Americans Over 55 Own 80% of US Stocks, Creating a Big “Downside Risk”
According to a report from Rosenberg Research, Americans aged 55 and above own a staggering 80% of US stocks. This ownership trend poses a significant downside risk, especially if the economy were to enter a recession.
Economist David Rosenberg explains the potential impact of this demographic ownership on the stock market. As retirees do not have the luxury of waiting out a market downturn, a recession could lead to a massive sell-off as they readjust their portfolios. This selling pressure would exacerbate the downward spiral, ultimately impacting consumer spending.
The Implications of Demographically Induced Selling
If a downturn were to occur, the demographic-induced selling by retirees would create a powerful downward momentum in the stock market. This would have subsequent effects on industries such as elective medical care, leisure, travel, and hospitality, which heavily rely on consumer demand.
The Shift from Stocks to Safer Investments
Traditionally, retirees have been advised to transition from stocks to safer investments like bonds as they age. However, as life expectancy increases, retirees need higher returns for a more extended period to sustain their retirement years. This dynamic has led to boomers steadily increasing their equity holdings since the 1990s.
The Boomer-led Shift in Equity Holdings
Since the 1990s, the ownership of stocks among the boomer generation has been on a consistent rise. From below 60% in the 90s to 80% today, boomers have been actively adding to their equity portfolios. In contrast, fixed income assets like bonds and CDs have remained stable at around 84% ownership within older generations.
The Importance of Considering Demographics in Market Analysis
Although it can be challenging to account for demographic forces in daily market fluctuations, ignoring their influence can have significant consequences. Demographically induced selling by retirees is a crucial factor to consider, as it has the potential to impact market dynamics during downturns.
The Need for a Proactive Approach
Given the demographic landscape and the potential risks associated with a market downturn, investors and financial professionals need to adopt a proactive strategy. This might involve diversifying portfolios, considering alternative investments, or adjusting asset allocations to account for the impact of demographic factors.
The market outlook is always subject to various forces, both economic and demographic. Acknowledging and understanding these factors can be invaluable in navigating the complexities of the market and mitigating potential risks.
Analyst comment
This news can be seen as negative as it highlights the potential downside risk of a significant sell-off in the stock market due to the high ownership of US stocks by Americans aged 55 and above. In the event of a recession, retirees may need to readjust their portfolios, leading to selling pressure and impacting consumer spending. As an analyst, it is important to consider the demographic-induced selling and the potential implications on industries heavily reliant on consumer demand. Adopting a proactive strategy such as diversifying portfolios and adjusting asset allocations may be necessary to mitigate these risks.
