Three Investment Opportunities Created By An Aging Global Population

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Three Investment Opportunities Created By An Aging Global Population

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The Aging World And Your Investments

Look closely and you’ll spot some gray in the globe’s otherwise lustrous mane of hair. The world’s population is aging rapidly. And as with any other significant shift in society, it will likely have a massive impact on global markets. Start researching denture prices – welcome to the aging economy.

How rapidly is the world aging? In 2015, 12% of the global population was over 60 years old. By 2050, that figure will nearly double to 22%. Terrifyingly, in most regions it will be over 25%, with Africa being the only exception. In Europe, 34% of people will be 60+, and in already aging Japan they’ll make up almost half the populace.

If that wasn’t enough, the over-80 group is going to triple in size globally, and global life expectancy is set to increase to 77 by 2050. For context: it was 71 in 2015. Don’t be fooled, this isn’t just happening in developed markets: countries like China, Thailand, and Argentina all have significant chunks of elderly people already – and that’s only going to increase.

population forecast

What does this mean? An aging population will have a dramatic effect on the economy. Watch out for a smaller workforce, much higher healthcare bills and fewer people in nightclubs, to name just three. This will likely create major problems for countries with less nimble populations – but might also create opportunities for pensioner-popular sectors.

Why does this matter to me? The winds of change are blowing and you don't want to be left out in the cold. You may want to consider moving your money to areas that might benefit from an older world – and avoiding areas that won’t. Aging is set to become an increasingly important trend in the next couple of decades, so preparing now could make you a ripe profit.

In this Pack we’ll look at the most important changes a more mature populace might bring, and give you the tools to invest accordingly. First off: what does your gran spend her money on?

How The Elderly Spend

Are older people more frugal? Not necessarily! Wealth accumulates, and towards the end of your career you tend to have a higher salary – both of which mean that the elderly have a bit more cash to splash around. In Japan, almost 50% of consumption comes from households led by someone older than 60. Watch out for this being mirrored across the globe as it ages up to Japan’s levels. Already, Baby Boomers (people born between 1946 and ’65) spend an average of $203 per online transaction – outstripping even millennials and their online shopping habits.

What do they actually spend money on? The list is just as eclectic as the clothes they used to wear. The obvious one is healthcare but more on that in the next session... Older people also love to spend money treating themselves. Unsurprisingly, beauty products are top of the list: European women over the age of 60 spend twice as much on beauty products as those under 25 do.

It makes sense that traveling and tourism are up there too – they’ve got to spend all that free time doing something. By 2030, almost a third of tourists in the EU will be over 60, and demand for cruises in particular is soaring. There has already been a 32% rise in cruise ship passenger numbers since 2013, and more old people should float operators like Carnival and Royal Caribbean even higher.

What don’t they buy? Some data suggests that over-75s are significantly less likely to spend money on cars – which means autonomous cars like Tesla’s could become a geriatric status symbol. There’s also evidence that they spend less on recreational services and eating out than middle-aged people. Asset manager PGIM predicts that an older population will lead to $75 billion less spent in restaurants in the US by 2070. As with everything in life, not everyone agrees: consultancy firm McKinsey thinks that the 60+ demographic will drive growth in both food and entertainment over the coming decades.

Because so much of this is based on predictions and extrapolations – who knows what tastes will be like 30 years from now – it’s all sort-of guesswork. But there are some surer bets you can make, like healthcare – which could cause both economic sickness and health…

Aging And The Healthcare Industry

How will the healthcare industry change? It’s no surprise that old people tend to get sicker: in the US, spending on healthcare doubles for those over 65 – and then doubles again above 85. An older population means more people popping pills and opting for operations – which is excellent news for the healthcare market. Drug manufacturers in aging economies could do particularly well: Japanese firm Sawai Pharmaceutical is popular with some investors.

Emerging markets have the twin benefits of a population that’s getting older and richer. It’s predicted that the emerging-market healthcare sector will grow 6% a year for the next decade – twice as fast as in developed markets. China is one to watch: the government is overhauling the healthcare system to make for a healthier public, which should mean tidy profits for the providers that keep Chinese pensioners ship-shape.

Some countries might also become increasingly popular for medical tourism. South Korea is known for its cosmetic procedures, while Thailand’s government is trying to flog sunshine-and-surgery vacations to foreigners.

It’s not just pharmaceutical companies that will benefit: companies like EssilorLuxottica, who manufacture glasses and lenses used to fix age-damaged eyes, could also see an uptick in business as we all start needing specs.

How about biotech? Diseases which target the elderly like cancer, dementia, and Parkinson’s are set to become even more prevalent. Investors think high-tech companies that can cure these ailments could be in for a windfall – but it’s tough to predict which will be the ones to succeed.

Looking a little further into the future, “senolytics” is a scarily smart field which tries to reverse the effects of aging. Unity Biotechnology is one publicly traded company working in this area. If it succeeds, you could be holding onto their shares forever.

