NextGen: Talkin’ ‘Bout My Generation

For What It's Worth -

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You made it to Thursday!

It’s been a week of financial news full of things we’d rather ignore but know we shouldn’t. At the top of the 😬 list: the latest consumer-price index (CPI) data that came out this morning. Core inflation (which represents CPI minus food and energy) reached a four-decade high in September. Overall, inflation rose 8.2% - faster than expected, leading many to predict that the Fed would continue its inflation fighting campaign.

Then there’s the International Monetary Fund (IMF)’s latest World Economic Outlook report, which is almost as dark as Stranger Things season four (which, BTW, we predict will inspire many Halloween costumes this year). The IMF says 2023 will “feel like a recession” for many people and projects global growth will slow to 2.7% next year. Ouch.

And we definitely understand why some would rather keep their heads in the sand than examine this week’s stock charts. The Nasdaq hit its lowest level since July 2020, and the S&P and Dow haven’t fared much better. It’s all contributing to an anxious earnings season, which kicked off this week and we’ll be watching closely in the coming days.

So we decided to take a break from doom scrolling and remind ourselves why many experts say it’s better to ride out downturns and focus on the long term. As a result of that well-spent time, we’ve got a brand-spanking new resource for you: FWIW’s Guide to the Rewards of Long-Term Investing. We dove into the research to see what happens when you stay invested through market ups and downs, and also how the long-term approach may support the goals of values-aligned investors. Check it out and see if you can find our Easter egg for Green Day fans.

But first, don’t miss our deep dive on demographic trends to consider in your investment strategies. And we also found a few bits of good news that were definitely worth sharing. Enjoy!

News you can use

Investing for changing demographics

Populations are like a kaleidoscope or lava lamp. They’re never static but always, as someone with tenure might put it, dynamic.

The statistical makeup of a population (age, gender, race, etc.) is known as its demographic, and different trends can affect it. Birth rates and death rates fall and rise, people migrate to different parts of the world. Someday Harry Styles fans will be in the minority (shocking to think about, we know). Change is inevitable.

Demographic shifts are interesting to investors because it helps them predict changes in the economy and spot opportunities for long-term gains. It’s important to note the available data and predictions can’t be the sole reason for making an investment, and research on individual companies and their fundamentals is always most important, but these trends have had significant impact on the performance of companies across history and are likely to play a key role moving forward as our populations shift.

So how do investors see population changes? We touch on a few trends, themes and insights below.

Here comes NextGen!
Over the next few decades, younger generations will inherit a massive $73 trillion in assets from Baby Boomer and Silent Generation households. By 2030, women are expected to control two-thirds of all US wealth, some $30 trillion in assets, as older women outlive male Boomer partners. As McKinsey put it, it’s “a potential wealth transfer of such magnitude that it approaches the annual GDP of the United States.”

So what does this all mean? The future investors, consumers and workers of this country, who will increasingly influence how companies act, are very focused on sustainability issues like climate change, and what the world will look like over the next few decades. There is a lot of variety in how people think and act across demographics and there is certain to be a wide variation in focus, but studies have told us that women and younger people are on average more interested in sustainability and being eco-friendly than the general population. This impacts the products they buy, the companies they will work for and where they will invest (as an FWIW reader, you get this).

In a recent survey, close to 60% of US Gen Z and millennial adults said they research the sourcing/production practices of purchases, compared with 41% of Gen Xers and 31% of Baby Boomers. In April, Monster.com said three in 10 college grads need to see a company’s commitment to diversity in a job posting or they won’t even bother to apply. Likewise, they want to see diversity in leadership (26%), and women in leadership roles (24%). Being able to attract and retain the top talent is crucial for any business, especially when the job market is hot like it is now. Fortune says millennials are, more than any other generation, seeking equity, transparency, flexibility and purpose and they aren’t afraid to walk — they’re 4x and 11x more likely to intend to leave their job than Boomers and Gen X, respectively.

It’s a similar story with ESG, values-based and impact investing. A recent poll by Cerulli Associates showed about 52% of women would rather invest in companies that have a positive social or environmental impact, compared to 44% of men. Companies that adapt in time could benefit from changing demographics as it drives the sustainable investing movement.

If you’re looking to make your portfolio more sustainable, you can check what’s in your funds, view the largest funds here or use these resources to further your research on individual stocks.

Longer life spans, robots and silvertech

Most pieces on the power of demographics include a mention of Boomers and, well, there is a reason. Thanks to medical advances, Americans 65 years and over will make up 21% of the total population in 2035, up from 15% in 2016. Yep, Gen X is included here. By then Americans over 65 will also outnumber children (<18) for the first time, according to the US Census Bureau. Conversely, the working-age population (18 - 64 years) will shrink as a percentage of the total. This is one of the reason’s today’s announcement about an 8.7% increase in Social Security payments starting in January is getting so much attention. This is real money going into the pockets of a significant portion of the population.

A 2016 study by PGIM and Oxford Economics forecast dramatically more spending in areas like nursing homes and medicines and drugs, and the authors highlighted three investment ideas:

  • Real estate (condos, senior housing, life science clusters)
  • Pharmaceuticals/biotech
  • Technology that helps seniors live independently aka “Silvertech” or “Agetech”

There are many opportunities for investors interested in this “graying” area, and it isn’t all focused on the deployment of more robots. For example, REITs like Omega Healthcare, LTC Properties, and Care Trust all focus on senior housing, a sector widely thought to be “recession-resistant” or even “recession-proof.” You can look for diagnostics companies that help keep people out of hospitals and lower health care costs, like Thermo Fisher Scientific and PerkinElmer, as a London-based fund manager does. As for the burgeoning space called “Silvertech,” even giants have been developing products for older consumers, like Amazon’s Alexa Together and Alexa Smart Properties. And of course there’s an exchange-traded fund or ETF for the space: the Global X Aging Population ETF (AGNG).

Whatever age you are, knowing how demographics of the target consumer and key employees play into a company's strategy can help give you a leg up.

Before you go -

NASA’s asteroid-redirection team was very excited with the results of their first attempt to redirect the path of an asteroid. Seems the team at Google was very excited as well. To see how they memorialized the moment (and for a fun surprise), type “NASA Dart” into Google.

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