AAII: Equity Allocations Reach 2 Year High

By Charles Rotblut, CFA, AAII

Equity allocations nearly reached a two-year high last month, according to the February AAII Asset Allocation survey. Conversely, fixed-income allocations declined to a 10-month low.

Stock and stock fund allocations rose 1.1 percentage points to 62.5%. This was the largest allocation to equities since April 2011. The historical average is 60%.

Bond and bond fund allocations declined 1.0 percentage points to 19.2%. This is the smallest allocation to fixed-income since April 2012. It is also the first time in seven months that bond and bond fund allocations are below 20%. Even with the drop, fixed-income allocations are above their historical average of 16% for the 44th consecutive month.

Cash allocations slipped 0.2 percentage points to 18.2%. Cash allocations have been at or near this level during five out of the past seven months. This was the 15th consecutive month that cash allocations are below their historical average of 24%.

AAII members remained optimistic about the short-term direction of stocks throughout much of February. The good start for the year combined with better-than-forecast earnings and signs of continued economic growth boosted equity allocations. Optimism did wane late in the month, and some AAII members have expressed concern that the stock market may have risen too far, too fast, a sign that the increased allocations to stocks did not reflect a significant shift in allocation strategies.

Last month’s special question asked AAII member how the 2013 tax changes impacted their portfolio allocation. The overwhelming majority said the changes had no impact. Many members said the bulk of their investments were held in retirement accounts that are unaffected by the new tax law.

February AAII Asset Allocation Survey results:

· Stocks/Stock Funds: 62.5%, up 1.1 percentage points

· Bonds/Bond Funds: 19.2%, down 1.0 percentage points

· Cash: 18.2%, down 0.2 percentage points

February Asset Allocation Survey details:

· Stocks: 33.2%, up 4.2 percentage points

· Stock Funds: 29.3%, down 3.1 percentage points

· Bonds: 3.8%, down 0.6 percentage points

· Bond funds: 15.4%, down 0.4 percentage points

Historical Averages

· Stocks/Stock Funds: 60%

· Bonds/Bond Funds: 16%

· Cash: 24%

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.

(Chart via Orcam Financial Group)

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Charles Rotblut

Charles Rotblut, CFA, is a vice president of the American Association of Individual Investors. He is the editor of the AAII Journal. He authors the weekly AAII Investor Update e-newsletter and his commentary is published on both Seeking Alpha and Forbes.com.

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