By Dennis Kagel, Investment Advisor Representative
It is important for people to have a solid plan for funding their retirement. And this plan should be evaluated on a regular basis to make sure that your hard earned money is being invested in the best way for your particular situation and stage of life. Most people want to protect their money from stock market losses. The stock market has had a good run since the recovery after the 2008 financial crash. There’s a lot of conjecture about what the future holds for the market. Will it continue to “steamroll” ahead to Dow 20,000 and up? Or, will it run out of steam and lose 40–50 percent or more as some are predicting? Or, will it do something in between? It’s anybody’s guess, but there are some strong indicators that make it generally more predictable, especially over an extended period of time.
Have you heard of demographic trends? Demographic trends is the study that has identified the fact that people in America tend to develop spending and savings habits based on their age and stage of life and these spending and savings habits tend to greatly influence the stock market’s behavior. For example, older people don’t buy bigger homes. They tend to downsize. Older people drive their cars fewer miles each year, so they buy new cars less often. Older people spend less on raising their kids and the expensive educations that go along with them. It’s been determined that older people eat less, not to mention not having to feed their kids anymore. Get the picture?
Many Baby Boomers (born between 1946 and 1964) today are in their mid- to late-60s. With the large percentage of our population comprised of Baby Boomers, lots of people each day will be turning 65 and retiring. Do you think these people are going to cause the stock market to go up? I don’t think so! Just think about it… Americans spend the most money when they’re in their mid-40s. That means Baby Boomers moved past their peak spending cycle in 2007.
What is the largest sector of spending in the U.S. economy? Real estate and related sectors! And when do people spend the most on buying homes? Between the ages of 27 and 41. Is the Baby Boom generation done with that industry (housing)? Yes!
In fact, even the younger generation isn’t as enamored with real estate as the Boomers were. They seem to be more interested in freedom of movement than cementing themselves to one place with a mortgage. The conclusion is that people are apparently going to be spending far less on housing and the related industries in the years to come. This does not bode well for the stock of these companies.
People do invest more as they age, a trend we see typically between the ages of 46 and 64, before they start spending down their savings. But the rate of such investment peaks around the mid-50s for most people, and as we get closer to retirement, we invest more in fixed income and conservative financial plans (fixed and index annuities, etc.). We become more risk-averse. At least common sense would dictate that we should. The result of this will more than likely be less money going into stocks and stock mutual funds simply because of the habits of this age group.
The peak numbers of Baby Boomers were born between 1957 and 1961. Their stock buying peaks between 2011 and 2015. That doesn’t sound good for a theory that stocks will go up and up in the next decade, especially when demographic trends in spending and earnings point down from 2008 and 2020 to 2023, before turning up again.
By now you get the idea… as people spend more on housing and cars and other things, it’s good for the stock market because company earnings and revenues go up. When people spend less, it’s not good for the market because company earnings and revenues go down. The stock market definitely seems to correlate with one major trend: earnings. Earnings grow more with GDP, not with higher or lower levels of investment demand. They grow with consumers buying the products out there, not with share purchases.
The point to this article is that there are observable spending and savings habits that are predictable based on the size of age groups within our general population and all that behavior directly affects the stock market. I tend to side with those who say that we may be facing gloomy times ahead for the general stock market until around 2020 or so when another section of the population enters a new spending phase. It’s impossible to predict with absolute certainty when the market downturn will come and for exactly how long it will last, but it is with some degree of confidence that we can use the individual behavior of people at various ages (the study of demographics) to predict market trends.
For guaranteed and secure financial strategies to protect your money and to help it grow, you may call Dennis Kagel at 309-454-9171 to schedule a no-cost and no-obligation visit. You may also visit his website: www.safemoneywizard.com.
Sources upon request.
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