Part One: Population

The 5 Major Forces Affecting Your Investment Performance

by: Ben Crowley

1.Population

2.Supply and Demand

3.Asset Allocation

4.Relative Strength

5.Timing 

Part 1: Population

Don’t worry, I am not going to throw it all at you at once.  This will be a five part series because each topic deserves, at the very least, its own article.  Today, my goal is to start  you thinking about the population and its possible effects on your investments.

I chose to lead off with population because understanding population trends is not only critical to your investing success but also critical to strategic decision making in any business venture.  Whether you are a student thinking about what field to enter, a business owner considering a launch of a new product or a corporate executive managing your organization, having at least a top level understanding of population trends helps make those decisions a little easier.  Do not fight the forces of population trends for it is a fight you cannot win.  It is best to get in front of that wave and ride it home.  You don’t have to be an expert but you should know the basics. I’ll keep it US centric for now but global and country by country trends are important to understand as well.  I will touch on some important ones in future posts.  

There are about 300 million people living in the United States right now.  About 80 million of them were born between 1946 and 1964.  That means as of 2011 the vast majority of people in the country are between the age of 45 and 64.  These people are known as the Baby Boomers and they own and spend most of the money in our financial system.  The world we live in today was shaped by this group of people.  From baby food to the suburbs, entire industries have been created to service this group of Americans.   Soon, if they haven’t already, they will be retiring and aging and spending the money they have that is locked up in retirement plans and capital will begin to flow back into the markets.  There will be much more to come on the boomers, but for the sake of this article, just know that they are out there and are THE major force behind the markets.  

It is also useful to know that there are about 70 million young adults who were born between 1985 and 1995.  That puts the next major demographic at 16 to 26 years of age.  They are the boomers’ kids and they are usually the beneficiary of the boomers’ money.  Toys, technology, education and food are on the menu for this age group.

“I’ve heard all of this before, Ben.  So what does it all mean for my investments?”  Well, if population is the major driver of demand for products then the demographics with the most people will use the most stuff.  As we age, we tend to need and enjoy different stuff.  I’ll let you deduce what industries will benefit most from the changing ages of population.  

I believe that the prolific stock bull market from 1980 to 2000 was a direct result of the boomers saving for their own retirement.  The creation of the 401K plan in the late 70‘s was the perfect vehicle for the working age boomers to automatically save for retirement.  What is also did was create an automatic, bi-weekly infusion of fresh capital directly into the US Stock Market.  The result was a 20 year and over 1000% gain in the S and P 500.  A rising tide was, indeed, raising all boats.

I also fundamentally believe that the massive swings in the market over the past 10 years are a direct result of the boomers moving their money around, investing in different asset classes like real estate, bonds, gold, commodities, kids' education etc., and I believe that this type of market will continue for at least another 15 years.  We have seen and will continue to see massive volatility and relatively rapid swings in prices of goods and investments on a much more frequent scale and shorter timeline.  

Why 15 years you might ask?  Here is why.  The other sad state of affairs is that if you are like me and are somewhere between 27 and 44, well, there are just not that many of us.  About half as many, actually.  In fact, the lowest birth rate on record since the great depression was 1977.  The year I was born.  “So What?” you might ask.  Well, the problem is that we are all supposed to be working and saving and contributing to the great financial engine, but we are not.  We are busy paying off student loans, our mortgages, our car payments and our ridiculous credit card bills.  We are NOT filling the coffers at the same rate the boomers did, simply because there are not as many of us.  The investment market as a whole is not getting the capital inflow it needs to continue to grow.  “Sounds like a Ponzi scheme to me, Ben”.  Shhhh... you said it not me.  

Anyway.  What you need to know is that we are smack dab in the middle of what I see as a 19-25 year long secular bear market that is being driven purely by the changes in population. The markets will be in a volatile “holding pattern” until the youngsters between the age of 16 and 26 start working and saving or until the boomers pass on their wealth to the next generation.  Or by my calculations, about 2024.

“If we are in a bear market, should I even be investing?”  You should absolutely invest.  Just no “buy and hold”.  A secular bear market is really just a very volatile, but long term “flat” market.  if you look at 2000 through 2011,  we have had two major down turns and two major upswings in the stock market.  If you bought and held the S and P 500 back in 2000, you would have about the same amount of money today as you did then.  But if you sold in 2000, bought in 2003, sold in 2007, and bought in 2009, you would be up about 2000%.  You just need a system that helps you discern what type of investing climate you are in.  It is that simple.  And we’ll get to it.  This lesson on population was just lesson one on your road to developing that system of investing.  

Lots more to come but for now just know that you need to be an active participant in your own investing success.  There will be and have been outstanding opportunities to make a fortune in the markets.  By reading this far in the article you are one step closer to having a long, successful investing life.  Stay tuned for the next 4 forces, but for now, begin to ponder the effects of population on businesses and prices of things.  Feel free to contact me with any questions or comments at info@investivusonline.com.  Don’t forget to check out my Cheat Sheet and Scorecard which will be updated weekly to track the portfolio’s progress.  Happy Investing!