One of the things that makes investing interesting is that it’s constantly evolving. The increase in the speed at which trades can get done, coupled with the dramatic reduction in the costs involved, means that investing has been changing more rapidly than ever.
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The year 2021 was no different, with plenty of new developments that seem likely to change the course of investing going forward. Here are some of the top economic, social and financial developments that have changed investing in 2021.
You couldn’t turn on the financial news in 2021 without hearing about trading in so-called “meme stocks.” Meme stocks are loosely defined, but their most common characteristics include large short positions, particularly by institutions, and targeted online chatter by groups of investors looking to make a quick profit. GameStop and AMC Entertainment are just two examples of commonly discussed meme stocks. As of Nov. 24, those two stocks are up 1,127% and 1,835% year-to-date, respectively. Other meme stocks have had similarly explosive moves, and the trend looks likely to continue.
Influence of Social Media
Tying into the rise of meme stocks in 2021 has been the pronounced influence of social media on investing. In the early days of the stock market, only insiders had information. Eventually, newspapers and stockbrokers were the primary sources of information for investors, followed by investment pundits and the financial media. Nowadays, there is seemingly no limit on the sources of information for stock traders. In 2021, internet message boards like Reddit are abuzz with all the latest stock tips from individual investors, directly fueling the rise of meme stock trading.
When Robinhood pioneered the concept of commission-free trading in 2015, few could have foreseen the massive effect it would have on the markets in 2021. Over the past few years, commission-free trading has expanded from a few select trading apps to online branches of mainstream brokerage firms, such as Charles Schwab and Merrill Lynch. In 2021, the wide availability of commission-free trading has helped fuel the rise of meme stocks and trading groups on social media, as groups of investors can rapidly jump in and out of positions at no cost.
The coronavirus pandemic brought countless changes to the global economy in 2020 and into 2021. One of the direct results of those changes was the rise of so-called “stay-at-home” stocks. With a large portion of the world’s workforce suffering through various phases of lockdowns, companies that provided services for those staying at home thrived. Streaming services, such as Netflix and Roku, delivery services like DoorDash and videoconferencing businesses like Zoom all skyrocketed. Beyond the big names, many smaller companies finally got their chance to play on the world stage. But the value of many “stay-at-home” stocks has extended beyond the lockdowns as consumers continue to enjoy their products and services.
One of the hottest investment themes in 2021 has been cryptocurrencies. What was once considered to be a complete speculation has been growing in both popularity and acceptance throughout 2021. El Salvador became the first country to accept Bitcoin, the largest and most well-known crypto, as a legitimate currency, and other countries are considering the same. Bitcoin remains volatile but set an all-time high of nearly $65,000 in November 2021. Throughout 2021, more and more outlets for trading cryptocurrency opened up. Even payment services provider Venmo now allows crypto trading on its platform.
Supply Chain Issues
One of the many unexpected consequences of the coronavirus pandemic has been the disruption of the global supply chain. A complex interplay of component shortages, increased consumer demand and bottlenecks at ports due to the lack of workers had led to rising container prices and low product inventory levels across the globe. This, in turn, has been fueling inflationary pressures. Although shortages may eventually work themselves through the system, some pundits are declaring that the supply chain has been permanently changed thanks to the events of 2021 — and all that will likely impact the companies you’re investing in.
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Permanent Remote Workers
When the coronavirus pandemic swept across the world, most businesses were at least temporarily forced to suspend their operations. As a way to get the economy moving again, many employees were allowed to work remotely. After months and months of this grand economic experiment, a few surprising truths emerged. One is that many businesses have actually extended the period of time in which workers are being kept out of the office, partially as a result of workers generating the same or even a higher level of productivity at home. Perhaps less surprising was the fact that many workers preferred working from home. This could translate to a permanent shift in the employment landscape of America, which will continue to have an effect on companies that once catered to in-office workers and that you might’ve invested in.
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Push Toward a Greener America
There has been talk for decades about shifting away from fossil fuels and moving toward greener energy production. In 2021, this trend had such momentum behind it that it became a major investable theme. Although years in the making, 2021 saw such major legislation as President Joe Biden’s “Build Back Better” program, which among many other provisions enhanced incentives for buying electric vehicles and set aside funding for building charging stations. Some states, such as California, have mandated that all new cars and passenger trucks be electric vehicles by 2035. These and other associated developments have pushed even major vehicle makers like Mercedes and Jaguar, Cadillac, Volvo and others to begin shifting to all-electric lineups.
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Shift in Payment Processing
Cash has continued to fall as a percentage of overall transactions, particularly in North America. This was only exacerbated by the pandemic, as consumers were forced to conduct more transactions online. Even merchants who did remain open often refused to handle cash. In 2020, the year for which the most recent data is available, cash was used in just 11.4% of point-of-sale transactions in North America. Coupled with the rise of alternate payment processors, such as PayPal and Venmo, the shift in payment processing seems like a trend destined to continue.
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Rise of ESG Investing
ESG investing has reached critical mass in 2021, and it has likely changed the investment landscape forever. In addition to the rising demand from investors for companies that observe environmental, social and governance principles, companies themselves have begun incorporating ESG principles into their mission statements in ever-increasing numbers. To help meet the demand, numerous ESG-oriented exchange-traded funds have flooded the market, with nearly every major firm now operating their own version.
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