Portfolio allocations among individual investors were largely unchanged last month even as optimism about the short-term direction of stock prices swelled. The August AAII Asset Allocation Survey revealed only minor changes in equity, fixed-income and cash allocations relative to July.
Stock and stock fund allocations declined 0.2 percentage points to 67.3%. This is the 17th consecutive month and the 19th out of the past 20 months with equity allocations above their historical average of 60%.
Bond and bond fund allocations declined 0.1 percentage points to 16.6%. The historical average is 16%.
Cash allocations rose 0.2 percentage points to 16.0%. Even with the slight increase, cash allocations are at their third-lowest level since March 2000 (15%). August was the 33rd consecutive month with cash allocations below their historical average of 24%.
The 21-percentage-point rise in optimism towards stocks registered by our Sentiment Survey last month did not translate into higher equity allocations. This said, equity allocations were at their highest levels of the year in July, and August's allocations were very close to that level. Fixed-income allocations also remain close to their 2014 highs as low yields have boosted bond prices. Cash allocations remain low as prevailing yields make the asset class look unattractive except to those investors who require cash reserves or expect market conditions to worsen.
This month's special question asked AAII members, how, if at all, this year's drop in interest rates has impacted their portfolio allocations. More than half of respondents (56%) said the drop has not had any impact on their portfolios. Some of these respondents said they were out of bonds or that they have not noticed a change in their allocations. An additional 8% said the pullback in interest rates has either had "little" or "not much" impact. About 9% of respondents said they have bought stocks and/or real estate investment trusts (REITs) in response to the falling interest rates. Fewer than 5% of respondents said that they've boosted their cash allocations.
Here is a sampling of the responses:
- "Not at all. I was already fully invested in stocks."
- "I'm not interested in bonds with interest rates so low."
- "I stick to my target allocations, so interest rate variations are largely ignored unless swift and severe."
- "Normally I would reduce bond exposure and increase stock exposure, but the projected future stock yields have decreased as well."
- "No effect. I continue to buy value and dividend stocks."
August Asset Allocation Survey results:
- Stocks and Stock Funds: 67.3%, down 0.2 percentage points
- Bonds and Bond Funds: 16.6%, down 0.1 percentage points
- Cash: 16.0%, up 0.2 percentage points
August Asset Allocation Survey details:
- Stocks: 31.24%, down 2.1 percentage points
- Stock Funds: 36.1%, up 1.9 percentage points
- Bonds: 3.0%, down 0.2 percentage points
- Bond Funds: 13.6%, up 0.1 percentage points
- Stocks/Stock Funds: 60%
- Bonds/Bond Funds: 16%
- Cash: 24%
*The numbers are rounded and may not add up to 100%.
The AAII Asset Allocation Survey has been conducted monthly since November 1987 and asks AAII members what percentage of their portfolios are allocated to stocks, stock funds, bonds, bond funds and cash. The survey and its results are available online here.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.