Investors may have gotten excited on Friday. Accommodative language from the Fed has a way of doing that. However, there is no reason to get to exhilarated, as this rally doesn’t seem to have legs. One of the big worries is about the largest group of shareholders in the country—Baby Boomers. Because this generation is retiring, they are likely to sell into any rally as they don’t have time left to wait for a big recovery. Accordingly, any rally will likely lose momentum quickly. As evidence, redemptions over the last four weeks have totaled $164 bn, or more than 1% of money in all stock and bond funds.
FINSUM: This is an interesting argument and one we tend to take seriously given the size of the Baby Boomer population and their large shareholdings. That said, we do not think it is large enough to affect the fundamentals of the market, just alter the amplitude.
The industry has been talking about it for years, but now it appears to be happening in earnest—advisors are finally targeting younger clients in force. While Baby Boomers dominate the industry’s AUM right now, 42% of firms say they are actively changing their marketing and networking to attract Gen Xers and Millennials. TD Ameritrade comments that “In just five years, RIAs expect 41% of their clients to be Gen Xers or millennials. This should be a wake up call to those who think that Next Gen wealth is literally still a generation away”.
FINSUM: The tide is really starting to shift and it is going to happen faster and faster over the next few years as Baby Boomers age and the wealth of the young grows.
Okay, so there is a lot to be gloomy about with the stock market right now. Stocks had a terrible run last week and are off to a poor start today. However, looking in the longer-term, there is some heartening news. That news is that despite some forecasters saying the demographic backdrop for stocks looks weak as Baby Boomers begin to withdraw money as they retire, all that slack, and perhaps more will be taken up by the Millennial generation, which is the largest in the US.
FINSUM: Here is an additional argument we found interesting—that compared to market history, stock returns for the period from 2000 to 2016 were very weak on a relative basis. Coupled with the demographics, it makes one think there may some long-term potential left for this market.
For years the big fear across the wealth management industry was that robo advisors would steal clients for human advisors and eventually leave the latter jobless. However, several years of evidence shows that is not actually what is happening. First of all, it is not Millennials which are the biggest consumers of robo services, rather it is baby boomers. For instance, Vanguard reports that 85% of those enrolled in its robo are over the age of 50. Even at Merrill’s Edge platform, the percentage is 45%. Additionally, the ~$200 bn that has been brought under management by robos does not seem to have migrated out of human-advised accounts, but rather is new money coming into the industry, representing pure growth.
FINSUM: While the threat of robos has been lessening over the last couple of years, this is downright positive news. Rather than eating away at human advisors, robos seem likely to actually bring more capital to the table.
Bitcoin is being called one of the grandest bubbles in history, perhaps akin to the famed tulip bubble. But a new survey shows that opinions on bitcoin are highly bifurcated along generational lines. Despite viewing stocks as too risky, Millennials generally are much more optimistic about bitcoin than Baby Boomers. One of the big drivers of this higher level of faith in the cryptocurrency stems from an expressed belief that bitcoin is more “trustworthy” than big banks, a strong point of difference between Millennials and those 65 and over.
FINSUM: Bitcoin is just a very new type of asset class without any of the traditional safeguards. It is also fundamentally digital. Taken together it makes perfect sense that younger people would be more comfortable with it.