Global demographics are undergoing a profound transformation. As life expectancies grow and birth rates decline in many parts of the world, the proportion of the elderly population is increasing at an unprecedented rate.
The World Health Organization (WHO) forecasts that by 2030, 1 in 6 people in the world will be aged 60 years or over. In 2030, the share of the global population aged 60 years and over will have increased from 1 billion in 2020 to 1.4 billion people. By 2050, the world’s population of people aged 60 years and older will double to 2.1 billion people. Longer term, the number of persons aged 80 years or older is expected to triple between 2020 and 2050 to reach 426 million.
A significant rise in the global overall life expectancy is driving this trend. On average, life expectancy rose from around just 52.5 years in 1960 to 72.5 years by 2020.
Getting investments right for that changing demographic is a major concern for pension funds, which manage about $50 trillion globally, and that must align investment strategies to ensure they meet liabilities to future retirees.
But our rapidly aging global population should also be a concern to retail investors who are investing for long-term goals, such as retirement.
Investors often think of demographics as a slow-moving “train,” but it’s not. That “train” is moving toward us faster than we think. Our goal should be to not get run over by the demographics train.
So what can you do to avoid this “train”? You should make changes in your long-term portfolio.
Changes Are Coming to the Macro Economy
Of course, no one knows the exact course of the future, given variables such as immigration flows, and advances in technology, automation, and power sources.
Nevertheless, here are my thoughts…
The impact on financial markets will be felt across all asset classes, and there’s no one-size-fits-all solution. But the strategies being put in place to invest in the graying of the world’s population should reflect inflationary concerns.
This world of a larger elderly population will translate to higher government healthcare spending, and bigger deficits, leading to inflation that will remain stubborn.
As birth rates fall and populations age, companies will have to fight for workers in a smaller labor pool, boosting wages. This means positioning for interest rates — and bond yields — that will likely be higher in the coming years than Wall Street currently expects.
That would make longer-term Treasuries no longer a “risk-free” asset, but actually quite risky. They do not belong in a long-term portfolio. Keep in mind that when Fitch downgraded the United States’ sovereign debt rating last year, it cited the costs of an aging population among its reasons.
FYI: short-term Treasuries are as good as cash, and are fine. Overall, a long-term portfolio should contain fewer bonds, more stocks, and more commodities like gold.
“Silver Economy” Investing
This inflation case is built on the simple idea of more old people spending, fewer young people producing. Given that view, certain asset classes should attract your attention.
In an environment where we will have long-term inflation expectations at a higher level than previously, long-term portfolios will want more exposure to assets that might help mitigate the effects of inflation - namely, stocks and commodities, as well as real estate.
This shift I’ve been talking about is creating the “Silver Economy” — a new area of economic growth linked to the needs and activities of aging populations. As the number of older people increases, their needs and preferences will have an increasing impact on shaping both the economy and society.
The term “Silver Economy” originated in Japan, a country that has the most people aged 60 and over.
As people age, their lifestyles, interests, and needs change. They may need healthcare services that cater to specific age-related conditions, or want to find comfortable and accessible living arrangements (including home healthcare), or want technology that is easy to use and meets their needs. For instance, Japan has been developing robots to care for older people for over two decades.
One obvious sector to invest into is the aforementioned healthcare group, from medical devices to treatments for cancer and other diseases. Healthcare stocks are trading at valuations where future demand is not fully baked in.
Another sector ripe for investment is senior living. This includes various housing options for older adults, like retirement communities and assisted living facilities. As more people age, there’s a more significant need for places where seniors can live comfortably, with access to the care they need.
Fortunately, there are a number of Real Estate Investment Trusts (REITs) specializing in senior housing. The largest of these is Welltower (WELL), which is up 46% year-to-date and 58% over the last year.
Additionally, there is an ETF specializing in mainly healthcare stocks involved with aging - the Global X Aging Population ETF (AGNG). It’s up 28.9% over the past year.
The issue really isn't that investors are completely unaware of the growing elderly population around the globe. The issue is that the impact on assets and markets will be larger and far more pervasive than most investors anticipate.
So, prepare now for the graying of the global economy.
On the date of publication, Tony Daltorio did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
