U.S. Investors Shift from Equities to Fixed Income


Two Million U.S. Investors Move $200 Billion

In September, as the market continued toward a 20% loss for the year, U.S. investors increased their flight from stocks, or equities to bonds, or fixed income assets. The strategy addresses the perceived urgent need to contain losses, even though fixed income bonds have lost value this year along with equities.  

Equities and fixed income had traded in opposite directions for decades. It’s typical for people to take money out of stocks and move it to bonds every time the stock market dips. It’s rare for stocks and bonds both to be negative for a six-month stretch, as seen so far this year. 

Assets moved out of: 

50% Target date funds, designed to invest more conservatively as you get older 

26% Large US equity funds 

11% Mid US equity funds 

Assets moved into: 

80% Stable value 

15% Money market 

2% Bond funds 

(Source: Alight Solutions 401(k) Index, as reported by CNBC) 

Is a 60/40 portfolio still a good idea? 

A 60/40 allocation of funds in a portfolio, with 60% stocks and 40% bonds, is the traditional model for many U.S. investors who want the growth potential of stocks alongside the safety of bonds. With the prevalent movement of funds into bonds this year, upsetting this strategy, the question arises about this mix still being a valid plan. 

The 60/40 portfolio wasn’t designed for short-term moves, and advisors expect the typical scenario to return: when stocks are up, bonds are down, and vice versa, within a few years. The 60/40 split can be a good starting point for moderate-risk investors who don’t need to pull the money for 10 years or more.  And, with bond yields beginning to improve, this mix looks better than it has for years. The Federal Reserve’s tightening monetary policy aims to help fixed income assets produce returns that exceed inflation, which should provide a longer-term benefit.  

If you’re older, and want to stay with the 60/40 split, you definitely don’t want to miss out on the market rebound. Consider shifting from growth to dividend paying stocks, and bonds with durations of up to 10 years. 

Sticking with cash for the short term, especially newly acquired cash, isn’t going to hurt investors. If you want that money working for you, then that cash should be invested as part of a long-term plan. 

Younger investors with more time before they plan to access the funds could follow the 60/40 split, but could consider a higher percentage of stocks for growth, such as 70/30 or 80/20, depending on personal risk adversity. 

The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.


About the Author

Susan Austin

Susan Austin is a freelance writer living in Prague, Czech Republic. Originally from the U.S., she has written and worked in many industries, including healthcare, transportation, travel and leisure, museums, education, and archaeology.

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