PIMCO - Effects of Baby Boomer Demographics on Investing

^^^Good info and advice, not only for the Baby Boomer generation but some good take-aways for all investors in today's whack economy.

Selected quotes:

"Less than 10 years ago, when the baby boomers' kids were coming into the labor force and the very skimpy roster of Depression babies was retiring, we had 10 new additions to the working-age cadre for each one new senior citizen. It goes to 10-to-1 in the opposite direction in 10 years. There will be 10 new senior citizens for each new working-age citizen. If that's not a political, economic and capital-markets game changer, I don't know what is. "

"If bonds are priced to give us, let's say, 2% to 4%, that means your balanced portfolio is likely to deliver 4%. Net of inflation and net of taxes, that's awfully close to zero real after-tax return."

"You still have a lot of people expecting 8% or 10% a year from stocks or even from balanced portfolios. That's naive."

"I think that's a crucial missing part of most investors' tool kits. Most investors think, "Emerging economies, my goodness, that's risky." Well they are cheaper than U.S. stocks, and the economies are ostensibly going to be the growth engine for the world economy in the coming 10 to 20 years. So doesn't that make them potentially less risky in terms of downside risk for the long-term investor?"

"Today, U.S. stocks aren't cheap. The Shiller P/E ratio--price relative to 10-year smoothed earnings--is north of 20 times earnings. That's on the rich side. So in the two Pimco funds, as of Jan. 31, we had essentially nothing in U.S. stocks."

"We had 35% of All Asset All Authority and 27% of All Asset in emerging markets, split roughly 70% bonds and 30% stocks. These economies offer higher yields and better debt coverage, paired with much richer growth opportunities than the U.S."

Comments (5)

Mar 6, 2012

Nothing interesting here. Price relative to 10-year smoothed (how?) earnings? WTF lol.

Mar 12, 2012

So, I am the only one who finds that info interesting. Great.

Mar 15, 2012

the demographic thing is scary... one thing i don't think they focus enough on though is that you can still grab global growth by investing in safe U.S. stocks..... take a Yum brands or a P&G or a starbucks or apple or PFE or McDonalds.... all very high quality names and you're playing global growth, to a varying degree, with each bet

Mar 15, 2012

^^^ Agree.
Besides, I think Arnott misses couple of points. He focuses on the ratio of people entering/leaving labor force each year. I think instead he should be focusing on the total labor force to total retirees; still not looking good, but not as scary (labor force - 18 to 65 yo; retirees - 65-80/85).
His analysis also does not include improvements in productivity - what is a new technology, similar to computers in 80s and 90s, is on the way in 5-10 years? Won't that be a game changer and won't it require less labor as productivity soars?
Finally, as to supply/demand of securities. Yes, there will be more retirees selling their bonds and stocks. However, younger people, scared with the examples of those who failed to save for retirement, are likely to boost savings rate to avoid such outcome for themselves...
And on another note - you can always bring down the wall on the border with Mexico to boost the labor force... This is a different discussion, I know...

Jul 24, 2012