Baby Boom Gloom - Get Away!
By Alan Steel
An edited version of this article was published in The Daily Telegraph
on Saturday 22 October 2011
Let's see if I've got this right. Experts are pessimistic about decent financial prospects for retiring Baby Boomers. Any savings they have will be pulled from stockmarkets and cause them to crash.
And there's no hope for folks in their twenties these days - what with inflation soaring to over 5% and mortgages hard to come by. Oh and apparently it was much easier for Baby Boomers when they were in their twenties. What garbage!
I'm one - first wave that is - born in the peak year 1947. (1961 was a bigger birth year for boomers, but they are not facing imminent retirement.)
Believe it or not, I was once in my mid-twenties too. Was it easier then? Don't believe it! By the beginning of January 1975 the FT All Share Index had fallen 73% to only 62, in less than three years. It's around 2,800 today.
If you were lucky enough to get a mortgage then, almost impossible even at three times earnings, you paid interest at 13% - up 65% in less than three years. If you were a saver, rampant inflation ripped away at your returns with inflation hitting 26% in 1976!
But do you know something? We're still here. Despite 32 official crises since 1974, stockmarkets have been great investments, while deposits guaranteed you losses year after year. The average increase of the UK stockmarket twelve months after these crises was 17%!
Baby Boomers my age will remember Brian Clough the football manager. In January 1975 when the All Share Index was only 62, and financially things looked so bleak experts were convinced Communism was a racing certainty for the UK, he took over as manager of struggling English Football League Second Division no hopers - Nottingham Forest. Experts doubted his sanity.
Clough believed if he got the spine of a team right - goalkeeper, centre half, central mid-fielder and striker - you can be champions. Within five years he took the no hopers to two consecutive European Cup victories - a feat achieved by only a handful of big European clubs.
I highly commend the Brian Clough system of investing for Baby Boomers today. Instead of sitting in cash, or running to perceived safety you too can be Champion investors.
My goalkeeper? Sebastian Lyon of Troy. My centre half? Neil Woodford, Invesco Perpetual. My mid-fielder - Graham French at M&G. And my striker? A young man with a great future - Richard Penny at Legal & General.
Three years ago experts again said there was no hope. But as the All Share Index has hardly moved this spine has averaged 73% growth after charges. Sounds good to me.
Alan Steel Asset Management