Can Baby Boomers Be Convinced To Return to the Equity Markets?
The markets, for lack of a better term, have been on a tear as of late.
The Dow Jones Industrial Average (DJIA) is up roughly 1,000 points in just a few short weeks.
The Nasdaq is up nearly 250 points since July 9th - a very substantial move, considering that the index was sitting at around 1,750 points at the beginning of July.
The S&P 500 has also made a big move over the past couple of weeks, adding over 100 points during that time.
Bears believe that this is just a "dead-cat bounce", and that the markets will almost certainly turn lower once summer turns into fall and winter.
Bulls are hopeful for a number of different reasons. A possible end to the recession. A possible bottom in the real estate market. Increased investor optimism, which is leading to a deployment of some of the cash that is currently "on the sidelines".
Now, I may very well be wrong, but I'm of the opinion that we won't have a sustained bull market unless the "baby boomers" buy in as well.
"Baby boomers" (those born between 1946 and 1960) control a large percentage of the wealth in this country.
Many "baby boomers" saw their retirement plans put on hold due to the "Great Recession". Many in this generation were getting tantalizing to retirement, only to see a great deal of their retirement savings incinerated over the past couple of years.
Many of these people (and who can blame them) pulled nearly all of their money out of the markets during the downturn.
Prior to the "Great Recession", the path to a comfortable retirement was clear for "baby boomers" - invest in equities and real estate, and you will be able to retire comfortably.
Those plans were thrown into disarray over the past couple of years, as many "boomers" watched as the markets took a hacksaw to their retirement savings.
Unable to stomach any further losses, many "boomers" sold indiscriminately in an effort to avoid any further pain. With each red day, retirement was further and further away for millions upon millions of "boomers" who were agonizingly close to retirement.
This "panic selling" contributed to the large downturn in equity markets, as well as the implosion of the hedge fund industry.
"Boomers" were initially distrustful of the markets when they started out in the world, as their heads were filled with stories of the "Great Depression".
However, with each passing year, more and more "boomers" became enamored with the markets. The boom in US equity markets in the 90s coincided with "baby boomers" entering their prime earning years - this was obviously not a coincidence.
Fast forward a few years. Now we are being inundated with stories of Madoff and crooked bailouts and Goldman Sachs and billions of dollars of bonuses. "Boomers", like the rest of the investing public, no longer trust the markets.
Many "boomers" no longer have the funds to "comfortably" retire - the recession has thrown a wrench into those plans. They need an investment vehicle in which they can put their money, but there are no easy choices.
Prior to 2007, a person could easily invest in real estate and do just as well (if not better) than the stock market. That option no longer exists.
Do these "boomers" return to the equity markets that they no longer trust in an effort to get their retirement plans back on track?
Or do they play it safe and remain in cash and cash equivalents, but run the risk of not being able to afford the type of retirement that they always envisioned?
I have spoken with many people who are currently in this exact situation. The markets are starting to take off (at least for the short-term), and they are wondering what they should do.
Their window of opportunity is starting to close - the first wave of "boomers" will hit retirement age next year. There isn't much time left.
Even the youngest of the "Baby Boomers" only have 13-14 years left in which they can increase their portfolios.
The decisions that these "boomers" make will have a major impact on the direction of the markets (obviously).
Can they be convinced to return to the shark-infested waters of the equity markets, or will they play it safe and stay in cash?
If you are a "boomer", what are your plans? I'd love to hear from you below.
Filed under: General Knowledge