Equity valuations may be depressed as Baby Boomers shift from buying stocks to financing their retirement, according to the Federal Reserve Bank of San Francisco.
This massive demographic shift should be taken into account in long-term financial planning.
The baby boomers, born 1946 and 1964, began turning 65 this year. As they begin retiring in increasing numbers they are likely to sell off assets, especially risky equities, according to Fed researcher Zheng Liu and Mark Spiegel, a vice president in the economic research department.
Of course, many boomers already have diversified their portfolios by cutting down on stocks and adding fixed-income investments. Also, current asset prices should reflect the anticipated effects of these demographic changes to some extent.
Still, U.S. equity values historically have been closely related to demographic trends.
“In the context of the impending retirement of baby boomers over the next two decades, this correlation portends poorly for equity values,” Liu and Spiegel write.
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