"There's an iceberg dead ahead. It's called global aging, and it threatens to bankrupt the great powers."
-- Peter Peterson, Gray Dawn: How the Coming Age Wave Will Transform America--And the World
The devastating iceberg that Peterson describes so dramatically is not exactly dead ahead, but without a doubt, we draw nearer to it every year.
As we fret and we scamper to address the immediate concerns related to inflation and our badly damaged economy, the entire developed world grows older. Investors face the dawn of a new era, one that may bring with it heavy and unprecedented declines in consumer strength and labor power.
Fail to account for these concerns over the long term and you might just find yourself on the wrong side of Mother Nature -- a place few investors ever dare to be. But, adjust accordingly and you'll unleash the raw power of biological growth.
Apocalypse today
You've heard how the aging of the baby boomers is going to cripple the developed nations in a great vacuum of consumption and productivity. You've heard how the failure of Social Security is just a numeric inevitability. You might have even heard how negative pressure imposed on the markets by retirees dipping into savings and investments will make broad market returns very difficult over the next three decades.
As an investor, what exactly have you done about it?
The iceberg unleashed
In case you're a bit rusty on your data, let me hit you with a few fun facts:
- According to the Department of Health and Human Services' Administration on Aging, 605 million people across the world were 60 or older in the year 2000. By 2050, that number is expected to be close to 2 billion, a total increase of 231%.
- In 1900, at the dawn of this nation's economic explosion, just 4.1% of the United States population was over the age of 65. Today, that number is more like 12.5%. In 20 years, that number is expected to be 20%.
- According to analysts in the field, the over-65 population will begin to "bulge" in 2010 and will crest somewhere around the year 2035.
If the data above isn't evidence enough, the table below should horrify you sufficiently:
Percentages of the U.S. Population
|
Census |
Age 60 and Older |
Age 65 and Older |
Age 85 and Older |
|---|---|---|---|
|
1900 |
6.4% |
4.1% |
0.2% |
|
1910 |
6.8% |
4.3% |
0.2% |
|
1920 |
7.5% |
4.7% |
0.2% |
|
1930 |
8.5% |
5.4% |
0.2% |
|
1940 |
10.4% |
6.8% |
0.3% |
|
1950 |
12.2% |
8.1% |
0.4% |
|
1960 |
13.2% |
9.2% |
0.5% |
|
1970 |
14.1% |
9.9% |
0.7% |
|
1980 |
15.7% |
11.3% |
1% |
|
1990 |
16.8% |
12.6% |
1.2% |
|
2000 |
16.3% |
12.4% |
1.5% |
|
2010 |
18.4% |
13% |
1.9% |
|
2020 |
22.2% |
16.1% |
1.9% |
|
2030 |
24.7% |
19.3% |
2.3% |
|
2040 |
25.1% |
20% |
3.5% |
|
2050 |
25.5% |
20.2% |
4.3% |
Source: Administration of Aging, Department of Health and Human Services.
The U.S. is not alone
Old Europe is in worse shape. Like us, it has serious demographic issues coming down the pike, but add to that a flat (often negative) birthrate, in addition to a not-so-impressive history of accepting immigrants in its societies. According to Jeremy Siegel's The Future for Investors, more than 50% of Germans will be older than 65 by 2030. Yowza.
In Japan, the situation is worse still. Not only did its population already peak for the foreseeable future, but its numbers will also rapidly dwindle over the next half-century, losing 25% of its current population by 2050 -- a completely unprecedented event in the modern world. Japan's markets have already begun to reveal hints of a negative demographic discount, and there's no telling when we'll begin to experience similar penalties at home.
It seems the developed world is on a path to slow destruction, but not because of wars, famine, or plague. On the contrary, we've gotten too old too fast, and we're not willing to have enough babies to make up for it.
21st century investing
How does this play out for American investors?
Well, for a country whose gross domestic product is a full two-thirds dependent on consumption, how can it possibly be good? How can you expect retail giants like Best Buy
Let's not even mention the current economic situation, one that pushes double-digit unemployment on top of horrible underlying fundamentals. Instead, let me simply ask you this: How many retired people do you know who buy lots of stuff?
Of course, these are all rather bold assumptions. No one says that 65 will forever be the retirement age. And it's quite possible that we're all failing to capture future developments in innovation and productivity in this country. And hey, maybe 65 is just the new 25? Indeed, life spans are increasing and people are living longer.
Unfortunately, knowing only what we know today, the signs we are seeing are just not good. In fact, we get a sneak peak just by looking at Japan.
But, all is not forsaken. In fact, there's plenty to look forward to, just not in the good ol' U.S. of A.
The right mix
Open your eyes. There are many parts of this world that look much like the U.S. did at the turn of the 20th century.
In Brazil (the world's fifth-most populous nation), less than 7% of the population is over 65, with a total figure that is growing more than 1% per year. In Indonesia (the world's fourth-most populous nation), 5.8% of the population is over 65, and its population is growing by an impressive 1.2% every year. Add rising prosperity to each of these nation's bigger equations and you get something sexy: American-style economic growth.
More impressive is India, whose population is growing at a full 1.5% per year. Fewer than 5% of the nation's 1.2 billion people are older than 65. India has more than 360 million people under the age of 14 alone, which nicely sets the stage for an overwhelming productivity cycle in decades to come, assuming a few things hold true. Yes, overwhelming poverty and horrible education systems and welfare programs are holding the population back, but these bodies are changing for the better. Take note: A huge number of Indians (I'm half myself) are getting smarter and richer -- and fast.
The Foolish bottom line
The U.S. and its developed brethren are not doomed by any means, but the world is changing, and if you have any interest in taking advantage of it, I seriously suggest you latch onto some of these larger-than-life trends.
You can do this one of two ways. Either you can hook onto global names you're already familiar with, like Yum! Brands
If you're looking for just a few, great international ideas to jump-start your research, click here for a free 30-day trial to the market-beating Motley Fool Global Gains service. This is a service hell-bent on capturing global growth for years to come.
Nick Kapur is getting older by the day. He owns shares of Pepsi and is heavily invested in the developing world. Apple and Best Buy are Stock Advisor recommendations. Pepsi is an Income Investor recommendation, Yum! Brands is an Inside Value recommendation, and Telkom Indonesia is a Global Gains recommendation. The Fool has a disclosure policy.
