Baby Boomers Turn to Safe Investing as They Near Retirement
One can definitely say with certainty that there are no safe investments during this economic meltdown. However, we did find some interesting information about Baby Boomers, and the investments that they tended to collectively hold. Let's take a quick look to see how the different classes of boomers stack up.
Late Boomers, the leading edge of the 76 million Baby Boomers, who are about to reach 60 and be eligible for some retirement benefits, have invested their money in large-cap stocks. They have nearly 40 percent of their assets in these blue chip stocks, which are most often favored by conservative investors. They are a little more conservative than younger Boomers, according to a survey of how Boomer executives are investing their money.
When you analyze the portfolios of Boomers, certain trends start to stand out. Baby Boomers overwhelmingly favor large-cap stocks, with these funds comprising 36.9% of all assets measured. Money markets were a distant second at 13.2%, while fixed income was a close third with 12.7% of total assets measured.
What are Large-Cap Stocks?
Stocks of the largest companies such as IBM or GE and other movers and shakers of the economy--are classified as large-cap stocks. These are large established companies (many are blue chips). They often keep large reserves of cash to take advantage of new business opportunities. Together they make up over half of the value of American stock.
Because of their large size, large-cap stocks are not expected to grow as rapidly as a smaller capitalized company. Successful mid-caps and the small-caps tend to outperform them over time. Investors looking for dividends and preservation of capital with some growth potential choose them. Large-cap stocks pay relatively more in dividends than small- and mid-cap stocks.
Investors who want their money to remain relatively safe over the long term are often attracted to large-cap stocks.
Source: Ameritrade
While there were many consistencies in investment choices for all Baby Boomer executives, the report found some differences in investment strategies or asset class choices based on age. The report looked at the executives in three different age categories: those born 1946-1951, those born 1952-1958 and the youngest of the Boomers born between 1959 and 1964.
Large-cap stocks were the most popular of assets measured. According to the report, the number two and three most popular asset classes varied by age group, but fixed income, small caps and money markets were the favorites with Baby Boomers.
Typically, Baby Boomer executives certainly have more investment choices than their parents did. They have benefited greatly from the strong US economy over the last 60 years and are very comfortable with equities as a major portion of their retirement account."
Late Boomers (born ’46 – ’51)
Large-cap stocks were the most popular of assets measured, with the oldest group placing nearly 40% of their assets in that class (39.5%). The second and third most popular asset classes were fixed income (14.1%) and small-caps (10.7%). For Middle Boomers (1952-1958), small caps were also third most popular, with 12.9% of assets measured. However, second-place money markets barely edged small caps (13.4%) by fewer than 60 basis points.
Middle Boomers (born ‘52 – ’58)
Middle Boomers allocated 35.9% of their assets to large-cap stocks, and the youngest group had 35.0% of their assets allocated to large-caps.
Young Boomers (born ’59 - ’64)
The youngest of the Boomers--those born between 1959 and 1964--differed from their elders; small-caps were not in their top three measured assets. Instead, they selected money markets (17.3%) and fixed income (11.2%).
The youngest group of Boomer executives allocated almost twice as much of their accounts to the 'safer' investment of money market funds than did the eldest group with 17.3% and 9.6% respectively, even though it might be wise for them to take more risk. While boomers tend to presume that the closer one is to retirement age, the more conservative their investments will be, our report indicated otherwise."
