How baby boomers could depress stocks for decades
The aging generation could affect markets for the next 20 years by selling investments to finance retirement, researchers say.
By Vivien Lou Chen, Bloomberg
Aging baby boomers may hold down U.S. stock values for the next two decades as they sell their investments to finance retirement, according to researchers from the Federal Reserve Bank of San Francisco.
Americans born between 1946 and 1964 are beginning to retire as the U.S. stock market is still recovering from the financial crisis that began in 2007 with the collapse of the subprime mortgage market. The timing is "disconcerting" and, since stock prices have been closely tied to demographic trends in the past half century, "portends poorly for equity values," adviser Zheng Liu and researcher Mark Spiegel wrote in a paper released by the bank Tuesday.
The equity-price-to-earnings ratio of U.S. stocks tripled from 1981 to 2000 as baby boomers reached their peak working ages and has declined since then, according to Spiegel and Liu. Overseas investors' demand for U.S. stocks might help mitigate the effect of a baby boomer sell-off, yet the impact would probably be limited, they said.
"For many primary purchasers of U.S. equities outside the U.S., their demographics are even worse than ours, in particular Europe and Japan, which have older age profiles prevailing than the U.S. does," Spiegel, the vice president of the bank's research department, said in a telephone interview today.
At the same time, foreign investors, including sovereign wealth funds, may decide to hold a larger share of U.S. equities, Liu and Spiegel said. Also, emerging market countries such as China may ease capital controls, allowing their citizens to invest in U.S. equities, they said.
"We're well aware that a lot of other things can happen" that would buffer the impact from retiring baby boomers, Spiegel said. "There's not necessarily a rule that this is the only thing that's going to drive prices going forward."
Still, "we do see it as something of a headwind as the economy is attempting to recover," he said.
The Standard & Poor's 500 Index has dropped about 28% since October 2007 and declined almost 11% this year.
Jeremy Siegel, a finance professor at the University of Pennsylvania's Wharton School in Philadelphia, has also researched the link between demographics and U.S. stocks. He said growth in developing countries should generate enough demand to absorb a baby boomer sell-off and "keep stock prices high."
As long as the economies of countries like China and India expand at an annual rate of at least 4% to 6%, investors "will have the resources to buy our stocks" and "keep our stock market fully valued into the future," Siegel, the author of the 1994 book "Stocks for the Long Run," said in a telephone interview.
"If we don't get growth abroad and block foreign countries from buying U.S. companies, the outlook for U.S. stocks is much worse," Siegel said.
More from Bloomberg
VIDEO ON MSN MONEY
Let's see..born in 1946. You'll have to blame my parents for that. Made sure I had an education so that I could work and take care of myself without any assistance. Worked as a nurse for 28 years and saved as much as I could. Made sure I would have medical insurance in retirement so that no one needs to take care of me since I'm not eligible for Medicare. Bought a house and was upside down in it twice now, but stuck it out without going into foreclosure or bankruptcy. Small house, 1100 sq. ft. Nothing fancy. I have a 9 year old Toyota.
Now I'm being called fat and greedy and told that I have screwed everything up. What are you talking about? I'm not taking your money, just using the money I saved for decades.
It's kinda amazing. I am a retired boomer. I worked for 48 straight years and even worked part time after I retired. Paying full taxes the whole time. I never lived with my parents, gladly served my country and never ever failed to repay a debt.
I don't drive a big a$$ed SUV, I'm not over weight, don't drink or drug and don't ask anybody for anything. Yep I'm the devil....
Congress, state local and federal govt plus --- your dumb a$$ has known for 60 + years that the boomers were going to retire in the 21is century. Sixty years to deal with this and all the other problems that have been on the table for all of those sixty + years.
So sonny, I guess you'll have to get off your fat a$$ and do something for yourself. It's sucks to be you...
I EARNED every second of my retirement now EARN yours and stop bitching.
Sorry you youngsters are not going to get the intitlement you believe you deserve. We are going to sell to finance our retirement. YOUR turn to save invest, sacrifice and grow old.
