One of the key questions faced by investors today, a year after the markets were at their worst, is how safe it is to go back in the water. Given that bonds have turned out to be a better bet than stocks over the past 20 years -- and given the steep decline and perhaps shaky rebound in the equity markets -- is it time to reassess the primacy of stocks in our portfolios? Will we be better off with the security and steadiness of bonds?

A great answer to that question came last week from Charles Schwab chief investment strategist Liz Ann Sonders. Presenting her outlook on the economy and the markets to a group in New York City, Sonders spotlighted what appears to be a powerful contrarian indicator -- that is, measure of how the investing herd is zigging in the market, giving a wise and brave investor a roadmap of where to zag.

The contrarian indicator in this case is a monthly asset allocation survey run by the American Association of Individual Investors, a nonprofit focused on investor education. Since November 1987, AAII has been asking its members for snapshots of how their own investments are distributed -- how much of their wealth is in stocks (and stock funds), bonds (and bond funds) and cash (or cash equivalents, such as money-market funds).

In that historical record are some fascinating tidbits. Looking back in the archives (accessible with an AAII membership priced at $29 a year), Sonders found that the time at which investors devoted the the highest share of their portfolio to stocks was in early 2000, when AAII respondents had more than three-quarters of their money in stock.

You remember what else happened around then, right? The S&P 500 Index shot past 1,500 -- only to begin a two-and-a-half-year slide down to 800. The Nasdaq's slide from its giddy, early-2000 heights was even more devastating.

When did cash hit its peak allocation in the AAII survey? That would be last March, Sonders learned, when people had 45% of their wealth in the green stuff.

Has cash proved to be a good place to have your money since then? No, it hasn't. The the average money-market yield over the past year, according to Lipper, has been less than one-tenth of one percentage point. In contrast, the exchange-traded fund based on the Barclays Capital Aggregate Bond Index returned 8% over the past twelve months. The total return of the S&P was 37%.

So when did bonds reach their high-water mark in the AAII survey? Last summer, when fixed-income investments amounted to 25% of portfolios.

Hmm. And what do allocations look like right now? As far as bonds go, there's little change.

Notice, Sonders said last week, that the current allocation to fixed-income, at 24%, is still very near the category peak hit last summer. "I think this has implications," she said.

Moreover, said Sonders, following the previous two times in recent financial history when bonds outperformed stocks over a two-decade period, the next five years "hugely" favored stocks over bonds.

Will the AAII continue its predictive streak as a contrarian indicator? We'll find out in a few years.

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