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April 6, 1999

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Subject: Demographic Degrees
Author: pistolpacker

It occurs to me that bearishness and bullishness can be measured in degress, and the degrees to which one is willing to accept risks or exercise caution have more to do with where the investor is at on a scale of wealth accumulation than any other factor (imo).

For example --

The young worker just starting out has little at risk with investments because little has been accumulated to date. With each pay period, X dollars are set aside for retirement accumulation or for other long term goals and a very long time horizon. Risk is hardly a consideration in the early stages of wealth accumlation since the percentage swings in equity valuations barely amount to a real concern in the total wealth picture at this early stage.

Mid-life workers with kids nearing or at college age seem to be the most stressed financially. They have aging parents, plenty of debt, college tuition expenses and their own retirement to contend with. Obviously some are better off than others. Some will come into inheritances, others will bear the burden of caring for their own parents as financial dependents, and all variances between the extremes. Risk is a mixed bag for this group. Some are willing to take a great deal of risk in order to make up for the lack of time to achieve their financial needs by the time life exceeds work and income. Others can't tolerate risk, as all dollars are viewed as necessary in short order. So, caution becomes apparent with greater frequency within this group as opposed to young workers starting out.

For more advanced investors, those that I define as having already accumulated or inherited a sizeable amount of wealth, a view of capital preservation becomes more apparent in any discussion of risk. For this group, the management of risk is actually more critical to keeping what has been achieved to a greater extent than growing the initial wealth.

When bulls debate bears, I cannot help but wonder where on the scale each may reside in their personal wealth accumulation. I tend to think that most of today's cautious investors actually have wealth worth protecting, but admittedly, my own bias is showing.

In Harry Dent's vision of baby boomer wealth accumulation, I wonder at what inflection point the wealth accumulation efforts will result in massive capital preservation efforts? I doubt age plays a role as much as the perceived value of the store of wealth already at hand.