Should Demographics Drive Your Investment Strategy?
Demographics is an interesting issue in the world of investing. It’s definitely a factor, but it’s such a long-term factor that most people ignore it. Think about it, we’re focused on quarter to quarter results, not long-term factors. Yet, oddly enough, we’re told time and time again that investing is all about a long-term focus! Well, which one is it?
I think it is about long-term, at least part of your portfolio, and therefore, demographics is very important. While it’s maybe not the most important factor, it’s one of them. Consider the baby boomers here in America. Is it a coincidence that the market experienced a massive bull run during the corresponding time of the baby boomers going into peak earning years (and therefore, peak consuming years)?
If we’re looking at demographics, the long-term picture of economies in America, Europe and elsewhere might be less than ideal. In America, the baby boomers are going into retirement mode which means less consumption. In Europe the situation is worse. In Japan, even worse yet. In Russia, the birth rate is so low that the population will essentially be cut in half each generation. Wait, I thought over-population was the world’s biggest problem!
The fact is that the some of the major, established economies of the world have some big demographic challenges. As these economies now depend largely on a quasi-socialist system with massive government subsidies and welfare, the question will shift to who will work and provide enough productivity and taxes to fund the social state? Unless major changes occur, we could easily see the collapse of the social state in Western Europe and Japan – and we might already be seeing the start of such a collapse.
For a fascinating look at demographics around the world, read America Alone by Mark Steyn. Great book.
Now, on the other side, there are economies that have demographics working for them versus against them. Consider Vietnam. Vietnam has the demographics that America had long ago with way more young and working people than those who are 65+ and up. While Vietnam is definitely an emerging market with risks, demographics should be a long-term advantage for investing in the country. The Market Vectors Vietnam ETF (VNM) might be a vehicle worth considering. This is a major long-term play so be patient and buy after major dips.