The Stock Market Crash of 2016

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Have you ever heard of the stock market crash that’s predicted for 2016? I think we have all heard stories of the stock market crash in 1929, and we obviously remember when the market plummeted down to half of its original value in early 2009, but according to Robert Kiyosaki, the market will also be taking a dive in the near future.

After World War II

Soon after the Second World War, many American soldiers returned back home to their loved ones and decided to buy a home of their own and start a family. Babies were soon everywhere, and these children were quickly referred to as the “baby boomer” generation.

Baby Boomers

The “baby boomer” was a label put on individuals that were born between 1946 and 1964. Today, there are approximately 70 millions people that carry this title, which is nearly one quarter of the population.

So What’s the Big Deal?

At this point, quite a large majority of the baby boomers are approaching their 60s and are considering retirement. Instead of leaving their money in the stock market, many of them are beginning to shift their money into something a little more secure like money markets and bonds (as well as using the money as their retirement income). Nothing here sounds all that alarming, but let’s dig into the economics of these actions.

Economics Explained

Let’s say 100 people each own a purse that they wish to sell. At $50 each, there are exactly 100 people that are interested in purchasing a purse. Therefore, at that price, the market has reached its equilibrium; meaning, there is exactly the same amount of supply as there is demand at one particular price. In this case, it was $50.

Now, what if only 50 people had an interest in those 100 purses for $50? Then either half of the people would not be able to sell their purse, or the price would need to be reduced in order for demand to meet the supply. In this instance, the purses would most likely have to be priced a little lower (let’s say $40) to attract the demand of 100 buyers.

In other words, what I am trying to get across here is, ‘demand drives the prices’. The same economic principle can be applied to the stock market. The stock market is continually moving, always hovering around the equilibrium where supply meets demand. If a particular stock suddenly loses demand, the price of that stock will go down!

Are You Putting the Pieces Together?

Hopefully, you’re starting to understand the fear of another stock market crash. About 70 million people are starting to take billions of dollars out of the market to prepare for retirement. At the same time, the younger generation is investing less than what is typical. This create a large supply of stock shares and a very low demand. Therefore, the stock prices will plummet. Most likely, they will go lower than anyone has ever seen before.

What do you think about this theory? Have you done anything to prepare for this?

Investing Money Retirement

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

30 Comments

  1. I did read that one of his books. That’s was two crashes ago. I’d be interested to know what others think. We are still investing with a long term view of retirement.

    • You’re right. I believe the book was written in 1997. So since then, we’ve seen the stock market downturns from the tech bubble and the sub-prime mortgages. Will it turn down again? I think yes.

  2. Awesome!

    The lower the markets go, the better the long-run return. I’m cool with falling stock market valuations. 😀

    • I’m glad you noted that. While these downturns may be unfortunate for the baby boomers, it’s an excellent opportunity for those of us that are young! Thanks for the response!

  3. A stock market crash means a buying opportunity, so bring on the crash! ‘m sure retirees hate guys like me but a stock market crash is a dream for someone my age lol.

    • Haha! I’m with you though Jon! I was kicking myself after not investing during March, 2009 (this is when the Dow was around 6,000), but I expect that we’ll be seeing lows again, and then I’ll be sure to capitalize. 🙂

  4. It’s an interesting theory. If you don’t need the money then it could be a good buying opportunity.

  5. I think Kyosaki is a great marketer and publicist. If the market crashes, or not, he makes the same from the sale of his book.

    If the market does crash, it will recover again within 12 months.

    If Boomer’s are being advised, the won’t be taking everything out of stocks. Most of them will be living for anothe 30 years and will need continued growth investments so that they don’t outlive their money.

    Even if they did withdraw the cash, they would most likely put them into cash deposits. Banks would then have additional liquidity to lend, and stimulate the economy further.

    I heard about the May 21, 2011 disaster ideaology on the weekend. I think it’s bunkum. What do others think?

    • I think the stock market has a great possibility of plummeting again, especially in these still-uncertain times. As for May 21, 2011, based on the history of these predictions, we’ll be seeing May 22.

    • There are not guarantees for a speedy recover following a crash. When the market crashed in 29, it took 30 years for it to fully recover to its previous level.

      • Thanks for the comment, JS. The market has actually bounced back quite nicely since 2009, but it’s definitely not as stable as everyone would like. At any moment in 2016, the stock market could absolutely take a dive again.

