you don’t need to sell your stocks to make a rmd. it really depends on cash flow needs in retirement.
Remember that the RMD doesn’t have to be in cash. You can ask your IRA custodian to transfer shares to a taxable brokerage account. So you could move $10,000 worth of shares over to a brokerage account to satisfy a $10,000 RMD. Be sure the value of the shares on the date of the transfer covers the RMD amount. The date of transfer value serves as the shares’ cost basis in the taxable account.
Basically the entire capitalist economy is a pyramid scheme, and it worked for a really long time because we kept producing more and more humans. But population growth has been slowing for awhile now and the pyramid is starting to collapse. The boomers leaving the economy may be the final thing that breaks it.
if the population were magically reduced by half, do you think the average survivor would end up richer or poorer than the average person today?
O/u 1.5 bored apes owned
There’s an implied supply/demand story here that I never quite understood. The general concern is that when investors withdraw money from their 401ks, stock prices will mechanically fall. But I don’t think that’s obvious.
When I see this concern, it suggests to me that stock prices are like the water level of a glass. When you pour water (investor funds) into that glass, the water level (price) goes up. And when investors pull money out, the water level (price) goes down.
But that’s not how prices are set - a firm’s future cash flows don’t become less valuable just because investors are pulling money out of their retirement funds. And investors taking their RMDs aren’t revising their beliefs about the stocks they’re selling. What makes this complicated to think about is that often, investors are selling particular stocks/funds because they believe the firm’s stock isn’t worth as much as they previously thought. It’s true that in those cases the stock price falls at exactly the same time the investors are selling. But in this case that’s because investors have revised their beliefs about the value of those cash flows, which is just correlated with their trading activity; it’s not the trading activity itself that drives the change in price.
This entire paragraph assumes that stock prices are based on the fundamentals that we all learned about in finance classes, and honestly I think that’s a bunch of BS and has been proven so over my lifetime. The idea of anyone thinking about FCF in the modern stock market is to have not been paying attention to the casino it’s become.
Economics, psychology, and gambling is what drives prices in today’s market imo.
This is a very spicy take!
I mean, there’s no point arguing whether fundamentals drive stock prices. But let’s suppose you’re right, and that economics (does this exclude fundamentals?), psychology, and gambling is what drives prices. In a world where that’s true, why would retirees withdrawing funds cause prices to go down?
There’s also the fact that when boomers take their money out of their 401(k)s, they are going to spend it. A lot of that spending will accrue directly to US corporations as revenue, and a lot more will find it’s way to indirectly to US corporations. The net impact here is highly unpredictable.
Then why do you think prices of individual stocks almost always experience their most severe movements immediately following the public release of previously unknown information? If it were all just a big casino the price movements would be random. If it were all 401k contributions the increases would be uniform.
Like sure, a bunch of the same donkeys speculating on fake money and pictures of apes bid up AMC and lost their asses. This demonstrates the rationality of markets, not the opposite.
Asset prices are based on inflows/demand vs outflows/supply. A stock is just another asset in the modern economy. When the demand on dollars coming out of the market is higher than the supply of new dollars coming into the market, it will go down regardless of the FCF of the companies whose underlying stocks make up the market.
This is demonstrably, empirically, laughably false.
Do it then
Roughly the same amount of 401k money goes in every week. How on earth can you possibly think a market that has, in the last 26 months, experienced two 20%+ drops, is based on 401k contributions? What, boomers suddenly took all their money out in March, 2020 then pumped it in for 2 years before suddenly mass selling again in April, 2022?
That’s not what I’m saying. What I am saying is that in a situation where outflows are greater than inflows, that will create downward pressure on stocks. Not that it is the only reason stock prices can drop.
It’s the big players moving money/in out that makes for wild and violent up/down swings. Prices absolutely are determined at least to a fairly large extent by money in vs. money out. All the boomers cashing their stocks out at once would crash the stock market. All the boomers slowly drawing down their stocks (ie selling for the first time ever vs. buying for the previous 50 years) should be a drag on stock prices. The fact 401(k) inflows are fairly constant means it has no immediate effect on the market prices but that isn’t what meb is talking about here.
You add in the fact millenials are woefully underinvested in stocks and not really showing signs of pouring the same levels of inflows into stocks as the boomers they are replacing (and there are just less millenials and they are living mostly hand to mouth) and yes that is a real problem to worry about.
The whole teeth gnashing about NFTs (which yes are stupid and largely worthless) is basically people saying THESE THINGS AREN’T WORTH ANYTHING WHY GO UP, when the reason they go up is more and more and more money has been piled into them. Telling meb he doesn’t know how markets work when you think inflows/outflows into a particular asset don’t matter is really weird but at least it explains some other posting. Fundamentals and discounted cash flows matter almost zero for the recent stock years. If you think that is what drives stock prices you couldn’t be more wrong in the last few years. In the longer run maybe we get back to that but pretty much all recent evidence shows we have diverged from that in a major way.
I don’t know if the boomers are what finally breaks it, but I could not agree more than all of this is propped up by the idea of never-ending population growth.
Even if you believe this to be true, global population is going to continue to grow for decades. Foreign investors already own about 1/3 of the US stock market. There is a possibility that as American boomers retire they will be replaced as investors not by millennials but by foreign investors. Who knows?
Also US Corporations are globally diversified. For all the super fucked up things about this country we still, somehow, have a lot going for us economically.
In the era of Tesla and meme stocks, I’m a bit surprised people are still pushing the efficient market hypothesis. At best this might be right over the long term that the stock price will reflect the underlying value of the company, but if the stock market (or housing market or really any capital market) has taught us anything, it can take years/decades for the long term to happen.
As it relates to the selling pressure if/when boomers start to cash out their stocks, sure, maybe in the long term people scoop in to buy it back up to its “true value”, but there is a limited amount of capital available for the stock market, so it’s not like if boomers start dumping trillions in stocks, other investors are just going to immediately step in. Even if they think prices are lower than the true value of the company, if there is going to be continually selling pressure, it would be far smarter to wait for that selling pressure to push down stocks further.
The thing that triggers me when some of you marketsplain the conventional wisdom of How Things Work™ is your dead certainty about it with such a small sample size. I know that if I pressed, most would allow the future is unwritten and we can never truly know what will happen. You’d say sure, markets as they currently exist have only been around for 50, maybe 100 years, depending on how strictly you want to define that, and most economic theory over those decades has turned out to be dog shit. But unfortunately that’s the best we have to work with, so we try to be circumspect about any predictions.
But that’s not really what happens. Instead it’s like a coin gets flipped and comes up heads 5 times in a row. I suggest maybe next time it will be tails, and people say, “lol no you fucking imbecile, it’s always heads!”