Why Investors are Fleeing to Safety, But You Shouldn't

by Andrew Zatlin June 30, 2023 2:00 pm ET

A popular investing app just slashed its workforce again...

The latest example of turmoil in the financial services sector.

A lot of investors are ready to run away from this sector. But don't you follow them...

Because if you do, you'll miss out on an incredible profit opportunity.

For a transcript of this video, see below. This transcript has been lightly edited for length and clarity.

Why Investors are Fleeing to Safety, But You Shouldn't

Remember Robinhood (HOOD), the financial app that took the world by storm?

This company "gamified" the investing process, enabling users to buy stocks from their phones. Robinhood went from half a million users in 2015 to more than 22 million in 2021. And its market cap reached $45 billion that year.

Recently, though, the company has cratered. Its market cap is less than $10 billion. And it just laid off 7% of its workforce, the third round of layoffs in the past year.

This begs the question: What's going on in the financial services industry? Just this year, we've had the collapse of Silicon Valley Bank, Apple (AAPL) disrupting the banking sector with a high-yield savings account...

And don't forget the imminent launch of FedNow, the government's own digital currency.

There's a lot going on here. And it's leading many investors to shy away from this industry.

But don't follow the crowds. Because doing so would mean missing out on a significant investment opportunity. Let me explain...

A Recap of Events

When Silicon Valley Bank and First Republic went down earlier this year, panic ensued.

Nobody knew if their money was safe. And many fled to safety, creating a handful of winners (big banks that were reputable and less likely to falter) and losers (small, regional banks that appeared just as vulnerable as the ones that failed).

Soon after, Apple unveiled its own high-yield savings account, offering depositors annual interest north of 4%. For those staring at less than 1% offered by their own bank (me included), this led investors in search of better returns...

And in this case, the big banks weren't immune from falling into the "loser" category.

Flee to Safety

So, we had two flights: one to safety and one to more money.

And lest you think I'm being hyperbolic, check out the recent flow of money from investors like you:

This 15-year chart shows total assets deposited into U.S. money-market funds, those investing in short-term Treasuries that, for the time being, offer returns higher than those you'll find at a bank.

As you can see, funds have taken off, surpassing $5 trillion. That includes half a trillion dollars in just the last two months!

At the same time, look at the drop in deposits in commercial banks:

The blue line shows the amount deposited into money market accounts, while the red line shows deposits into commercial banks. Notice the correlation? As money market deposits have soared, commercial bank deposits have taken a dive.

What Can I Do About It?

As I've mentioned, this activity is creating winners and losers. And that's before we even factor in the emergence of FedNow, which is just days away.

A digital dollar is coming. And some financial companies are prepared for this revolution, while others aren't. We'll get a glimpse of this preparation in two weeks when earnings are released.

In the meantime, here's my advice...

Focus on financial companies that are immune to all this recent turbulence. Better yet, seek out companies poised to benefit from FedNow's arrival.

I've got a specific company in mind, one whose stock could double or even triple over the next few years. If you're a "Pro" subscriber, I'll share the details with you.

On that note, have a safe and happy holiday. We're off early next week, but will be back with your latest issue one week from today.

We're in it to win it. Zatlin out.