May 6, 2005
News & Opinion: Will Boomers Blow Up The Stock Market?
On the front page of yesterday's Wall Street Journal was an outstanding article (sub. needed) on the future of the stock market.
Jeremy Siegel is a professor at Wharton and he has been a big supporter of stocks as a long-term investment. His book Stocks for the Long Run has sold 350,000 copies.
Siegel has a new book and he has changed his tune. In The Future for Investors, he says that the coming retirement of the baby boomers will cause the stock market to tank. On the supply side, boomers will be selling stocks and bonds to maintain their quality of life. On the demand side, there will not be enough investors to buy up all of these assets and prices will fall (the ratio of workers to retirees will drop from today's 4.9 to 1 to 2.6 to 1 over the next thirty years). The only savior, Siegel claims, could be the growing economies of India, China, and other developing nations.
What makes the article great is the counterpoint that Robin Brooks offers. Brooks is an economist from the IMF and he says Siegel is all wet. He talks about how 10% of individuals in the US hold 88% of stocks and how this segment will not need to sell large portions of their portfolios.
This sums up the article:
"Whether we will see some sort of crash or slow crumble over the next decade or so, I don't know," says Andrew Abel, another finance professor from Wharton School at the University of Pennsylvania. "But it is certainly likely enough that it has gotten to enter into people's planning."