Will the baby-boomer sell-off cause a market slump?
Jun 26, 2006
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Professor Jeremy Siegel, who has established himself as a guru of long-term equity investing, thinks the outlook is grim. The problem, he says, is the impending retirement of the post-war baby-boomer generation across the developed world.
In the US, there were 78 million people born between 1946 and 1964. As they age, the number of people over 65 will more than double by 2030; Europe and Japan are ageing even more dramatically. Many boomers have bought stocks to fund their retirement; as they leave the workforce, they will sell them. Because there are too few people in succeeding generations to mop up the boomers’ shares, the oversupply will force prices down. Stock prices in the rich world could fall as much as 50% over the boomer generation’s remaining lifespan.
But just how important are demographics? Sceptics note that population trends were supposed to have caused a meltdown in the US housing market in the 1990s, but clearly other factors intervened. Moreover, Siegel and other doomsayers assume that everyone amasses assets when they work and then sells on retirement, but this doesn’t apply to everyone, as Yuval Rosenberg notes in Fortune.
In America, the wealthiest 10% own 90% of the stocks, and they don’t need to dump them all to pay for their twilight years. Note too that Siegel himself says that the meltdown is a worst-case scenario that can be avoided if boomers accept a few more years on the job and increasingly wealthy citizens of the developing world buy more Western assets.
However, the ageing boomers’ growing influence on a range of industries should herald some money-making opportunities. Fortune highlights Zimmer Holdings (ZMH, $64), the leading maker of orthopedic implants – set to launch a new knee implant for women – as a stock with sound fundamentals likely to benefit from boomers; it is on a forward p/e of 16. Harrah’s Entertainment (HET, $71), a gaming giant offering “the type of safe excitement boomers will be looking for”, trades on a similar valuation.
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