The Boomer Effect

Starting in 2011, the largest demographic group in the history of the United States will begin hitting retirement age. This is also the group which controls the most wealth in the history of our country. We commonly refer to them as Baby Boomers, but let's discuss why they might also be called the Stock Market Busters.

Over the 20 year period from 1980-2000 our country saw many incredible advances in innovation and productivity. New business were created, new opportunities were found and the standard of living increased greatly. No doubt this had a positive effect on the stock markets.

This period also saw growth of the discretionary income of the Baby Boomer generation. And while much of that income found it's way into new cars, new houses and new toys, much of it found it's way into the stock market. This was primarily through 401k's, IRA's and brokerage accounts. Since there was a net addition to the markets, it makes sense that stock prices would generally rise. Of course there were the typical ups and downs, but the overall trend was positive.

Now let's fast forward to the last 9 years. We've been through a tech-bubble that burst in 2000, a terrorist attack that crippled the markets in 2001, accounting scandals and now a bubble in commodities. All of these events have put considerable strain on the market and also on the psychology of investors. Most investors are ready for the market to get back to it's march upwards, like in the 80's and 90's.

That's where the Boomers come in.

With the Boomers starting to retire, all that money that was flowing into the market will begin to flow back out of the market. With a net withdrawal, we'll likely see the returns of the market diminished greatly. This doesn't mean the market will go down for the next 10 to 20 years. It just means the 10%-20% returns of the previous bull market are probably a thing of the past. We may be lucky to average 3-7% going forward, just about in line with inflation.

So the choice becomes, should an investor keep buying a holding the same stocks and mutual funds and hope that we return to the glory days, or is it time to take a serious look at alternatives? Like strategies where you can profit in up, down or sideways markets.

I'd prefer to take action and find out what else is out there, rather than let time slip by and hope for a return of the old days.