CITI: America's Age Is About To Hit The Sweet Spot For Stocks

This is one of the more counterintuitive ideas that has been put out there.  And we’ve written about it before.

Citi’s Tobias Levkovich argues that America’s ageing population is actually heading toward the age where they will start saving more aggressively.  Confidence in stocks is further bolstered by the fact that stocks have been rallying in the last few years.

Conventional wisdom would suggest that when people get older, they’re more likely to sell off their stocks and head to fixed income securities like bonds.

But having considered the amount of wealth that’s been destroyed in the markets in recent years, Levkovich thinks that there are plenty of reasons why investors would be flockin to stocks, despite shinking time horizons.

Here’s what he wrote in a note published earlier this week:

More impressively, the next few years should see new investors come of savings age. As we have noted previously, the 35- to 39-year-old cohort should begin to grow again starting in 2013 and this group is very crucial to retirement savings and equity market trend (see Figure 10). While some have suggested that this baby boom echo won’t buy stocks in view of the 2000–09 market trend, we would suggest that they look back at the 1980s and 1990s, which followed a 16-year bear market in stocks — the 1970s stock market problems did not deter the baby boomers and the 2000s most probably will not prevent the echo generation from buying if opportunity exists. Keep in mind that the past three years actually have been very equity friendly and behavioural psychology argues that people are most affected by their most recent experiences. Additionally, baby boomers do not have the luxury of moving their stock holdings into very low yielding fixed income instruments and have much left for their own retirements.

citi demographic trend

Photo: Citi Investment Research & Analysis’

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