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Will Baby Boomers Cause a Stock Market Crash?

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Will Baby Boomers Cause a Stock Market Crash?

Wednesday, 20 August 2008

By Charles Delvalle
    Charles,
    As the baby boomers retire, will the selling of their 401(k)s for retirement income have a downward effect on the stock market for many years to come? At 52, I don't want to take another major hit on my retirement. What will happen to the stock market as the population ages? I feel I have all my eggs in the same basket as everyone else.
    Mark N.
Mark,The question you have is one that’s on the mind of many baby boomers. So I’m glad you asked it.

The truth is that this current recession muddies the waters a little bit. It’s quite possible that as this recession progresses, baby boomers will get fired, causing them to pull money out of their 401(k)s earlier than usual. It’s also possible that the lowered returns that baby boomers are seeing this close to retirement would be enough for them to take their money ‘out of risk’ by pulling it out of the stock market.

But will this exodus of baby boomers cause the market to continue moving down for years to come? Probably not.

Remember – positive returns drive investment. If the market starts rebounding in 2009 or 2010, you’ll see investors jump into stocks. Not only will a younger generation be buying stocks, but so will foreign investors, retirement funds, hedge funds, and even baby boomers looking for that last ‘hurrah’ before retirement.

In the end, you shouldn’t worry about baby boomers causing the stock market to move down. But if the economy doesn’t recover, returns will certainly stay low if not negative.

The best way to stay safe this close to retirement is to keep half of your money in income paying stocks and high-yield bonds from safe corporations or foreign governments. These investments have far less volatility and pay out a steady stream of income payments to anyone who holds them.

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