May’s Asset Allocation Survey special question asked AAII members how the change in interest rates has influenced how much they allocate to cash. Slightly more than three out of five respondents (63%) say higher interest rates are having little to no influence. Some of these respondents describe rates as not being large enough to warrant a change. An additional 6% of respondents say the increase in rates has not altered their allocations because their cash positions depend on allocation decisions.
Nearly 15% of respondents say they increased their cash allocations. Some of these respondents say they reduced either their stock or bond allocations, while others are waiting to use a future decline in stock prices as a buying opportunity. A small percentage of respondents (just under 5%) say they have either switched to higher-yielding savings accounts or are taking advantage of the higher rates to ladder CDs, meaning buying CDs with different maturities.
Here is a sampling of the responses:
- “No. Rates would have to go up a lot more. I am keeping cash for pullbacks.”
- “No. The rate of return on stock funds is greater than the rate of return on cash instruments.”
- “Rates may influence where I park my cash, but not the allocation.”
- “The moderate CD rate increases have had a positive impact on my five-year CD ladder.”
- “Reduced allocation to equities due to increased uncertainty. The increased interest rates are a welcomed side event.”
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