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Individual investors boosted their allocations to equities last month according to the January 2012 Asset Allocation Survey.

AAII members allocated 60.9% of their portfolio stocks and stock funds in January, an increase of 4.8 percentage points from December. This is the first time equity allocations were above their historical average of 60% since July 2011.

Bond and bond fund allocations declined 0.8 percentage points to 20.9%, a three-month low. Even with the decrease, January marked the 32nd consecutive month that fixed-income allocations remained above their historical average of 15%.

Cash allocations plunged 4.0 percentage points to 18.2%. This was the smallest allocation to cash since May 2011. The historical average is 25%.

Equity allocations rebounded strongly as AAII members became more upbeat about the short-term direction of stock prices. Improving economic data and growing corporate profits haveled to above-average bullish readings in our weekly Sentiment Survey. This optimism has filtered through to portfolio allocations. Equity allocations are close to their historical average, however, as individual investors continue to cast a wary eye toward the European sovereign debt crisis.

Last month's special question asked AAII members if they thought they were overweighting or underweighting stocks relative to the allocations suggested for their age. The majority of respondents said they were overweighting stocks. Many cited low bond yields as the primary reason for doing so. Several said they were not reliant on their portfolios for income or were otherwise able to handle the higher volatility from overweighting stocks. Some also viewed stocks as having the most upside potential.

Here is a sampling of the responses:

  • Overweight stocks. Yields are too low on bonds. I feel that stocks offer a better risk-reward tradeoff."
  • "For my age, I'm overweight stocks, but I draw income from my portfolio, so I want a more aggressive investment focus."
  • "I'm overweight stocks because I feel that this is a buying opportunity."
  • "Underweighting due to volatile market conditions and personal preference toward risk aversion and capital preservation."
  • "Underweight, but I am looking for opportunities to deploy cash."

January Asset Allocation Survey Results:

  • Stocks/Stock Funds: 60.9%, up 4.8 percentage points
  • Bonds/Bond Funds: 20.9%, down 0.8 percentage points
  • Cash: 18.2%, down 4.0 percentage points

January Asset Allocation Survey Details:

  • Stocks: 29.6%, up 4.0 percentage points
  • Stock Funds: 31.3%, up 0.8 percentage points
  • Bonds: 5.0%, down 0.8 percentage points
  • Bond Funds: 16.0%, no change

Historical Averages:

  • Stocks Total: 60%
  • Bonds Total: 15%
  • Cash: 25%

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 at: http://www.aaii.com/investor-surveys.

Source: January AAII Asset Allocation Survey: Equity Allocations At A Six-Month High