AAII Asset Allocation Survey: Cash Hits New Short Term High

Cash holdings reached their highest level since June 2010 as investors moved money out of stock and bond investments last month, according to the October AAII Asset Allocation Survey.

Stocks and stock funds comprised 56.5% of individual investors’ portfolios. Equity allocations declined 1.3 percentage points from September. October marked the third consecutive month that allocations to stocks and stock funds remained below their historical average of 60%.

Bond and bond fund holdings declined 0.4 percentage points to 18.9%, a three-month low. Even with the decrease, fixed-income allocations were above their historical average of 15% for the 29th consecutive month.

Cash holdings rose 1.8 percentage points to 24.6%, a 16-month high. The historical average is 25%.

AAII members participated in the survey throughout the month of October, so any impact the rebound in stock prices had on allocations may not be fully reflected in the results. This would particularly be the case for an investor who took the survey early in the month and then changed his allocations late in the month. Sentiment toward stocks improved throughout most of October, though it continues to register a high level of cautioun on the part of individual investors.

Perceived risks are playing a role. Yields for bonds are at historically low levels, and many individual investors are worried that interest rates will rise in the future. Sentiment towards stocks continues to be impacted by concerns about the pace of economic growth in the U.S., frustration with Washington D.C. and uncertainty surrounding the European sovereign debt crisis.

October’s special question asked AAII members if they recently changed their exposure to foreign securities (Europe, emerging markets, etc.). The overwhelming majority of members said they either didn’t make any recent changes or left their allocations to foreign markets unchanged. Several respondents described their foreign holdings as long-term positions and said they were comfortable with their allocations. Others expressed concerns about the uncertainty in Europe and in China. A small number of respondents said they previously sold their foreign securities, while others either had recently bought or intended to buy foreign securities.

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Here is a sampling of the responses:

  • “No change. I stopped investing in foreign funds about a year ago and primarily rely on U.S. blue chip stocks with a global presence.”
  • “I don’t have any foreign exposure beyond owning shares in global conglomerates that are based in the U.S.”
  • “No recent change. Foreign holdings are a relatively small portion of my portfolio and are concentrated in global and emerging market funds.”
  • “No change. I am maintaining a 25% equities exposure to foreign stocks because they will recover nicely after several years of underperformance.”
  • “The European situation and uncertainty about China make me want to stay away from foreign securities.”
  • “I see a buying opportunity in Europe. Quality assets are out of favor.”

August Asset Allocation Survey Results:

  • Stocks/Stock Funds: 56.5%, down 1.3 percentage points
  • Bonds/Bond Funds: 18.9%, down 0.4 percentage points
  • Cash: 24.6%, up 1.8 percentage points

Asset Category Details

  • Stocks: 28.9%, up 0.7 percentage points
  • Stock Funds: 27.6%, down 2.0 percentage points
  • Bonds: 4.8%, up 0.7 percentage points
  • Bond Funds: 14.1%, down 1.1 percentage points

Historical Averages

  • Stocks/Stock Funds: 60%
  • Bonds/Bond Funds: 15%
  • Cash: 25%

Charles Rotblut is the author of the new book Better Good than Lucky: How Savvy Investors Create Fortune with the Risk-Reward Ratio. 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/assetallocationsurvey