Baby Boomers or Busters - Show 135

Thursday, August 28, 2014 5,764 views

For at least the past two decades, we have been warned of the stock market’s coming apocalypse unleashed by retiring baby boomers selling their equities to fund their retirements. Boomers are defined as those born between 1946 and 1964. In 2011, the first batch started turning 65. And they will continue turning 65 at a rate of about 8,000 per day. So when can we expect these boomers to bust the market? Well, a whitepaper from Vanguard Research tells us not to hold our breath.

An important development that has occurred in the financial markets over the last two decades is globalization. The authors of the Vanguard whitepaper cite data from the World Bank and U.S. Bureau of Economic Analysis showing that foreign ownership of U.S. equities tripled from 7% in 1990 to 21% in 2012. Thus, if the boomers should decide to become net sellers of equities, there is now a larger group of buyers to accommodate them.

And how much more equity do they own compared to their predecessors? As of 2010, it was about 47%, according to the Federal Reserve’s Survey of Consumer Finances. Oddly enough, that number is almost identical to what the generation prior to the boomers owned in 1992. So apparently, we’ve already run this experiment, and while there were two substantial drops between 1992 and 2010, neither of them was attributable to retirees deciding that it was time to sell.

The whitepaper concludes that investors should avoid making drastic changes in their long-term asset allocations based on speculation about how a generation might behave. So will it be a baby boom or a bust? There is no way to know. And based on the past 85 plus years of stock market history, it may not even make a blip. IFA knows this history and has studied it extensively; putting us in a fantastic position to help see you through the booms, busts, blips, bears or bulls.


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