At a recent event, someone asked me, “Will the baby boomers’ reduced equity exposure be offset by the millennials’ equity investing?”

If you wanted to write a stock market horror story, the plot might look something like this: As baby boomers retire, they will begin selling stocks. The millennial generation, burdened by student loans and traumatized by the dot-com bubble and global financial crisis, will avoid investing in stocks. The result: Stockmaggedon!

For retirement plan sponsors, this has added relevance. All the careful thought and refinements put into plan design would be for naught if they’re completely offset by demographics. Will the millennials be the cavalry coming to save the day?

Boomers’ market footprint is not a systemic risk

Now that the percentage of the U.S. population ages 65 and older has reached an all-time high of 15% and growing, this potential scenario has garnered quite a following. When Vanguard looks at the plot, however, holes begin to emerge. Here are a few:

  • A 2006 analysis by the U.S. Government Accountability Office of Standard & Poor’s 500 Index returns from 1948 through 2004 found that demographic variables accounted for less than 6% of stock market return variability. This finding indicates that macroeconomic and financial variables far outweigh the impact of demographics.
  • The baby boomer generation spans almost 20 years; therefore, any asset rotation out of equities will be gradual.¹
  • According to the Federal Reserve Board’s Survey of Consumer Finances, the 45- to 64-year-old age group owned 50% of all U.S. equities in 2016. This was almost identical to the 51% average held by the same cohort over the previous 27 years. During that time, the number of 45- to 64-year-olds increased from 19% to 26% of the overall population. In other words, even as the proportion of pre-retirees increased, their stock market footprint did not.
  • Foreign holdings of U.S. equities as a percentage of total U.S. equity market capitalization rose from 7.2% in 1988 to 22.6% by 2016. Even if there were a connection between U.S. demographics and domestic stock market returns, international investors would dampen the impact.²

No significant relationship exists between the changing proportion of U.S. retirees and long-term stock market return variability

Notes: The U.S. total stock market is represented by a spliced benchmark composed of the following indexes: Standard & Poor’s 90 Index (January 1926 through March 1957), S&P 500 Index (April 1957 through December 1974), Wilshire 5000 Index (January 1975 through April 2005), MSCI U.S. Broad Market Index (May 2005 through June 2013), and CRSP U.S. Total Market Index (thereafter). The historical data for the U.S. total resident population ages 65 and older (January 1926 through July 2017) were derived from Moody’s Analytics database, available at

Sources: Vanguard calculations, using data from U.S. Census Bureau and Moody’s Analytics.

Don’t believe everything you read about millennials

Chapter two of the story centers on the notion that, burdened with student loans and shell-shocked from the dot-com bubble and global financial crisis, the millennial generation is risk-averse and reluctant to invest in the stock market. When Vanguard analyzes the data, however, this narrative arc appears a bit far-fetched.

  • The ratio of debt payments to family income for heads-of-households younger than age 35 gradually declined from 18% in 1989 to 14% in 2016. The drop resulted from a combination of lower overall interest rates and the shift in debt composition from consumer credit to education. This undermines the theory that millennials’ student loan obligations will constrict investable funds.³
  • The invention and widespread adoption of automatic 401(k) enrollment has increased participation rates in all age cohorts. Participation in the 25-to-34 age group rose from 57% in 2005 to 74% in 2015.4
  • The remarkable popularity of target-date funds has improved investors’ asset allocation strategies. In 2005, the 25-to-34 age cohort held 78% of 401k assets in equities. By 2016, that figure was 86%. This is a noticeable progression toward the 90% equity allocation that most target-date funds recommend for younger investors, and it contradicts the notion that millennials are too risk-averse.4
  • The percentage of heads-of-households younger than age 35 holding stocks outside of a retirement account was 10% in 2016, slightly below the 11.7% average since 1987. This decline is more than offset by the growth in the cohort’s retirement assets.3

A dubious tale

The scariest stories are those that are simple and believable. The plotline of an aging population causing a sell-off in equities meets these criteria but collapses under empirical analysis. The demographic changes occurring in the United States will have noticeable implications for labor markets, public finance, and political developments. However, Vanguard finds no credible evidence that demographic changes alone will negatively affect future stock returns. Investors and plan sponsors are well advised to ignore scary headlines and remember that an investment strategy focused on discipline, diversification, and patience continues to offer the clearest path to financial success.

¹ Vanguard calculations, using data from the U.S. Census Bureau.

² Vanguard calculations, using data from the World Bank and the U.S. Bureau of Economic Analysis.

³ Vanguard calculations, using data from the Survey of Consumer Finances (Federal Reserve Board, 2017).

 How America Saves (Vanguard, 2017).


  • All investing is subject to risk, including possible loss of principal.
  • Investments in Target Retirement Funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement Fund is not guaranteed at any time, including on or after the target date.