How the Baby Boomers will Rock the Market

[PsyopRanger]

There has been lots of talk about the baby boomers and a market crash or long bear market. This months Fortune magazine talks about “How the Boomers will Rock the Market.”

Summary:

Bob Dylan recently turned 65, the Rolling Stones are now doing nursing home tours.

Jeremy Siegel author of Stocks for the Long Run says “The demographic trends of the past have just not been strong enough to offset all the other influences of the market. This is the grand daddy of economic shifts.” Some claim stocks could lose 50% and a long bear market starting in 2010.

Hers is some of the Doomsday facts:

Boomers are 78.2 Million strong and are living longer than any other generation

This equals a large number of the work force leaving and a smaller number to support it.
The ratio of workers to retiree’s is currently 5 to 1 versus the future 2.6 to 1

Barring large improvements in productivity that would slow economic growth, as a new study by the FED economists suggests. Author Harry S. Dent adds, “Stocks depend on earnings, earnings depend on economic growth.”

There is also the factor of the RMD, in that boomers will have to start pulling money out at 70 1/2.

In as much doomsday talk there is equal talk that this “Chicken Little” approach is ridiculous. Many boomers will continue to leave money invested but simply change their investment strategy. (evident on these forums) and 90% of the wealth is still controlled by 10% and they will not simply sell because of this demographic change.

Anybody buy into this either way?



Taken from: Fortune Magazine. June 26, 2006

 

[Donzo]

I tend to think that while boomers are making alot of money...they are behind in their savings. Many are seeing the end of the tunnel now--retirement in the not to distant future and see the need to save and invest aggressively. ALL of my closer friends are shocked that I retired at 49 - they have little saved up - actually if you take their debt into account...they have nothing saved. I think the boomers are waking up and will dump alot of money into the markets playing catch up - this should help the market grow for the next 15-20 years IMO.
Lets hope so......

 

[2B]

I haven't decided about Harry Dent yet.  I will say he is still a long way from the Roaring 2000's he predicted.  He did come out with a follow up book that reaffirmed his prediction but the 2000 - 2003 period was just a minor bobble.  Unfortunately, he's another one of the people that makes more money off of managing other people's money and selling books/seminars than his personal investments.

I will agree that earnings will ultimately drive the stock market -- current performance not withstanding.  Consumption will drive earnings.  As the population grows elsewhere in the world, will US companies grow their earnings there instead of relying on us rapidly aging old coots?

The mere fact that the boomer are aging is meaningless.  RMD only means that taxes are going to be paid to a government that will surely spend the money.  As you said, if I am forced to remove money from my IRA I don't need to live on, it will be immediately reinvested.

 

[audreyh1]

I think most boomers are going to be working for way longer than most people expect. They simply haven't saved enough for retirement. And I doubt many are going to sell all their assets and go to 100% cash/fixed income the day they turn 65.

It'll be interesting to see how it all plays out, but boomers retiring en mass won't be one of them IMO - few can afford it. Semi-retirement will be more the norm.

Audrey

 

[cute fuzzy bunny]

They're making a lot, spending a lot, and living lifestyles that cant be afforded in retirement. They'll work longer, perhaps well into their 70's. The folks that dont probably wont have enough to make a dent in the various markets.

You can argue this either way. Perhaps all the boomers will move all of their assets into equities, producing a bull market, since they havent got enough money to retire...everyone swings for the fences at the same time. Or maybe they all keep working and doing 60/40 investments. Or maybe they all retire and convert their equities to bonds.

Crystal balls anyone?

I'll stick with the brass variety.

 

[donheff]

I haven't decided about Harry Dent yet. I will say he is still a long way from the Roaring 2000's he predicted. He did come out with a follow up book that reaffirmed his prediction but the 2000 - 2003 period was just a minor bobble.

According to Dent we should be into a boom that challenges the 96-2000 experience for the rest of this decade. If that comes to pass we will all be so loaded we can safely move into cash -- or buy those overpriced CPI protected annuities

 

[tryan]

Some claim stocks could lose 50% and a long bear market starting in 2010.  

