Over the next 20 years, 76 million people will retire. The baby boomer generation is fast approaching retirement and making plans for life after work.
Well, maybe.
For the past 8 years, the US financial market has been in a Secular Bear Market. This happens when market values do not rise above the previous high year after year. The baby boomers are still using bull market investment strategies such as the modern portfolio theory or MPT, to manage their portfolios.
However, this has not given them their expected historic rate of return. Since 2000, the S&P 500 index has returned an annual average of only 2.45 percent. Hardly the returns baby boomers were hoping for.
So what does this all mean? If $10,000 was invested in the S&P 500 index on 12/31/1999 at the end of 2007 it was worth $11,231.08. A historic annual average of 11 percent would have grown that $10,000 to $23,045.38. Quite a difference.
The Secular Bear Market which started in the mid 1960ss lasted almost 17 years. John Mauldin's New York Times Business Bestseller, Bull's Eye Investing, states ."If you invested in the S&P 500 in 1966, it was 16 years before you saw a gain, and 26 years before you had inflation-adjusted gains".
After the greatest expanse in US economic history (1980 -2000) and back to back bubbles, there is a good chance that this Secular Bear Market will last at least another ten years - or more. 76 million Baby Boomers will either have to save more, work past 65, or find an alternate investment strategy.
One strategy which should be looked at is a Long/Short strategy. This strategy dates back more than 60 years to 1948 when Alfred Jones, also known as the "Father of the Hedge Fund", set forth to try to minimize risk in holding long-term stock positions by short selling other stocks, therefore "hedging" risk.
Today, this same strategy can be created with the use of mutual funds. However, the ultimate goal of a Long/Short Hedging strategy is not necessarily "beating the market", but rather to attempt to minimize the downside risk of being in the market and produce a positive return.