What are asset allocation numbers telling us?

By Prieur du Plessis, on January 15th, 2011 posted in: Investment, Stocks

The AAII Asset Allocation Survey polls its members on a monthly basis on their holdings among the principal asset classes. The results for December are as follows (with the long-term averages in brackets): stocks 62% (60%), bonds 20% (16%) and cash 18% (24%).

Investors are therefore at the moment allocating money more or less in line with the historical averages. Considering the chart below, one can see that the allocation to stocks reached a peak of 78% in January 2000 and levels close to 70% were maintained from 2004 to 2007. Allocation to stocks hit bottoms in October 2002 (43%) and March 2009 (41%).

Source: AAII and Plexus Asset Management.

Importantly, the extreme stock allocations all occurred at or close to major market turning points. The allocation statistics therefore serve as a useful contrarian indicator (although the 2004 to 2007 period probably would have taken one out of the market at quite an early stage). But one can unfortunately not conclude much from the current numbers besides the AAII group of investors being fairly neutral at this juncture.

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January 15, 2011 at 1:06 pm

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Gerhard

January 15, 2011 at 2:42 pm

Hi Prieur
Thanks for the interesting info.
My comment on your words “Investors are therefore at the moment allocating money …..” is that in my experience the majority of investors are not making this decision but rather their asset managers with varying degrees of freedom (fortunately) and ability (unfortunately) to make a seriously contrarian allocation. Most seem to play it safe and follow the herd – and there is so much info available nowadays that leads and lags are probablay not much more than a week or two off the average – hence the correlation with S&P. I supposse if left to ourselves most of us investors would be doing the same anyway.
Have a happy 2011 and thanks for the blog – I try to follow except for the videos – sadly technology is not yet there that I can scan a video to only listen to the part which I find relevant.