The Life Cycle Model briefly is that people slowly accumulate assets, in this case stocks, and at age 65 they retire and then slowly sell off these assets at retirement until they die. The younger generation buys the stocks and this cycle continues on ad infinitum.

It sounds very logical, but the dear doctor (economist) has not done all his homework.

When I first heard the theory I liked it, but then I had some questions. How much stock do these stockholders own? Who owns the stocks? What about income categories? When it is time to sell will there be enough buyers? None of these are addressed.

Less than 50% of all Americans own stock of any kind at all. Whoops! I guess they will be living off those big Social Security checks. In a way this is good for the market as it limits the amount of stock to be sold so the supply will not pressure the market down. That will not cause a bear market.

Who will they sell to? There are fewer people in the X and Y generations. That could cause less demand and lower stock prices. No mention is made of the possibility of foreign buyers taking up the slack, but what if we are in a declining economy. Would foreign buyers purchase? It is doubtful.

Here is the killer statistic. Sixty-five percent (65%) of all stock is owned by 5% of the wealthiest and one half percent (1/2%) own or control 25%. This throws the theory out of whack as it shows that 5 ˝% own 80% of equities. These are the people who will NOT be selling into the market as they get to retirement age and even if they did the amount would have no impact on the overall market. This is bullish as the supply is limited.

Joe Sixpack with his 401K and company pension plan has only 10% of market share. Can this cause the market to break when he starts selling at retirement? Hardly. This group represents only 5% of the population because 50% of the public doesn’t own any stock and all that selling (!?) will be spread over a 20 year period.

It is obvious the “big money” dominates the stock market: the rich, the hedge funds, pensions plans, institutions and foreign investors.

The Life Cycle Model needs to be reworked taking into effect future demographics.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know. Copyright 2006 All rights reserved.

Copyright 2007 Albert W. Thomas All rights reserved. Author of "IF IT DOESN'T GO UP, DON'T BUY IT!"