Risk From COVID-19 Variants Drives Rebalancing in Favor of Equities and Cash

Over a year into the pandemic, risk from COVID-19 variants remains a top concern for American investors, and most are adjusting their portfolios in response to risk from delta variants, a recent survey by Charles Schwab found. Survey responses showed the pandemic topped surveyed U.S. active traders’ concerns as of August. Over a third said they’d already made changes to their trading strategies in response to the rise of the delta variant, and among those who said they haven’t, half said they’re considering it. 

However, the kind of modifications they had in mind were somewhat different. For those who already implemented strategy changes based on pandemic-related concerns, close to half or 44% indicated that meant buying more equities. But those who were still planning on making changes as a result of pandemic-related risk were more likely to be considering selling them, with 36% reporting they would increase cash holdings and 30% saying they would sell equities.

The results echoed findings from a survey of Investopedia and Treehugger readers in August, with some key differences. While most readers surveyed indicated that they had rebalanced their portfolio within the last few months primarily because they do so on a regular basis or because they felt overexposed to a given sector, our research also found that shifting to less risky investments or cash holdings was a recurring theme in open-ended responses. And although risk from the spread of COVID-19 variants was not our readers’ number one concern (more were worried about government spending and inflation), COVID-19 variants still ranked among their top four choices. 

More broadly, in the face of job losses and other financial difficulties, the pandemic has pushed many Americans to take a closer look at their finances, revealing an acute lack of savings. In another survey by The Balance back in the first quarter of 2021, half of Americans surveyed said they had less than $250 left over each month after accounting for their necessary expenses and regular spending. Twelve percent said they had nothing. 

Reevaluating savings, emergency funds, and the liquidity of assets has led to record high savings rates in the U.S. Since the onset of the pandemic, Americans are saving more than ever, according to the U.S. Bureau of Economic Analysis.

The first half of 2021 has also generally been good to U.S. equity investors. The S&P 500 returned 14.4% in the first half, well above average historical returns, in the second-best first half in over two decades. It’s on track for a record number of record high closes at 53 and counting. Although our readers indicated they were less optimistic about the market in August than they were in May, enthusiasm for equities remains relatively high. 

Still Bullish on Stocks

Most or 86% of respondents in Charles Schwab’s Active Trader Pulse survey think we’re currently in a stock market bubble. Still, 65% said they’re bullish on domestic stocks for the second half of the year. Many of our readers agreed—most felt we’re in a bubble, but more identified residential real estate as the source than U.S. stocks. But at the end of the day, more of our readers said they would invest in stocks if they had an extra $10,000, ahead of ETFs, savings, and paying down debt.