Why I'm not worrying about stock markets as baby boomers retire
75While it's true that baby boomers will retire by the millions over the next decade or so, I'm not worried about what that will do to the value of my stocks or investments in the stock markets.
First, they're not all going to retire at once. The baby boom generation spans nearly two decades, and so I expect they'll be leaving the markets gradually. In other words, it won't be all 78 million pulling out of the stock market in any given year, but rather over 10 to 20 years, perhaps even more.
Second, and adding to the first point, many will continue working beyond normal retirement years. As our physical well-being continues to improve in our later years, and as more work requires brain power rather than muscle power, many baby boomers will work well into their 70s.
Third, not all boomers will sell all their stocks and move into bonds, GICs, or similar investments. For example, those with dividend paying stocks will likely continue to hold them for life -- in many respects they're superior to bonds for generating retirement income while preserving capital.
Fourth, over the next 10 to 20 years, a massive middle class will continue to emerge in countries like India, China, and Brazil. And, as these people, by the hundreds of millions, become middle class, they'll be looking for safe investments with which to generate their own retirement income. So, if stock markets in the developed world begin to sag, you can be sure new investors in the developing world will start buying.
Fifth, and finally, a tremendous amount of investment in the stock markets now belongs to institutional investors: pension funds, university endowment funds, mutual funds, and so on. Then, too, there is also all that Middle Eastern oil money in the stock markets of the developed world. None of these investing organizations is likely to reduce its level of investment in the next 20 years.
So, I'm not worrying about stock market values as the boomers retire. Rather I worry more that politicians in the developed world will adopt protectionist policies that drive away the new and existing investors who have the financial power to keep our investments on the happy side of the ledger.
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ParadigmShift... says:
15 months ago
Good points, thanks for writing. But i'm still worried. Baby boomers (those born from 1946 to 1964) are retiring at a rate of 20,000 a week. A second job isn't going to be enough in some cases, and the economy still has a few years of declining to do. This is the first time in history where we will have more retired people than working, predicted to be 3 to 1.
The stock market overall seems to be in a decline, unless you know what you're doing (which 95% of the world doesn't), and most will panic and pull their money out, because they are emotionally attached to it. Inflation, gas prices, unemployment, and falling consumer confidence don't seem to be helping much either.
This is also the first time in history that a generation is stuck taking care of not only their own children, but also their parents. So as the middle class here in the U.S. disappears, I wonder, will it cancel out the growth of the middle class in those other countries? And what happens to Middle Eastern oil money as we put forth great efforts to produce alternative fuels? Won't that lessen the need for the "oil money" as well as lessen the actual amount of said money? I wonder...