IMHO the secular bear market started in 2000 ... we're 6 years into it and riding a cyclical bull.  And the last I checked the NASDAQ is already down +50%.

 

[PsyopRanger]

I haven't decided about Harry Dent yet. I will say he is still a long way from the Roaring 2000's he predicted. He did come out with a follow up book that reaffirmed his prediction but the 2000 - 2003 period was just a minor bobble. Unfortunately, he's another one of the people that makes more money off of managing other people's money and selling books/seminars than his personal investments.

Didn't he also predict in 1999 that the Dow would rise to 44,000 by 2008.

 

[2B]

According to Dent we should be into a boom that challenges the 96-2000 experience for the rest of this decade.  If that comes to pass we will all be so loaded we can safely move into cash -- or buy those overpriced CPI protected annuities 

Absolutely... Ifa, shoulda, coulda.....

I like his basic premise of demographics because what he says rings so true with what I've seen in my spending patterns.... at least until the first grandbaby showed up. DW needs to be tranquilized to slow the spending.

If I am like everyone else (which I know I'm not because I have some positive net worth), then spending will fall off across the board.

Fortunately, we have CFB to fill in the gap with new families being established.

 

[mathjak107]

we are so global that the investors in this country are only a tiny part of the investments in our markets...most baby boomers cant afford to retire and those that do have an average of about 45,000 in retirement savings....im not worried about them effecting the markets

 

[cute fuzzy bunny]

Fortunately, we have CFB to fill in the gap with new families being established.

I smell an action item here but i'm not sure what it is. Does it involve spending money or does it involve creating 'families'?

As a bunny with a thick wallet, I can go either way.

 

[yakers]

.

I like his basic premise of demographics because what he says rings so true with what I've seen in my spending patterns.... at least until the first grandbaby showed up.  DW needs to be tranquilized to slow the spending.

Hey, same here, DW has personally restored the solvency of Baby GAP. What Dent & others didn't forcast, the Boomers will spend heavily on their kids and grandkids.

Maybe need to look at the extended family financial plan including finalcial assets/AA, income streams, real estate, insurance.

 

[2B]

I smell an action item here but i'm not sure what it is.  Does it involve spending money or does it involve creating 'families'?

As a bunny with a thick wallet, I can go either way.

CFB,

Don't you have a new baby?

 

[cute fuzzy bunny]

18 months old. I havent notice any other short people popping around and I'm not planning on having any others. This ones got me plenty busy.

I just spent three days turning our dining room and my office into his playroom, and shoving 50lbs of sh*t into a 5lb bagputting my stuff in another room.

 

[macdaddy]

This is why I like to buy dividend stocks that are in some business that service older consumers. If the price goes up, great. If the price goes down, great, the dividend goes up and I can buy more shares cheaper. If it stays flat forever, at least I still get the quarterly check.

 

[mathjak107]

never confuse dividends from a stock with interest they arent the same...with a dividend you merely get some of your own money back reducing the price of the stock by that amount..basically its a wash.....if the stocks down its still down.....

 

[MasterBlaster]

The demographic trends mentioned will not just influence stocks. Pretty much every asset class will be affected.

The general trend as more people retire or are forced to retire is that there will be a big (bigger) demand for services and fewer young able-bodied people to do the work. This may cause an inflationary trend.

So the question is...

How big will this effect be, and what asset classes should I hold ?

 

[yakers]

So the question is...

How big will this effect be, and what asset classes should I hold ?

Neat question, but it may not be as full a question as it appears as "boomers" is a concept as much as a phenomenon. My approach is hold diversified assets. The Boomers may not retire en masse, foreign markets may be buying or things could get *much* worse than anyone expects due to some “black swan” event like a big avian flu outbreak or nuclear problem.
OK, apartment REITs, medical services and energy? Or are those over priced already?