Will there be a Boom-er Bust?

[wayneL]

From another thread:

In all fairness to those interested in the Baby Boomers, there are many arguements to support both theories, and the effect they may have on the financial markets. Here is an exceptionally good piece directly related to the topic. http://www.profutures.com/article.php/448/

Rather than hijack this important thread with my opinions, that are off topic, I am happy to continue in another thread, and debate the varied reasoning.

Cheers

Will Boomers take out the share market by withdrawing cash, or not?

Discuss.

 

[Awesomandy]

Actually, I don't think this will be too bad. Yes, they will be taking money out of the market for their own holidays and spendings, but the money will go into companies and the high net worth individuals who provide the services for these boomers. And, as spendings increase, the profit of the companies would increase as well, therefore, creating a more attractive proposition for the high net worth individuals to invest more money into the share market. So, in other words, the money withdrawl from the boomer will most likely be reinvested by the beneficiaries of their spendings.

 

[PortfolioPlus]

The baby boomers are a force in the economy and whatever they are doing or buying that's where the action is. It's like an Anaconda swallowing a basket ball...wherever the ball is in the belly that't the "hot spot" and that's also the B-B's as a demographic group in our society.

But they are a diverse group as well. They won't be retiring en masse...many of them want to keep active and work part time. Heck, many of them are actively investing in and playing the stock market. It's become their hobby.

They know that, stripped of all the "me-too" alternatives, there are only three investment types: CASH, EQUITIES and PROPERTY.

For mine, the B-B's will be in the stock market for quite a number of years into the future and we can all profit from their very, very predictable journey into retirement villages and age care.

Stocks like PTN which are presently @ 73 cents and generating an 8.5 cents fully tax deferred dividend..and backed up by a bricks and mortar NTA of around $1.00.

Or the largest retirement village owner, FKP which also gives an exposure to property development where we still have a critical shortage in Australia.

Then think about where the B-B's will spend their wealth. They'll want their eyes done...look at VGH. They'll want all kinds of advanced medical tests done and the older they get, the more they'll need.

I think this generation offers the best clue as to where real profits will be generated in the future so I'm following them.

Besides, they knew how to party down in the sixties (biggest and best music era ever)...now they might show us a thing or two in the more mature phase of life.

 

[Kimosabi]

From another thread:

Will Boomers take out the share market by withdrawing cash, or not?

Discuss.

The smart Baby Boomers should have sold out of all non income producing assets by now and should be sitting on cash and gold.

End of Credit Bubble = End of Capital Growth unless we start zimbabwe style inflation which seems to be quite possible as well when you realise that we have got lunatics running things in the United States...

 

[Julia]

Question to those who suggest the bb's will take their funds out of the market: where will they source an income?

 

[Rainmaker2000]

While it sells newspapers and makes headlines to talk about Boomers 'cashing out' or whatever, like they are the only people with investments in our society, the reality is that its all oversimplified clap trap..........It's just far more complex and much better to just focus on fundamentals

As Julia points out, surely these 'boomers' need the market to source income....especially since super system now encourages this over real property for example..........who is to say the boomers money will not just be spent on the next 'generation', keeping in mind the whole concept of generations having distinctive characteristics is just a 'Today Tonight' phenomenon.

What is certain, is the ridiculous concessions and tax system now build for Aussies.......that indeed favours share investment by accident.....

Ultimately, if you want to invest, none of this matters too much since you, like always, have the value of each particular stock or market to assess....

 

[Bill M]

There is a book out called "The Great Bust Ahead" and the writer basically predicts this theory of the BB's pulling out of stocks and into cash. Read the reviews on that site to get a better understanding of what he is going on about. The thing to do is go into AAA Government bonds and get the ones with long term maturity like 10 years. I must add, this bust isn't suppose to happen until 2011-2012.

 

[numbercruncher]

Question to those who suggest the bb's will take their funds out of the market: where will they source an income?

7pc p/a virtually risk free in an online savings account certainly cant be scoffed at in the current enviroment! Im pretty confident many peoples share portfolios will fare worse than that

 

[Julia]

7pc p/a virtually risk free in an online savings account certainly cant be scoffed at in the current enviroment! Im pretty confident many peoples share portfolios will fare worse than that

Sure, in the present circumstances. But - inasmuch as it's possible to generalise about a generation - the b/b's have been pretty financially savvy and I imagine most would take a long term view.

Even those without SMSF's will probably buy an allocated pension income stream which derives its earnings from the market for the most part.

And when you're making recommendations about holding cash, I can't see the sense in that (once the market returns to some sort of growth again) because inflation will pretty smartly devalue the capital.

