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Large Cap Stocks Are Top Picks Of Boomer Eecs

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As investments they outpace money markets by almost 3 to 1

A close look at boomer executives’ investment choices reveals a striking preference for large cap stocks. And, contrary to conventional wisdom, young boomers favor investments that are safer than those of their elder peers.

These were among the key findings of a survey released this month by Clark Consulting, a Barrington, Ill.-based executive compensation and benefits consulting firm. Titled “Executive Retirement Report–The Baby Boomer Edition,” the study concluded that large cap stocks comprise nearly 37% of all assets invested by boomer execs in nonqualified retirement plans. Money markets were a distant second at 13.2%, while fixed income was just behind with 12.7% of total assets measured.

The report additionally revealed an overwhelming preference for U.S. stocks. Of the 9 asset classes measured, “foreign” and “world” equities accounted for just 6.7% and 1.3%, respectively, of the total.

“The boomers who now dominate the executive population have a high degree of confidence in the U.S. economy,” says Ted Disabato, a chief investment officer for Clark Consulting. “Their investments reflect that sentiment.”

While there were consistencies in investment choices for all boomer executives, the report found some differences in investment strategies or asset class choices based on age. The report looked at the executives in three age categories: those born 1946-1951; those born 1952-1958; and the youngest of the boomers born between 1959 and 1964.

Large cap stocks were the most popular of assets measured, with the oldest group placing nearly 40% of their assets in that class (39.5%). Middle boomers allocated 35.9% of their assets to large cap stocks, and the youngest group had 35.0% of their assets allocated to large caps.

According to the report, the second and third most popular asset classes varied by age group, but fixed income, small caps and money markets were the favorites with boomers.

For the eldest group of boomers, the second and third most popular asset classes were fixed income (14.1%) and small caps (10.7%). For middle boomers, small caps were also the third most popular, with 12.9% of assets measured. However, second-place money markets barely edged small caps (13.4%) by fewer than 60 basis points.

The youngest boomers differed from their elders; small caps were not in their top three measured assets. Instead, they selected money markets (17.3%) and fixed income (11.2%).

Though their relative youth would argue for greater risk exposure than that exhibited by their older peers, the youngest boomers likely favored more conservative investments because of their comparative investment inexperience and because they had fewer assets to invest, Disabato says.

He adds that foreign stocks should account for a growing share of boomer executives’ portfolios. Chief reason: the burgeoning influence of international equities, which now account for approximately 50% of the value of worldwide capital markets, according to Disabato.

Near-term, however, western European equities will continue to dominate international equities markets. Though China and India are increasingly impacting the world’s economy, their capital markets remain underdeveloped.

“In China, there are still a large number of government-owned entities,” says Disabato. “Equities offered by publicly held firms that investors can buy are still small in number. So those markets [China and India] are barely on the radar screen.”

As the eldest boomers retire, Disabato adds, they can be expected to shift their portfolios from high-yield equities to fixed income investments, including bonds and money market funds. The youngest boomers, following their elders’ path, should initially take a larger position in higher risk investments, including small cap stocks, before also redirecting assets to a more conservative portfolio.

In the aggregate, boomer execs are more sophisticated investors than their parents, says Disabato. That helps explain their greater willingness to buy high-risk, high-return equities–including variable life insurance products and annuities that invest in these equities–during their pre-retirement years.

But boomers’ willingness to buy high-risk investments is tempered by the knowledge that their portfolios need to be diversified.

“What [boomer] clients want is to limit risk by investing across asset classes,” says Disabato. “To the extent that financial advisors can bring diversified solutions to their clients, they will be viewed as trusted advisors.”

Clark’s latest executive retirement report, which the company releases quarterly, is the first to explore investment trends among boomer execs. The study examined the investment selections of more than 17,000 executives with annual compensation typically in excess of $100,000. The executives invested in nonqualified retirement plans established through Clark Consulting.

The report looked at investmentsacross nine asset classes, including: balanced, fixed income, foreign, large cap, mid cap, small cap, money market, specialty and world. The selection of asset funds and the allocations within those funds determine the investment return generated for an executive’s retirement account.


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