Your turn to boost the market with YOUR money. Time for you to grow up and do something for America and your future. We are tired, tired of your free ride and spoiled attitude. YOUR TURN!
This has to be one of the dumbest articles i've read ina while. Is there anything we Boomers are not going to be blamed for? How dare we sell our stocks to provide for ourselves in our latter years. Give it a break.
Our youunger generations want to do something to ensure their future they better start having some kids or there isn't gong to be anyone to carry on our civiliztion never mind support them.
Get a life people I am not a baby boomer and I really don’t care!! If they want to take their money out let them it’s theirs!!! What are you stupid!!!! That’s like you making a deposit then going to make a withdrawal and the bank telling you that you can’t. It’s their money they invested so shut the F*** up idiots
Babyboomers VS Baby's: BOO HOO HOO Work for your own damn 50 year investment
O and Entitlement?? People PAID cash for their social security insurance over a lot of years! Benefits aren't some kind of charity or handout!! It's hard earned taxe's OUR Sweat, Blood and Tears
Congressional benefits - free health care, huge retirement packages, 67 pd holidays, 3 wks pd vacation, unlimited pd sick days, from the moment they take office
Now that's welfare, and they (you) have the nerve to call SS retirement entitlements
I'm a Boomer. Grew up during a time of no school lunches. My divorced mother raised 4 children (with the help of faith) pretty much by herself. I remember getting up at 4:30am to deliver papers in rain and snow storms. Before school I usually had a piece of toast, and a bowl of oatmeal with butter, we couldn't afford milk. My school lunch consisted of a peanut butter and jelly sandwich and maybe a carrot. After grade school let out I was involved in seasonal sports and when I went to bed I was exhausted.
I served in the military during Vietnam. I took advantage of the G.I. Bill. I lifted myself up by my bootstaps and I am willing to help others who are less fortunate. I have always resented being forced help the lazy, or easilly influenced, or drug users or those faining false disabilities. It's the old story of the ants of this world vs the grasshoppers.
I remember the generation that proceeded mine. Those were real heroes. They believed that if you didn't work, you didn't deserve to eat. They taught the generation that won WW2 in 1 room school houses with no air-conditioning or heat. The teachers made up their own lesson plans and study materials for their students.
Be grateful for what you have. Never Give Up and once you have it be good stewards. Don't throw your money away buying the next gadget. Figure out your needs from your wants.
"leave something for you" is that really what you guys are typing here?!
How about you get some for yourself?
And before you slam all of the boomers, some of us are on the late 50's early 60's birth end of the generation, so the twenty plus years of those ahead of us, will ruin it for US, not you.
Help yourself. I can take care of me, thank you very much, Gen Xbox.
i've paid into SS for 40 years so far, you @$$holes blame everybody but those responsible for the problems we face, just take us "boomers" out and shoot us then. it won't fix the terminal greed of wall street or washington!!! up your @$$ msn money....you dirtbag mofos!!!!!
I have a while before retirement as I am on the tail end of the baby boomer era and the bottom line is when I get to retirement I will do what I want with MY money that I saved for MY family. So to the current boomers that are retiring - God Bless you and enjoy doing whatever you want with YOUR money as no one else has a right to tell you what to do with it. The rest of us should do the right thing by saving for retirement and not expecting a handout. If you have no job find a way to get one - if you have no skills or education either fix that or suffer the consequences but by all means stop expecting something for nothing.
Retirees thanks for supporting the system all these years now go enjoy yourself!!! The responsible ones among the rest of us will hopefully meet you down the road with a beer in our hand.
What do you leave for us young people?
You were expecting a huge estate? You selfish little twitt!
I'm a boomer and my poor parents left me squat. I put myself through college working the night shift in factories. I earned what I have and I'll hand it off to my kids.You , on the other hand, are upset that you don't get an inheritance and will probably whine about it the rest of your miserable underachieving life.
No one owes you anything. Someone gave you life. Be grateful for that. The rest should be up to you.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
RECENT ARTICLES ON RETIREMENT
Nearly half of family caregivers spend more than $5,000 a year, plus caregiving affects their jobs and retirement plans.