How can I make money from this? You could buy stocks in individual companies you think might benefit from an older population. However, this is a pretty risky strategy because even though the overall market might do well, any individual company could always struggle. A safer bet is to invest in a pre-made basket of stocks: you can buy funds that track major healthcare indices like the MSCI Health Care Index, or ones that track specific countries, like the Solactive Emerging Markets Healthcare Index. For something a bit more specialized, the iShares Nasdaq Biotechnology ETF gets you into over 100 biotech stocks.

PGIM also thinks a healthcare property investment strategy might be a safe bet. Essentially, you’re investing in the labs and offices needed by biotech startups and pharmaceutical companies. Alexandria Real Estate Equities is a tradeable real estate investment trust that owns such properties, particularly in brainy innovation hubs like Boston and San Francisco.

Companies aren’t the only places that will need homes though: all the older people have to live somewhere too. Let’s look at where you’ll retire to…

Aging And Finance Stocks

Where will all these new older people live? As people get older, it becomes increasingly likely that they’ll need some kind of living assistance. While that might come in the form of carers at home, often it will involve moving to a dedicated place.

Demand for retirement homes and assisted living facilities is expected to soar over the coming years. In the US alone, PGIM thinks $325 billion more will be spent on nursing homes by 2070. And the UK could be a particularly booming market for senior housing: currently only 1% of the elderly population live in specialized homes, compared to 10% in the US.

Don’t expect these changes to be universal. In Japan and China children are often expected to look after their parents, and nursing homes are seen as taboo. But as the increasing number and cost of pensioners become more pressing, those traditions might be forced to change.

You can invest in this trend fairly easily by investing in the operators who run these facilities through the Janus Henderson Long-Term Care ETF, or by investing in real estate trusts that own the property these facilities need. Target Healthcare REIT is UK-focused, while LTC Properties and Senior Housing Properties Trust are two US options.

How else will more pensioners affect finance? It’s much more complex than “more older people = bigger pensions”. In addition to pensions needing to pay out to more people, they will likely have to do so for longer. Since people are expected to live for longer, they will likely become more concerned with whether their savings can support them. That will probably mean increased demand for financial advice (particularly robo-advisors) and life insurance products – especially in Asia, where right now few families get payouts when someone dies.

Elderly people tend to want more reliable, risk-averse investments. DBS Bank thinks an aging population will mean more demand for bonds and dividend-paying stocks – meaning the wider stock market might not grow as much as it has been. But not everyone agrees: asset manager Pictet says that because longer retirement periods require bigger saving pots, investors will increasingly turn to riskier investments with higher growth prospects. Pictet thinks this could mean even higher stock valuations than today and more overseas investment.

Depending on which way that pendulum ends up swinging, your investments could be affected no matter how old you are. And there will be wider repercussions for your stocks too – take a deep breath, because the future might not be as rosy as you’d hoped...

Economics Of Aging

What does an aging population mean for our society? There are two factors at play. One is an increasing number of elderly people: which means more government spending on healthcare and pensions, potentially reducing public investment in other areas like infrastructure. The other is an increasing proportion of the population being older – in part because as societies become wealthier, people have fewer children.

This reduces the proportionate size of the labor force and could lead to decreased productivity because younger people will have to spend more time looking after the elderly. As these two factors are the two drivers of economic growth, the upshot is kinda bleak: an aging population means less economic growth. The Federal Reserve has gone as far as to say that “low investment, low interest rates and low output growth are… a new normal” for the US economy.

Investing for this new normal will involve seeking products that offer yield even without much economic growth. Investment firm KKR thinks infrastructure and asset-based lending investments could be particularly helpful. Based on Japan’s recent history, it seems aging populations lead to lower inflation rates – not great for growth, but good for bond prices which might see a boost.

Are there any potential solutions to this problem? Education could come to the rescue. If people retrain in later life, they can work for longer and retire later. Technology is an even likelier contributor to change: when it becomes hard to hire people for jobs, robots will step in. That’s good news for people working in those areas, and for the tech companies working on advanced AI software.

Will every country be affected? To a certain extent – some Southeast Asian nations will have a younger population for some time. DBS Bank thinks the Philippines, Myanmar, and Indonesia could be particularly good bets – especially as a booming middle-class in those regions should boost spending anyway. Mexico is also an interesting case: its working-age population should keep growing for at least another 30 years, so it can hopefully dodge the problems of elsewhere.

If an aging population means lower overall growth, one way to combat that for your own finances is to try and benefit from the changes before they happen. Whether it’s by investing in one of the sectors we’ve talked about in this Pack or picking a broad aging-focused fund like the iShares Ageing Population ETF, the options are endless... So don’t be disheartened – your finances might last you until 100 yet.

In this Pack, you’ve learned:

🔹 The global population is dramatically aging, and that will affect your investments.

🔹 Elderly people spend more on health and beauty, and pharma companies could benefit from new demographics.

🔹 There’s a debate about whether longer retirements will increase or decrease risk appetites – either would affect stocks in different ways.

🔹 You can invest for an aging world with a range of individual stock picks and funds.

Now test your knowledge with this quiz!

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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