Boomers: It's Time To Make Some Tough Choices

You’ve learned, you’ve earned, you’ve partied. Now what?

The baby boom generation has had a significant impact on the world at every stage of their lives. This group, defined as those born from 1946-1964 (I just made it), will have a big influence on how the markets behave in the next 20-30 years at least. They will also influence how financial advice is delivered, and what standards retirement-oriented financial advisors are held to. This is my message to the Baby Boom generation, but if you are not a “boomer” this still applies to you. That’s because the way these people use their wealth will have a direct and significant impact on what happens to yours.

Learn in your 20s, earn in your 30s

A while back, I learned an expression that stuck in my memory. “Learn in your twenties, earn in your thirties.” You graduate high school or college, set out into the world to make your fortune, and hopefully make a difference, too. For many of us, the early years of the journey brought us to one level of schooling we may not have anticipated after finishing our college or graduate degrees: the school of hard knocks.Many successful people I’ve met recall the struggles of their first decade on their own. The process of choosing a career, establishing oneself in an industry, perhaps building a company, and starting a family is a rigorous one, as we all know.By the time you reached your thirties, life seemed to be taking on more direction. In part, this is because you discovered who you were – as a person, as a companion, as a business leader. You developed a skill set that allowed you to really go out and get what you wanted out of the various parts of life.As part of this, you enjoyed the thrill of making “real” money for the first time. You discovered the pleasure of fine dining, exotic vacations, and a birds-eye view of your favorite sporting events. The sky was the limit for you – the good times were here.

We partied like it was 1999…until 1999

For many from the baby-boom generation, the decade of their thirties ended between the late 1980’s and mid-1990’s. The timing could not have been better. Just when they were entering their peak earning years, the U.S. stock market went on its best run in history.From the beginning of 1988 through early 2000, the market, measured by the S&P 500 Index, gained about 15% per year over twelve years. The Nasdaq Composite gained 24% per year. That’s pretty good for an “average” return! Home prices increased steadily, and interest rates dropped, and dropped and dropped some more.For those who wondered what would happen after learning in their twenties and earning in their thirties, the answer became quite apparent: they would earn more, invest it, earn a lot more, and spend like they had never spent before! It was our generation’s version of the “Roaring 1920’s.”

Wealth accumulation…interrupted

And like that time, there came a thundering halt to the fun. Not in one day, as in the 1929 stock market crash, but over a three-year period where all the investment rules we grew up with were rewritten. Remember, “buy the dips” was the mantra of so many Wall Street pros, referring to how easy it was to make money in stocks by simply buying more Intel and JDS Uniphase and Sun Microsystems whenever they temporarily fell in price.Then, declines in one’s monthly investment statement became more the rule than the exception. Fortunately, unlike in 1920’s, you didn’t have to “bootleg” to get a stiff drink. Let’s face it, many investors needed it.Just a couple of years later, the S&P 500 had given back about half its peak value. The Nasdaq? It was more than 70% below its peak.A recovery came in 2003, and just as exuberance was back in style, home prices fell for the first time we could remember. Then, the banks failed. And, for a short time, we thought the entire financial system would come down.It didn’t, but 10 years after the peak, there was still a big financial hole to dig out of. By 2009, the S&P 500 Index was still about 50% below its 2000 peak. A year later, after a furious rally, it had made most of it back. But was anyone really thrilled at a 10-year return that was still negative?

A decade to remember for pre-retired Boomers

From March of 2009, which marked the last major low point of a decade of stock market misery, the S&P 500 went on a comeback tour. 11 years and more than a 400% return later, Baby Boomers can rightfully feel that their investment assets have made it through the storm.

It’s crunch-time for the Baby Boomers. But do they realize this?

So, where is our learner-earner-investor now? Frankly, they are at an inflection point. Here’s why:· They probably fared quite well during the past decade, and their retirement asset balances are near their highest point ever.· They are past the point where they can afford to absorb another big drop in their wealth. Any thoughts of “oh, if it falls it will just come back,” while cheerfully optimistic, are just plain irresponsible.· Interest rates are at levels that will break most retirement income projections sold to the Boomers the past 20 years.· The stock market is as close to that year-2000 environment as ever. There is upside potential, as there always is. But the possibility of a major loss in value is as high as it has been since 2008.

Or, have they forgotten that investing is different when you don’t earn a paycheck?

Here is what they should keep in mind. The bull and bear are Wall Street’s long-time symbols of up and down markets, respectively.The pig is also a symbol of the habits of some investors. As the expression goes, “Bulls Make Money, Bears Make Money, Pigs Get Slaughtered.” If you are a Baby Boomer, and understanding and applying portfolio risk-management is not at the top of your 2020 priority list, you are setting yourself up for trouble. And, unlike back in the year 2000, you are not that age any more. You are, in fact, 20 years older. And, you are 20 years closer to retirement, or already retired. Here’s to learning from your life’s experience as investor, and to using it to seal the deal on your retirement vision during the next decade and beyond.