The Older Population: Where the Money Is

The 2018 CFA Institute Latin America Investment Conference will be held in Rio de Janeiro on 1–2 March. This practitioner-oriented educational conference will focus on Latin American economies and capital markets, as well as global issues relevant to investors worldwide.

“Why on earth worry about demographics?” asked Clint R. Laurent, founder and CEO of Global Demographic.

“I mean, investment requires that you are on your toes all the time, monitoring change, anticipating change, and often you’re really only looking a few days ahead, or weeks ahead, and occasionally, a few years ahead,” he explained during his presentation at the CFA Institute: Latin America Investment Conference.

“But the thing is this: Demographics change quietly in the background. Suddenly, the target market that you thought Company X was going to do well in no longer exists. The yield opportunities you thought were really comfortable disappear only to reappear somewhere else.”

Drawing on his company’s broad database of statistics, Laurent highlighted four major demographic trends for investment professionals to keep in mind.

1. “Get Out of the Youth Markets”

Ten years ago, it was good advice to follow the youth, to go for the emerging markets, Laurent told the crowd. It was similar to the guidance Peter Lynch offered in Beating the Street. Now, however, “You get out of the youth markets as fast as you reasonably can,” he said.

Why such an extreme turnaround? Because outside of sub-Saharan Africa, on average, the under-40 global population will not grow at all over the next 10 years. And this in spite of the volume of people in that age group — close to 60% of the world’s population.

Instead, Laurent said, the 40–64-year cohort will be the “golden pot” for 2016–2026. This group will be the fastest growing age segment in the world, increasing to 1.9 billion by 2026, he predicted.

They will spend differently, too. They will favor quality over quantity, and to that end, will focus on experiences rather than consumer goods.

2. Working Older

The “redefinition of the working age” is Laurent’s second demographic trend. Whereas working age was once confined to the 15–64 range, expect workers to continue their professional lives well into their 70s in the years ahead.

Hand in glove with this trend, education — or the lack thereof — will influence the world’s labor force.

Laurent explained that there will be “99 million people turning 15 this year [2016], with probably nothing more than a primary education, and who will be looking for work for the first time.”

Will there be enough jobs?

According to Laurent, there won’t be. He pointed to India, noting that the country needs to create eight million new jobs every year to maintain the current level of employment. For the past five years, only three million have been created annually. This adds up to 25 million people who couldn’t find work.

“Overlay on top of this robotics, and suddenly you have a potential social disaster emerging,” he said.

Economist and author Dambisa Moyo issued a similar warning when she noted that most of the heavier automation is taking place where much of the world already works — in the unskilled or low-skilled positions of the manufacturing sector. This, in turn, leads to fewer jobs and fewer hours worked — to less overall human productivity — especially in less developed countries.

So a critical factor will be how well a country educates its citizens. That will be what will “differentiate it from a disaster and a success,” Laurent said.

3. A Redefined Middle Class

The third trend Laurent identifies is a shift in what constitutes the “middle class.”

Ten years ago, the $10,000–$20,000 annual income range was the growth market. Now, Laurent expects growth will be found in the $20,000-plus range. “The middle class doubled in size during the last 10 years,” he said. “So it was smart to focus on that area.”

For the coming decade, however, there will be virtually no increase at all in the $10,000–$20,000 range. Instead, Laurent believes, the $20,000–$50,000 segment will experience the major growth, expanding close to 40%–50% in size.

So he counseled the audience to “think about where the money is,” adding that it will “take a catastrophic change in global economies for the 50% growth of the $20,000–$50,000 market not to happen.”

As an aside, Laurent mentioned that while the “$100,000-plus segment will add only 157 million persons in the next 10 years, it will still account for 39% of global growth in total household incomes. This proportional amount of spending money will be very significant.”

4. Health-Related Spending 

So combining both the change in the working age and income levels, where are the opportunities? Laurent believes the demand for health services will “go through the roof.” By health services, Laurent doesn’t mean hospitals and pharmaceuticals, but rather anything to do with wellness and fitness: Think prosthetics, gyms, cycling, etc.

Nutrition will be another area to focus on. The fast-growing over-40 age range will not be especially price sensitive, Laurent said, and they care about their health and what they eat.

Also, think health tourism — destination spas or healthy vacations. “The private spend is huge, and it keeps on growing,” Laurent said. “Especially in the areas where the money is.”

Age change is inevitable, Laurent concluded. Birth rates are declining and life expectancy is increasing, so the yields will be better for investments aimed at the over-40 segment. Affluence is also increasing, so the older, wealthier cohort will generate the fastest growth.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.