January Asset Allocation Survey: Cash Allocations Rise To A 2.5-Year High

Includes: DIA, IWM, QQQ, SPY
by: AAII

Cash allocations rose to their highest level in two and a half years.

At the same time, equity allocations declined to their lowest level in two and a half years.

The majority of respondents are either holding their allocations steady or looking to purchase stocks in the near future.

Last month, individual investors increased their cash allocations to the highest level and cut their equity allocations to the lowest level in two and a half years, according to the January AAII Asset Allocation Survey. At the same time, bond allocations rose to a one-year high.

Stock and stock fund allocations fell by 2.8 percentage points to 62.5%. This is the smallest allocation to equities and the biggest monthly drop recorded by our survey since August 2013 (62.3%, down 2.9 percentage points). Even with the decline, stock and stock fund allocations remained above their historical average of 60% for the 34th consecutive month.

Bond and bond fund allocations edged up 0.2 percentage points to 17.3%. Fixed-income allocations were last higher in January 2015 (17.5%). Bond and bond funds have now risen for six consecutive months, and have remained above their historical average of 16.0% for the same period.

Cash allocations rose 2.6 percentage points to 20.2%. This is the largest allocation to cash and the biggest monthly increase recorded by our survey since August 2013 (20.5%, up 2.8 percentage points). It is also the first increase in four months. Nonetheless, January was the 50th consecutive month with a cash allocation reading below the historical average of 24%.

The stock market's rough start to the new year caused many, but not all, individual investors to increase their cash allocations over worries about further declines in stock prices. Pessimism in our weekly Sentiment Survey has been at or above 40% for three consecutive weeks, while optimism fell as low as 17.9% last month. There may have also been some reaction to the disappointing returns realized by many equity-oriented funds last year. It is worth noting, however, that some individual investors viewed last month's pullback as a chance to buy stocks at discounted prices or are looking for buying opportunities.

January's special question asked AAII members what, if any, allocation changes they plan to make this year. Nearly one-third of all respondents (32%) said they either are not intending to make any changes or will rebalance their portfolios as necessary. Many of these respondents indicated that they are following long-term strategies. Slightly more than a quarter of all respondents (26%) said they intend to buy stocks, particularly if the prices fall to low enough levels. About 11% said they are raising cash - several of these respondents said they are selling stocks to do so. Approximately 10% of respondents intend to buy bonds - some of these respondents listed their upcoming retirement as the reason for doing so. Finally, 5% of respondents either explicitly expressed their intention to invest more conservatively or stated their intention to allocate more to dividend-paying stocks.

Here is a sampling of the responses:

  • "None, my plan doesn't change because of the market's gyrations."
  • "Move to cash-bonds are risky, stocks have no growth, and the outlook is dim."
  • "As some of the best stocks go down, I will use some of my cash to invest in quality and high-dividend stocks."
  • "I plan to invest gradually as the market drops."
  • "Potentially increasing my allocation to fixed-income in light of being only four to six years away from retirement."
  • "May use cash to buy some stocks if prices fall significantly."
  • "None at this time, but, obviously, that's subject to change."

January Asset Allocation Survey results:

  • Stocks and stock funds: 62.5%, down 2.8 percentage points
  • Bonds and bond funds: 17.3%, up 0.2 percentage points
  • Cash: 20.2%, up 2.6 percentage points

January Asset Allocation Survey details:

  • Stocks: 30.5%, down 0.6 percentage points
  • Stock Funds: 32.0%, down 3.4 percentage points
  • Bonds: 4.3%, up 0.3 percentage points
  • Bond Funds: 13.0%, down 0.1 percentage points

Historical Averages:

  • 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.

Want to weigh in? Take the survey yourself and see results here.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.