Don't worry about baby boomers dumping stocks for bonds

Investors are worried about what the ageing baby boom population means for the markets.

Specifically, they’re concerned that the boomers will pour out of stocks and into bonds to reduce risk profiles throughout retirement. This is would be bad news for the stock market.

However, BMO Capital’s Brian Belski highlights another demographic trend that could counter the negative effect from the baby boomers.

“[W]e believe these investors are ignoring an even more important demographic trend,” Belski wrote. “Specifically, the size of the baby-boom echo (children of baby boomers aged 30 through 39) will be growing meaningfully in the coming years and growth in this cohort has historically had a direct impact on stock price levels.”

Citi’s Tobias Levkovich has also been vocal about this bullish trend. He argues that as these Baby Boomers’ kids enter the age bracket when most people buy their first home and have a couple of kids, they will start saving aggressively in the stock market.

“Some estimates suggest that more than $US40 trillion of wealth will be transferred by 2060 from ageing Americans to their offspring and grandchildren, with the potential for continued consumption at a more impressive pace than is generally expected,” Levkovich added. “Despite the two major equity bear markets of the past 15 years, equities still offer investors better upside potential than bonds and it seems improbable that shareholders will be sellers as indices achieve new highs, if history is any guide.”

Looks like demographic trends might net positive in the longer-term stock outlook.

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