Wednesday, March 21, 2007

The Baby Boomers' Worst Nightmare

There are examples throughout stock market history of the stock market experiencing 20 year dry spells where after 20 years the market didn't do much but break even.

The "Nifty Fifty" is a perfect example where back in the 50's and 60's if you invested in the (I think) top 50 companies in the US then "nothing could go wrong." Of course, if you invested in 1965, then you would have had to wait until Reagan started turning the economy and market around in 1983 to break even.
Such a fear, a prolonged spell of 0 or perhaps negative returns haunts the baby boomers as they're approaching and some entering retirement. Used to the roughly 12% annual returns stocks provided over the past 20 years (driven primarily by them flooding the market with their retirement dollars), if such a spell were to hit now, their entire retirement plan would fly out the window.
Thus, it was an honorable chart says I when I happened upon this little ditty a couple days ago.
Have you switched to fixed income yet?


freedom000 said...

I'll be retiring in 25 Years, any hope for me? I envy some of the older people I work with. They got 401ks with 100% matches offered to them in the mid-80's, as a result, the ones who took advantage are millionaires or close to it. I already know what you think about real estate. What's left?

Anonymous said...

Ha! You have been future-fooled by the ever-idiotic Boomers! This graph was valid, and accurate, and made logical sense - suggestive of the great productivity or technological improvements of a given era (i.e. - 1920's = the first wave peak of modern industrialism, the 1950's = the benefit of management science and organization as well as population growth, and the 1980/90's was the flowering of personalized computing).

But all these timeframes shared a characteristic as reflected in the stocks - they were all thinking, logical, conservative citizenry. The days before acceptable bankruptcy and easy credit. Those were folks that worked hard, saved diligently, and left a legacy when they could.

Thankfully, the Boomers will do none of that. They won't tie up assets against a rainy day - they'll buy the beachfront condo, they hit up Ethan Allen to fill it. And maybe get some wine a Trader Joe's, since they're right there. And a Starbucks for the drive home. The Boomers will do what they have done best, first, and always: consume.

Anonymous said...

Yes, but very few people have their money invested in the Dow. It's an incredibly diversified group of companies. It would be interesting to see that graph with the S&P 500, Midcap & Small Cap indexes. The Dow Jones is just one of several asset classes that should be in any reasonable portfolio.

Anonymous said...

I disagree that the 1920s surge in stock prices was due to a dramatic upsurge in productivity. On the contrary, the Fed was going nuts with an expansionary monetary policy, and a stock market bubble was the result. People didn't just suddenly become stupid with the Baby Boomers, although they're a lot worse than anyone who came before them.