The question:

As the baby boomers retire and sell their shares, will the stock market suffer?

There are one million baby boomers in New Zealand and they own a lot of stocks.

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The one million or so Baby Boomers will start to retire at the rate of 100,000 people per year from 2010 through to 2020. The baby boomers created the 1980s-2000 huge bull market when they saved for retirement.
The belief of some commentators is that they will reverse it when they begin selling their equities to meet living expenses in retirement. They will switch their investments to fixed interest vehicles and this will keep interest rates down due to the demand for fixed income investments by the aging baby boomers.

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Some email discussion of the points above

Original Message -----
From: "John xxxxxx"
To: <rongiles@xtra.co.nz>

Subject: 2010 crash

I've been reading some of your comments, as well as comments of many others....
Many of the arguments center around IF the boomers will cash out their stocks. While that IS important, it seems to me that the thing that initiate all the problems is that the boomers, as they quit working (as I just did) will STOP CONTRIBUTING TO their 401K's (Pension Plan) and IRA's. When they stop contributing, the price of
stocks MUST level and probably decline.
As the decline starts MANY boomers will begin to panic because they cannot CHANCE loosing any significant portion of their funds. Those that panic will THEN sell and when they do the market will start a bigger decline... which will cause an even bigger panic, etc, etc!
Stock prices are based totally on supply and demand (sure profits etc effect things but ONLY because they effect supply and demand).
As the boomers stop BUYING stocks, the demand MUST decrease.... and the next generation does NOT have the earning power to pay their bills let alone invest...
there will be very LITTLE demand. And if people start to panic.. there will be HUGE supply.
I am interested in your assessment of my argument.
John

John,
Nice to hear from you.
Yep, you have pretty much nailed it. Because the Managed Funds will not have the inflows of today, they will not be buying as much and prices will level/decline as you predict. And then when the bbers start selling, the problem is who will buy? Not other bbers and not Generation X as that is a very small generation in numbers so they will not have the buying power to mop up the stock on offer by the bbers. Then panic will set in - as you say.
There are two counter arguments to the above:
1/  many babyboomers (like me) have no intention of retiring and will still keep investing. Whether they will buy equities or just put their new funds into fixed interest will be very crucial.
2/  I have seen reports that suggest 80% of all the world's stocks/shares are held only by 5% of the world's population so it is what those 'uber-wealthy' do that will really determine the tone of the market.
If they decide to keep buying as the depressed prices represent a bargain, then the decline will be minor and temporary. No one knows for sure but it will pay to be wary and adopt some defensive positions.
Regards,
Ron
>>
Ron,
I am VERY CURIOUS.... you say there are many bbomers like YOU that are not retiring and will KEEP INVESTING... nearly all reports expect the market to be FLAT at BEST... very few people expect the market to dramatically expand when boomers retire...
So why would YOU... or any of the 5% that own stock WANT to stay in a market that will be FLAT at BEST?
I personally have put everything into bonds (even though I was 95% stock for the last 20 years or so) so I can get 5% as it drops... and then buy back in to ride it up. If it is true that only a small percent own most of the wealth, I can't imagine that the big guys are not smart enough to get out.. and the rest will SURELY panic driving the prices into the ground, which is exactly what I am hoping for.
But.. again, my question. If you know what is going to happen, why do you feel like you would continue to invest during the expected downturn.
Regards,
John
>>
John,
That is simple - I don't have enough money to retire yet so I have to grow my investment fund. Only about 20% of my new investment money is going into
shares. I have selected shares that I believe will increase in value despite a downturn in the rest of the market. e.g. Australian commodity stocks, companies providing medical care/accommodation to the over 60 market, etc.
When I am in your fortunate position, I too will probably cash up and put the lot into bonds. It would be easier if I stopped spending so much, like on a month in Spain, but until you can guarantee me another 20 years, I had better enjoy life now!
Cheers,
Ron


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Another viewpoint in this intelligent analysis by Jim Schlageheck