“As the baby boomers retire, will the selling of their 401(k)s for retirement income have a downward effect on the stock market for many years to come? At 52, I don’t want to take another major hit. What will happen to the stock market as the population ages? I feel I have all my eggs in the same basket as everyone else.”

Mark N.

Dear Mark,

I’m glad you asked that question, because it is on the minds of many baby boomers.

The truth is that the current recession muddies the waters a bit. It’s quite possible that, as this recession progresses, a significant number of baby boomers will get fired, forcing them to pull money out of their 401(k)s earlier than expected. It’s also possible that the lowered returns the baby boomers are seeing this close to retirement will get them to take their money “out of risk” by pulling it out of the stock market.

But will that cause the market to continue moving down for years to come? Probably not.

Remember - positive returns drive investment. If the market starts rebounding in 2009 or 2010, you’ll see investors jump into stocks. Not only will a younger generation be buying, so will foreign investors, retirement funds, hedge funds, and even baby boomers looking for one last “hurrah.”

So don’t worry about the effect of the baby boomers on the stock market. Worry about the economy. If it doesn’t recover, returns will certainly stay low to nonexistent.

The best way to stay safe this close to retirement is to keep half of your money in income-paying stocks and high-yield bonds from safe corporations or foreign governments. These investments have low volatility and pay out a steady stream of income to the people who hold them.

- Charles Delvalle

[Ed. Note: The media report something new about the future of the economy practically every day. For a straight take on what's going on... and how to keep your money safe no matter what the market is doing... sign up for ETR's free investment newsletter, Investor's Daily Edge.

Have an investing question for Charles, Andrew, Rick, or Christian? Or a question for another member of the ETR team? Send it to AskETR@ETRfeedback.com and we just may answer you in Early to Rise!]

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