Who will the Baby Boomers sell their stocks to? Their Millennial kids!

February 8, 2018

  

Baby Boomers (those born between 1945 and 1964) are reaching retirement age at the rate of 10,000 per day.  For most, a good portion of their retirement income is based on using a percentage of their investment portfolios every year.  This includes occasionally selling stocks to fund their retirement.

 

For years, boomers worried who might step up to the plate to buy these stocks they needed to sell.  If the boomers were all selling, might prices go down due to an oversupply of sellers?

 

According to an article in the Wall Street Journal by Mark Hulbert, boomers can sleep a little easier-their millennial children will likely be the buyers they need.  The millennial generation (those born between about 1982 and 2000) is entering a time of their lives in which they will increasingly be investing in stocks, and according to the leading economic model that relates demographic trends to stock prices, the millennials are a large enough generation to overcome the required selling by the boomers.

 

In a 2002 study the economic model (MY ratio for short) successfully predicted the relative weakness in stocks from 2000 to 2016.  The same model now predicts that demographics will be positive for stocks until 2035.  There will still be shocks, corrections and bear markets along the way.

 

Professors John Geanakoplos at Yale,  Michael Magill at the University of Southern California and Martine Quinzli at the University of California, Davis authored the study.  Although the model is complex according to Hulbert, its essence can be distilled to a single number: the ratio of those the authors label as middle-aged (ages 35-49) to those labeled young (ages 20-34).  The model predicts that stocks will perform better when the ratio (M to Y) is rising.  That trend should continue for the next 17 years according to Professor Geanokoplos.

 

Japan’s MY ratio has been rising since 2002 and their stocks have tripled since then.  The power of the ratio in the US may be tempered by recent Federal Reserve Quantitative easing-they may have “borrowed” some of the future returns for our recent stock market gains.

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