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AAII Asset Allocation Survey - Deploy The Cash (Or Not?)

Apr. 07, 2021 7:27 AM ET1 Comment
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  • Equity allocations have surged to a 2-year high.
  • Cash allocations have dropped to the bottom end of the range.
  • (Yet) cash *levels* have not changed much at all.
  • One way to put it is that we can say investors are now “more-in“ but not quite yet “all-in“.

This post expands on chart no. 4 from last week’s S&P500 ChartStorm - see below. It shows surveyed equity allocations by individual investors. After plunging to a 9-year low of 55% in March 2020, it’s back to a 2-year high of 70% in March 2021 (which compares to the all-time high of 77% in March 2000).

The chart uses data from the AAII (American Association of Individual Investors) Asset Allocation Survey. Aside from equity allocations, it also tracks cash and bond allocations, and in this post I actually want to hone in on the cash side of things.

Cash Allocations - Cash is Trash?

In March last year cash allocations peaked at 26% (for reference, we saw similar moves in 2 other real money datasets, basically confirming this surveyed data). The March reading came in at 15%… not quite at all-time lows (which was 11% in March 1998), but right at the bottom end of the range.

It’s important to note before we jump into the next chart that cash allocations can change for active reasons or passive reasons.

Active reasons: investors decide to undertake a transaction to change the level and allocation of cash within their portfolio - for example, “I am going to raise cash by selling equities and bring my cash allocation up to x%.“

Passive reasons: sometimes referred to as portfolio drift, when market movements take you to a new allocation % without you doing anything.

(but) I think it’s important to highlight that an investor can still be making an active decision by tolerating a portfolio drift - for example, market movements take them to a higher equity allocation and they are ok with it… in other words, they could run a higher cash allocation/level if they wanted to but they have decided to just go with it.

This article was written by

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Topdown Charts is an independent research firm covering global asset allocation and economics - bringing a chart-driven, top-down approach to investors.  -->> Check out our new entry-level service: https://topdowncharts.substack.com/--We take a top-down, global multi-asset perspective to deliver:Actionable investment ideasRisk management inputMeaningful macro insightsCharts to use in your own work--Our clients include Pension companies, RIAs, Hedge Funds, family offices, insurance firms, and wealth managers and Investment Consultants.--Sign up for exclusive insights:  https://topdowncharts.substack.com/===================================================

Analyst’s 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.

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Comments (1)

TDune75 profile picture
Interesting article. It would have been helpful to have a chart comparing cash allocations to the total market capitalization over time.

Also, the author doesn’t provide details of what’s considered cash, versus various types & durations of bonds.
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