As we see small investor sentiment surge to 2.5 year highs these same investors are also reallocating their portfolios to match this bullish position. According to the AAII‘s monthly allocation survey equity allocation jumped to a 6 month high:
“Individual investors increased their allocations to stocks last month, according to the October AAII Asset Allocation Survey. Investors placed 60.2% of their portfolio dollars in equities, a six-month high and a five percentage point increase from September. The historical average is 60%.
Allocations to bonds fell 2.4 percentage points to 22.1%. Nonetheless, fixed-income allocations remained above 20% for the ninth time in 10 months. The historical average is 15%.
Cash levels fell 2.6 percentage points to 17.7%. This is the lowest level of cash held in individual investors’ since April 2000. The historical average is 25%.”
“The increased allocation in stocks corresponds with the data we were seeing in our weekly sentiment survey. Last week, bullish sentiment hit 51.2%, its highest level since May 8, 2000. Additionally, the nominal amounts of interest being paid by money market accounts cannot be ruled out as contributing to the shift out of cash.
This month’s special question asked whether the current yields and bond prices have caused AAII members to shift some of their portfolio dollars from bonds to dividend-paying stocks. Those who said they have not shifted their allocations because of the low bond yields outnumbered those who said they have shifted by greater than a 2:1 margin. However, many respondents said they already held enough dividend-paying stocks, did not own bonds, or were selective about the types of bonds they are holding.”
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.