Three out of Five Investors Are Adjusting Their Allocations Due to Rate Cuts

Last month’s Asset Allocation Survey special question asked AAII members how the Federal Reserve’s interest rate cuts have influenced their decisions about what to hold in their portfolio. One out of five (20%) respondents are now looking at certificates of deposit (CDs) and/or high-quality corporate bonds rather than treasuries. About 15% of respondents are now investing in more consumer staple stocks. Additionally, 12% of respondents state that they are looking at more dividend-paying stocks. On the other hand, a similar number of respondents (13%) state that they are more risk-averse following the rate cuts and are holding more cash. Finally, about 40% of members say that Federal Reserve interest rate cuts have not influenced their portfolio allocation decisions.

Here is a sampling of the responses:

• “I have placed more money in stocks as I can’t find any banks that pay a decent interest rate.”
• “Not much, but I’m considering dividend stock funds more than previously.”
• “I slowed purchases of one- to three-year duration bond funds. I am holding more cash because the opportunity cost is low. In a pullback, I will put money into more dividend-oriented equities.”
• “Cash will not lose value like a bond fund when interest rates rise, therefore I am grossly overweight in cash.”
• “Not yet but going to look into it! Bonds could be questionably risky! Especially bonds issued in high-debt states!”

For more about how the low-interest-rate environment is affecting how individual investors invest, please see our Big Question survey in the November AAII Journal.

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