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Pastimes : DOW 36000 - Glassman and Hassett -- Ignore unavailable to you. Want to Upgrade?

To: Clouseau who wrote (30)	12/19/1999 2:29:00 PM
From: Sid Turtlman	Respond to of 42

"another factor is the river of money needing to be put away for retirement... that river has to go somewhere, and arguably propels today's market up and up." Very true. But where is it written that the money must go into equities? Much of it has in the 1990's, but that is a consequence of investors' favorable experience with the market. If the market were to perform poorly for some extended period of time, the changing experience would cause people to decide that a safe 5% (or whatever it is at the time) from a money market fund beats minus 25% in a bear market. In the early-mid 1980's my wife worked in retirement fund operations for a large mutual fund company. The trend away from defined benefit toward defined contribution retirement funds was in an explosive phase, and her company was opening up thousands of new accounts every day as one large corporation after another made the switch. Employees who never had been allowed any say in how their retirement money was invested now had the freedom to make their own decisions. What did they decide? With the DJIA selling at about one tenth the present level, when they should have been putting every last cent into equities, how much did they commit to what would be the best investment over the next 15 years? Virtually nothing. The money almost all went into money market funds, bond funds, bank CDs, and insurance company GICs (essentially an IOU). Why? Because people's experience of equities at the time was not favorable. The DJIA peaked out in 1966 at around 1000, the broad market got somewhat higher in 1968, but then started a period of 15 or so years in which the market just bounced around with around 1000 on the high side and maybe 775 on the low, with occasional forays outside that range. Many people who bought mutual funds at the peak of that boom in 1968 had still not broken even in the early 1980's. And the late 1960's to the early 1980's were a period of intense inflation, so even when the fund got up to your cost, you were still really way behind. Equities back then were viewed as things that bounce around, but in the end never go up. That was wrong, just as today's viewpoint that they are things that always go up is also wrong. If the market went down for an extended period, and "buying the dips" stopped working, not only would people redirect new retirement money away from equities, but many would switch existing holdings into something safer. So the retirement area, even with net new money coming into it, can still be a source of net stock supply rather than demand. At some point, as we get further into the next decade, demographics are going to start turning against the market anyway, as the baby boomers start switching from equities to safer, income generating assets as they get closer to retirement. Probably we would have seen more of this already, but the excellent performance of stocks has caused people who were thinking of doing that to postpone any such move. Other things being equal we probably wouldn't have to worry about that as a factor until maybe 2005-10, but a bear market could speed up the timetable. The older you are, the less time you have to make up any stock market losses, so a setback that a younger person can (and probably should) ignore, is something one on the edge of retirement should strive to avoid. With so many investors being boomers, a bear market induced swing towards investing conservatism would reinforce a downward trend.