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Dividing Your Investment Pie


Conrad Hilton once said, “Success seems to be connected with action. Successful people keep moving. They make mistakes but they don’t quit.” It seems that many investors are following Hilton’s advice as they are continuing their long-term investment plans. A recent survey conducted by the American Association of Individual Investors (AAII) has just released their latest report.

This report evaluates the way investors divide up their money between stocks, bonds, and cash. The report breaks down the amount put directly into stocks and bonds, as contrasted with the amount allocated to a stock or bond fund. According to the AAII survey, the percent of direct investments into individual stocks is at a record low of 17%, nearly half the historical average of 31%. Compare this to the bear market of 2000-2002 when the percentage invested directly in stocks was as high as 25%.

The amount invested in stock funds remains about the same at 27%, which is in line with the long-term average of 29%. Experts believe that this may be due to investors continuing to keep up with their systematic 401(k) investments as well as contributions from new members, partially counteracting the market losses sustained by these stock funds. The decline in direct stock investments is a clear indication that investors are currently more reluctant to commit new money to stocks.

An interesting fact revealed by this survey is the amount of money allocated to bond funds. At 16%, this is nearly double the historic norm. The 6% allocated to direct investments in individual bonds is just a little lower than the historic average of 7%, possibly due in part to the fact that many 401(k) plans only offer investments in bond funds.

Some investment experts recommend more direct investments into individual bonds, which can be held to maturity. The reasoning for this is the fact that you’re more likely to get your money back as well as earned interest, providing the issuer remains viable. A bond fund is more likely to buy and sell bonds rather than holding them till maturity. This practice of frequent buying and selling might increase your potential for loss. However, if you have less than $100,000 to put into the market, a bond fund is a viable option if you choose not to invest directly into specific bonds.

So, what is the gist of this report? We can see that many investors are remaining in the market but are distributing their investment cash a bit differently. Caution is the word of the day, but those in the know continue to put their money where the potential for growth and positive returns are the best. Remember the words of the Oracle of Omaha, Warren Buffet, who said, “All there is to good investing is picking good stocks at good times and staying with them as long as they remain good companies.” And, heed the advice of Peter Lynch who says, “The key to making money in stocks is not to get scared out of them.”

Michael Doran is Managing Director of the long/short equity fund, Emerald Bay Partners LP. Mr. Doran can be reached at (530) 677-1635 or

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