I simply don't believe most b/b's will pull their funds our of the market and dump it in cash for anything more than the short term.

 

[TheRage]

I simply can't see this happening. Sure occassionally I see a retiree withdraw all their superannuation and stick it in a fixed deposit but these are the uneducated ones. Why would someone withdraw 1 million out of Super when they turn 60 ( which will be tax-free withdrawal) to stick it straight into a term deposit earning 8%. They will now have a taxable income of $80,000 and can say good buy to a good chunk in tax. If they turned their Super into an income stream (now called Pensions) they would pay zero tax on withdrawals, income and earnings. These pensions can essentially be invested in cash if that's your fancy or direct shares, or managed funds etc but it depends on the platform. To offset any potential market impact to clients I generally set them up with 2 years of income sitting in cash account while remainder in higher risk product. So while their current portfolio might be taking a hit they don't need to sell it when the market is down but simply draw from the cash account.

 

[Rainmaker2000]

There is a book out called "The Great Bust Ahead" and the writer basically predicts this theory of the BB's pulling out of stocks and into cash. Read the reviews on that site to get a better understanding of what he is going on about. The thing to do is go into AAA Government bonds and get the ones with long term maturity like 10 years. I must add, this bust isn't suppose to happen until 2011-2012.

I got a bit of a giggle from this next 'Great Depression' publication....Let's assume first that the baby boomers will be the ones making decisions about their money...Sure looking forward to the baby boomers ripping all their money from the market to creates bargains for you and I.........that would be the opposite phenomenon of them inflating residential property prices for so long to the extent that I won't buy another real property...........there's one problem with all of this....

Capital actually has a role in society......for them to put it into Treasury bonds, that means there must be 'Treasury bonds'.....You would have a problem currently in Australia, since, our Government has not been writing many bonds....hehe

It goes wider.......if everybody moves cash to savings accounts, then savings become less lucrative.....and what would happen with all that cheap savings capital.......are banks just going to pay interest to do nothing with the money........will the money just go to no productive purpose.

The share market is not just some slush fund where money goes in and may be taken out......it is the productive location where capital goes in and returns come out.......it does not matter who puts capital in, capital will go in, asssuming our society continues to do business

 

[numbercruncher]

Obviously withdrawls are going to vary case by case, the older Boomers by far and large are worst prepared financially as they didnt have compulsory super all their working life.

Diversification is the key, but all boils down to personal circumstance, someone with a million dollars probably wont pull all their money out of the market, but someone with say 100k to last the rest of their life must be damn tempted to do safe and sure 7pc in the current environment.

And we are talking large numbers here, the Boomer demographic group far and large outweighs any other age group, they will have to begin drawing money to spend in retirement and the numbers grow hugely each year, withdrawls will surely have an effect at some time in the future, year after year at least 100 thousand boomers retire drawing out money to live off, it adds up to serious digits.

So roughly way I see it, currently we have like 4 workers contributing to super for every 1 retiree withdrawing from super, between now and the next 20 years it slowly but surely drops to somewhere like 2 workers contributing to super for every retiree withdrawing from super.

Long term investors should definately be looking at investing in things related to this massive demographic group, ie/ aged/health care, Lifestyle/leisure etc. Lets face it (naturally) the Boomer generation own/control most the assets in society.

And their favorite quote as popularised by bubblevision "Busy spending the Kids Inheritance"

 

[Bill M]

I got a bit of a giggle from this next 'Great
Capital actually has a role in society......for them to put it into Treasury bonds, that means there must be 'Treasury bonds'.....You would have a problem currently in Australia, since, our Government has not been writing many bonds....hehe

It goes wider.......if everybody moves cash to savings accounts, then savings become less lucrative.....and what would happen with all that cheap savings capital.......are banks just going to pay interest to do nothing with the money........will the money just go to no productive purpose.

I think that's what's been going on in Japan for the last 20 years. Right now their official rate is on .5% and their sharemarket has been cr@p for 20 years, we don't want to go there.

 

[moses]

I got a bit of a giggle from this next 'Great Depression' publication....

...it does not matter who puts capital in, capital will go in, asssuming our society continues to do business

But isn't that the point?

When the baby boomer stop spending big and start winding down, then the biggest business generators in society are winding down business spending.

I would question the theory more on (a) whether or not the age 54 should be upped to, say, 60, to reflect increasing life expectancy, and (b) the effects of emerging economies like China and India in a globalised economy.

Also, is the baby boomer generation a world phenomena or merely USA/UK/Aus/Europe?

