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Book Summary: The Pig and The Python

like anyone else in any other generation, as boomers moved into their twenties and thirties, they wanted to acquire certain large capital assets: things like houses, furniture and cars - not having large pools of savings, boomers thus put a heavy demand on money, which drove up interest rates to the double digit levels that we saw in the eighties

now, however, boomers have acquired most of the large assets they want, and are moving more into 'savings mode' as they plan their retirements - this relative lack of demand for money will keep interest rates low over the next twenty years

the real estate market will also remain flat for this period, because boomers have by and large already acquired the real estate they will need in their lives - aside from some bright niche markets, like retirement condominiums situated in attractive areas close to lots of amenities, real estate will not be a particularly attractive investment - boomers who are looking to unload their paid-off houses as a financial windfall in their old age are thus likely to be disappointed

the bond market (which is essentially companies raising capital by borrowing money with a promise of future payment at a fixed rate) will hold some attractiveness in future, as interest rates go lower still (thus making bonds with rates fixed at levels higher than the interest rate more attractive) - while some long-term bonds should be part of an investment mix, bonds and similar instruments like guaranteed investment certificates (GICs) will not likely generate big financial returns

with real estate being flat or even trending down, and the bond market being secure and safe but likely lower return, boomers will increasingly turn to the stock market (which is essentially companies raising capital by giving away a small piece of the equity of the company) for growth in their financial portfolios - the value of the Canadian stock market, the authors say, will likely triple and might even quadruple over the next ten years

boomers will respond differently to the three basic types of shares available on the market:

- preferred shares, which entitle the holders to a specific dollar amount in the event of the liquidation of the company, act essentially like bonds, and thus will have limited appeal

- income shares (blue chip stocks) offer a solid and reliable return through fairly generous dividends, probably above what the bond market can deliver, and thus will be a large part of more conservative boomers' investment strategies

- growth stocks are issued by companies that are typically in their early stages and are hungry for capital to expand - they thus are inherently riskier, but probably have greater potential to increase in value through the value of the share itself (as opposed to dividends) - being really 'where the action is', they are thus likely to represent a larger proportion of the investment portfolios of less 'risk adverse' boomers

recognizing the complexity of the market, and the rapidity of change in our emerging 'information society' boomers will increasingly turn to mutual funds (pools of stock holdings managed by professional money managers) as the way in which they manage the stock market component of their financial portfolio - the tremendous growth that we have seen in recent years in mutual funds reflects this phenomenon