Alternatives To Fixed Income

By 2030, 20% of the US population will be over 65 (its 13% now).  It has been commonly thought that as boomers age into retirement that they will slowly move assets from equities to fixed income, CD's at the bank or the mattress thus causing a market meltdown, the reverse we saw in the 1980s and 1990s.

This may not necessarily be the case.  With interest rates at all time lows and fixed income paying virtually nothing and the prospect of slowly rising interest rates, (which will destroy the principle in bond funds), boomers and retirees are faced with little choice but to look at income producing dividend stocks.

Dividend paying stocks are usually the safer of stocks however there is always the possibility that share prices tumble and of course, any company can cease paying their dividend at any time for any reason.  Many did in 2008!

BUT with little choice and no where to go, my guess is that retirees and boomers will migrate to dividend paying stocks anyway.  This will force more companies to be prudent with their balance sheets allowing them to pay and increase dividends or else they end up on the wrong end of a very large trend.

This will be good for long term investors and companies alike.

No comments:

Post a Comment