 

[robots]

I simply can't see this happening. Sure occassionally I see a retiree withdraw all their superannuation and stick it in a fixed deposit but these are the uneducated ones. Why would someone withdraw 1 million out of Super when they turn 60 ( which will be tax-free withdrawal) to stick it straight into a term deposit earning 8%. They will now have a taxable income of $80,000 and can say good buy to a good chunk in tax. If they turned their Super into an income stream (now called Pensions) they would pay zero tax on withdrawals, income and earnings. These pensions can essentially be invested in cash if that's your fancy or direct shares, or managed funds etc but it depends on the platform. To offset any potential market impact to clients I generally set them up with 2 years of income sitting in cash account while remainder in higher risk product. So while their current portfolio might be taking a hit they don't need to sell it when the market is down but simply draw from the cash account.

Hello,

great point Rage, give up maybe around 24k to the ATO?

also what are people going to do with all there gold, present it at Coles for the weekly shopping?

I cant understand, over in the property threads people are continually talking up the buying opportunities when RE tanks, yet we have one of the best share buying opportunities going around at the amount and its all doom and gloom

thankyou

robots

 

[numbercruncher]

Also, is the baby boomer generation a world phenomena or merely USA/UK/Aus/Europe?

Japan is probably the worst, China and her one child policy is also barelling down on the same result, All western nations will experience it, USA is about the only Western nation currently with natural population growth, but still doesnt compensate for the massive amount of upcoming retirees and the massive cost to their social security / Aged care - Its totally unfunded, Trillions of dollars of liability.

Third World nations tend to have alot more young than old, Superanuation in many places ie/ Africa is to have as many kids as you can so hopefully some survive to look after you in old age, Im not being crass thats pretty much what happens. (Religions/beliefs etc play a role to)

Alot of Islamic Countrys also have very young average age of population so I read. (Iran etc)

Worlds population is far to large anyways and needs to shrink a little or atleast stop growing (In 100 years we have gone from one billion to over 6 billion), doesnt bode to well for Capitalism in its current structure as its survival is almost completely dependant on Growth, might explain the mad rush into Globalisation eh ?

 

[numbercruncher]

I enjoy the reading at dailyreckoning, they have a little article on this subject today.

Wake up, America! We’re on the brink of a financial meltdown. I.O.U.S.A. boldly examines the rapidly growing national debt and its consequences for the United States and its citizens. As the Baby Boomer generation prepares to retire, will there even be any Social Security benefits left to collect? Burdened with an ever-expanding government and military, increased international competition, overextended entitlement programs, and debts to foreign countries that are becoming impossible to honor, America must mend its spendthrift ways or face an economic disaster of epic proportions.

http://www.dailyreckoning.com.au/iousa-movie/2008/01/19/

 

[Julia]

.....they will have to begin drawing money to spend in retirement

This is where I disagree with you.
Most will, as I've already said , still essentially derive their income from the sharemarket via either a commercial income stream or simply set up a pension from their SMSF, providing a tax free income.

Have a look at The Rage's remarks.

Also, although it's true to say that demographically the b/b's are a large group, they are also spread out over a large number of years. Remember they're not all going to say at once, " well, wacko, it's 1st July 2010, let's all retire today"!

 

[numbercruncher]

This is where I disagree with you.
Most will, as I've already said , still essentially derive their income from the sharemarket via either a commercial income stream or simply set up a pension from their SMSF, providing a tax free income.

Have a look at The Rage's remarks.

Also, although it's true to say that demographically the b/b's are a large group, they are also spread out over a large number of years. Remember they're not all going to say at once, " well, wacko, it's 1st July 2010, let's all retire today"!

As I mentioned I feel it will vary from person to person, everyones circumstance varys, I can only assume scenarios on publicly available Information such as this ......

Average superannuation savings per household are only just over $63,000.
Around 40% of households have less than $35,000 in superannuation, with the top 20% of households still only having $135,000 in super on average.
For a couple in the age group 55 to 64 who are approaching retirement the average superannuation balance is $168,000 with singles (including divorced women and men) having much less on average.

http://www.superannuation.asn.au/mr060503/default.aspx

The average Super balance (especially for older boomers) is not enough to enjoy retirement without eating into the capital base, well over 100 thousand a year retireing, capital preservation will be nigh on impossible for the majority. Anyone within a few years of retirement is playing a dangerous game being fully invested if they rely on that cash to fund day to day living once retired anyways.

If I was in the 55 to 64 age group I would most certainly be salary sacrificing every single dollar I could, I read somewhere that in Qld currently 59pc of retiree rely on the Government pension

 

[numbercruncher]

Well im betting the Boomers are liquidating now to preserve capital for day to day living in retirement !

I remember reading last year some brokers saying many of their clients where borrowing a cool mil to get in before July 1st for Peter Costello's so called "$1 million superannuation opportunity" .....