Easy Rider was released in 1969 and embodied many of the themes of its boomer generation: antiestablishment, counterculture, and free living. It was an instant classic, and its theme song, “Born To Be Wild,” still has an influence on the financial behavior of many of those who were born between 1946 and the early 60’s.
Benefiting from years of a robust stock market and rock-bottom interest
rates, the baby boomer generation is now enjoying the fruits of their good fortunes. Many invested aggressively and refinanced their homes into super-low payments before interest rates started hiking back up. Some followed the old rule of de-risking their stock portfolios - moving away from equity allocations and into value instead of growth, playing it safe. But most didn't do this rebalancing act. In fact, most boomers still have an appetite for risk in their stock market portfolios.
Why Set It and Forget It Investing Is Over - Embrace a Risk-Managed
Philosophy
According to Vanguard, nearly half of US 401(K) investors
over the age of 55 who actively manage their own money held
more than 70% of their portfolios in stocks. Even investors
aged 85 or older are showing this inclination toward stocks
and an inclination toward risk.
Even as rates rise rapidly, making bonds and cash look more appealing,
many older Americans aren’t ready to reduce their stock market bets.
Boomer risk tolerance is at an all-time high. So what is the attraction?
Baby boomer investing trends attracted Hannah Miao and Amina Niasse,
who wrote about this topic in June of 2023 for the Wall Street Journal.
Boomers Got Hooked on Stocks. Now They Can’t Let Go. They found that
“Baby boomers came of age at the start of a secular bull market. In their
experience with crashes, when the market bounced back, it reinforced the idea that stocks are safe investments.” They also note that “The growth of brokerages such as Charles Schwab in the 1980s made buying stocks cheaper and easier.”
With easier access to information thanks to the birth of CNBC and the like, most boomers found that they could DIY their investment portfolios and continue to do so today. Boomer stock market strategies have paid off in the past, but will it continue?
The bullishness of older investors on stocks is largely driven by the
impressive returns they have witnessed. “Since 1987, the S&P500 has
returned 10.1% a year on average, significantly more than its long-term
average annual return of 7.4% since 1928…this experience has shaped their risk-taking behavior, making them more willing to take financial risks than those who lived through the Great Depression.” Investing.com UK, July 2023.
There simply has been a lack of better options (TINA), and even as the
investing climate begins to change, it is hard for most of us to remember a time when the market didn't recover quickly from a stumble.
The Fed is now playing catch up with a series of rate increases after massive budget deficits and 0% interest rates stoked the largest inflation in 40 years. There will be more alternatives to just investing in your tech darlings because volatility is back, and the time has come to play some defense.
Many now believe that stocks are expensive, and investors need to lower their expectations and get ready to play some defense. Data from Fidelity shows that over one-third of baby boomers have too-high equity allocations in their portfolios. What Happens to your lifestyle if you experience a significant drop?
“Our separately managed accounts are structured to include a
diverse range of investment options within a risk-managed
framework, creating greater diversification and managing equity
exposure while seeking to reduce downside risk.” Vineyard Global
Advisors
Finding an advisor who is more than prepared for market volatility is a
logical first step to take when transitioning your portfolio into a more
protective stance. De-risking involves considering more than just asset class or sector size. Consider the length of time you would be able to wait for a market to recover its losses.
Twenty-five years is a long time to wait for a recovery unless you have
strategies in place to lessen the blow and reduce the amount of time needed to recover.
Vineyard Global Advisors offers 12 fee-only, actively managed, including hedged and long-only investment strategies via separately managed accounts - Learn More
Learn more about the topics above:
How the Fed Burst the Everything Bubble
The Importance of Drawdown Parameters and a Risk Managed Approach
