all de ole farts, I hope allya planned good eh
http://www.canada.com/nationalpost/financialpost/story.html?id=04365d6f-2f9b-46af-821c-388327c1279c&k=89958Will stocks go Boom?
The first wave of Baby Boomers turned 60 this year and the impact this generation is having, and will have, on the Canadian economy will be profound and long-lasting. In the second instalment of a week-long series, the Financial Post looks at the potentially sweeping changes retiring Baby Boomers could bring to North American stock markets. As well, Jonathan Chevreau finds that the worst thing Boomers can do is run out of money before they run out of life.
David Berman
Financial Post
Monday, October 02, 2006
Retiring Baby Boomers may be a boon for golf courses, cruise ships and leisure wear sales. But according to some observers, they could also blow a big hole in the stock market.
The fear? As Boomers retire, they'll either liquidate their equity portfolios in order to fund their retirement years or they'll move into less volatile assets, such as bonds.
Either way, the impact could be huge, and by no means confined to Canada. Since Boomers represent a bulge in the population in most of the developed world, there will be fewer active investors picking up the slack as they exit the workforce -- and the stock market.
In the United States, for example, the ratio of workers to retirees is expected to fall to just 2.6 in 30 years, from 4.9 today. In Japan, the ratio of retirees to active workers is expected to fall even further, to one to one by about 2050.
In other words, the number of potential stock buyers will soon begin a steep decline. Stock-selling Boomers will drive down share prices, just as they drove prices higher in their younger, stock-buying years. Between 1970 and 2000, U.S. mutual fund assets soared from US$48-billion to US$6.9-trillion, a startling statistic that could soon start reversing itself.
No less an authority than Jeremy Siegel, the famous Wharton finance professor and author of Stocks For The Long Run, has sounded the alarm, calling the ageing population the most critical issue facing the developed world.
Mr. Siegel believes that unless Indian and Chinese investors start buying developed-world stocks in big numbers or workers postpone retirement until their mid-70s, share prices in the United States, Canada and elsewhere will suffer from a bear-market mauling.
Sure, the United States could open the doors to young immigrants to help assuage the problem. But he estimates that the country would have to welcome an astounding 500 million people to its shores to make a big difference in its demographic bulge.
He's not alone with his concerns. Bill Gross, managing director of Newport Beach, Calif.-based Pacific Investment Management Co., said in a note to clients last month that house prices must adjust downward if there is more supply than demand.
"Similar logic applies to holdings of domestic stocks, bonds, or any other 'asset' which Boomers count on individually to fund their retirement needs, but which collectively must be unloaded to a smaller demographic of tentative buyers," Mr. Gross said.
With the eldest Baby Boomers turning 60 this year and contemplating early retirement, should investors be shifting their assets to avoid a demographically inspired stock market meltdown over the next 20 to 40 years?
Concerns about what exactly will unfold over the coming decades has inspired more debating than panic selling so far, with a number of observers suggesting that worries over the impact of retiring Boomers are vastly overstated.
"The evidence suggests only modest effects, if any, of demographics on returns," said James Poterba, an economics professor at the Massachusetts Institute of Technology, in a 2004 working paper on the subject.
He argued that people certainly ramp up their wealth when they are in their 30s and 40s, and the Boomers are no exception. However, they tend not to dump their financial assets upon retirement. Rather, they sell their assets only gradually, creating few waves in the market.
This summer, the U.S. Government Accountability Office released an exhaustive report on the subject of Boomer retirement and came to a similar conclusion.
"Our analysis of data on current retirees' saving and investment behaviour reveals that most retirees slowly spend down their assets in retirement, with many actually continuing to accumulate assets," the report said.
Part of their argument hinges on the fact that U.S. financial assets are not distributed evenly. About a third of all Boomers do not own any stocks, bonds or mutual funds. As a result, they have few financial assets to sell when they retire.
Conversely, a small minority of U.S. Boomers -- just 10% -- own more than two-thirds of financial assets, excluding assets in defined-benefit pensions. Clearly, they already have enough wealth to fund their retirement, which means they are unlikely to sell many stocks or bonds during their retirement years.
According to the GAO report, 65% of wealthy retirees said that their income in 2003 exceeded their spending.
"Research on current retirees indicates that the wealthiest of these individuals tend to not sell their financial assets, contrary to what the life-cycle model would predict; instead, they choose to live from the income these assets generate," the report said.
Wendy Brodkin, Central Canada practice leader at Watson Wyatt Worldwide, expects the Canadian reaction to retiring Boomers will be a similar non-event.
"A good chunk of the money is going to still be retained in defined-benefit plans," she said. "Even though these plans are closing, they're going to be there for quite some time to keep making payments," thereby keeping Boomers in the stock market for at least the next 10 or 20 years.
But she adds that the biggest issue relates to the increased lifespan of retirees. Boomers will likely live longer in retirement than previous generations, which means they'll be watching their stock holdings well beyond the age of 60.
"They're going to be holding on to their money a lot longer," Ms. Brodkin said. "Any impact on the equity market will be -- to use our term -- 'muted.' "
dberman@nationalpost.com
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that he is callin for something more than just a voluntary force in Iraq...maybe DRAFT...
