Originally posted by: Fern
Originally posted by: Zebo
Originally posted by: dullard
Originally posted by: Zebo
Problem with that is all baby boomers and supporting their dead beat children will make a run on the market soon, when allowed w/o penalty. Then I'll get in.
I've made that argument myself. But someone here claimed (without proof) that the baby boomers actually have a negligible amount of money in the stock market. I never looked it up, so to me the answer is left unclear. Maybe we should look that up. Do they have enough in the stock market to make another significant dent?
If that's true then I'm wrong - but as you say lets get some evidence. Also, there is still the issue of the investor class finally waking up to the lack of real dividends which I think will make them shift into treasuries and bonds over time. Then you have issue of can USA companies even compete on global market, come sure can like big pharma, oil, but other whole industries are dying like autos. I don't see this recovery for a multitude of reasons not just one.
Re: Baby Boomers' money in the stock market.
I don't believe the data exists to accurately determine what age group holds what portion of stock. Age type data is necessary and available for retirement-type accounts (they must be able to determine whether a distribution is premature and/or when mandatory etc). But I don't believe regular brokerage accounts need/use that data. Then there are stocks held by fictitious entities (companies/partnerships/trusts etc) for which no age-related data is even possible.
But I'd say quite a lot of stocks are held by Baby Boomers. (1) I've been doing their tax returns for about 30 years and these people have a pile of stocks. (2) We here in the US switched from Defined Benefit-type retirement plans to Defined Contribution plans in teh early 80's. A Defined Contribution plan is one in which you invest in stocks etc with pre-tax dollars. I.e., begining back in teh early 80's employees began invetsing directly in teh stock market, instead of their company's (DB) pension plan doing so.
My recollection (I was a finance major in university as well an accounting) was the stock market only really began going 'retail' in maybe the 70's or 80's. (I remember seats on the NYSE for sale at only a $100K back then.) This would also indicate a lot of Boomer participation.
I was able to find an academic paper on this subject (amount of BBoomer investment in the stock market and effects of their mass retirement on stock prices)
Here - a Wharton/UPenn article
There?s little argument that as boomers became more affluent in their 30s and 40s, they poured money into stocks and other investments. Indeed, mutual fund assets in the U.S. soared from less than $48 billion in 1970 to $6.9 trillion at the end of 2000, according to the Investment Company Institute, the funds? trade group.
I believe this confirms my beliefs stated above (i.e., a lot of BBoomer money in the stock market)
As far as whether their mass retirement will have an adverse effect on stock prices, that's subject to debate. But I think most of the real debate is focused on 'how much', not 'if'.
Re: Lack of Dividends.
This is puzzling to me also. When most employees were on the old Defined Benefit pension plans dividends were highly desired. They needed the cash flow to fund the retirements to (ex)employees. Cutting dividends was not often done, even when the company had a loss for the year. The effect on the stock price would have been horrendous. I was working the IBM execs accounts back in the early 90's when IBM got in a lot of trouble. They had to cut dividends and the ir stock value plummeted resulting in John Akers getting canned (CEO and Chairman of the Board).
But starting in the mid- 90's seems to be people became aware that while dividends were taxed at (higher) ordinary rates, LT cap gain on stocks were taxed lower. The result being 'conventional wisdom' began favoring the discontinuance of dividends (or maybe scaling back). By retaining the cash a companies stock just increased in value and people would get their 'cash' by selling the stock and only paying low cap gains tax.
However, in 2003 tax law was changed and diivdends (generally) enjoyed the same low rates a LT cap gains. Why that didn't encourage companies to move back to dividends is a question.
My guess?
1. Since the 80's an awful lot of exec compensation is based on stock price. They may not want to pay out the company's cash and prefer instead to let it accumulate thus driving up the stock price - and their compensation.
2. The market (traders etc) make a lot of money on 'buys and sells'. They get nothing from dividends. So, the lack of dividends forces buy's and sell's and they profit.
The only benefit to dividends I see ATM is for the 'regular' guy; the only one with no real say in the matter.
Fern