The chart below from the American Association of Individual Investors (AAII) shows the deviation from the mean by individual investor in regards to their historical stock allocation percentages.

Investor allocations to stocks is just back to the zero line, suggesting investors are only now back at their mean allocation to stocks. The 23 year mean by individual investors to stocks is 60%.

The fact that individual investors are not grossly over allocated to stocks at this point suggests they still have a fair amount of liquidity to invest. As long as liquidity remains favorable stocks should not experience any deep setbacks.


Equity Asset Allocation Deviation from Historical Mean

Chart courtesy of Fusion Investments

Category: Investing, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “Liquidity Gauge: AAII Asset Allocation Survey”

  1. [...] Individual equity allocations are stuck in the middle.  (Big Picture) [...]

  2. wally says:

    “As long as liquidity remains favorable stocks should not experience any deep setbacks.”

    And assuming that more attractive investments do not become available, such as higher-interest-rate bonds.

  3. X on the MTA says:

    Cool chart Barry, but it’d be a whole lot more useful if you also charted the S&P across the same time span on a second Y axis. to get a clearer picture of the existence or lack of correlation. Even better would be if the S&P was either charted as a real level, or maybe as a monthly or trailing 12 return

  4. UsualReader says:

    Isn’t this just a natural result of a steep decline in Equity Markets relative to Bonds?

    If I’m equally weighted in $100,000 Stocks/Bonds, then I’m at 50% equity. If stocks drop to $50,000 while Bonds remain unchanged, then I’m at 33% stocks, despite having taken no action at all.

    At first glance the study looks like it overestimates the role of an individual investor consciously choosing to “overweigh’ or ‘underweigh’ equity and underestimates the role of momentum and slowness to re-balance that may occur with buy-and-holders and individual investors as the total size of the equity market changes.

  5. Super-Anon says:

    “As long as liquidity remains favorable stocks should not experience any deep setbacks.”

    Are you suggesting that you believe there’s no political will or intent to fight a new equity bubble?

    So far that would appear to be the case, but I wonder if Obama understands that another crash in a year or two would likely destroy his presidency.

    Politicians haven’t learned anything so far… I guess there’s no reason to suspect they will.

  6. Super-Anon says:

    X on the MTA Says:
    April 20th, 2010 at 1:32 pm

    Cool chart Barry, but it’d be a whole lot more useful if you also charted the S&P across the same time span on a second Y axis. to get a clearer picture of the existence or lack of correlation…

    Yeah… notice you could argue it was a good “timing” indicator for the 2000 top but not the 2007 top.

  7. Daffyorbugs says:

    If you want a different chart work it up .

  8. george matkov says:

    Interesting chart Barry but it might be misleading: When I was starting out investing in the early 1980s stock ownership as a percentage of wealth was much lower. I kept the bulk of my savings in money market funds which returned 8% for a number of years. As interest rates continued lower, I moved more into stocks.

    Interest rates are not getting any lower. Entry level jobs pay far less than they used to for most people, and therefore incipient investing is starting with a lower base. iPhones, iPads, and other readily available gadgets are ever more numerous and it’s uncool not to keep up – that also represents money that is not being saved. In short, fewer people are going to be investing in stocks and over the long run this will put a limit over how much stocks can go up. In turn, this will weaken the case for stocks as a sure and safe way to build wealth.

    Look at where we are now: The Nikkei is at less than a quarter of its value 25yrs ago(!!). A day doesn’t pass by that a bunch of touts on CNBC are not saying “buy technology” yet the Nasdaq is still at less than a third of its all time high ten years ago. As more people look at what has really happened over the last decade they might be less likely to invest in stocks. Have you noticed that the bulk of this new “bull market” was caused by 2nd and 3rd rate stocks going up – blue chips are up far less.

    The longer term median is much lower that that of the last 20 yrs.


  9. Graphite says:

    Using a 20-year monster equity bubble to derive a “mean,” I love it. It’s sort of like how, in 2005, you could be confident nationwide housing prices would never go down because they hadn’t ever gone down in the 1985-2005 period. Please, tell me more about how to invest using 20 years of historical data!

    Like george matkov says, the chart would look very different if it included any periods other than when Jeremy Siegel was hawking “Stocks For the Long Run.”

  10. Mike in Nola says:

    Tend to agree with george and graphite.

    What you are saying is true if the public is as in love with stocks as they were for the 15 years before the crash. OTOH, if stats go back to where they were before the Maestro started gaming the markets because people have noticed that they haven’t really made money for a decade and they view the market as basically crooked, then the conclusion is not valid.

  11. Mike in Nola says:

    Got distracted and didn’t finish my thought with the other OTOH: If the prop desks can keep pushing up the market long enough to suck in the gullible who become afraid they are missing out, then Barry has a point.

  12. PatientCash says:

    I think Mike has it right. As long as there are nervous nellies with sideline cash and the Fed continues to provide unlimited margin to the big prop desks equities should have a bid. When the last deflationist throws up his hands and follows Barry into Citibank, then we’ll have a top.

    I do think it would be useful to remember that the prior cycle had lots of credit creation behind it. Not so now. Not clear how much HELOC money flowed into markets back then–around here it mostly flowed into big ugly boats and granite countertops.

  13. VennData says:

    Who allocated out of equities? Who allocated out of Apple?

    Apple just crushed earnings estimates. Profit margins at 41%. Looks like the American innovation economy is blasting off.

    I wonder how many Tea Partiers re-balanced their asset allocation out of Apple at the request of the GOP Right wing media machine when Apple dumped Fox news shows like Glenn Beck…

    …and will Harvard Business school will be looking at this one for years? Stop supporting lunatics with your advertising dollars and sales will follow. Sounds like a good business model to me, do the opposite of what the GOP media machine tells you.

    The same GOP that told you to dump all your stocks because in new president will “Socialize America” and the stimulus “will put us into a depression.”

  14. mark says:

    Nothing post-WWII is comparable to the zero interest rate deflationary environment we are in now. What worked before isn’t going to work now. Time for a re-think. Go ask Alice (or maybe the Japanese).

  15. philipat says:

    Why does it necessarily follow that Equity weighting and liquidity for individual investors are inversely related? At present, it was my understanding that individual investors have been moving into fixed income, which would equally explain a low equity weighting.

    The reason for this could be that the soon to retire boomer generation cannot afford another equity wipe courtesy of our friends on Wall St.

  16. Jim67545 says:

    Re: philipat
    Personal situation confirms observation about boomers’ safekeeping capital. We see stagnation in wages, decade of low savings, 40% of families saved $10k or less toward retirement, unemployment especially in jobs traditionally held by the young such as construction, decline of the middle class, etc. etc. Do we know how much investible capital is held the pre-Boomer generations compared to Boomers? To what degree has the wealth distribution changed compared to, say, the ’80s? If the answer is “not much capital” then philpat’s demographic observation has considerable impact and could explain the thin volume lament.

  17. [...] the market and keep this bull run going. It’s nice to find a visualization of that in the liquidity gauge.  As Barry Ritholtz notes: The fact that individual investors are not grossly over allocated to [...]

  18. [...] Last week we showed the AAII allocation survey. [...]