October AAII Asset Allocation Survey: Cash Allocations Rise To A 5-Month High

About: SPDR S&P 500 Trust ETF (SPY), IVV, VOO, VTI, DIA
by: AAII

Cash and fixed-income allocations rose in investors' portfolios last month.

The cash allocation is at its highest level since May, but is still below its historical average.

Stock and stock fund allocations declined, but remain above their historical average.

Individual investors' cash allocations rebounded to a five-month high last month, according to the October AAII Asset Allocation Survey. Fixed-income allocations also rose, while equity allocations declined.

Stock and stock fund allocations declined 0.6 percentage points to 64.7%. Even with the small decrease, equity allocations remained above their historical average of 60.5% for the 43rd consecutive month.

Bond and bond fund allocations rebounded 0.3 percentage points to 16.6%. October was the 15th consecutive month that fixed-income allocations were above their historical average of 16.0%.

Cash allocations rose 0.4 percentage points to 18.7%. This is the largest allocation to cash since May 2016. Even with the rise, cash allocations remained below their historical average of 23.5% for the 59th consecutive month.

The increase in cash precedes the November elections. In addition to the election, some individual investors believe stocks could fall further than they have during the third quarter. Beyond the election, potential interest rate hikes and valuations are cited as catalysts for a potential drop in stock prices. It is worth noting that over the past six weeks only 25.3% of AAII members described their six-month outlook for stock prices as bullish - an unusually low level of optimism.

Despite the lack of optimism, several AAII members previously said that they see no good alternatives to stocks currently existing or have otherwise said that they feel like they are being forced to allocate more to stocks because of the current interest rate environment.

Last month's special question asked AAII members what, if any, investment decisions they are postponing until after the outcome of the election is known. Slightly more than one out of three respondents (35%) said they are not postponing any decisions. Many of these respondents said they are following long-term strategies or are looking past the election. Approximately 20% are postponing buying stocks, particularly adding to their stock allocations. A few said they are postponing buying stocks until after a correction occurs. An additional 3% of respondents said they are specifically postponing purchases of healthcare and medical stocks. Nearly equal number of respondents (8% for each group) are postponing all investment decisions, holding onto cash or adjusting their portfolio's allocation.

Here is a sampling of the responses:

· "The elections have no bearing, whatsoever, on my long-term investment goals."

· "Postponing purchases of new stock."

· "I will not be investing any additional funds until after the election."

· "Would like to deploy another 10% to 15% into stocks after the election, if there is a pullback."

· "I'm not postponing any decisions. I'm looking at the state of the market, not the election."

October AAII Asset Allocation Survey results:

· Stocks and stock funds: 64.7%, down 0.6 percentage points

· Bonds and bond funds: 16.6%, up 0.3 percentage points

· Cash: 18.7%, up 0.4 percentage points

October AAII Asset Allocation Survey details:

· Stocks: 30.4%, down 0.6 percentage points

· Stock Funds: 34.3%, unchanged

· Bonds: 3.7%, up 0.7 percentage points

· Bond Funds: 12.9%, down 0.4 percentage points

Historical Averages:

· Stocks/Stock Funds: 60.5%

· Bonds/Bond Funds: 16.0%

· Cash: 23.5%

*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: 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.