Wednesday, August 24, 2011

Aging baby boomers and the stock market

The WSJ has an article highlighting a study from the San Francisco Federal Reserve Bank which argues that the retirement of baby boomers is likely to depress equity values for the coming 25 years or so.

It’s easy to think of share price as being determined exclusively by the valuation of the company, but like everything else stocks are subject to supply and demand.  As boomers—like a demographic pig going through a snake-- have invested share values have gone up, and it follows that if they start pulling their money out or at the very least quit adding to their investments share values will go down.

Beyond other sources of funds, I think one mitigating factor may be what happens to retirement.  It seems to me likely that boomers are going to live far longer then their parents, and with that longevity are going to have to, and be inclined to, work longer.  If retirement is postponed the effect that the San Francisco Fed study is predicting should be mitigated.

I will go further and say that one of the challenges out there is for business and other groups to figure out how to make more effective use of an aging population.  What we’ve seen in recent decades of retirement isn’t going to work for anyone.  There is a real opportunity for business to reconfigure work so that it benefits the company so as to make use of men and women who may not be career driven but can still be very productive despite advancing age and who still want/need to work.

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