What's next for boomers

Greg and Janet Ashe, ages 51, 53: The Ashes benefited from falling rates and rising home prices, and now view their real estate as a safety net for retirement.

What's next for boomers

• 1. Cooling returns

• 2. The fastest growth

• 3. Rising taxes

• 4. Your career

• 5. Reliable retirement

(Money Magazine) -- The baby boomers might not be the greatest generation, but you can make a strong case that they're the luckiest. Just ask Greg and Janet Ashe. When they graduated from college in the late 1970s, Communism (remember that?) was still a functioning economic system, and U.S.-style capitalism was under siege: Inflation was running at around 11%, stocks had made zero progress in a decade, and the U.S. economy was heading for its second major recession in five years.

Those days now seem like they happened in another lifetime. Greg, the executive director of a performing arts center in Cleveland, is now 51, and Janet, a C.P.A., is 53 - a couple in their prime living in an economy in its prime. The Ashes have worked hard. But for virtually all their financial adulthood they have known nothing but falling inflation, falling interest rates, falling taxes and rising asset values in both their stock and real estate holdings.

Yes, there have been bumps since the great global boom began 25 years ago - the tech stock crash of 2000 comes to mind - but the good times always returned. "We've been fortunate," says Janet. She could be speaking for a whole generation.

There's a saying in economics, however: If something can't go on forever, it won't. Inevitably, the tailwinds that the economy has enjoyed for the past quarter-century will have to play themselves out, if only because the conditions that created them no longer exist.

Maybe today's market turmoil is a sign the moment has arrived; maybe the boom has a bit more oomph in it. Either way, though, it's a safe bet that the next 25 years won't unfold exactly like the last 25 - and the strategies that will work best for you in the years ahead won't be the same that worked in the past.

No forecast is a sure thing, obviously, but each of the five trends you'll read about has an air of inevitability. To find out what to expect - and how to make the most of it - read on.

The past 25 years: By the end of the 1970s, things were so bleak on Wall Street that a pessimistic Business Week cover proclaimed "The Death of Equities." That, of course, turned out to be one of the great buy signals of all time.

After the Federal Reserve beat back inflation at the end of 1982, investors figured it was safe to go back into the market, propelling equities into a series of bull markets that turned a majority of Americans into investors - and a sizable minority into millionaires.

Stocks weren't the only asset that flourished. With inflation tamed, interest rates began a quarter-century decline, ushering in a two-decade-long bull market for bonds, whose prices rise when rates fall.

Falling interest rates also lowered the cost of home mortgages, helping to trigger a separate bull market in real estate in 2001. For example, when Greg Ashe purchased his first home, a three-bedroom bungalow, in 1981, 30-year mortgages were charging more than 16%. As he bought and sold five more homes over the past two decades, mortgage rates steadily declined, culminating with his current 15-year, 5% loan.

What's next: Wall Street's war against inflation has already been won, and interest rates have already come down. So the easy money has already been made in stocks, bonds and real estate.

And remember: A big reason investors embraced equities in the early '80s was that they were selling at nearly half price - that is, the S&P 500's price/earnings ratio, which also tends to rise when interest rates fall, was just 9.2, compared with a historical average of 16.2. Now that rates on 10-year Treasuries are down below 4%, the market's P/E is up to 17.5.

From this point, you can't expect much of a boost from rising P/Es. Instead, figure stocks to closely track growth in corporate profits and dividends. Rob Arnott, chairman of Research Affiliates, predicts stocks will gain only 6% annually in the coming years, although others see 8% or 9%.

In real estate too, expect returns to drop from feverish to normal in the coming years - even below normal in the short run, as housing markets correct. The reason is the same as for stocks: The once-in-a- lifetime plunge in interest rates, which made mortgages (and hence housing) so much more affordable, has run its course.

Invest more. In this scenario, returns fall back to historical norms (or slightly below); they don't disappear. At 6% your money still doubles every 12 years. And this is no time to give up on equities. Many still believe that stocks have the best chance of outperforming inflation in the coming decades.

If you can't create a big enough nest egg on a mere 6%, save more. Investing $7,200 a year at 6% will get you to $100,000 just as fast as investing $5,000 at 12% - with a lot higher probability of success.

Invest smarter. If you can't expect stocks to get much juice from rising P/Es, you can focus instead on a once important but long-forgotten source of returns: dividends. The recent market plunge has created a host of bargains among steady, high-dividend equities. Easier still, go with iShares Dow Jones Select Dividend Index (DVY), an ETF in the Money 70, our recommended list of mutual funds and ETFs.

What's next for boomers: 2. The fastest growth (and biggest gains) will occur abroad