Boomers-With the biggest demographic bulge saying no to stocks, can there possibly be a bull market recovery?

The boomer threat

Thursday, March 19, 2009

Here's something to worry about: Baby Boomers, who have seen their collective savings go nowhere over the past decade thanks to volatility in the stock market, decide that they've had it up to here with stocks and stay out of the market as their retirement nears. With the biggest demographic bulge saying no to stocks, can there possibly be a bull market recovery?

Tobias Levkovich, a Citigroup strategist, addressed this issue in a note to clients this week. He said that boomers did indeed contribute to the bull market that began in the early 1980s, because it was then that they began to sock away money for retirement, putting a lot of it in stocks. And yes, there must be a replacement for them if they exit the market.

Some academics have pointed to foreign investors as possible fill-ins. However, Mr. Levkovich believes that the generation of youngsters born in the 1970s, most of them to boomer parents, could be even better suited.

The population of this generation is almost as large as the baby boomers, and many of them are now entering their prime savings years, ranging between 35 and 39 years of age.

“Most critically, from an investor perspective, this highly innovative generation will enter its savings years in 2012-2013, potentially setting up the next period of savings growth,” he said.

As well, he quibbles with the idea that boomers will give up on stocks in a big way just because it has been a lousy decade for them.

“Keep in mind that baby boomers are living longer and thus may work many more years than their parents did,” he said. “Thus, age 62½ does not mean retirement as it once may have. In addition, they need to see their investments appreciate in price, especially after recent developments, rather than just generate paltry fixed income returns from ‘safe' Treasuries to help sustain themselves for many more years.”

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