Baby Boomers, those born between 1946 and 1964, now hold a large and growing percentage of wealth and savings in America. Equity valuations will continue to be heavily influenced by this 76 million strong generation who (along with others) hold an unprecedented $1.7 trillion in cash on the sidelines. This immense mountain of cash has mushroomed in tandem with investor anxieties over high energy prices, rising interest rates and, of course, terrorism. As anxieties slowly wane, this cash will begin to re-enter the market.

Although as a group boomers have not been frugal savers, they are beginning to inherit wealth from a much more conservative generation that did save. A greater percentage of this wealth is being transferred to heirs thanks to recent increases in the estate tax exemption, which will supposedly be eliminated altogether in 2010.

What are the investing patterns of the Baby Boom generation? Well, we know they were the vanguard of the great suburban migration. We know that this migration prompted a surge in single-family home values, strip malls and office parks across America. And, although there are signs that the red-hot real estate market is slowing, it is certainly not crashing at this point.

We know they were committed Internet and technology bulls in the 1990s. Boomers invested heavily in Nasdaq-type growth stocks, helping to create the notorious tech/dotcom bubble. We also know that boomer wealth was crushed when the bubble burst as many investors failed to allocate their portfolios among different asset classes and failed to diversify among various sectors of the economy.

We know that the leading edge of the group, who are reaching 60 this year, is just beginning to retire and that they expect their portfolios to supplement retirement income. They expect to continue living the same high-end lifestyle to which they have become accustomed. Few will be satisfied cutting back on the finer things. They will not crimp the household budget to fit a more modest, retired lifestyle.

Many of these former hyper-growth seekers are still holding on to loss positions from the 90s in hopes of recouping original cost. Others sold out and may never return to the growth side of the market.

But, as their fortunes are renewed with inheritance, they will come back to equities, this time looking for more certainty mostly conservative large cap equities, paying dividends. They will not return to stocks with shallow promises of mega gain in the future.

Growth companies are picking up on this trend, declaring dividends for the first time or raising their dividends in an effort to hold on to existing shareholders while attracting new investors. In the meantime, dividend yields on major U.S. stocks average just 1.8%, far below the 80-year historic average of 3.9%. There is certainly plenty of room for dividend increases.

Stocks that heed the call for beefed-up dividends will enjoy higher prices as boomers trade in capital appreciation for increased dividend income. This is especially true now with the more favorable 15% tax rate on dividends - another strong impetus in the shift from growth to dividend stocks.

Despite high household debt, new inflationary concerns, slowing earnings growth and other factors, stock prices are still more reasonably priced than bonds, commodities or real estate. So, if you are evaluating whether to expand your stock portfolio, think of the impact of a boomer re-entry into the market. This time, however, boomers will be more conservative, driving the opportunity in higher income type equities rather than the 90s style, zero dividend growth stocks.