Treasurys and global corporate bonds are also laggards. Despite investors’ huge 2021 appetite, it seems diversification is still a worthwhile strategy.