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Rotblut: Bond Allocations Fall to a Five-Month Low

Stock and stock fund allocations rebounded to a three-month high in the July AAII Asset Allocation Survey. AAII members allocated 62.4% of their portfolios to stocks and stock funds last month, an increase of 2.9 percentage points from June.

This was the ninth time in the past 10 months that equity allocations have been at or above their historical average of 60%.

Bond and bond fund allocations declined 0.7 percentage points to 18.3%. This was the lowest allocation to fixed-income securities and funds since February 2011. Even with the decline, July marked the 26th consecutive month that bond and bond fund allocations have been above their historical average of 15%.

Cash allocations fell 2.2 percentage points to 19.3%. This was the 20th time in the past 22 months that cash allocations have been below their historical average of 25%.

Low yields remain problematic for many individual investors, particularly those investing in bonds or holding cash. At the same time, uncertainty about the economy kept stock and stock fund allocations from rising significantly at the expenses of bonds and bond funds. Stock and stock fund allocations did receive some benefit from improved optimism about the short-term direction of stock prices, however, with individual investors being more bullish in July than they were in June according to our weekly Sentiment Survey showed.

July’s special question asked AAII members what categories of bond and bond funds they are investing in. In order of popularity, respondents said they owned high-quality corporate, high-yield, international (including emerging market), Treasury (including TIPS) and municipal bonds and bond funds. A small proportion of individual investors said they held diversified bond funds or did not have any exposure to bonds.

July Asset Allocation Survey Results:

• Stocks Total: 62.4%, up 2.9 percentage points

• Bonds Total: 18.3%, down 0.7 percentage points

• Cash: 19.3%, down 2.2 percentage points

Asset Allocation details:

• Stocks: 31.5%, up 3.4 percentage points

• Stock Funds: 30.9%, down 0.5 percentage points

• Bonds: 5.1%, up 1.3 percentage points

• Bond Funds: 13.2%, down 2.0 percentage points

Historical Averages:

• Stocks/Stock Funds: 60%

• Bonds/Bond Funds: 15%

• Cash: 25%

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. More information about the survey can be found at http://www.aaii.com/investor-surveys.

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Charles Rotblut, CFA is a Vice President with the American Association of Individual Investors (http://www.aaii.com) and editor of the AAII Journal.

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