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Research Affiliates vice president Shane Shepherd explains why baby boomers aren’t going to be able to retire based on stock returns.
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Right now as baby boomers meantime get closer to retiring.
Many are banking on the stock market banking on their investments.
That -- made you know years and years ago but our next guest says the boomers' expectations.
May simply be too high.
Shea shephard vice president had a fixed income research and research affiliates joins us now to explain net self.
-- point is what -- people think all we're in the market we're gonna retire and be able to -- -- live the high life based on our stock returns.
And that won't happen why.
Yet we think that that the baby boom generation has really been a demographic bubble moving throughout the economy.
And as they start retires and had a huge impact upon.
The economy upon valuations.
We've seen the best way to look at it is the -- support ratios and in 1970 we had five workers for every one retiree.
At today that's about 3.5 to one and then the next you -- -- thirty years when they lose power retire that'll be below two to one so the problem I -- look at it is.
I was just had a problem they had is you have a baby boomer retiring and they wanna maybe sell the stocks in cash and and get a good price for and if there's nobody.
Nobody down in a younger people that a bottom.
Yeah that's exactly right.
So what we've seen I think -- they look at that as the idea valuation ratios and then.
We like look at the Shiller PE ratio which is looking at price divided by ten year earnings and your like earnings.
And that's about 21 are so right now on the S&P 500.
And the other than the return that it was an experience in the last thirty years has been about 11% on -- stock market.
Well about 3% that was due to valuation multiple expansion some of that PE ratio has risen from around ten to 21 today.
-- that's contributed to huge portion of the historical returns now the long term average on that is sixteen so markets fairly or valued at this point by that metric.
I don't think it's realistic to expect that I was small -- continue to expand.
-- so if -- -- are expecting that return I'd say not take that 3% right off the table top off of that and because additionally we've got lower dividend -- to start with -- having even lower return -- While I was gonna say that -- -- on the bond market forget about it trying to get any kind of you know almost single digit return you transfer your money from stocks and -- businesses increasingly.
You know the US treasuries you know if you're buying a ten year yield at 2% right right now or thirty here at at three and a quarter.
You're gonna be really hard pressed to get a return higher than 2%.
You know LC and you're almost blocking and really -- negative real yield you know with inflation expectations.
You know and we say at least two and a half percent and quite likely significantly higher.
Over the next 2030 years it's you're locking him a negative real yield of that.
Still pretty good time to look to borrow money tough if you can tough time to look to save money as it has to change Shepperd thank you very much interest -- stuff are one burning question.
