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Baby boomers and stock returns

Chris Farrell Jun 16, 2011

Question: As the baby boomers move into retirement, they will start to use their retirement funds or savings. Since the generations following the baby boomers are not as large, I’m assuming the amount of $ in long term investments will decrease. Is this a fair assumption? Will it affect the economy? Anne, Roseville, MN

Answer: It’s a fascinating question. There have been a number of studies looking into the question, largely focusing on the stock market. For example, the Government Accountability Office reviewed the literature in 2006 in “Baby Boom Generation: Retirement of Baby Boomers Is Unlikely to Precipitate Dramatic Decline in Market Returns, but Broader Risks Threaten Retirement Security.”

I think GAO title is right: Investors shouldn’t fear the march of time.

The concern isn’t a collapse in stocks prices as the boomers say goodbye to their workmates for the last time. The real worry is that far too many people don’t have enough money set aside to fund a decent retirement.

A major reason for skepticism that the stock market will tank is that boomers aren’t all that important in the global scheme of things. (Sorry boomers; it isn’t all about you.) The spread of private property rights, the embrace of markets around the world, the rise of China, India and other emerging markets is creating vast new pools of investment capital. Boomers will sell their portfolios into the global capital markets.

The boomer story may be a bit different with homes. There are a lot of factors holding down the housing market these days and demographics is one of them (although far less important than the bursting of a housing bubble). However, homebuilders have cut back on the supply of new housing. Over time the pullback should mute the impact of demographics.

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