Aging baby boomers have been a topic among investors for quite some time. After all, with a demographic of more than 76 million in the United States, they’re the biggest — and richest — generation in history. With a baby boomer turning 60 every eight seconds, this segment is expected to comprise 20-25% of the U.S. population in about 20 years.
As a group, baby boomers have accumulated a lot of wealth. With the average baby boomer predicted to retire with $500,000 and $1 million in assets, this group is estimated to have $7 trillion in wealth, which accounts for nearly 70% of the total wealth in the United States.
Most of the individual clients I counsel fall into this demographic. My typical new client is a male baby boomer with most of his accumulated assets invested into a former employer’s 401k, IRAs and his home equity. He’s invested in stocks to save for retirement, but now he is concerned with making these assets last for the rest of his life.
He is well aware his investments are the key to his retirement, but he is afraid to make a mistake with them. He’s lived through the 1987 Black Mondaystock market crash, the dot-com bust and the most recent subprime mortgage crisis. Some of these boomers have an inheritance coming from parents, but they are also concerned about their aging parents’ long-term care. They may also be paying off their kids’ college loans, which makes them concerned about not having enough funds to cover all their expenses. It’s no wonder they have been increasingly becoming more risk-averse.
So as they get closer to retirement, they’ve been shifting toward low-risk investments. Many have already begun shifting their portfolios from stocks to fixed-income securities, a trend that’s likely to continue for many years to come.
And there is one particular stock poised to explode as boomers become more conservative with their investments — MarketAxess Holdings Inc.(NASDAQ:MKTX).
The company operates an electronic-trading platform that allows investment professionals to trade corporate bonds and other types of fixed-income instruments. It has more than 900 active institutional investor clients and a market share of 12.5%. Through its proprietary Corporate Bondticker service, MarketAxess provides fixed-income market data, analytics and compliance tools that help its clients make trading decisions.
Another trend that will greatly benefit MarketAxess’ top line is the recent popularity of corporate bonds over sovereign debt. As countries’ financial positions and debt ratings continue to worsen and as corporations improve their impressive liquidity, institutional investors are likely to flock to corporate bonds to get higher yields with less risk.