The September AAII Asset Allocation Survey shows individual investors moved money from cash into bonds, while continuing to increase their allocations toward stocks.

Individual investors allocated 55.2% of their portfolio holdings to stocks and stock funds last month, a 0.5 percentage point increase from August. Though a small change, it was the third increase in four months. Stock allocations are now at their highest level since last April. The historical average is a 60% weighting in equities.

Bonds and bond funds accounted for 24.5% of individual investors’ portfolios, a 3.3 percentage point increase from August. The increase pushed fixed-income weightings to their highest level since last May. It should be noted, however, that bond allocations have fluctuated within a five-percentage point range of 20% to 25% since March. The historical average is a 15% allocation in fixed income.

Cash allocations fell 3.8 percentage points to 20.3%. Cash levels have declined for three consecutive months and are not at their lowest levels since last April.  The historical average is a 25% allocation in cash.

Equity allocations have largely remained below their historical average since July 2008, as many individual investors continue to fret about the economy and prolonged uncertainty. Yield is also a big issue for many of our members. Though bond allocations did increase this month, investors are also favoring dividend-paying stocks in the current environment.

This month’s special question asked AAII Members what factors influenced their decision to make or not make a recent change to their allocations. The responses centered on a few key themes. Some respondents cited uncertainty about the economy, the upcoming election and fiscal policy as complicating the outlook for stocks. Several are looking for a catalyst from the stock market, either an upside breakout or a near-term pullback that will create a more attractive buying opportunity. Others said they were comfortable with their allocations and saw no reasons to change.

Here is a sampling of the responses:

• “Given the uncertainty in the economy and lack of leadership in Washington, there is no clear direction to take.”
• “No particular changes. I have absolutely no conviction of the stock market’s direction. Bonds are overpriced.”
• “There exists a tight trading range, as we wait for a jobs catalyst and election clarity. I expect to tilt towards equities as we approach November.”
• “Putting new money into cash and taking a ‘wait and see’ position before starting to dollar cost average my way back into stocks and ETFs.”
• “I made no changes because allocations are within my parameters and dividend income is meeting my cash flow requirements.”

September Asset Allocation Results:

• Stocks Total: 55.2%, up 0.5 percentage points
• Bonds Total: 24.5%, up 3.3 percentage points
• Cash: 20.3%, down -3.8 percentage points

Asset Category Details

• Stock Funds: 29.5%, up 2.7 percentage points
• Stocks: 25.7%, down 2.2 percentage points
• Bond Funds: 17.6%, up 2.0 percentage points
• Bonds: 6.9%, up 1.3 percentage points

Historical Averages:

• Stocks Total: 60%
• Bonds Total: 15%
• Cash: 25%

A copy of this press release is available online at: http://www.aaii.com/news/archives/20100901-allocation.cfm

An RSS feed for the AAII Sentiment Survey is also available:  http://www.aaii.com/rss/assetallocation.xml

I am available for comment. My contact information is listed at the bottom of this e-mail.

Charles Rotblut, CFA Vice President and AAII Journal Editor American Association of Individual Investors P: (312) 676-4337 F: (312) 676-4387 charles@aaii.com http://www.aaii.com http://twitter.com/charlesrotblut

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