When I started out as a strategist more than 30 years ago, I had the arrogance of youth, a long-term investing horizon and less wealth to worry about. Those three qualities worked well then, but not so much now.
I have the wealth to enable a comfortable retirement — at the moment. What I don’t have is the time left to sleep easily at night in the event the stock market enters a serious bear market. I’m not alone: Those aged 55 and older are a larger portion of the population than they’ve ever been. We’re 35% of the country and growing. Compare that to 27.4% in 2000 and 31% in 2008. I’ll get back to those years in a bit.
When you consider the recent gyrations in equities in the context of the aging population, logic follows that folks facing or in retirement will be much more defensive in their behavior than in the past. If that means they will be quicker to get out of equities in the next downturn and stay out, their impact will be felt for a long time. That’s especially true given where wealth lies. Older people have it but neither the time nor mindset to recover from a bear market no matter how many times they hear their stockbroker utter encouraging words such as, “despite short-term market gyrations, it’s important to maintain a long-term perspective, based on your goals and financial plan.”
My camp — the baby boomers — is unlikely to see a surge in interest rates that will provide a comfortable return of, say, 5% to 6% in long-term, safe municipal debt securities. Total returns in the bond market are going to be modest — forever.
My generation has been here before in an economic sense. Approaching 2000, we all knew the dot-com-fueled Nasdaq Composite Index was blowing up into a bubble, but greed and a belief that we were smarter than everyone else kept us riding the momentum until we wished we hadn’t. But then we were 40 or 45 years old, and arguably had 20 to 25 working years left to make up for the momentary loss. Bothered, yes, but younger and with time on our side.