Individual investors pulled money out of stocks and bought bonds instead last month, according to the latest AAII Asset Allocation Survey. Allocations toward bonds and bond funds rose in January, while allocations to individual stocks experienced nearly a seven percentage point drop.

The increased preference toward bonds is not surprising given the trends we are seeing in the weekly AAII Sentiment Survey. Bearish sentiment has risen for four consecutive weeks. The current level of bearish sentiment, 36.7%, is six points above the historical average.

Playing a role in increased preference for fixed income was the performance of stocks and events that added to investor uncertainty. During the latter half of January, the S&P 500 fell by nearly 5.5%. At the same time, proposed new banking regulations renewed concerns about how active a role the government is playing.

A reversion to the mean was also a factor. Allocation to individual bonds jumped by four percentage points to 6%. Though the increase is notable, historical allocations to individual bonds have averaged 7%.

Overall, investors switched back to a more defensive stance. Allocations toward bonds and bond funds have been above the historical average of 15% for eight consecutive months. Allocations towards equities (stocks and stock funds) fell to 57%, three percentage points below their historical average.

Cash allocations increased slightly to 19%. The historical average for cash is 25%. The below-average allocation for cash is reflective of the low yields paid by money market funds.

Asset Category Detail for January 2010
Stock Mutual Funds  29.58%      (+0.33%)
Stocks     27.63%      (-6.88%)
Bond Mutual Funds     17.89%      (+2.14%)
Bonds     6.39%      (+3.97%)

Asset Allocation Results for January 2010 :
Stocks Total     57.21%      (-6.55%)
Bonds Total     24.28%      (+6.11%)
Cash     18.51%      (+0.44%)

Historical Averages
Stocks Total     60%
Bonds Total     15%
Cash     25%

The survey and its results are available on-line at: http://www.aaii.com/membersurveys/AssetAllocation/AssetAllocationSurvey.cfm

A copy of this press release is available on-line at: http://www.aaii.com/news/archives/20100201.cfm

If anyone else in your organization would like to be included on the distribution list for this email, please let me know.

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

http://www.aaii.com

http://twitter.com/charlesrotblut

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