Baby Boomers Should Not Play the Dippity-Do Investment Game

  • Last year, after the March market correction, I warned baby boomers against buying the dip. Since the market rebounded 100%, that appears to be bad advice.
  • I reinforce that advice today, for the same reason. Baby boomers cannot afford the risk they are currently taking.
  • Someday there will be a series of dips on the way to a prolonged market retreat. Will the next dip be the first in a long sequence of dips to follow?

One of my most read articles attracted more than 60,000 readers and was written shortly after the March 2020 market correction. Please see Baby Boomers Should Not ‘Stay The Course’ Because Most Are On The Wrong Course

Readers who took my advice back in July 2020 are surely cursing me now because the stock market recovered big time, doubling in value from its March low. But my advice is the same in this recent dip, in fact, I’m more emphatic this time, in large part because the stock market has reached even higher highs, but mostly because even more baby boomers have entered the “Risk Zone” spanning the 5-10 years before and after retirement when investment losses can irreparably ruin the remainder of financial lives.

Simply put, baby boomers cannot afford the 60/40 stock/bond risk that the average retiree or soon-to-be-retiree is taking.

 

Baby boomer warning extends to their heirs and advisors

78 million baby boomers own $60 trillion. A lot of people with a lot of money are in harm’s way because research by the Employee Benefit Research Institute (EBRI) reports that the average baby boomer is invested in a 60/40 stock/bond mix. despite research that warns against this sequence of return risk. This 60/40 mix lost more than 30% in 2008, but boomers were not in the Risk Zone then. Now, most boomers will spend much of this decade in the Risk Zone. 

I wrote the book Baby Boomer Investing in the Perilous Decade of the 2020s as a warning, but not enough people have read the book. There are two compelling reasons for baby boomers to protect their savings at this critical time in their lives: (1) losses in this decade could ruin the rest of life — that’s risk management and (2) the current economy is fraught with peril — that’s market timing.    

When someone says “It’s different this time” they are usually wrong but check me out on these 5 reasons that it really is different this time, and the risks are huge:

  1. Bond yields have never been lower, so bond risk has never been higher
  2. Stock prices have never been higher. Yes, I know this is subject to debate, so chime in.  
  3. The US government has never printed more money. M1 money supply has quintupled in 2 years from $4 trillion to $20 trillion
  4. The wealth divide has never been greater, creating havoc in Seattle, Portland, Chicago,…
  5. There has never before been 78 million people all simultaneously in or near the Risk Zone  

Non-boomers, especially younger investors, should be concerned about these threats too, but they are more likely to live long enough to recover from whatever damage is caused. That said, those who rely on baby boomers should be concerned about domino effects befalling upon them. There is a ripple effect when people feel poorer.  

The wisdom of buying dips

“Stay the course” and “buy the dips” are common mantras that have worked every time since 2008, which is roughly the investment lifetime of Millennials. But as shown in the following picture, the day will come when buying the dip will not be smart. The odds of a long sustained correction are high in light of the 5 threats listed above.

Better safe than sorry

As I warned last year, baby boomers should not play in the buy-the-dip game because their lifetime savings are at stake, and the next recession could outlive them.  By “safe” I mean 70% in low-risk inflation-protected assets like TIPS, real estate, and precious metals.

 

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