Does aging reduce stock prices?
Theories about what determines the value of the stock market can fill a library. But one that makes sense, at least on the surface, is the impact of an aging society. N.C. State University economist Mike Walden explains.
“Well, many investment experts … say there is what we call a life cycle to investing:When you’re young and you have a lot of time ahead of you and you’re working, you put money into riskier investments like the stock market. And, indeed, over the long run the stock market has done very well for people.
“Then when you get older and perhaps you stop working, you withdraw those funds from your investments in order to help fund your retirement. So, based on this theory what we should see is the stock market doing better when that society is younger, because people are investing and buying stocks, but the stock market perhaps going poorer when a society is older, because people are selling their stocks and converting that to cash.
“What do we see today in our society? Well, we see an aging society. And so that has led some investment analysts to say, ‘Hey, the stock market perhaps is headed for a rocky road. We’re not going to see the kind of gains in stocks over the next, say, 20 or 30 years that we’ve seen in the past.
“And indeed … we have some new research from the Federal Reserve that does show an inverse correlation between gains in the stock market and the percentage of folks who are, let’s say, over age 65.
“Now, there are others who say, no, this theory doesn’t hold water, because the stock market is a world market and you’ve got younger investors in other parts of the world. But it is certainly a point that I think we should watch.”Category: Economic Perspective