Demographics and the Stock Market
As the baby boomers come to retirement age, one has to wonder where all their wealth will flow. Though most are likely still largely invested in equities, eventually the time will come that they move to fixed income. When that will be, we don’t know, nor do we know if the selling pressure will break the markets.
Aging Populations
Everyone is up in arms over the future of social security and medicare in the United States but before we can worry about the money the populace as a whole doesn’t have we have to worry about what the boomers do have. Boomers have a lot of money, most of the wealth, and many of them are waiting to cash it all in. Eventually they’ll have to, of course, to start drawing on the interest and principle to sustain a life without working.
Trillions of Dollars
The US stock market is worth roughly $15 trillion, plus or minus a couple hundred billion. Much of that is in the hands of 50-somethings, not 20-somethings, so we should expect that each year from here on out more money flows out of the markets than into it. This extreme selling pressure is only going to cripple the stock market all the while propping up the bond market. Fixed income will surely be red hot, it has to be, since no one nearing retirement would dare risking the future of their existence in a stock market climate like today’s.
So What to Do?
So what are we going to do? All this wealth will be monetized, the stock market will have to find a new owner in another aging demographic. But we’re hardly bringing enough people into the workforce to displace those retiring, and there isn’t a chance that the Y generation (often called the Me generation) has a clue about investing. Generation Y knows more about spending money than making it (and so did the boomers, but at least they still had a future to mortgage). So what are we going to do? What is going to happen when all this money leaves production and investment and into downright consumption? Who or what and when will we displace the largest single generation in American history? So many questions, and not a single possible answer.
