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. Last Updated: 07/27/2016

Will Aging of Boomers Bring on Market Bust?

vNEW YORK -- Here is a long-term question stemming from the great stock market rise of the 1990s: If this is a baby boomer boom, fueled by the retirement savings of the generation born after World War II, will the market take a sickening drop when the boomers start selling that stock in the 2010s and 2020s?


As a speculative question, the experts say, it makes sense. "It is true that the baby boomers are entering a great accumulation phase, high savings and projected high rates of growth in the prices of financial assets," said Jeremy Siegel, professor of finance at the Wharton School. "Then you look at the other side, in 2020, and it's scary."


What goes up usually comes down. But so much can happen to savings habits and business trends in 20 years that it is difficult to say what might occur when retired baby boomers start to sell their nest eggs to pay their mooring fees in Fort Lauderdale.


Experts foolhardy enough to risk a guess on so little data are mostly optimistic. They say the boomers' children will be saving more than the boomers did. Foreigners will be pumping more money into the market. The boomers will find ways to buy their groceries without tapping into their mutual fund accounts. All these things will prevent a stock market crash, the reasoning goes.


"If the U.S. remains stable there will be plenty of investments in that stock market," said Karl Case, a professor of economics at Wellesley College who specializes in long-term trends. "We are relatively speaking the most stable country in the world, and if you have to put your money somewhere, we will probably be it."


Samuel Hayes III, professor of finance at the Harvard Business School, said, "I do not expect investors to automatically move their money out of the stock market and put it into fixed-income and other securities." Retirees in the 21st century will be anticipating another 20 years or so on the planet, he said, "and I think there is an increasing awareness that if you have a horizon of a minimum of seven or eight years, you are better off leaving the money in equities."


Bradford Cornell, professor of finance at UCLA's Anderson Graduate School of Management, said he is not convinced that the current bull market has much to do with the rise of baby boomer savings. Like some other analysts, he is prone to give most of the credit to classic economic fundamentals: low inflation, low interest rates and healthy corporate earnings.


Alfred Kugel, senior investment strategist at the Stein, Roe & Farnham investment management firm in Chicago, said the growth of mutual fund assets to $3 trillion means "you have a whole new population of shareholders, and there is no easy way to tell how those people will react" to changing circumstances such as market crashes, changes in tax laws and adjustments in legal retirement age and Social Security.


"There is a reasonable argument to the effect that the baby boomers' retirement might lead to greater volatility" in the stock market, said David Jones, vice chairman and chief economist of Aubrey Lanston & Co.


Any bumps a boomer sell-off might cause are likely to be smoothed out by the growth of overseas economies, many of which did not have a postwar baby boom but now are beginning to develop incomes and businesses that could snap up any stock Americans retiring in the next century want to sell.


"Right now we are lending the developing countries a lot of money but that money eventually is going to come back," Siegel said.