January AAII Asset Allocation Survey: Equity Exposure Pulls Back

Summary

• Stocks and Stock Funds: 67.4%, down 0.2 percentage points.
• Bonds and Bond Funds: 17.0%, no change.
• Cash: 15.6%, up 0.2 percentage points.

Individual investors’ exposure to equities pulled back slightly in January according to the latest AAII Asset Allocation Survey. Allocations to cash increased while fixed income remained flat.

Stock and stock fund allocations decreased by 0.2 percentage points to 67.4%. This marks the eighth consecutive month and the 10th month since the start of 2020 that stock and stock fund allocations are above their historical average of 61%.

Bond and bond fund allocations remained flat at 17.0%. This is the 23rd consecutive month and the 24th month since the start of 2019 that fixed-income exposure is above its historical average of 16.0%.

Cash allocations rebounded by 0.2 percentage points to 15.6%. The last time cash allocations were at their historical average of 23.0% was in April 2020.

Overall, allocations were mostly unchanged last month. Individual investors’ optimism about the short-term direction of stock market declined throughout January. Bullish sentiment in our weekly AAII Sentiment Survey started the month at an above-average level and ended the month with a below-average reading. At the same time, the level of bearish sentiment rose gradually throughout January.

Last month’s special question asked AAII members what allocation changes they expect to make between now and the end of 2021.

About half of all respondents (51%) say that they do not expect to make any changes to their allocation strategy during the year. This compares to 15% of respondents who say that they expect to follow a more conservative allocation strategy due to the current economic environment with more fixed income and less equities. Many within this group say that they will be reducing their allocation in stocks due to the anticipated market correction. In addition, about 10% say that they will add stocks and stock funds and 6% say they will add bonds and bond funds. Lastly, about 5% of respondents say that they will be increasing their exposure in international and emerging markets.

Here is a sampling of the responses:

• “Slightly more conservative—more cash on hand and more bonds as a percentage of total portfolio.”
• “I plan on increasing allocations to cash to be ready for a bubble burst in stocks this summer and increase allocations to Treasury inflation-protected securities as inflation grows this fall.”
• “I expect to reduce my stock holdings to under 50% of my portfolio. I expect a major correction in the fourth quarter of the year extending into the first quarter of 2022 at which time I want to be prepared to increase my stock holdings to 66% which is my historical level.”
• “I expect to move more into international equities (5%) as the rest of the world catches up with U.S. equity values and recovers from the coronavirus pandemic.”

January AAII Asset Allocation results:

• Stocks and Stock Funds: 67.4%, down 0.2 percentage points
• Bonds and Bond Funds: 17.0%, no change
• Cash: 15.6%, up 0.2 percentage points

January AAII Asset Allocation details:

• Stocks: 28.3%, down 1.9 percentage points
• Stocks Funds: 39.1%, up 1.7 percentage points
• Bonds: 2.3%, down 0.2 percentage points
• Bond Funds: 14.7%, up 0.3 percentage points

Historical Averages:

• Stocks/Stock Funds: 61.0%
• Bonds/Bond Funds: 16.0%
• Cash: 23.0%

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: https://www.aaii.com/investor-surveys.

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