Born between 1946 and 1964, the baby boom generation represents an enormous investor class.

How enormous? According to the Census Bureau, the first of the 78 million boomers in the U.S. will begin turning 65 three years from now. By 2030, 20% of the U.S. population will be 65 and older, up from 12% today. How they (or, I should say, we) live, from working and spending to investing, affects every aspect of all of our lives.

And I believe one effect of the wave of retiring boomers will be an increasing demand for yield-bearing assets. For some, the desire will be to live off their portfolios' income (see also "Vanguard's Top Mutual Fund for Retirement"). Others, less willing to accept the volatility of the stock market, will begin searching for investments that lower the risk in their portfolios. Either way, this could result in an inexorable move towards bonds and dividend-paying stocks, driving the prices of those securities up while driving their yields lower.

Boomers Breaking The Bank

As they retire, boomers will begin tapping into their IRAs and 401(k)s to pay their bills. And bear in mind that many are now allowed to make withdrawals from their retirement accounts at age 59-1/2 without any IRS penalties. The income-hungry have already begun to dip into the till.

According to a recent survey by AARP, 25% of Americans age 45 to 64 said they were prematurely taking money out of retirement accounts to make ends meet. Investors desperate for cash are generally unable to stomach much stock market volatility, so these early withdrawers will likely, and I believe mistakenly, move some of their remaining portfolios to "low risk" bonds, if they haven't already (see also, "Shock-Proof Your Retirement").

That's inadvisable but understandable given the circumstances. But the real head-scratcher is...