GLOBAL – The retirement of the baby-boom generation from 2010 will not result in a capital market meltdown, according to a new study.
The report, co-authored by Frankfurt-based Faros Consulting, contradicts the asset meltdown theory, whereby baby boomers in the US and Europe will be forced to sell assets to finance their living standards.
“Adherents of this theory argue that from 2010, there will be a lot of sellers on the market and because of demographic trends, far fewer buyers. As a result, the prices on shares, bonds and real estate will plummet, with disastrous consequences for retirement plans,” Faros said.
However, a new study co-authored by Rainer Buth, managing partner at Faros, and Professor Diether Döring reflects that returns on capital markets will fall by at most one percentage point by 2035.
The main reason for the slight decline, according to the study, is that in selling their assets, baby-boomers will not do so abruptly but over the space of 15 years.
“It is not even clear how many of these retiring baby boomers will actually sell their assets,” the study noted, adding that in Germany, for example, the generation in question was in fact still saving.
Even so, the study stressed that the best way for European investors to protect their portfolios was to diversify into alternative investments like real estate, private equity and commodities and to invest beyond Europe.
“The fact is the majority of the world’s population does not face the problem of a rapidly-ageing population,” it said.
According to Faros, the study was in part prompted by concerns expressed among German pension funds.