Can Growth Investing Save Boomers?

05/17/2011 1:49 pm EST

Focus: MARKETS

Paul Goodwin

Emerging Markets Specialist and Analyst, Cabot Heritage Corporation

Patient buying and holding hasn’t exactly delivered sufficient retirement savings for many, writes Paul Goodwin, editor of the Cabot China and Emerging Markets Report.

I heard a statistic the other day that snapped my head back.

The speaker said that in the United States, 8,000 Baby Boomers are turning 65 every day.

That's a lot of gray.

(It's also one reason there's likely to be so much resistance to any efforts to cut Medicare and Social Security benefits, but I digress.)

I also know that our average new subscriber tends to be between 55 and 60 years old. That's a critical age range, in which significant changes abound.

By that age, people are more likely to have sufficient disposable income for investing. Typically, family expenses have tapered off, children have been out of college for a while, and even the boomerang kids are relieving pressure on the household budget by remaining off on their own.

At this stage, many Empty Nesters are either close to paying off their mortgage or are thinking about selling their oversized family homes, with their eye on a smaller and less expensive place (a domicile downsizing that's sardonically referred to as "boomerang proofing.")

What's more, most people reach peak earning power in their 50s, finally giving them the free cash flow they've never had.

Perhaps most importantly, people in their fifties can hear footsteps. At age 55, Medicare is just ten years away, and the first full Social Security retirement date is only a year after that.

The Incredible Shrinking IRA
And statistics tell us that at the end of the terrible market year of 2008, an average 401(k) participant had a balance of less than $46,000 in his or her account. (By the way, that was down about $20,000 from the end of 2007.)

There's nothing like a little calendar-based reality check to send people searching for ways to put some meat on the bones of their retirement accounts.

It does absolutely no good to tell someone in their late 50s that they should have started their augmented investment program sooner. In fact, it's almost an insult.

These investors have lived through two major market collapses, the result of the bursting of both the Tech Bubble and the Real Estate Bubble. Needless to say, this makes them more than a little skeptical about investing in the stock market as a way to play catch-up in their retirement accounts. After being burned twice, the risk appears just too great.

The trouble is that the other solutions to the retirement shortfall problem are also problematic. Making a huge increase in contributions to institutional accounts just reiterates the market risk that produced the losses from Bubble I and Bubble II.

Investing in undervalued real estate, ditto. T-bill, bonds and notes, or even (heaven forbid) munis? DOA. Las Vegas? I won't even dignify my own suggestion with a response.

You've probably already seen where I'm going with this, right?

NEXT: Taking Charge, Chasing Growth

|pagebreak|

Taking Charge, Chasing Growth
I think there is only one way for an average person with an average amount of investable capital to make a run at big returns with controlled risk, and that's by taking on the job of investing personally.

That's right. You'll have to step back from the advice your company's plan sponsor and your full-service broker have been giving you for years. They've been telling you that "It's time, not timing," and that you can't beat the market and that your only salvation is in diversification, continuing investment, and professional management.

And if you're not willing to take on the work of managing your own portfolio, they may be right.

But what about those people who are ready to step into the ring and go toe-to-toe with the market? The people who understand that the search for higher returns involves increased risk, and who enjoy the challenge of pursuing what professional advisors tell them isn't possible?

Those people need to become growth investors.

I would love to be able to get younger investors interested, too. But the demands of family, college, and mortgage, combined with the temptations of vacations, cars, boats, and the other wonders of the modern world, make that much less likely.

We are all (myself included) playing catch-up with our retirement goals.
 
Subscribe to the Cabot China and Emerging Markets Report here…

Related Articles on MARKETS