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As baby boomers begin to retire and move pull their money from stocks towards their expenses, there is some concern that this could deliver a blow to the stock market. But Daniel W. Wallick, Julieann Shanahan, and Christos Tasopoulos at Vanguard don't believe this is the case for a few key reasons.
"First, although the boomer generation is sizable, it is also like other generations in that it is spread over two decades—significantly reducing the prospect that of all its members will act in concert. Second, the amount of equity owned by preretirees today is, despite the size of the boomer population, similar to that of other previous generations, implying that the impact of these investors might well be similar to that of the past. Third, equity ownership is highly concentrated within the baby boomer cohort, with the wealthiest 10% owning 88% of the generation’s stock holdings.
"In addition, continued globalization and its impact on stock ownership could further diminish the affect of the U.S. baby boomer generation on future stock returns. By year-end 2012, nearly 21% of all U.S. stocks were held by foreign investors, compared with just 7% in 1990."
What Advisors Need To Consider Before Recommending Target Date Funds To Employers (The Wall Street Journal)
Target date funds (TDFs) are popular with employers writes Tara Mashack-Behney of Pennsylvania-based Conrad Siegel Investment Advisors in a Wall Street Journal column. Target date funds rebalance assets based on a future date and typically get more conservative closer to retirement. But TDFs might not meet the requirements of all employers and employees.
For that reason, Mashack-Behney writes one thing advisors should focus on is the "glide path--the formula that defines how assets in the fund are allocated until its target date." Advisors need to ensure that both the employers and employees are "comfortable with" the glide path. Since all the employees also don't have the same risk tolerance advisors should also consider risk-based portfolios.
The Coming Months Will Be All About 4 Key Macro Trends (Credit Suisse)
Credit Suisse's Andrew Garthwaite has identified four macro trends that will impact asset prices in coming months. 1. Global GDP growth is gathering steam, and is projected to go from 2.7% in Q2 2013, to 3.5%-3.75% by Q4 2014. 2. Global macro uncertainty is waning. Credit Suisse's "proxy of US macro uncertainty has recently fallen to a six-year low - and we think it is set to drop further as the US budget deficit continues to fall." 3. Disappointing emerging market growth relative to the growth in developed markets. 4. Rising bond yields.
Why Investors Should Ignore The Noise When It Comes To Gold (World Gold Council)
Investors have been antsy about their gold holdings since the slump in April. But a new report from the World Gold Council argues that changing gold holdings based on "single news items" has made investors lose sight of the reason they held gold in their portfolio in the first place.
"The primary benefit of having exposure to gold in an investment portfolio is that it is a cost-effective, long-term asset that can provide downside protection without reducing long-term returns," said Juan Carlos Artigas, Head of Investment Research at the World Gold Council in a press release.
The three key arguments for holding gold are 1. "It protects purchasing power (taking into consideration local inflation rates as well as currency fluctuations)." 2. "[It] Reduces portfolio volatility." 3. "[It] Serves as a high-quality, liquid asset that can be used when the selling of other assets can be costly or cause large losses."
The Rebound In Value Stocks Is Just Beginning (AllianceBernstein Blog)
"The value rebound is just beginning," according to Kevin Simms at Alliance Bernstein Blog. "Our measure of the value opportunity looks at spreads between the cheapest and most expensive quintiles of global stocks based on price/book (p/b) value. Even after this year’s equity rally, these spreads remain very wide. Spreads probably haven’t narrowed as much as you might expect because the market dislocations created by the financial crisis were so profound. The lingering distortive effects of the safety trade left defensive, low-risk stocks at near-record premiums to the market and riskier, cyclical stocks at near-record discounts."
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