Gold Is a Better Way by Adam Baratta

Author:Adam Baratta [Adam Baratta]
Language: eng
Format: epub
Publisher: Morgan James Publishing
Published: 2018-10-16T16:00:00+00:00

2. Employer Sponsored Plans

Focusing exclusively on demographics misses one major part of this puzzle. It’s important not only to look at who created this new demand, but also where that demand was directed. In addition to consumer products like cars and homes, boomers also helped Wall Street sell more goods and services in the form of securities, namely stocks and bonds. The baby boomers were the first main generation to invest their earnings into the stock market. The peak earning years for the average individual are between the ages of 38 and 52 years of age. This is the time most people begin investing in earnest. Beginning in the early 1980’s, a great deal of new investment demand was seen for the very first time in the stock market. Think about a stock like any other product - when demand to purchase is strong, share prices will increase as more buyers than sellers will inflate a stock’s share price.

The first 401k plan was created in 1978. A 401k is a retirement plan offered by employers that allow workers to contribute a portion of weekly salaries into a personal retirement account. By the early 1980’s the 401k, and other employer sponsored plans (401, 403A, 403B, TSP), had become the norm for employees.

Prior to this time, if you were an employee you likely had a pension. A pension is a plan where the employer promises a defined benefit after retirement, typically a percentage of one’s salary vested by length of employment. Prior to the 1980’s employees didn’t get to choose where their money was invested because corporations handled that for them.

During the early 1980’s corporations were able to transfer this responsibility of maintaining pension plans off their books, and were able to shift this responsibility into the hands of their employees. For the first time in history employees were now making regular contributions to their retirement accounts. These contributions were often incentivized with matching contributions made by the employer.

Anyone with one of these employer sponsored plans knows that the choices for allocation are usually a handful of mutual funds, virtually all of which are tied to the stock market. Beginning in full force in the early 1980’s there was a powerful one-two punch that caused massive growth in the stock and bond markets over the next 15 years coming from boomers and their 401k’s.

Mutual funds were sold to investors as better way to invest. These securities allowed investors to participate in the growth and performance of certain sectors and indexes without having to take on the risk of holding individual stocks. The idea was that, by spreading the risk across multiple stocks, investors would be more protected should any one company go belly up. These funds were in turn managed by investment professionals. Retail investors wouldn’t need to become experts on stock picking.

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