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
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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 ae 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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information to help you understand basic financial planning strategies and
should not be construed as financial advice. All investments are subject to
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Content prepared by Kara Stefan Communications
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