BULLS & BEARS: Aging investors won't lose taste for stocks

November 13, 2006

A popular theory is swirling around the investment community. It posits that in a few years stock markets will fall because of selling by the baby boomers.

The theorists believe the baby boomers will become increasingly conservative with their savings, selling stocks to buy bonds and other income-producing investments.

From my experience, this is a load of hooey.

I'm guessing the theorists are in academia and not actually doing investment management with real people.

The firm I co-founded manages investment portfolios for about 350 households and oversees a bit more than $200 million in assets.

We are a small enough shop that we tend to get to know our clients well.

The ages of our clients run the gamut, but a few were born in the 1920s. A whole bunch were born in the 1930s or early '40s.

We still have some clients who vividly remember the hardships of the Depression. But virtually anybody born between 1930 and 1945 was told many a dire tale by their parents about the tough Depression-era times, stock market crash and bank failures. They heard dinnertime stories about the rich guy in town who lost it all in the market and was living on skid row.

As they grew up, these pre-War kids were skeptical of the stock market-and rightfully so. If any group would be inclined to sell stocks and buy bonds as its members age, this would be it.

But if our clients are at all representative, many members of the "greatest generation" are comfortable with a pretty high allocation to the stock market.

We baby boomers, in contrast, didn't grow up scared of the stock market. The big fear instilled in us was against communism, not capitalism.

The global economy is taking care of the communism fear. According to Freedom House, a New York-based human rights organization, 30 years ago there were 41 free countries, which encompassed 27 percent of the world's population.

Today, there are 89 countries and half the world's population living in freedom. And significantly more than half the world lives under some sort of a capitalistic, market-based economy.

Capitalism is the global juggernaut and the countries that are fighting it are falling further and further behind.

Capital flows to where it is treated the best and shows the most promise for the investor-both in terms of getting capital back and earning a positive return.

As Will Rogers said, "I'm more interested in the return of my capital than the return on my capital."

Corporations and governments feel the same way as old Will Rogers, which is why there is little capital flowing to countries gripped by dictators and tyrants.

China figured this capitalism thing out back in 1978 and look at its growth since. Just wait until China's debutant party in 2008, when it hosts the summer Olympics and becomes the poster child in living HDTV color for attracting capital.

The baby boomers are living through this global capitalistic revolution and in 10 or 20 years will be less afraid of equity investments than any previous generation.

Gilreath is co-owner of Indianapolis-based Sheaff Brock Investment Advisors, money management firm. Views expressed are his own. He can be reached at 705-5700 or daveg@sheaffbrock.com.
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