WSJ: In a new paper, you look at trends worldwide and you find more promising demographics in places such as Brazil, Russia, India and China. As a U.S. investor, can I get around this problem of anemic returns by investing heavily in those emerging markets?
Arnott: I think that's a crucial missing part of most investors' tool kits. Most investors think, "Emerging economies, my goodness, that's risky." Well they are cheaper than U.S. stocks, and the economies are ostensibly going to be the growth engine for the world economy in the coming 10 to 20 years. So doesn't that make them potentially less risky in terms of downside risk for the long-term investor?
And on the bond side, it is even more compelling. (While emerging nations have far less debt relative to the size of their economies than do the biggest developed nations), they pay 3% to 4% higher yields. It seems to me highly likely that that yield spread will collapse in the coming decade, giving you nice capital gains on top of fairly rich starting yields.
WSJ: How is your demographic research reflected in your stock exposure in the funds you manage?
Arnott: In Pimco All Asset and All Asset All Authority, we invest in stocks (in the U.S. and other developed markets) purely as a tactical asset. We don't view it as a core vehicle.
Today, U.S. stocks aren't cheap. The Shiller P/E ratio -- price relative to 10-year smoothed earnings -- is north of 20 times earnings. That's on the rich side. So in the two Pimco funds, as of Jan. 31, we had essentially nothing in U.S. stocks.
We had 35% of All Asset All Authority and 27% of All Asset in emerging markets, split roughly 70% bonds and 30% stocks. These economies offer higher yields and better debt coverage, paired with much richer growth opportunities than the U.S.
WSJ: How about a final encouraging word for beleaguered baby boomers?
Arnott: It's really simple: Save more aggressively; invest in economies that aren't afflicted by the 3-D hurricane of deficit, debt and demography; and diversify into markets that can serve us well in a reflationary world.
WSJ: And we need to work until we are 80?
Arnott: No. I think most boomers, if they invest sensibly, can retire roughly when they originally planned to or a year or two later. If they invest conventionally, it is three or four years later. And If they don't invest at all and rely on entitlements to take care of them in their old age, then yes, they work until they're 80.
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VIDEO ON MSN MONEY
When is the SEC going to put a clamp on "Hyper Computer Trading"? Our Retirement funds are being ripped off every microsecond and the SEC has not done a thing to stop it.
Skimming millions every day with high speed computers (70% of all trades) and not having a "transaction fee" is irresponsible.
Come on SEC, put a stop to this rip off before I stop sending my 401K money to Wall Street.
Seen this all before, demographic risks. Although there is a grain of truth to the idea, if the US economy grows and it is seen as a relatively stable place to invest there will continue to be buyers. Withdrawals of boomer investments will be spread over 20-30 years so the change will not be that abrupt. When compared to other threats to our retirement plans like - inflation, healthcare costs, getting seriously ill, dying early, the unforeseen, us debt or the deterioration of the environment - this prediction is low on my list of worries.
BTW: The idea that Japan's woes are caused by it's aging population may be a fallacy and needs further justification; It could just as well be due to other things like the asset bubble they suffered and/or bad economic policies of their government. Correlation is not causation!
Question About Social security!!??
Where did all the money go when the population of the Baby Boomers was so high and the the retirees so low. Let me see, if you worked 45 years and there were so many Baby Boomers, don't you think there would be a SURPLUS of money to take care of this when they retire. HMM!!! No one ever brings this up, so "SHOW ME THE MONEY"!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
"Meanwhile, strong demand from boomers and a limited supply of workers will boost the prices of goods and services the boomers need". Strong demand for what? Healthcare sure. Housing not so sure, autos doubtful. The biggest issue isn't the people living off retirement Its those that have no retirement besides social security.
Today's common American jobs don't include pensions or health care anymore. People now, can only exist on these crap wages and cannot save anything for retirement. And that's if they can get to work with the coming 6 dollar a gallon gas. They will not "retire" .They will work until they drop.
When Social Security tanks and they have no way to buy expensive food, they will slit the throats of anyone who can keep them alive another day.
This is basically the scenario for every revolution that has ever happened in our world.
If you're a baby boomer, you've got a big problem when it comes to the investment returns you can expect in retirement.
That's a bunch of generalized crap. If you're a boomer and played your cards correctly you should have enough to retire and there are plenty of investments that pay the 4% you need to make it through retirement. But do not buy annuities, mutual funds or let investment advisers handle your money. Make investing your new occupation and learn how it works just like you did the other things that rewarded you.
So us Generation Xers, Yers, and Zers are supposed to feel sorry for Baby Boomers?
No way, if Boomers didn't save for their retirement and squandered it on too many cars, kids or grandiose houses than that's just too bad. The XYZ'ers don't owe us squat nor do we owe them squat. There's a whole lot of people that have given dearly for everyone's freedom to fail or succeed and that's all anyone should expect, the freedom to gain the rewards of their efforts. Good luck XYZ'ers, you'll learn that life isn't fair and it's much shorter than you ever thought.
Wa! Wa!Wa! Do I really want to hear it.
My mom and dad lived on one salary, raised two kids (one to college,me), bought a house, drove a car and - saved for retirement. My dad did not have a high school education and when he retired in '75 made a max of $15 per hr. But, he had a budget.
I raised 3 kids, bought a Duplex to live in, plus other RE investments and stocks and bonds. Drove nice used cars and saved for retirement. When i retired at age 55 I was making $40 K, car and expense acct. Went back to school and did HAVAC till 70. We had a budget and still do. We support our church, etc. and give well to our kids and grandkids. Clincher is I don't have to depend on SS.
My kids a different story. Made over $100K per year and.....spend it. Think I did not try to get them to invest for their future? Now in late 40's now what. Budget, what's that.
Gotta agree with Z. Wasn't bad enough that we as boomers were hit repeatedly with market crashes, we also took it on the chin when they let SS be up for grabs for the legislators to use without payback. Now we have a political party that wants to scrap the SS system, and medicare, for future generations. Apparently we're the problem even though we still hear of record corporate profits, the lowest tax rate on the 1% in our history, more record CEO pay, entitlements in the form of more subsidies and tax breaks to those better off all being paid for from an ever-increasing tax burden on the lower and middle income taxpayers, and all the while we hear this constant drivel about how the ship will sink if we ask the 1% to pay a fair share of taxes on the wealth they've earned from the entitlements we paid for.
Stop buying into their BS and vote out anyone that can't fix our economy without further burdening the 99%ers.
Where did the money go? As I explained earlier, Congress decided SSN was not a separate fund from the U.S. General Fund and spent it
The money isn't gone per se. The SSA Trust Funds balance, it is a separate fund, is about $2.6 trillion. However, the actual taxes were spent on everything including education, medicaid and wars and special US Treasury bonds were put into the fund. These bonds are redeemed whenever the SSA needs dollars to pay retiree benefits and the US Treasury most return the money and issue new US Bonds to borrow the cash from somebody. Unfortunately, since the Medicaid Trust Fund is running out of funds, bonds, the SSA has asked for permission to use SSA Retirement Funds to pay Medicaid which Congress should refuse since the SSA Trust Fund should not be used to cover Medicaid welfare. Once socialism starts it's almost impossible to stop.
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