  6. I’m a retired boomer on a fixed income with a 401K invested mainly in a fund that is supposed to be geared for my age. We have tried to hedge for possible inflation with some stocks in commodities.
    We know that we have to stay in stocks more than retirees did in the past because people live longer now and our 401K fund reflects that. So, no, I don’t think there will be huge withdrawals from the stock market as most boomers we know seem to think like we do. If they need money to live on, they generally keep working longer rather than take money out of the market.
    We advise our grown kids to fully fund their 401K’s and stay mostly in stocks.
    Books that sell fear usually sell well.

    • But what with the baby boomers survive on? They will need to sell stocks in small clumps for their yearly income. And, a few million small clumps can really add up! Just keep an eye on that market. I fear that it could turn for the worst.

  7. I’m just glad that right now I have a pension at work so any money I put in the market is for building wealth… and to retire in style.

    I just hope what goes around doesn’t come around again when I’m trying to pull my retirement funds out when I do need them.

    The market is a bunch of cycles… you have to get in at the bottom and sell off at the top… Easier said than done when emotions come into play.

    • Yep, if all of your retirement funds are within the stock market, emotions could certainly get in the way of logical thought! If you are nearing retirement, I would suggest exploring some other options of what to do with your money. Perhaps you could build some income through a business, or invest overseas.

  8. Since I plan on retiring in 2017, you got my attention! Although some baby boomers will be withdrawing or cashing in stock, however many more will just withdraw the dividends or earnings. I think there will be a variety of things occurring because of baby boomers. Since this is the first year they turn 65, we should see a trend before 2016.

    • Honestly, I don’t think the baby boomers have enough money in the market to live solely on dividends. The average dividend is about 1 or 2%. To survive on this alone, they’d need to have over $3 million in the market. There will be many stock sales, and while I don’t think it will happen immediately in 2016, I think we’ll begin to understand what’s going on in 2020.

  9. I have thought about the same thing. When people start depending on their assets for retirement, someone needs to buy. If the buyers aren’t there, the prices will fall. We shall see what happens…

  10. I believe it comes back to the boom and bust economy we have and how the cycles seem to overlap and/or are closer together. We may have a big crash but seeing how the markets of the past 15 years or so respond, it will probably bounce right back after a couple years. I guess as long as you are prepared for it, hopefully, it will not be a big deal.

    • I can see your point too Travis. Just like any moment in history that saw rough economic times, we were always able to bounce back and find prosperity.

  11. I have to agree with JT, the falling prices will only make building my retirement nest egg that must easier. Also I think that the population will be rebuilt and will be supported by another wave of either immigrants or children.

  12. I am considering investing in account at my bank that will guarantee a good return in Sept of 2016 if the Stock Market doesn’t drop 20% lower (in 2016) than what it is now. Will that be too risky. Or a good investment?

    • This is a great question Kelli. I don’t think I can legally answer this, and I would advice that you seek the advice of a financial advisor. If it were me, I don’t think I would do this (it actually sounds kind of shady) given the current volitility of the market. Honestly, I think it’s going to take a dive and stay down for a while.

  13. The stock market is also driven by risk. High share values mean higher risk and low share values means lower risk. Based on your theory the risk of being in the market will drop to the point where it’s riskier to not be in the market in terms of the potential that could be gained. At that point people will pile back into stocks like they always do. I’m not at all worried about reduced demand in the stock market due to an aging population.

  14. I’m glad you noted that. It’s an interesting theory. A stock market crash means a buying opportunity, so bring on the crash! I was kicking myself after not investing during March, 2009 (this is when the Dow was around 6,000), but I expect that we’ll be seeing lows again, and then I’ll be sure to capitalize.

    • I was kicking myself during that time too! I could have invested in a particular stock and made 600% within just a few months! I really didn’t have a ton of money then, so there wasn’t really much I could have done, but, just like you, I’ll be ready for the next one! 🙂

  15. Also I think that the population will be rebuilt and will be supported by another wave of either immigrants or children. Awesome! I’d be interested to know what others think.

  16. Think about it, if all the babies that were aborted back when Roe vs Wade passed, when they legalized abortion, were alive today,and a lot of baby boomers got married in stead of staying single the next generation wouldn’t be as few as they are, we might not be in the fix we are in.The same goes with Social Security, not as many putting it in, as there were back in the baby boomer generation that’s why it’s going broke.


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