Today’s Wall Street Journal had an article about where retired baby boomers are putting their money. No, I’m not a boomer. I’m a proud GenX’er, but that also means I’m next in line for generational retirement so I do look at what baby boomers are doing in terms of savings growth and protection.
Anyway, this article called a certain type of ETF “boomer candy” because it was satisfying their desire to invest in stocks with high dividends and returns, but hedged against major losses. And in the past year they’ve been gobbling up shares of these ETFs. Historically, retirees have moved their money into bonds and cash rather than riskier stock market equities. Those who have been riding out the stocks have been rewarded for it.
According to the article: “The S&P 500 has logged a total return of more than 980% since U.S. stocks bottomed in March 2009. The Bloomberg U.S. Aggregate Bond index’s total return is 50% over the same period, according to Dow Jones Market Data.” And below is the graphic to support that claim.
It’s an incredible indictment of bond performance over the last 15 years — at least in comparison to stocks. Interest rates were so low for so long that bonds weren’t even a real option for many people, unless you were simply terrified of the ups and downs of the stock market.
Aside from the Covid Collapse in 2020 and Interest Rate Shock in 2022/2023, the stock market has been an exceptional return on investment. And if you were to only focus on a few major stocks in categories like technology or AI you’d seen even more exceptional results.
The biggest challenge today facing 40- and 50-something-year-olds looking at that 20 year savings horizon is FOMO. We want to be smart and protect what little nest eggs we’ve stored away, but we’re also not willing to watch everyone else make money while we’re collecting 2-3% gains that may not even keep up with the cost of living.
I’ve said before and I’ll admit again that the biggest financial mistake I’ve made was putting money into my kids’ college 529 plan that was based on their high school graduation year. Those funds auto-transition money as your kids get older from a riskier investment portfolio (mostly stocks) to a more conservative one (mostly bonds).
It makes sense and that’s how people invested toward retirement for decades before as well. But if you look at the gains I missed out on through their respective HS graduation years of 2018 and 2021, by not putting that money in stocks and instead having it sit in bonds, their college savings accounts could have been significantly higher.
But what did we know? We did what parents had been doing for years before and were strongly advised to do. We put money aside to invest in their education that we knew would grow and would still be there when they were ready to use it. It just happened to be a time when stocks were far outgaining the more conservative bonds.
In any case, past results do not equal future projections so always do your homework and take appropriate risks.
Here’s the link to the WSJ article. It’s a pay-site but if you have an account it’s worth the read.
https://www.wsj.com/finance/investing/retirees-boomer-candy-investing-fund-62454210