December AAII Asset Allocation Survey: 20-Month High for Equity Exposure

Individual investors’ exposure to equities reached a 20-month high in December according to the latest AAII Asset Allocation Survey. Cash allocations, meanwhile, declined to a 10-month low.

Stock and stock fund allocations increased by 4.4 percentage points to 67.6%. Equity allocations were last higher in April 2019 (67.8%). The historical average is 61.0%.

Bond and bond fund allocations pulled back by 1.3 percentage points to 17.0%. Even with the decrease, bond and bond fund allocations are above their historical average of 16.0% for the 22nd consecutive month.

Cash allocations declined 3.0 percentage points to 15.4%. This decrease marks the eighth consecutive month that cash allocations have been below their historical average of 23.0%. Cash allocations were last lower in February 2020 (14.8%).

The major U.S. indexes ended the year at or near record highs. This upward run boosted the value of individual investors’ equity holdings. Optimism among AAII members about the short-term direction of the stock market has also stayed above average. Bullish sentiment in our weekly sentiment survey averaged 46.0% last month.

December’s special question asked AAII members how their current allocation compares to what they expected it to look like at the beginning of 2020.

More than two out of five respondents (43%) say that their current allocation saw miniscule changes and was about the same as expected overall. This compares to 4% of respondents who say that their allocation saw absolutely no changes and is exactly what they expected.

Of the remaining respondents, 15% say that they had more cash allocated than expected, while 18% say that they had more allocated to stocks and stock funds than expected and 4% say that they had more allocated to bonds than expected. Additionally, 15% of respondents fall into ‘other’ due to answers that don’t fit under the previously mentioned categories.

Here is a sampling of the responses:

• “Allocation is about what I expected, although the market far surpassed my projections.”
• “A bit more cash and bonds which will maintain until after the Georgia elections. But slightly less in cash and bonds than your average allocation. My target is 70% stocks but is currently at 68%”
• “Heavier on stocks and stock funds due to excellent market performance for the year, chasing yields and low interest rates on bonds. I have had several bonds called away. I will need to do some asset allocation adjustments, but into what?”
• “I expected to have more invested, but as the pandemic surged after Thanksgiving, I moved enough money to live on for the next two years into cash. Unfortunately, I expect things will get worse before they get better; people thrust into unemployment and poverty cannot spend, and our economy is too dependent on consumer demand. When the market bottoms out, I don’t want to have to sell. I anticipate reinvesting in the future, after the carnage is over.”
• “I now have a lot more in cash. Typically, I have 5% to 10% in cash, now I have 20%. I have had unexpectedly large profits in my stocks, so I trimmed my stock allocation and moved the sale proceeds to cash.”
• “My allocation is the same. I have not moved anything, and I haven't bought or sold anything. I did defer my IRA required minimum distribution (RMD) to 2021. All of my holdings are up pleasantly for 2020.”