Baby boomers and stock values
Retirees selling stocks at a higher rate than younger investors are buying puts downward price-pressure on market.
Federal Reserve Economists are questioning the effect of retirement age baby-boomers on stock values. Economists trace stock market gains in the 1980’s to baby-boomers preparing for retirement and now believe that the trend will reverse as retirement-age boomers sell stock to cover expenses. Tracking the boomers’ effect on the economy has predicted market action in the past with foretold increases in consumer spending in the 1990’s as the boomer generation entered their most productive wage-earning years. And, as in the 1980’s, the 90’s were a time when boomers also put money into Stocks, Bonds and Mutual Funds. Now that the boomers are retiring it seems a foregone conclusion that boomers will be periodically withdrawing from their retirements by selling off portions of their investment portfolios on a regular basis. Others speculate that at least a portion of the early 2000’s housing bubble may have been brought on by boomers having to progressively nicer homes.
How Will This Affect The Market?
San Fransisco Federal Reserve Economists Zheng Liu and Mark Spiegel have compared buying and selling ratios based on the theory that people in their 40’s were buying stocks and people in their 60’s were selling stocks. They found that the ratio of population in their 40’s to the ratio of population in their 60’s tracked very closely with patterns in the stock market. In the 1980’s when the smaller number of Depression-era retirees selling stocks in contrast to the greater number of baby-boomers in their 40’s buying stocks predictably led to increased stock values across the board. In the year 2000, the ratio of people in their 40’s buying stocks to retirees in their 60’s selling stocks reversed; not surprisingly stock values declined. Liu and Spiegel use these trends to predict that stock values could be 13% lower than today by the year 2021.
The Rest of The Story
The study did not take offshore investors into account and how newly industrialized economies such as China and India will affect the US Economy as demand for US Stocks from offshore investors rises. Also, factors such as Federal Reserve Interest Rates affect stock prices as investors seek higher yields than may be offered by low interest bonds.