Ask HN: 50% of stock market is pension funds,what happens when everyone withdraw? - punnerud
======
cbanek
I'm honestly not sure if it's 50% or not, but I suppose the idea is that not
everyone withdraws at the same time. Ideally, you would only sell off assets
that you need to raise capital to pay for benefits. Also, there's new money
coming into the fund by employees paying in, and I'm not sure they can stop.

But in general, if everyone wanted to sell their assets at the same time,
that's when the stock market "crashes", because there's no buyers. I suppose
the pension fund managers can make these types of decisions, but in general
they are governed by rules and best practices in terms of what investments
they can make.

If these funds stopped investing their money, they'd be at greater risk of
inflation, and where would they put it? What would be the next step?

But you're right there is a lot of retirement money in the market, and when
people start to retire, some of that money will go out of the market, but also
a lot of people are trying to live only off the interest/dividends, and keep
the principal because they are worried they will live longer than they were
expecting.

~~~
dv_dt
In general not everyone withdraws at the same time, but there are generational
demographic pressures. As more and more time progresses, the baby boomers will
withdraw more and more of their savings - so one could characterize a set of
outflow models of some sort there. The saved amount of discretionary pay going
to younger generations is an inflow. I really don't know if the outflow will
exceed the inflow, but I would note that younger generations live under many
decades of squeezing of 'excess' margins in wages to labor. And that makes the
question of wether the outflow will exceed the inflows much more of something
to ponder.

------
noir_lord
50% of people don't retire in any one year (though some years a larger
percentage of people do retire because of bumps in the pipeline).

Also when people retire the pension fund doesn't draw out their entire pension
in one go.

------
ThrustVectoring
This and the low birthrate in the west are fundamentally why interest rates
are so low and why college and housing is so expensive.

When someone decides to forgo consumption now in exchange for consumption
later, it has to net out into someone else consuming now in exchange for
forgoing consumption later. The interest rate and price of financed goods
adjusts until counter-parties meet on price and the market clears. Where are
the sources of new debt in modern western economies? Mortgages for the most
part (70%), with student and auto loans taking up much of the rest (~10%
each).

~~~
meric
>> When someone decides to forgo consumption now in exchange for consumption
later, it has to net out into someone else consuming now in exchange for
forgoing consumption later

That's not true.

You are a farmer, there is no one near you for a thousand miles, you have an
unplanted field. You have a bag of seeds and no food. You can decide how many
seeds to eat now, and how many seeds to plant for consumption later. No matter
what level of consumption & investment you choose, _no one else_ has to change
their consumption & investment habits.

------
spectrum1234
It's amazing to me how many smart people don't understand this. The prices
would bounce back to almost exactly what they were before the withdrawal.

Edit 1: This is because the stock market is mostly (quasi) efficient. Every
other answer in this thread is wrong. Random people buying and selling have
nothing to do with what the correct price of assets are.

Edit 2: The question makes this answer particularly easy because pension
investors are by definition buy and hold investors (not day traders). If 50%
of day traders did this the answer would be more complex. However, on average
the answer would still be the same. If it was fundamental investors, this
would be a much more interesting question. However using induction previous
fundamental investors would have never invested in the first place...And the
end game here is risk must always carries a premium...which leads us back
to...prices bouncing back yet again.

~~~
SirLJ
Let's agree to disagree on the Efficient-market hypothesis, what cracks me out
there is one of the pioneers Paul Samuelson, Nobel laureate economist - who
ended up co founding one of the first quantitative trading company Commodities
Corporation - I guess hi did hedge his bet... and let's finish with one of my
favorite Warren Buffet quote:

“Ships will sail around the world but the Flat Earth Society will flourish.
There will continue to be wide discrepancies between price and value in the
marketplace, and those who read their Graham & Dodd will continue to prosper.”

------
SirLJ
No matter what kind of investment, you have to have a system with clear entry
and especially an exit strategy, all part of your solid risk/money management.

In any event of a market down turn I'll be out long before the bottom and will
be probably in some sort of alternative investment which will rise, because
the money will seek to go into something else, maybe gold for example.

I strongly recommend to look into systematic stock trading systems like trend
following for example and to have a plan in place when the stock market turns
down from the Friday all time high... Also i makes the greatest life style
business with no customers, no employees and no investors and will run on
autopilot as long as the stock market exists...

~~~
stouset
Assuming you are not some kind of savant who can time the market, how exactly
do you anticipate being able to reliably get out "before the bottom", without
advance knowledge of where exactly the bottom will be?

How, exactly, do you know what other assets will be inversely affected? And
why do you believe you'll get in on those alternative investments before other
panicked investors with equal access to information as you dogpile into them
as well, raising the price you need to pay to enter into a position?

What you're saying sounds suspiciously like a common yet mistaken belief that
you _can_ time the market.

~~~
airbreather
I agree, but a well set trailing stop (% behind based on volatility) is
probably the next best thing and lets you sleep at night and go on holidays
without worrying.

~~~
ThrustVectoring
Why bother with that when you can buy an index fund and hold onto it for
twenty years? If the S&P 500 halved tomorrow, what I'd do is literally
_nothing_.

~~~
airbreather
What if I don't have 20 years?

What if my risk appetite is to invest in speculative stocks?

Not everyone is suited to an index fund and not everyone wants to only invest
in index funds.

You would also want to consider one of the reasons a wide range of index funds
have an attractive yield history is the demographics of the growing population
associated with the baby boomers, which is now in decline.

I will be extremely surprised if the next 20 years is such a gimme, you will
need to pick an appropriate index fund which is not that easy without a
crystal ball, once again demographics are you best friend here.

PS: If the S&P halved tomorrow the smart thing to do would be to buy more.

~~~
ThrustVectoring
> If the S&P halved tomorrow the smart thing to do would be to buy more.

With what money? If you can buy more tomorrow, you could have bought more
today, which is better on average.

------
stouset
You continue your long-term strategy of buy and hold, and feel lucky to be
able to buy these assets at a hefty discount.

If you're nearing a point in time where you expect to be withdrawing these
assets, you should be gradually reducing your exposure to riskier investments
and put greater percentages into lower-return but stable assets (classically,
this would be bonds). In the event of a downturn, you would plan to have
enough money in such stable assets to ride out anything shy of a total
economic meltdown (in which case there probably wasn't much you could have
done anyway).

~~~
SirLJ
Unfortunately with the interest rates close to 0%, bonds are not going to be a
good investment at the moment, especially in retirement and when the avg life
expectancy is growing past 80 years, the only "hope" is to save enough money
or work until death... That's why I am advocating that everybody spent the
time and test different investment strategies, so we don't have to "hope", but
make decisions based on data and analysis...

------
Someone
_If_ (that's a very, very big if as in "won't happen") everybody withdraws,
they presumably do so with reason. The most likely reason I can think of is
that they want to buy goods or services. If so, the economy will boom. On the
other hand, stock prices will fall, giving "everybody" less worth to withdraw.

Net effect likely would be transfer of wealth from the older to the younger
and from those with capital to those who have to work to make a living.

------
danjoc
Ask 2008. That's when all the boomers started hitting early retirement age.

~~~
fred_is_fred
No. "all" of the boomers didn't hit early retirement in 2008. Since "boomers"
cover a broad age group and were not all born in the same year.

