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Will boomers beat the market?

By Jennie L. Phipps ·
Thursday, August 25, 2011
Posted: 2 pm ET

Here's a little discouraging retirement planning news:

The Federal Reserve Bank of San Francisco examined trends in U.S. stock values to see if the investment conservatism and sell-off that will likely come with the aging of baby boomers will drive down stock prices.

Their answer was yes.

The analysts found: "The model-generated path is ... quite bearish. Real stock prices follow a downward trend until 2021, cumulatively declining about 13 percent relative to 2010."

The analysts think the prospects for recovery aren't so great either. "Real stock prices are not expected to return to their 2010 level until 2027."

All of this is based on correlations to what happened to the stock market when boomers hit their prime earning years -- in 1987 and 1988, the stock market returned an average of 18.5 percent -- and life as an investor was good.

Does all this make you feel discouraged about your current retirement investments? There is a bright spot. Ultimately, the recovery should be strong, analysts project. By 2030, when people who are 60 today are 79 years old, and our 20-some-year-old children are 40 some years old, earning lots of money and investing for their own retirements, using these same trends, stocks should be 20 percent higher than they were in 2010, the analysts believe.

The factors that could make this all much ado about nothing are numerous. One big one is that foreign interest in buying U.S. stocks could increase and drive up prices irrespective of what boomers in this country do. The analysts speculate that if the average Chinese citizen were allowed to buy U.S. stocks that this alone could potentially alleviate the effect of  boomer demographic trends on the market.

Another possibility is that U.S. investors will hold onto stocks well into their retirement because they expect to live longer than previous generations and are hoping stock ownership will protect their incomes.

Don't you wish you had a crystal ball?

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Joe Dalhart
August 26, 2011 at 10:54 pm

No doubt more Boomers will be selling stock as they age, but our overall population base grows every year. Surely that will mitigate the Boomer sell-off to some degree. Ultimately, though, it all depends on the economy - if things get better over the next decade or two, more people will buy more stocks. If not, they won't.

August 26, 2011 at 11:15 am

In other words, once the "Boomers" are dead or close to dead, the economy will do much better.

Crystal ball?

Yes, I wish they had a crystal ball so that they could have seen that their sense of entitlement was most likely going to end before they retired.

Now, it's too late.