Aging Populations Can Prosper, or Not: Making the
Right Investment Choices
Published: May 02, 2007 in Knowledge@Wharton
The U.S. population is getting older as the "age
wave" of baby boomers nears retirement. Will
their 60s, 70s and 80s be happy years, marked by
prosperity, good health and fulfilling activities?
There's every chance of that, according to two
keynote speakers at Wharton's 2007 Economic
Summit: Wharton finance professor Jeremy Siegel
and Michael Milken, the legendary junk-bond king
who now heads The Milken Institute, a
non-partisan think tank.
The developing world may step up to fund
boomers' later years by purchasing the stocks and
bonds in their retirement accounts, Siegel says.
And Milken envisions prosperous, active lives for
80-somethings who feel like they are 60. But this
future isn't guaranteed. Protectionism could
undermine older Americans' prosperity, Siegel warns, while Milken cautions that medical advances
could be offset by unhealthy lifestyles and a lack of investment in "human capital" that would cause the
U.S. to fall behind.
Creating a New Middle Class
Siegel, known for his two bestsellers, Stocks for the Long Run and The Future for Investors: Why the
Tried and the True Triumph over the Bold and the New, said that boomers now accumulating assets to
fund their retirements are enjoying market conditions that are "very favorable for equities."
Today, the ratio of share prices to the previous 12 months' corporate earnings is about 15 to one, in line
with the average over the past 130 years. Flipping the calculation, to divide earnings by share price gives
an earnings yield of 6.75%, showing why stocks are competitive with bonds currently yielding around
5%, he said.
Moreover, the long-term P/E average of 15 may be out of date because the markets have evolved.
Brokers' commissions and other transaction costs are lower than they have ever been, and investors can
now diversify their holdings among stocks issued all over the world, he noted, suggesting that American
investors should have