The proportion of fixed-income investments in individual investors' portfolios was at a six-month high last month, according to the February AAII Asset Allocation Survey. Both equity and cash allocations declined.
Stock and stock fund allocations declined for a third consecutive month, falling 0.5% to 65.5%. Even with the decline, February marked the 47th consecutive month that equity allocations were above their historical average of 60.5%.
Bond and bond fund allocations rose 0.9 percentage points, to 17.3%. This was the largest fixed-income allocation recorded by our survey since August 2016 (17.4%). February was also the 18th out of the past 19 months with fixed-income allocations above their historical average of 16.0%.
Cash allocations declined by 0.5 percentage points, to 17.2%. The decline kept cash allocations below their historical average of 23.5% for the 63rd consecutive month.
Many individual investors remained cautious about the six-month outlook for the stock market. During the first half of February, optimism in our weekly Sentiment Survey was below average. At the same time, a pullback in yields boosted the value of bonds.
Playing a role in individual investors' views of the financial markets are the new Trump administration, valuations for both stocks and bonds, and monetary policy. At the same time, many of our members take a long-term view towards their portfolio allocation.
Last month's special question asked AAII members why or why not record highs (such as the Dow's rise above 20,000) influence their asset allocation decisions. Slightly more than half of all respondents (53%) said that they do not alter their allocations in reaction to record highs, though their reasons varied. Several said that they focus on the long term, some said the Dow Jones industrial average is not a good benchmark to use and a few said that they are more focused on President Donald Trump. Nearly 7% of all respondents said they have rebalanced their portfolios. About 13% either reduced their equity allocations or increased their cash holdings due to valuations or concerns about a forthcoming correction. An additional 4% said that they are taking a more cautious approach to investing.
Here is a sampling of the responses:
- "I invest in individual stocks and bonds, not the Dow. The 20,000 number is irrelevant to my investing philosophy."
- "Strategy is long-term, hence interim highs and lows do not matter."
- "I'm very selective with stock selection at this time."
- "Market is getting toppy, so I am cautious. Keeping more cash than usual so I have something to invest when the correction comes."
- "I am happy when the market is high. However, I don't make changes other than rebalancing twice a year."
February AAII Asset Allocation Survey results:
- Stocks and stock funds: 65.5%, down 0.5 percentage points
- Bonds and bond funds: 17.3%, up 0.9 percentage points
- Cash: 17.2%, down 0.5 percentage points
February AAII Asset Allocation Survey details:
- Stocks: 26.9%, down 4.2 percentage points
- Stock funds: 38.6%, up 3.8 percentage points
- Bonds: 3.3%, down 0.1 percentage points
- Bond funds: 14.0%, up 1.0 percentage points
- Stocks and stock funds: 60.5%
- Bonds and 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 at: http://www.aaii.com/investor-surveys.
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.