Boomer investment strategies for 2025 and beyond

Last week’s story on how to invest like a Baby Boomer got a strong reaction but also some scepticism.

Is it really possible in 2025 to use similar strategies to the Baby Boomer generation to build wealth over time or have so many things changed to make these strategies now obsolete?

I maintain that all of the Boomer strategies we looked at last week are just as relevant today, even if some of these specific asset classes such as owner occupied housing may be a lot more difficult to achieve than they were decades ago.

Main elements of the strategy

Just for a bit of revision first, the main elements of the Boomer strategy I outlined last week were using leverage, forced savings, negative gearing and capital gains tax concessions, superannuation and avoiding issues with bad borrowings as the main keys used by the Boomer generation.

While many things have changed over those decades, the power of this strategy remains intact although some fine-tuning is required to the asset classes to ensure the current generation are saving early enough to make a difference.

Here we will go through a few alternative methods to build up a Boomer-style investment strategy that will stand the test of time.

As I mentioned last week, financially successful Baby Boomers usually used borrowings to broaden their capital base and to introduce forced savings as a key strategy.

There are now even more financial tools available to combine these features even though the cost of housing may have risen so far to be a more delayed goal for current generations.

ETFs greatly expand the investment possibilities

When it comes to investment opportunities available now the list is much longer than it was decades ago.

Investment vehicles such as exchange traded funds (ETFs) have allowed for much easier diversification of assets than ever before and are arguably far superior to the usual Baby Boomer purchase of a single residential home.

Why buy a house or investment property in one particular suburb and put all of your eggs into that single basket when it is possible to buy a single ETF that covers a range of Australian property all the way from retail and industrial through to exciting new ventures like computer server farms and AI hubs?

Some of the ETFs that might suit this purpose include Vanguard Australian Property Securities Index ETF (ASX: VAP), SPDR S&P/ASX 200 Listed Property Fund (ASX: SLF) and the VanEck Vectors Australian Property ETF (ASX: MVA).

All provide low cost and diversified exposure to the biggest listed property trusts in Australia in proportion to their market size.

There are many benefits from investing in property through these sorts of ETFs apart from the broad diversification they offer between individual properties and also across various sectors, including retail, industrial and even fast-growing data centres.

The biggest and most obvious benefit is there is no big upfront payment for stamp duty.

Also missing are all of the ongoing costs associated for insurance, rates, agent fees, maintenance and the ongoing fear of losing a tenant.

It is true that many of these costs will be included within the underlying professionally managed REITs (Real Estate Investment Trusts) but not having to pay them upfront and on a continuing basis is a huge advantage compared to buying an individual investment property.

Investing in REITs is an excellent first step – or even an enduring step – on to the property ladder and is much more liquid, convenient and comes with much lower costs compared to direct investment.

REITs also provide excellent yields that are often more reliable than other share market dividends and can sometimes also have franking credits.

New age share market Boomer

As I pointed out in the first part of how to invest like a Boomer, there are asset classes other than property and the share market is one of the best alternatives there is.

It is true that by some measures Australian property has outperformed the share market over select decades but usually not by a lot and the liquidity advantages alone of the share market can be very valuable.

If you invest in a property, you can’t just sell off a bedroom if money gets tight but with shares you can sell part of your portfolio and have cash in the bank inside a week.

The innovation of ETFs (exchange traded funds) that weren’t around back in the Boomer era has also opened up a plethora of other opportunities such as international shares and the ability to invest in global investment themes.

I’m a big fan of simplicity and by using ETFs it is possible to build up a meaningful global exposure by buying just a handful of low fee ETFs.

One example of a simple international and local spread is BetaShares Australia 200 ETF (ASX: A200), iShares Core S&P 500 ETF (ASX: IVV) and Vanguard All-World ex-US Shares Index ETF (ASX:VEU).

With just these three ETFs you are getting truly global exposure across share markets in Australia, the US and rest of the developed world and by choosing what proportion of each you buy, you can tailor the portfolio easily.

If you wanted to increase the dividend yield a little – given that US and rest of the world shares have very low yields – you could add Vanguard Australian Shares High Yield ETF (ASX: VHY) to the mix as well.

On the same theme, it might be worth looking at the large, well run listed investment companies such as Australian Foundation (ASX: AFI) and Argo (ASX: ARG) to increase the dividend income.

Obviously, there are literally thousands of other share market choices out there but keeping it simple and easy to understand is a nice starting off point as you gain confidence and experience.

Using leverage to expand your asset base

One of the big investing themes for Boomers was to use good debt to expand the asset base and use forced savings in the form of loan repayments to pay that debt down over time.

This strategy can easily be employed in both of the above examples using a margin loan on shares.

Indeed, this has the advantage over much of the original Boomer debt of being tax deductible which helps offset to some extent the capital gains tax free status of a principal place of residence.

While margin loans tend to have slightly higher interest rates then home loans, they also have distinct advantages and one big disadvantage as well.

The advantage is that the loan can be prepaid for the next financial year but claimed in the current financial year if you have enough cash flow to support such a payment. That is not as hard as it may sound because the tax refund can be paid fairly quickly after your tax return is filed, meaning that there is only a month or a bit more over which you have to support that full interest payment before the deduction arrives.

The big disadvantage of margin loans is that they are secured by the underlying shares so in the event of a significant market downturn, if you are running close to the limit of allowable borrowings, you may suffer a margin call.

This can usually be avoided by ensuring that borrowings are a fairly low percentage of the total portfolio – say 30% of an allowable 70% lending ratio.

If you want to go closer to the total allowable lending ratio, then keeping some cash on the sidelines ready to drop into the account should a margin call eventuate is often a really good idea as well.

The problem with the margin call is that it usually arrives at the worst possible time, with markets tanking and volatility raging.

Selling at this market low should always be avoided if possible, so it is important to act quickly on margin calls to avoid the underlying shares being sold by the lender.

For those who may be really scared of bear markets and don’t want to ever experience a margin call, perhaps the best alternative is an internally geared ETF.

One example is the Betashares Wealth Builder Australia 200 Geared (30-40% LVR) Complex ETF (ASX: G200) which features internal gearing of about 30% to 40%.

Because the fund borrows internally at a cheaper rate than an individual margin loan, there is no risk of a margin call, although obviously gearing magnifies both gains and losses so the fund is likely to fall faster than the overall market but also should recover faster as well.

Avoiding bad debt

One of the other characteristics of Boomer investment is that they try to avoid bad debt on the depreciating assets like cars and clothes, and concentrated on good debt that broadened their asset bases.

So, becoming a Boomer investor in the above examples would also entail progressively paying down the margin loan as a form of forced savings, something that can be achieved easily with a scheduled deposit every week or any other time frame that works for your cash flow.

In this way the loan is reduced over time, there are increasing dividend payments together with tax advantages through franking credits and a tax advantage for the margin loan interest as well.

Over time and with a disciplined approach, this can lead to a portfolio that grows steadily through a combination of debt reduction and capital appreciation.

So, there you have it.

It is still possible to adopt a Boomer investment strategy in 2025 and use tax strategies such as negative gearing and the capital gains tax discount to improve your savings over time.

The over-riding theme though is to concentrate on building wealth slowly by being systematic and to avoid taking on too much risk to avoid disruptions to your long-term investment goals.