Outperformance by passively investing in the S&P is merely a temporary demographic phenomenon (puts, dividends)

[Bill the Butcher]

Keep in mind that the boomer generation is manipulated to be higher. It is the only generation that spans 18 years. All other generations span 15 years. These extra three years could make the outlook appear more Grimm than reality by showing artificially higher totals vs the younger populations.

This means the greater number of gen X , millennial, and Z population could help dampen the withdrawals of the boomer generation.

[mysticaltyger]

Originally Posted by Joelightening

I started investing 5 weeks ago as a day trader. No experience pryor to that. I know very little about the stock market. Last week my account increased by 86.9%. I will follow the same rules next week and try and repeat. This stuff is so easy.

Day traders are NOT investors.

[amil23]

Phil P, I think you make a very good observation. Personally, I think that is one reason govt. has pushed back the RMD. To keep people's money in the game.

[mysticaltyger]

Originally Posted by Phil P

It's so formulaic... For the 'average joe' who doesn't know much about investing, the advice everywhere could be AI generated - keep steadily adding money to a ETF type portfolio that is or closely resembles the S&P 500.

And it's worked; for now. But it's a self fulfilling prophecy that's largely boosted by the demographic situation we're in where boomers and millennials are outsized large demographic cohorts. Nobody has money in the stock market just to have money in the market. All those funds will someday be used to pay for something, retirement expenses for most people.

Right now we are probably close to peak contribution to retirement funds, with boomers (who were the first post pension generation) just about at the end of their career cycle with their highest earning paychecks. And not many boomers are starting to withdraw from their nest egg yet - the large medical expenses and cash reserve draining haven't hit yet. But they ARE going to start withdrawing those funds or at least de risking them, shifting from equity to bonds or safer options as horizons shorten.

If you were in the same boat as everyone else, you benefited from the headwinds of contributions > withdrawals. But those headwinds will turn to tailwinds when for the first time, we have mass withdrawal from funds that are now parked in S&P Indexed accounts. Essentially it's like a giant slow motion version of pandemic Gamestop, where contributions mattered more than fundamentals. And the S&P fundamentals, especially the biggest companies, are out of wack from what the rest of the market and international markets are at.

Passive investing and ETFs will always have their merits, I just think the S&P bucket is not one that I'd want to be in for the upcoming years.

Honestly, I think the whole money system is going to completely collapse in my lifetime. But unless I'm going to live in a self-sufficient community that produces most of, or everything it consumes, I'm stuck with the money system and investing in stocks, bonds, etc.

[Avondalist]

I think the OP is mixing up two arguments, and diluting both

It is true that demographics, despite being one of the most reliable ways to "see the future" of trends, is ignored by a lot of people. For example, the Japanese lost decades were foreseeable back in the 70s simply by looking at trends in the birthrate and understanding how the demographic transition works. Instead we had Japanxiety in the 1980s as a lot of people thought they would overtake the US economically.

However the matter of slow-growth, no-growth, and shrinking economies is orthogonal to passive investing as a strategy. If passive investing is a loser in the future due to demographics, active investing will be an even bigger loser for most due to the psychological pitfalls that are a constant. It won't become easier to pick winners in a slow growth economy.

Passive investing in indexes, due to their public nature, will always have lower fees than proprietary portfolios. More fundamentally, by not trying to overperform you are reducing beta and just riding the waves of the economy. I think these advantages of passive investing are constant.

One wrinkle I can think of is that if the economy has entered a period of secular deflation then investing in any equity may yield less than being in cash. However being in cash is passive too; active investment will always be riskier.

[leastprime]

OP;
Interesting theory and may be valid.
Many companies and industries have based their growth on us Boomers. We, Boomers, have changed. How the companies will react to our aging and dropping dead, will be interesting.

I've derisked from the Market but took on another risk in the survivability of my annuity company-Management of assets and demographics.

YMMV

[Chas863]

A lot of people such as the OP may be surprised to learn that their assumptions about the spending and investment habits of retirees are not correct. For example, the OP's point of view is that a person retires and then begins drawing down their retirement investments to pay for their living expenses.

In reality, most of the retirees that I've talked to have MORE money in their investments, stock market, etc today than they did when they first retired. In other words, their net worth had INCREASED in the decade or so since they retired rather than diminished. Their stock portfolio had doubled or tripled.

While this is not true for everyone, I think it is true for a considerable portion of retirees. I know that it's true for me and judging from the lifestyle of many retiree acquaintances that I know, I'm pretty sure that it's true for them too.

[leastprime]

Originally Posted by Chas863

A lot of people such as the OP may be surprised to learn that their assumptions
snip...

In reality, most of the retirees that I've talked to have MORE money in their investments, stock market, etc today than they did when they first retired. In other words, their net worth had INCREASED in the decade or so since they retired rather than diminished. Their stock portfolio had doubled or tripled.
...snip

Yes, our Capitalized net worth is well north of when we started, but since 2022, However, that Capitalize value has decreased because: RMD withdrawals to normalized GLWB annuity withdrawal, stock market correction, IRMAA tax (this year only), higher LTCi premiums and slight reduction of rental property value and increase reserves for expected rental vacancy.
YMMV

[hikernut]

Originally Posted by Chas863

In reality, most of the retirees that I've talked to have MORE money in their investments, stock market, etc today than they did when they first retired. In other words, their net worth had INCREASED in the decade or so since they retired rather than diminished. Their stock portfolio had doubled or tripled.

Sure, but that's probably because their investments have increased in value. The question as it relates to the original post is whether they are net buyers or sellers of stocks, and if they are net sellers what is the impact on stock prices.

I expect they are net sellers, at least collectively, but even considering all of the retirees selling stocks the market has increased in value. IMO, there are plenty of potential buyers on the planet when stocks are priced at a sensible level. I don't expect the stock market to drop merely because baby boomers are selling.

----

As I mentioned here already, the real question (IMO) is what happens when the boomers get old enough that they largely stop spending on household goods, travel, cars, etc. A huge percentage of our economy is underpinned by consumer spending, so it is a real concern. The counter argument is that they will continue spending, just on other things... healthcare is the obvious one, but one can imagine more spending on home delivery of prepared food, home-based entertainment, remodeling homes to deal with limited mobility.

[Chas863]

Originally Posted by hikernut

Sure, but that's because their investments have increased in value. The question as it relates to the original post is whether they are net buyers or sellers of stocks, and if they are net sellers what is the impact on stock prices.

I expect they are net sellers, but even considering all of the retirees selling stocks the market has still increased in value. IMO, there are plenty of potential buyers on the planet when stocks are priced at a sensible level. I don't expect the stock market to drop merely because many baby boomers are selling.

Not many "investors" sell their investments when the investments are doing well. As mentioned, the stock market as a whole is doing rather well over the past decade. Yes, there has been a bit of a correction in the past couple of years, but in recent months the stock market has moved back up and gained back a good bit of what it lost a couple years ago. If retirees have held onto their stock investments, and I think that most of them have, then I don't agree with your premise that "many baby boomers are selling."

The biggest correction (drop) in stock market value a couple of years ago was in the top 5 or 6 stocks in the S&P 500. If a person shied away from those top few stocks, the correction was rather mild. I had/have very little invested in the S&P 500 index because I consider it to be "top heavy", i.e. unduly influenced by the performance of the top 5 or 6 stocks. I prefer investing in ETF's in the VALUE segment of the market which has done considerably better than the index itself. I've also invested considerably more in international stocks than US stocks because I believe that on whole, they offer better value than most US stocks.