(This story was originally written and published on Wednesday, 24th August, 2011. It has now been re-published to make it available to non-paying members at FNArena and to readers elsewhere).

By Rudi Filapek-Vandyck, Editor FNArena

Apparently, the long term average return for the Australian share market has now fallen to 9%. Thanks AMP, for updating the magical benchmark. It was only a few years ago that the long term average return for the Australian share market had risen to 9.8%, making Australian equities the best performer in the world. Dame Fortuna hasn't been kind to Australian equities since. Many people blame the Australian dollar or the federal government, but both are only part of a much broader story.

Those who pay attention to changing demographics in developed countries have been suggesting for years that general returns in equity markets will slow down as the Baby Boomers generation is now retiring. It was this same generation who, from the early eighties onwards, exerted a positive stimulus on global share market PE ratios, but now that retirement is approaching, the opposite effect is kicking in.

If you think that's a bit too esoteric, maybe because you've never read or heard anything about this until now, you might consider the thesis has been backed up by analysis conducted by two researchers at the Federal Reserve in San Francisco. Their findings have been published in the regional Fed's "Economic Letter" this month, giving it a lot of credence. I am probably not exaggerating when I say the latest study by Zheng Liu and Mark Spiegel is right now attracting attention from all corners around the globe. It is very likely the conclusions published will lead to adjustments and changes in investment and retirement strategies and portfolios for years to come.

What these two researchers are predicting, and note this is not different from predictions made and published elsewhere in the past, is that average valuations for equities (PEs) are now in decline as the Baby Boomers retreat from the wild and risky world of opportunities and this process, while gradual in nature, should at least take another ten years or so to complete. Sometime in the mid 2020s we should switch again towards a gradual upswing.