Baby Boomers and the Stock Market

Now that I have been at my cubicle job for a year, I have taken the option of diverting a small portion of each paycheck to the chaotic markets under the guise of a retirement fund. This has had me thinking about the stock market in new ways. I’m generally rather pessimistic about the whole thing, because even though it’s been investor dogma that the stock market always goes up in the long-term, I’m coming of age at a time when the market’s basically been flat for a decade, and I see no reason to presume that the future must echo the past. But my own participation has led me to wonder if demographics will affect the future of the stock market more than anything else.

Every two weeks, a few of my dollars are added to the global sum of money floating around in markets. The details are complicated – some of the money floats into Treasuries when investors get scared about stock markets and float back into stock markets when investors get un-scared, but I’m basically continually adding to this big pool of funds. Once I realized that, I then realized that there are millions of other people doing the same thing. Obviously everyone doesn’t have a retirement fund (and everyone’s retirement fund doesn’t play in the market, either), but there are whole bunch of other employees and bosses getting a similar deal to the one I’m getting.

Then I stated to think about demographics. The United States had the Baby Boomers in the post-war period, followed by declining birth rates, which basically means that today we have more old people compared to young people than we used to and it’s only going to get worse in the coming decades, leading to problems with Social Security and the like. I’ve known about all this for some time, but I’d never though of it in the context of the stock market before. What if part of the reason that the stock market went up and up and up over the last few decades was that there were more and more people dumping their earnings into it, and part of the reason that it’s stagnating in this century is because that increase in workers is leveling off and is about to go into decline?

Obviously there are singular events that temporarily override this overall demographic pattern; the stock market lost half its value in the circa 2008 crash and then recovered most of it – but volatility aside there has been basically zero overall advancement in the 2000’s (especially considering inflation, sometimes even without considering it depending on where the stock market closes these days). Now I’ve already deposited a small sum of money into the global market pool; there are millions of people who have been doing this for decades and have rather large sums of money in these pools and are going to start pulling them out. Could the stock market be doomed to languish over the next few decades, regardless of economic outcomes, simply because more people will start pulling money out of it then there are people putting money in? Is the whole thing just another quasi-Ponzi?

My immediate objection to this hypothesis is that markets are global, affecting much more than just Americans. My little dollars buy shares of markets in Russia and Europe and anywhere my intermediary managers think best, and foreigners do the same things with American markets. I read somewhere once that the American markets are more tied to the value of the dollar these days than American economic activity, because when the dollar drops it makes our stock market a better value than other stock markets, and vice versa. But of course a response to that could simply be that global population demographics are forecasted to run the same course as those of the United States, albeit more slowly. For all the handwringing about world population reaching seven billion, there are plenty of developed countries whose birth rates have fallen below “replacement rate,” and plenty more that are fast approaching, and plenty of developing countries whose birth rates are dropping too. The slope of the global population boom is either flattening or will flatten soon. As the world ages and people across the globe pull their money out of markets to fund their retirement lifestyles, will the markets across the globe inevitably fall? If I devote money to these markets for the next three decades, am I doomed to end up with less money than I put in, even before considering inflation?

Or is this all inane babbling and vacuous speculation? I feel like I have maybe a 3% grasp of how global financial markets work, which is better than the 1% I felt I had a few years ago, but I am still very ignorant. I know enough to have thoughts about things but not enough to know why those thoughts might be wrong. It looks like I’m not the only one who’s had these ideas, and it looks like there is even some evidence for it, but that doesn’t mean my speculation about the future holds water, either. If any wizened market gurus stumble upon this blog post I would love to hear their thoughts…