Many people fear stock markets will be weak over the next 10 to 20 years as aging Boomers move into their retirement years. They believe there will be substantial downward pressures on stock prices because Boomers the boomlet of babies born from 1946 to 1964 — will be unloading stocks to switch into more conservative assets, and to fund their retirement consumption.
Professor Jeremy Siegel was concerned enough about this demographic trend to devote several chapters in The Future for Investors(2005) to it. In fact, he said retiring Boomers were the greatest threatto achieving, over the next 10 to 20 years,the average 6.5% to 7% annual real return that history shows stocks deliver over the long run.
But Siegel ultimately concluded stocks would be saved by rapid economic growth in the worlds developing nations. China, India and other emerging countries would provide, he thought, not only the goods and services for a comfortable retirement, but also legions of new investors to support stock prices well into the future.
Others remain pessimistic. Rob Arnott, chairman of Research Associations, wrote in a 2004 Forbesarticle that the 2000-2002 tumble in stocks was just the first leg of a long bear market to unfold over the next 20 years because of Boomers selling stocks as they approach, or enjoy, retirement. As if to confirm Arnotts thesis, market returns since 2004 have been rather desultory.
A recent USA Todayarticleprovides an antidote to gloomy views on the impact of demographic trends. Of note is the role to be played by Generation Y the Boomers own children (born in the period between 1983 and 2001). Numbering 80 million in the U.S., they are a slightly larger generation than the Boomers.
Generation Y will have an even greater need to save and invest in the stock market, it is believed. They are less likely than their parents to have a pension plan, and may need to wait longer before they are entitled to Social Security, says the article.
Another factor to consider is that many Boomers want to pass on part of their assets to their offspring, so they wont necessarily be taking the life-cycle approach to their investments. That is, stocks wont necessarily be traded en masse for bonds, or used to finance consumption.
Jonathan Chevreau of the Financial Postoffers in his bloganother reason for optimism. With many fixed-income securities not offering much in the way of yield these days, Boomers will likely see dividend stocks, whose income yields are still reasonably attractive, as good alternatives for the income portion of their portfolio. Thus, although non-dividend stocks could be weak, dividend stocks should remain well bid and help prop up the stock market.
There would seem to be other factors to consider — for example, the influence of monetary cycles, investors attitude toward risk, productivity growth, immigration, emergence of new investing opportunities (e.g. a new technology) and so on. But well leave those for a future post.
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Blogs & Comment
Boomers a threat to stock markets?
By Larry MacDonald
Many people fear stock markets will be weak over the next 10 to 20 years as aging Boomers move into their retirement years. They believe there will be substantial downward pressures on stock prices because Boomers the boomlet of babies born from 1946 to 1964 — will be unloading stocks to switch into more conservative assets, and to fund their retirement consumption.
Professor Jeremy Siegel was concerned enough about this demographic trend to devote several chapters in The Future for Investors(2005) to it. In fact, he said retiring Boomers were the greatest threatto achieving, over the next 10 to 20 years,the average 6.5% to 7% annual real return that history shows stocks deliver over the long run.
But Siegel ultimately concluded stocks would be saved by rapid economic growth in the worlds developing nations. China, India and other emerging countries would provide, he thought, not only the goods and services for a comfortable retirement, but also legions of new investors to support stock prices well into the future.
Others remain pessimistic. Rob Arnott, chairman of Research Associations, wrote in a 2004 Forbesarticle that the 2000-2002 tumble in stocks was just the first leg of a long bear market to unfold over the next 20 years because of Boomers selling stocks as they approach, or enjoy, retirement. As if to confirm Arnotts thesis, market returns since 2004 have been rather desultory.
A recent USA Todayarticleprovides an antidote to gloomy views on the impact of demographic trends. Of note is the role to be played by Generation Y the Boomers own children (born in the period between 1983 and 2001). Numbering 80 million in the U.S., they are a slightly larger generation than the Boomers.
Generation Y will have an even greater need to save and invest in the stock market, it is believed. They are less likely than their parents to have a pension plan, and may need to wait longer before they are entitled to Social Security, says the article.
Another factor to consider is that many Boomers want to pass on part of their assets to their offspring, so they wont necessarily be taking the life-cycle approach to their investments. That is, stocks wont necessarily be traded en masse for bonds, or used to finance consumption.
Jonathan Chevreau of the Financial Postoffers in his bloganother reason for optimism. With many fixed-income securities not offering much in the way of yield these days, Boomers will likely see dividend stocks, whose income yields are still reasonably attractive, as good alternatives for the income portion of their portfolio. Thus, although non-dividend stocks could be weak, dividend stocks should remain well bid and help prop up the stock market.
There would seem to be other factors to consider — for example, the influence of monetary cycles, investors attitude toward risk, productivity growth, immigration, emergence of new investing opportunities (e.g. a new technology) and so on. But well leave those for a future post.
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