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Will Boomers Lead to Bust?


Worry over large-scale stock sell offs by retiring baby boomers looking to convert to equities into fixed-income assets is probably misplaced, say some stock market analysts.

In the midst of the selling tsunami that hit the markets last year, the idea that the stock market might suffer when the wave of baby boomers starts to retire took a back seat. The oldest of the baby boomers will turn 65 in 2011, the youngest will hit that age in 2029, and the theory is that, as the boomers get older, they’ll trade their accumulated stock holdings for fixed-income securities. Since that could possibly put long-term pressure on stock prices, some investors are asking whether they should tweak their asset allocation to mirror the predicted boomer sell-off — putting more into fixed-income assets and less into equities.

The worry is probably misplaced, say some market analysts. Although there may be some selling, boomers who realize that their time horizon in retirement could be 20 years or longer are likely to hold on to stocks. Also, the demand for equities will probably hold up as younger generations reach their peak earning and investing years. In addition, investment advisors point out that boomers won’t retire all at once. Since the boomer generation spans almost 20 years, the impact on stocks, if any, is likely to be gradual.

In the end, say financial planners, your asset allocation should reflect your time horizon and your tolerance for risk. Money you may need to get at in less than five years shouldn’t be put into stocks because the risk of loss is too high. After that, the longer your time horizon, the more you might want to invest in equities. For a look at the basics of asset allocation, check out the guide provided by the Securities and Exchange Commission.

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Victor J. Dzau, MD, gives expert advice
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