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The Baby Boom generation born between 1946 and 1964 has dominated investment markets since the 1980s. They struggled for an economic start during the repeated recessions between 1973 and 1982, but then helped to propel an 18-year bull market as they reached their peak earnings power in the 1990s.
Now some market observers worry that the Baby Boomers are dragging down the stock market as they near or enter retirement and become more risk averse. Indeed, the spread between money flowing into conservative bond mutual funds and flowing out of riskier stock mutual funds is at its widest in history, according to research conducted by Charles Schwab & Co.
Liz Ann Sonders, chief economist at Schwab, thinks the generation born after 1980, variously referred to as the “millennials” or “echo boomers,” could propel stock prices higher in the years to come. She says the Echo Boomers make up a large cohort of potential investors—85 million vs. 80 million Baby Boomers.
Echo Boomers are struggling with weak job prospects as they try to establish careers and families. This is typical of early adult life and similar to the struggles Baby Boomers faced during the difficult period of 1973-82, Sonders says. Once they reach their 30s, however, they will have the capacity to save and invest, just as their parents did.
The evidence suggests they are already having an impact: “Millennials are saving and are already investing in stocks,” she says. Workers in their 20s currently have more stocks in their 401k accounts than did their counterparts 10 years ago. Also ‘millennials tend to be optimists and are more willing to take risks relative to their parents’ generation,” Sonders says. The Kaufman Foundation’s survey shows that Echo Boomers already make up 29 percent of all entrepreneurs. This generation also is having a worldwide effect on creating a bigger workforce—the ratio of workers to total population in East Asia was 47 percent in 1965, while it reached 64 percent in 2010, Sonders notes.