Market Analysis

Seven Reasons Stocks Are Still a Good Idea

Think stocks are too risky to hold as you contemplate retirement? Think again. Not holding stocks can turn out to be far riskier.

If you're a Baby-boomer—one from the fabled generation born between 1946 and 1964—there are a lot of companies and advertisers vying for your attention. The products run the gamut—luxury cruises and automobiles, teeth whiteners, belly flatteners, colon cleansers, energy drinks, Prozac, and of course the granddaddy that ultimately makes all the others even worth your time, Viagra.

Financial services are no exception, and in 30 minutes of CNBC viewing, you're likely to be bombarded by at least four or five commercials reminding you of your impending retirement, probably accompanied by over-amplified ‘60s rock to show that, hey, beneath the stuffy white collars and amortization tables, these firms aren't the conformist drones you spent your youth railing against. Dennis Hopper ranting over a soundtrack from The Lovin' Spoonful and interspersed montages of Woodstock and sexy sexagenarians kayaking or mountain climbing is perhaps the strangest among them. How anyone can take investment advice from Dennis Hopper—a man who spent a career portraying drug addicts, degenerates, and psychopaths—is beyond me, but then again I don't understand most of what happened in the ‘60s.

Commercial bastardizations of your youth aside, it is true the coming years matter a lot for baby-boomer financial health. Headlines warn of recession, home prices falling nationwide, and the US being on the verge of the biggest political transition in eight years. Is it time to play it safe, cash in everything for bonds, and brace for leaner times ahead? Or should stocks still play a role in your portfolio? I don't know the specifics of your situation, but before getting too conservative, consider the following:

  1. If you're a typical Baby-boomer born between 1946 and 1964, right now you're anywhere from 44 to 62. The youngest probably has as much as 45 years to live, and the elder has another 20 or so—if you're average. Half will live longer. In other words, your portfolio has to last a very, very long time.
  2. In all the 20-year rolling periods since 1926—consistent with your time horizon—stocks have outperformed bonds 98% of the time, and by a wide margin.
  3. If headlines on housing terrify you, remember stocks are not only uncorrelated with real estate (meaning a bad real estate market doesn't mean anything for stocks), but their long-term historical return is significantly higher.
  4. Election years have historically been great ones for stocks, with an average return of 13.3%. The presidential candidates will continue to duke it out, and it's going to get a whole lot nastier before it's over, but for stocks, the political rhetoric should eventually prove as overblown as a campaign promise.
  5. Even if Social Security manages to stay afloat through your retirement, chances are the payments won't be enough to maintain your current lifestyle.
  6. The recession nearly everyone agreed should have reared its ugly head by now is nowhere in sight. GDP grew by +0.9% in the first quarter, slightly better than it did in the first quarter of 2007—a year the economy grew +2.2% overall. Not gangbusters, but not recession. The biggest component of GDP—consumer spending—is tied most closely to disposable incomes, not to home equity borrowing, as bears would have you believe. Disposable incomes rose by more than 6% last year and look poised to rise again this year. Consumer spending, and the economy by extension, should do fine.
  7. Your kids are slackers. Well, maybe not your kids, but a lot of your generation's kids. Record numbers of college grads are returning home to live with mom and dad, and increasingly counting on them for sustained financial support, meaning the burden on today's parents has grown significantly from previous generations. Although it's difficult to quantify the amount of this intergenerational tab, a big part of it will be picked up by parental baby boomers, which means planning for retirement should take this spending into account.

Even if you don't have a 28-year-old grazing in your fridge every night, the implication of all this is you'll likely need stocks to give you a shot at a smooth retirement, and a lot of ‘em at that. The last six months of volatility may have given you pause, or may have even scared you out of the market. But volatility is never an indicator of future market direction. You still have opportunities to take the steps necessary to achieve financial success for you and your family. Don't let them pass you by.

Now, if you'll excuse me, I have to go shoo a few listless 20-somethings off my front lawn. I guess they've been watching too many Dennis Hopper movies again.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.