Normally I am not a fan of the Boomers (the Baby Boomers, those born between about 1944 and 1955). I’m sure there are a lot of great people in your generation who worked hard and did a lot of great things. But there were also a lot of people who really messed things up.
The trouble was, in rejecting authority and not “trusting anyone over 30,” you threw out a lot of good stuff with the bad. You threw out great art and gave us dung thrown at a canvas. You threw out great symphonies with beautiful melodies and gave us songs where musicians beat on their instruments and “performance pieces” where the musicians just sit there.
Financially, your generation has been a train wreck. Still scarred by the Great Depression, your parents were one of the most financially responsible generations ever. You made more wealth than any generation before you, and yet many of you are heading into retirement still owing a mortgage on your home. You bought pet rocks and expensive cars and remodelled your kitchens and bathrooms dozens of times, but never saved for your children’s college or your own retirement. Maybe at 55 or so you started to get worried and saved a bit, but much too late. (Again, this is all crass generalization and I’m sure there are exceptions.)
That said, fate has also not been kind to your generation. First it looked like the vast expansion of the 1980’s which went well into the 1990’s would provide the stock market gains needed to salvage a good retirement despite your spendthrift ways during your youth. Unfortunately that lead to a bubble that burst and took 50% of the stock market value with it. For many .com companies, the damage was 90% or 100%.
Next, low-interest rates and easy credit lead to a housing bubble, with homes growing in value more that 20% per year. Again, it looked like Boomers would be able to sell their homes and downsize. They would then have plenty of cash for a comfortable requirement. Again, however, the bubble burst, and many Boomers who used their equity to take vacations and remodel their kitchens found themselves underwater.
At this point, they were hit with low interest rates caused by a Federal Reserve that decided to set fund rates at zero and buy long-term debt to spur the economy. The trouble, however, was that the very business unfriendly climate caused by unprecedented government intrusion into business affairs, a vast expansion in regulations, and a gargantuan expansion in healthcare requirements that will make coverage unaffordable for most workers, there was very little demand for loans to make use of that loose credit. Instead, Boomers who were retiring saw their interest returns on CDs fall through the floor.
Now, Boomers have rushed into bonds to try to get some sort of return for their savings. That has caused bond prices to soar, leading to another precarious situation. When interest rates rise, which they will once inflation starts growing or a change in policy at the Federal Reserve takes place, Boomers will see their bond investments decimated.
Those who have saved up enough to be able to invest largely in equities — those who have enough in assets to be able to weather a decline and still have enough to meet expenses — will be able to keep enough in cash to meet obligations for several years and then sell equities when prices are up and hold when prices are down. The rest, however, are in a very risky position, particularly with the Government’s ability to continue to pay Social Security and Medicare claims very much in question. The next decade may not be pretty.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.