Investment Ideas We Can Learn from the Baby Boomers
September 06, 2010Today investing in a mutual fund is a way of life but at the end of the1970’s there were only a little over 500 mutual funds. With the help of the Baby Boomer investors toward the end of the decade of the 1990’s this exploded to over 7000 mutual funds.
Now I have heard that if everyone is doing it, it could be a fad – so watch out. Remember the “pet rock” was also born in the age of Baby Boomers and we have to note that these people actually purchased this product in great quantities – so we have to take any of their choices with a grain of salt. But don’t forget, there could also be great value.
Why did these investors flock to mutual funds? The first obvious answer is they were in some ways forced to with the invention of the 401(k) – they were able to choose investment options in their retirement plan. The greatest benefit, in my opinion, is the mutual fund offered was access to professional money management. Individual investors had access money managers because funds offered a low initial investment of $1000 or a monthly payment start up of $50 per month.
Before mutual funds became popular, it was common for investors to buy stocks 100 shares at a time or individual bonds at a minimum of $25,000 each. In a fund, investors could essentially buy 100-300 securities at once giving instant diversification. After the index fund became popular, investors were able to buy a representation of the S&P 500 or other indexes if they didn’t want professional management – just match the index. Instead of choosing individual securities, investors looked at investing differently – they chose a manager and matched the funds goals to theirs to make sure it was a fit.
That is an exercise that is important for us to do today. Most of us own mutual funds in our retirement plans and also in brokerage accounts. Consider taking time over a weekend and do a review to see if the objective of your fund (capital appreciation, growth and income, income, etc.) matches your current investment objectives and risk level. If not, consider reviewing your investment strategy and make changes. Review your funds semi-annual or annual report and take a look at the kind of securities that your fund invests in to make sure they are also a fit for you.
When you do, sit back in awe and notice how many different companies you own shares of. When you go to make your next purchase, don’t forget to buy the products of the companies you own – and thank a Baby Boomer while you are at it.