Boomers May Stall Stocks for Decades: Fed
Boomers May Stall Stocks for Decades: Fed – 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 today.
Jeremy Siegel, 65, 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 that growth in developing countries should generate enough demand to absorb a baby-boomer selloff 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 percent to 6 percent, investors “will have the resources to buy our stocks” and “keep our stock market fully valued into the future,” Siegel, author of the 1994 book “Stocks for the Long Run,” said in a telephone interview today.
“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.
According to a study by the Congressional Research Service, the percentage of the population aged 65 or above has increased from 8.1% in 1950 to 12.8% in 2009. This figure is projected to be over 20% by the year 2050. This trend is illustrated below:
NeilS — I had never really considered the long-term demographic effect of population on the stock market. Of course, as standard investing logic goes, one should shift their overall portfolio away from stocks as they approach retirement age. In many developed countries across the world, populations are becoming older as birth rates decline and life expectancy increases. A demographic shift towards an older population would leave a lesser proportion apt to have a large amount of their capital in equities. Furthermore, the volatility of the recent decade most likely exacerbates this trend.
Economically, it appears that the U.S. is becoming more and more dependent on the outcomes in developing and emerging economies every day. In an increasingly integrated world, everyone will be looking to the engines of growth to keep demand for their products high. In this case, we need emerging economies to put some of their wealth into the U.S. equities market to keep it buoyant.