AAII Sentiment Survey: Fixed Income Allocations Decline to 4-Year Low

Fixed-income allocations declined to nearly a four-year low as individual investors increased their cash allocations, according to the June AAII Asset Allocation Survey.

Stock and stock fund allocations fell 3.1 percentage points to 62.1%. Even with the pullback, this was the fifth time in six months that stock and stock fund allocations were above their historical average of 60%.

Bond and bond fund allocations declined 0.9 percentage points to 17.2%. This was the smallest allocation to bonds since August 2009. Nonetheless, fixed-income allocations were above their historical average of 16% for the 48th consecutive month.

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Cash allocations rose 4.0 percentage points to 20.7%, the largest since March. June was the 19th consecutive month with a cash allocation below its historical average of 24%.

Last month’s rise in yields and return of volatility to the stock market left individual investors feeling slightly more conservative with how they manage their portfolios…

Though equity allocations declined and cash allocations rose, both remain well within the ranges recorded by our survey over the past several months.

This month’s special question asked AAII members what, if any, portfolio allocation changes they plan to make once the Federal Reserve does decide to end its bond buying program. Responses were mixed with 38% of respondents saying they did not intend to make any changes. Slightly fewer than 11% said they will increase their stock allocation, while 10% said they would buy bonds. An equal number of respondents (8% each) said they would increase their cash holdings or sell bonds. Some members said they thought stock prices might drop in response to a change in Fed policy and create a buying opportunity, while others said the resulting higher interest rates might make bonds more enticing.

June AAII Asset Allocation Survey results:

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· Stocks/Stock Funds: 62.1%, down 3.1 percentage points

· Bonds/Bond Funds: 17.2%, down 0.9 percentage points

· Cash: 20.7%, up 4.0 percentage points

June AAII Asset Allocation Survey details:

· Stocks: 31.4%, down 1.0 percentage point

· Stock Funds: 30.7%, down 2.2 percentage points

· Bonds: 3.7%, down 0.2 percentage points

· Bond Funds: 13.5%, down 0.7 percentage points

*Due to rounding, the numbers may not add up to 100%.

Historical Averages

· Stocks/Stock Funds: 60%

· Bonds/Bond Funds: 16%

· Cash: 24%

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 Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat, or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at http://www.aaii.com/sentimentsurvey