January AAII Asset Allocation Survey: Equity Allocations Decline Modestly

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Individual investors modestly reduced their allocations to stocks and stock funds last month, according to the January AAII Asset Allocation Survey. Even with the decrease, equity allocations remained above their historical average for the longest consecutive period since the financial crisis began. Stock and stock fund allocations declined 2.7 percentage points to 65.6 percent. January was the 10th consecutive month, and the 12th out of the past 13, with equity allocations above their historical average of 60 percent.

Bond and bond fund allocations rebounded by 1.8 percentage points to 17.0 percent. The increase puts fixed-income allocations above their historical average of 16 percent for the 54th time in the past 56 months. Cash allocations increased 0.9 percentage points to 17.4 percent. This made January the 26th consecutive month with cash allocations below their historical average of 24 percent.

The current 10-month streak of above-average equity allocations is the longest such streak since the financial crisis. Equity allocations stayed above 60 percent for 11 consecutive months between September 2006 and July 2007. Last year’s rally and the recent record highs helped to keep individual investors optimistic, made equities more attractive, and boosted the value of portfolio stock holdings.

Short-term sentiment in our weekly survey waned throughout January, however. The decrease in optimism about the short-term direction of stock prices and a pullback in bond yields likely contributed to the increased fixed-income and cash holdings last month.

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