Independent SEC-registered investment advisor at Stonnington Group, a wealth management and investment planning firm based in Pasadena, CA.
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U.S. population growth is slowing. Even before Covid-19 took hold, American population growth hit the slowest rate in a century, increasing just one half of one percent in 2019. Although many initially speculated that months of quarantine would lead to a post-pandemic baby boom, recent evidence and historical analysis indicate that Covid-19 may actually incite a baby bust, with as many as 300,000 to 500,000 fewer births in the coming year.
Whether it slows or accelerates, population growth is the biggest theme with the most impact on the investment world. Amid uncertainty, smart investments over the next 10 to 20 years will involve segments with a strong potential for growth, independent of population size. Here are some key concepts to consider.
Developed vs. Developing Markets
As a general principle, different levels of population growth are expected in different markets. For example, developing markets will have stronger population growth (and arguably more robust economic growth) than developed markets, notwithstanding the fact that certain industries within developed markets could still experience growth by selling to developing markets.
Baby Boomers vs. Millennials
The enduring fear about baby boomers, born between 1946 and 1964, was the notion of the “pig going through the python” and the enormous burden they would be on the whole economy as they grew old, retired and drained Social Security.
But this actually didn’t end up happening, because the boomers had children of their own, and those children (millennials) now represent an even larger cohort. Not only did boomers avoid becoming the pig in the python; the U.S. is on the cusp of the largest generational wealth transfer in history, between boomers and their millennial children.
Even though millennials may have far fewer children than their parents, the large millennial generation will continue to drive consumer demand over at least the next 20 years.
Growth vs. Sustainability
The biggest economies in the world have been focused on growth. But the problem with growth is that we can't grow to the moon, because we're a finite resource economy; we only have our own planet. So while growth creates wealth, it can also have severe environmental and social consequences.
With a reduced population, the U.S. may have to embrace the concept of sustainability. And the great benefit of creating a sustainable economy is that it would allow us to really look inward and develop our soul and our lifestyle the way we want it to be.
The only question is, can we afford it? Since economies are built around growth, even a slowdown of growth can be hugely disruptive. Limited population growth does have some severe economic consequences, such as overextended housing stock and a subsequent drop in value. Because the U.S. has massive debt, which is serviced by a growing economy of taxable revenue, the concept of sustainability is offset by concerns over affordability.
Growth vs. Demand
A shrinking economy alongside a shrinking population makes sense. But how does this impact investments? There's no doubt that population growth has been a driving force behind the phenomenal wealth and economic growth of the past 50 years. The larger and wealthier the population, the more consumer demand there will be. Presumably, inverse population growth and wealth would have an inverse economic impact.
But investments in new technology might change that. We are so early in the curve of so many promising technologies – solar power, gene editing and 3D printing, to name a few – that even if today’s population were vastly reduced, the demand for these new technologies would continue to grow exponentially.
Outsourcing vs. Localized Production
Sustainability promises a host of other economic benefits. For example, U.S. food cost is primarily driven by the cost of transportation. Localized food production will not only reduce transportation costs, but provide fresher food appealing to local preferences. Technologies like 3D printing can likewise dramatically cut costs while providing just-in-time deliveries that are precisely calibrated for local needs.
Adversity vs. Opportunity
Ultimately, increased investment in sustainability could be the greatest silver lining of Covid-19. The pandemic has created the incentive for many companies to right-size and rethink their market opportunities. Many have cut labor costs, while becoming less complacent and more focused on their business mission, raising expected earnings and driving their stock prices higher.
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