Investors’ Allocation Decisions Influenced by Age, Market Uncertainty and Long-Term Growth

Last month’s Asset Allocation Survey special question asked AAII members which factors most influence their allocation decisions. Some respondents mention multiple factors, allowing them to fall under more than one category.

The largest group (16% of respondents) say their age is the primary factor. Many in this group say that their age forces them to focus on capital retention and minimizing volatility. This compares to 14% of respondents who say that the main factor for them is the uncertainty in the market, particularly the upcoming presidential election as well as the coronavirus pandemic.

About 9% of respondents say that they look for possible future returns when deciding where to allocate their money, while 4% say they only look for dividends. Additionally, 12% of respondents say that they make their allocation decisions based on long-term growth, compared to 6% who say that they make their decisions based on how their portfolio performed and whether it needs to be rebalanced. Furthermore, 4% of respondents mention risk as a factor, 5% mention the price of equities and 7% mention interest rates.

One-quarter (25%) of responses fell under the ‘other’ category due to a broad array of unique responses such as specific investing strategies, personal expenses, energy consumption, liquidity, etc.

Here is a sampling of the responses:

• “I use a long-term investment approach. I have three years of living expenses on hand to ride out any downturn. Election years are often good years for the market, though the pandemic makes this election year unlike any in decades. The disconnect between Wall Street and Main Street seems to favor remaining in selected equities.”
• “Liquidity and flexibility are the most influential. In current times, these are a must for any investor. Only a few selected companies seem not to be hit by the pandemic. But, of course, shares of such companies have already reached high price levels. I’m holding more cash than usual and putting it to work when real opportunities occur.”
• “I use a bucket approach to provide at least five years of income from bond funds and cash to recover from a severe bear market without withdrawing from stock funds. I use the income from stock funds and bond funds to live on in retirement. I have a higher equity amount to provide for legacy.”
• “I rebalance every six months consistent with an allocation model that I follow. For me, the approach is simple, direct and served attainment of my financial goals ... particularly when evaluated over time.”
• “I am 78 years old and retired. I cannot take big losses in the stock market because I do not have time to recover from them. I like an allocation of 40% stocks, 40% bonds and 20% short-term investments. I have bonds paying 4% to 6% interest payments. I have capital gains on these bonds that rival stock gains. I am replacing matured bonds with high dividend-paying equities.”