Investor Psychology
Equity Allocations Rise, Yet Investors Remain Cautious
Kiplinger News
July 1, 2010
Individual investors allocated more money to equities in May, but their cash and fixed-income positions remained above historical averages as risk aversion stayed in vogue.
According to the American Association of Individual Investors, 52.9 percent of the average portfolio was represented by equities. In April, 51 percent of portfolios were equity-weighted.
Bond allocations fell as equity investments gained in popularity: Bond and bond-fund holdings dropped 3.8 percentage points to 21.6 percent, the AAII said. Historically, though, investors allocate just 15 percent of their portfolios to bonds.
Similarly, the average individual investor had 25.5 percent of his portfolio in cash - slightly above the historical average of 25 percent.
June was an ugly month for stocks, and next month's AAII report may show that investors fled equities during the month. The Dow Jones Industrial Average slid 3.6 percent, the S&P 500 lost 5.4 percent and the Nasdaq declined 6.6 percent. For the quarter, the indexes' results were even worse: The Dow shed 10 percent and the S&P and Nasdaq plummeted 12 percent. Stocks appear to be undergoing a correction - and investors may grow more risk-averse if current trends hold up.
