By: Bill & Cindi Porter,
Aileron Investment Advisors
Q: Are there long-term trends that may affect international investing?
A: Yes, there are several. For example, countries with a higher level of economic freedom usually experience a higher level of economic activity. China is a prime example. Once free-market policies were introduced, China’s economy exploded.
Another long-term trend that some investors fail to take into account is demographics. The average age of a country’s population, and disproportionate groups within that population, such as America’s baby boomers, can have a tremendous effect on a country’s economic activity.
Spending patterns are predictable. What families purchase when they are raising children is significantly different than those who are empty nesters, or retired. For example, as more and more baby boomers retire, companies whose products cater to that age segment (entertainment, recreation, medical and travel, etc.) should benefit.
However, there is another major consideration involving age that will affect a country’s overall economic health, the ability of a country’s social retirement system to absorb masses of new retirees and the remaining number of workers who can provide the taxes to pay for it.
Many countries have a looming age problem. The median age by the year 2050 for this problem group is as follows: South Korea – 55, Japan – 55, Germany – 49, and China – 49. In contrast, by 2050 the median age of well positioned countries is significantly younger and thus better: U.S. – 39, India – 37, Saudi Arabia – 37, and South Africa – 33. These younger countries will not suffer the same massive wave of retirees or be left with a much reduced base of workers to tax in order to pay for the massive retirement benefits.
As a long-term investor, knowing that there are demographic problems up the road in some countries may help you choose international investment directions today. Ask your trusted advisor how this may affect your portfolio.
All the information in this letter is published in good faith and for general information purposes only. We do not make any warranties about the completeness, reliability and accuracy of this information. Any action you take upon the information is strictly at your own risk.
