The phrase “boom or bust” refers to a scenario of great prosperity or economic growth followed suddenly by a period of decline. Some economists suspect the aptly termed “baby boomers” could potentially create just such a phenomenon during their twilight years.
As the largest demographic group in history, baby boomers have been an important economic force over the past 70 years. Their influences include the suburbanization of cities, women breaking into corporate America and an overall prosperous period of consumer demand yielding great leaps in technology, health care and education — all of which also have impacted the securities markets. Now, with this massive population in or approaching retirement, will the drop off in the workforce and drain of public entitlement programs create additional challenges?
Putting aside the generational impact of baby boomers for a moment, we are interested in the financial health and well-being of our individual clients. If we can help you create a retirement income strategy you can feel confident about, please give us a call.
Presently, baby boomers hold the highest percentage of net worth among Americans and account for 40 percent of consumer demand.1 This fact, coupled with trends for a more active lifestyle and longer lifespan, means that baby boomers will continue driving demand in consumer markets, particularly with regard to discretionary spending. Naturally, the health care and long-term-care industries are likely to continue benefiting from this generation as well.
Some analysts see value stocks on track for significant growth due to boomer demand for conservative capital appreciation. Value stocks have begun to outperform this year due to relatively low prices (compared to growth stocks) and a better global outlook than in recent years.
According to analysts at Merrill Lynch, value stocks typically perform best when expectations for economic growth are on the rise and there is less fear of recession. The wealth manager observed that for value stocks to continue to outperform, corporate profitability needs to improve, particularly return-on-equity at value firms.2
Other investments that appear to benefit from boomers’ desire for conservative growth include low-volatility ETFs, which have substantially increased assets under management this year.3
Another theory posits that, as boomers retire and start taking distributions from their portfolios, market valuations will shrink. The concern is that the Gen X population — born after the baby boomers — is not large enough or wealthy enough to absorb the sell-off, which will drive down the value of those investment shares.4
Nor are succeeding generations plentiful enough to purchase the 5.5 million small businesses owned by baby boomers, currently valued at $10 to $15 trillion. Without buyers, a boomer relying on the sale of his or her business to fund retirement could experience a rude awakening.5
Baby boomers also continue to impact residential real estate. One strong trend is that empty nesters are migrating back to the metro areas they abandoned for the suburbs 40 years ago. Boomers are now finding the restaurants, shops and cultural venues of walkable cities and college towns as appealing for their retirement years as the mainstay southern climates.6
1 Jeff Reeves. USA Today. April 2, 2016. “The best investment for Baby Boomers may be in themselves.”http://www.usatoday.com/story/money/personalfinance/2016/03/30/best-investment-baby-boomers-may-themselves/81986134/. Accessed June 3, 2016.
2 Dennis Stattman. Merrill Lynch. April 2016. “The Monthly Letter.”https://mlaem.fs.ml.com/content/dam/ML/Articles/pdf/GWIM-CIO-Monthly-Letter-April-2016.pdf. Accessed June 3, 2016.
3 Yakob Peterseil. Bloomberg. May 31, 2016. “Boomers Fueling a Boom In Low-Volatility ETFs.”http://www.bloomberg.com/news/articles/2016-05-31/boomers-fueling-a-boom-in-low-volatility-etfs. Accessed June 3, 2016.
4 Lawrence Hamtil. ValueWalk. May 15, 2016. “Will Aging Baby Boomers Doom the Stock Market?”http://valuewalkposts.tumblr.com/post/144395831485/baby-boombers-stock-market. Accessed June 3, 2016.
5 Donald Feldman. Business2Business Magazines. April 1, 2016. “Boomer Bust: Why exit planning is becoming more critical than ever.” http://www.business2businessonline.com/Article/1689. Accessed June 3, 2016.
6 Clare Trapasso. Realtor.com. May 17, 2016. “Reverse Migration: How Baby Boomers Are Transforming City Living.”http://www.realtor.com/news/trends/why-more-baby-boomers-are-moving-back-to-cities/. Accessed June 3, 2016.
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