What Demographics Can Tell Us about Investment Opportunities

What Demographics Can Tell Us about Investment Opportunities The population in the United States is getting older. In Africa, India, and other Emerging Markets, the middle class is expanding at an astounding rate. By the year 2050, over 40% of Japan’s population will be over the age of 65. These are all examples of seismic demographic shifts taking place across the globe. For long-term and insight-driven investors, thinking about a future with a bigger global middle class and an aging population also means trying to understand how these shifts will ultimately affect global demand. In our opinion, smart investors tend to follow the money, and knowing the sources of global demand means knowing where to potentially invest. Any analysis on demographic shifts should result in questions like: How will global consumption and spending patterns change over time? What markets, sectors, and industries are likely to benefit/suffer from these shifts? How will technology respond to meet these future demands? Take an aging population, for instance. Here in the US, for the first time in our history, older adults are expected to outnumber children by the year 2035. Today, the baby boomer generation, or those born between 1948 and 1962, are pouring into retirement at historic rates. Some 10,000 new baby boomers retire every day, and Pew Research estimates that 10,000 will cross the retirement threshold every day for the next 16 years. This demographic shift is evident in the US, but it is also happening globally. Just about every developed country in the world expects to see its population getting progressively older over the next few decades. Bridging the gap between an aging population and investment opportunity means asking the simple question: where do older people tend to spend the most money? Fortunately, there is detailed research on this providing us fairly clear answers. J.P. Morgan mapped out average annual spending patterns for US consumers ages 45 and up, finding that spending in every sector peaks at age 45 but then drops in the years after – except for in healthcare. A solid investment thesis, in our view, could revolve around a long-term expectation that revenues for companies specializing in medical devices, pharmaceuticals, and insurance stand to benefit from this trend. On the other hand, the research shows that the older crowd spends a great deal less on apparel and services, which in turn indicates that companies in that industry are faced with secular growth obstacle: either recalibrate their offerings to cater to the older crowd, or look for markets outside the US. Investors should eye the companies that attempt to do both. The Technology Response to Shifting Demographics Technology should also play a key role in economic adaptation to shifting demographics. Technology connects the world and enables instant and perpetual access to information, but many stop short of seeing technology as anything greater than apps on a smartphone or the rollout of the new iWatch. Peter Thiel, co-founder of PayPal and one of the original Facebook investors, challenges this point when he says “there is no reason why technology should be limited to computers. Properly understood, any new and better way of doing things is technology.” The importance of technology cannot be underestimated. On a micro-level, technology will likely continue to revolutionize the way we receive healthcare, whether through new wearable devices, innovations in precision medicine, new drugs, or introduction of new software that helps us all lead better, healthier lives. But where the implications could be really huge is on the macro level. If China, Africa, and India’s middle classes continue to expand at record rates, the world could see a corresponding increase in demand for goods, services, and energy. But the surge in new demand also poses a big problem: if hundreds of millions of households in India, China, and Africa all of sudden live the way Americans do, using only today’s tools, the impact on the environment and the world’s resources would be catastrophic. As Thiel writes, “in a world of scarce resources, globalization without new technology is unsustainable.” In this sense, ‘technology’ is increasingly defined as the process through which we address growing world demand – the world’s ability to support an ever-growing demand for food, energy, water, waste management, and household needs. In our opinion, the successful companies of the future will be the ones that address these needs head-on, and they’re also the ones that arguably belong in an investment portfolio for the next 30 years. For investors, though, a big challenge still remains: how to invest in the quick, ever changing landscape. That’s where Zacks Investment Management has innovated with new financial technologies and an actively managed robo advisor that: - Automate the advising process. - Invests exclusively with ETFs - Uses technology to recommend the appropriate mix of equities and bond ETFs to help achieve your investing goal and specific risk tolerance. - Lowering fees and expenses For further information, we recommend you read our report: The Savvy Investor’s Guide [Get your copy of The Savvy Investor’s Guide]( © Zacks Investment Management | [Unsubscribe]( DISCLOSURE Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. 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