In a rural Spanish town, wolves outnumber children.
In the United States, carmakers are testing automated vehicles not in Silicon Valley, but in a Florida retirement community.
Closer to home, in Castlemaine, Victoria, a gym is encouraging people to lift weights to maintain muscle mass and prevent infirmity in later life.
These seemingly different stories spring from the same source: Around the world, populations are ageing.
Growing numbers of older people are dramatically reshaping places, cultures and economies.
Between 2015 and 2045, the number of people over 65 is expected to nearly double, to a record 15 per cent globally.
The increasing average age has generated concerns that global economic growth will slow and that share prices will fall significantly as retirees draw down their portfolios.
In Australia, most people understand the effect the baby boomers had on school construction in the 1970s, on household spending habits in the 1980s and on the sea-change effect in the 2000s. And with many of them entering retirement, how will they reshape our economy?
Recent Vanguard research, The Economics of a Graying World, has some positive, or at least counterintuitive, news about these investor concerns. Many of the assumptions about the impact of an ageing population don’t hold up to analysis:
-
Older people don’t spend less than younger people. They just devote less of their budget to categories such as clothing and leisure and more to health care and housing.
-
A trend toward increasing the age required to receive retirement benefits will prompt many people to work longer.
-
A shrinking workforce will provide incentives for investments to offset higher labor costs, which may boost productivity.
-
A growing ageing population does not necessarily lead to lower investment returns.
The research reinforces the wisdom of diversifying portfolios globally to reduce the risk of exposure to downturns in a single country or region. The percentage of older people will be much higher in some of the world’s largest economies. In Australia, about 20 per cent of residents will be older than 65 by 2045, according to the Australian Institute of Health and Welfare. In Japan, as many as one in three residents will be older than 65 by then.
That doesn’t mean that you should reduce investments in countries that are ageing more quickly. Instead, it provides yet another reason to avoid over-concentrating your portfolio in the shares of a single country.
Home-country bias, a tendency to invest in the securities of the country where you live, often causes this over-concentration and creates unnecessary portfolio risk. A low-cost, globally diversified portfolio provides the best chance of investment success through exposure to a variety of growth and demographic outlooks.
Written by Robin Bowerman, Head of Corporate Affairs at Vanguard.
Reproduced with permission of Vanguard Investments Australia Ltd
Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.
© 2019 Vanguard Investments Australia Ltd. All rights reserved.
Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author.
Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.
