Funny you bring that up. I actually read up on the cash on the sidelines today. I noticed that I myself am sitting around 7% cash and most everyone I talk to is in a similar boat of being pretty close to fully invested (95% for me.) Then it hit me... When we hear headline news about cash on the sidelines, its always the total dollar number. Well, with the $3.5 trillion printed in 2020 and close to that in 2021, it stands to reason that there is a lot more cash "on the sidelines." But it doesn't matter.
The S&P 500 is up 43% over the last 2 years. If we all stayed allocated the same over the last 2 years, we should have 43% more cash on hand (less/plus whatever bonds cost/earned.) So I started hunting... How much more cash vs 2 years ago and what about the actual percentages of cash?
The easiest way I could find to track the actual amount of cash on the sidelines is through the US Money Market Fund Monitor. It shows an increase in MMF totals from $4 trillion in December 2019 to $5 trillion in December 2021. That by itself seems significant, but if all of our portfolios are up 25-40% in total, it stands to reason would have 25% more actual cash on hand even if our allocation hasn't changed.
View attachment 23549
Next I found a survey from the American Association of Individual Investors where they track asset allocation (Equities, Bonds, and Cash) every month since November of 1987. In those 35 some odd years the following are the average allocations:
Equities 62%
Bonds 16%
Cash 23%
The record low for cash percentage was 11% in May of 1998 right before a 22% S&P bear market. The next lowest was at 12% cash in December of 1999 which was right before the popping of the dotcom bubble. Interesting indicator.
Now here are the current allocations
Equities 70.5%
Bonds 14.4%
Cash 15.1%
Here is the historic chart. Dark green line = equities, pale green line = cash, blue line = bonds.
View attachment 23550
Use this information as you will. But I am trying to think a little more contrarian these days as I don't want to give it all back like I do at Caesars. According to this information, we are actually historically on the low end of the cash allocation... Sure there is more cash on the sidelines, but thats because the Fed and politicians have pumped a ton of funny money into markets.
According to that survey we are historically very high on equities. Only times we have been this high were right before bear markets in the the late 90's, mid 2000's and in 2018. We are somehow pretty close to average on bonds. But we are near the bottom of the cash allocation.
I will start tracking this stuff, but I heard so much about cash on the sidelines from talking heads recently I decided to dig in. Me thinks a lot of people are actually really close if not already fully invested, its just that as our overall portfolios have grown, so as our pile of cash. Where some extra juice may come in is from crypto if it continues to tank.