Saturday 13 September 1997

Boomers give stocks big boost

Expert suggests prices will soar for 15 years because of scarcity

Jade Hemeon
The Toronto Star

TORONTO -- The giant wave of baby boomers is going to create a stock shortage that will send prices soaring even higher for at least another 15 years, a conference of mutual-fund industry participants was told this week.

"When the baby boom hits an industry, there's never enough to go around," David Cork, author of The Pig and the Python, told a conference sponsored by the Investment Funds Institute of Canada.

"The baby boomers are just hitting their years of highest savings. It is extremely predictable -- there aren't going to be enough stocks to go around, and stock prices will react to the laws of supply and demand."

He said baby boomers are finding that they can't build a retirement nest egg by relying on traditional interest-paying investments such as guaranteed investment certificates.

Mr. Cork expects that interest rates will stay low because of a lessening in the demand for loans as baby boomers age and governments pay off debts and deficits.

"Demographics are a key component," he says. "The mutual-fund industry is going to explode -- more than it already has."

Mutual-fund assets currently stand at $273 billion, according to IFIC's latest figures, a long way from the $20 billion of 10 years ago. And the growth continues. With $30 billion in net sales in the first half of 1997, this year could set another record for the industry.

Mr. Cork said that if you study demographics, trends can be predicted years in advance. The hospitals were the first to notice the postwar baby boom, and its influence predictably spread to the education system and real estate as baby boomers bought homes. Interest rates rose as they borrowed money.

Now, the biggest generation in the country is turning its attention to saving for retirement, and mutual funds appear to be the vehicle of choice, he said.

"For members of the baby-boom generation, mutual funds add value," Mr. Cork said.

"They don't have the time, the inclination or the education to invest on their own, although they may learn in the future."

The stock market has historically provided superior returns to competing financial investments, and equity funds are acting as a funnel for baby-boomer savings.

"We are heading into a period of disequilibrium for the stock market," Mr. Cork said. "The baby boom's average age is 38, and those at the leading age are 50. We're just in the first quarter of this game -- it hasn't even started for the mutual-fund industry."

He said the stock shortage will be particularly acute in Canada, which has a smaller stock market than some countries, but restricts retirement savings primarily to Canadian investments. RRSPs must be invested 80 per cent in Canada.

Mr. Cork predicts the Toronto Stock Exchange 300 composite index will hit 20,000 within 10 years, with ups and downs along the way. He said recent downturns have been short-lived as boomers kept pouring money in after a correction.

Mr. Cork warned the boom won't last forever, but he predicts it will run at full steam until at least 2010, and at a slower pace for another 10 years after that. Even after retirement, baby boomers may continue to rely on stocks to provide dividend income, he said.

"The baby boom will move on and change," he said. "As people get older, they will get more cautious."

But before that happens, he said, there will be several years of unprecedented prosperity in stock markets, and plenty of equity capital available to companies looking to expand.