I'd done a video interview with senior advisor Martin Kosterman, and over lunch we had a long chat about the markets. Most Baby Boomers familiar with the stock market's violent ups and downs this fall will be familiar with the gist of the conversation, which he has in one form or another every day with clients. Both for them and his own account, Kosterman has been buying Bill Miller's C. I. Value Trust fund. The more markets fall, the more he pounds the table to buy more.

But over at the Fiscal Agents part of the operation, which sells mostly term deposits and GICs, founder David Newman says the firm's GIC clients are feeling "no anxiety" about the market. True, many are retired, living on some combination of employer pensions, government pensions and fixed-income heavy RRIFs or annuities.

Back when mutual fund mania ruled supreme in the 1990s, there was a phrase in use credited to fund consultant Dan Richards: the GIC refugee. The explosive growth of equity mutual funds that decade came as frustrated GIC investors cashed out of their GICs (usually at maturity) and decided to forgo guaranteed but low 4% or 5% annual returns for a shot at "shooting for the fences" and reaping double-digit returns on the stock market.

Many of these would have been Baby Boomers who fancied that they possessed the needed high "risk tolerance" for equities -- in order to be "first" in returns to their investments, equity investors were willing to tolerate short-term volatility for a shot at higher returns, although those returns were never guaranteed.

The generation ahead of the Boomers, or perhaps some risk-averse first-wave Boomers, may have stayed with GICs and their guaranteed positive but modest returns, but no doubt suffered a certain amount of envy as they watched those that embraced risk reap the associated rewards.

But that was then. As of the autumn of 2008, the "last" -- the GIC investors -- are now "first." Rather than suffer appalling losses to their capital, they continue to reap their modest-but-positive gains from GICs, Canada Savings Bonds or term deposits, all with the added security of the $100,000 per institution security of the Canada Deposit Insurance Corp. They continue to benefit from the magic of compound interest.

And those risk-tolerant Boomers who flocked to stocks, equity mutual funds and stock ETFs? Those of us who sought to be "first" among investors are now lagging seriously behind the risk-averse; they have become "last" in the investment-return derby, many having suffered a loss of capital and RRSP contribution room that may never be fully recovered.

There's some irony to it all. As Kosterman says, "everyone wants to get to heaven but no one wants to die." These days, Kosterman is as much an emotional and spiritual counsellor as he is an investment advisor. For the Baby Boomers, the Crash of 2008 has been as traumatic as the Crash of 1929 was for their parents or grandparents. If we rode down the market with equities, we know it's too late to become "equity refugees" by selling low and moving to GICs and fixed income now. And so the average Boomer will grin and bear it, putting that hallowed risk tolerance to the test for one more leg of the cycle, hoping against hope that equities will come back at least most of the way back from whence they came. If and when that occurs, the Gartman Letter's Dennis Gartman predicts many will sell down to the level they can sleep at night.

In short, as we near the traditional retirement age, we will scale down risk and flock to the same sort of investments as the earlier generation scarred by the 1930s, including even life annuities. Now the Boomers have been scarred and the world will never be the same again. In our RRSPs or American equivalents (IRAs and 401Ks), Boomers will eventually embrace GICs, bonds and inflation-indexed Real Return Bonds with a vengeance.

We will perhaps continue our love of equities in taxable accounts where dividends and capital gains receive more favourable tax treatment. After all, to a Boomer, taxation is almost as scary as a stock market crash.

But across our whole portfolios, I suspect our asset allocation will move closer to 50% stocks and 50% bonds. Being "first" among investors will no longer be our primary goal as we seriously keep in mind the costs of being "last" -- suffering another stock market meltdown like the autumn of 2008.

You can view Jonathan Chevreau's interview with Fiscal Agents' Martin Kosterman here.

Financial Post jchevreau@nationalpost.com - Chevreau blogs at www.wealthy-boomer.ca
Copyright © 2008 CanWest Interactive, a division of CanWest MediaWorks Publications, Inc.. All rights reserved.