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Demographic super trends in investment.

Three categories of people are expected to dominate the investment arena in the coming decades. Between them, retiring baby boomers, generation X & Y, and women are expected to control the vast majority of the world's financial assets within the next five years.

Retiring baby boomers

It's just started, the first baby boomer turned 65 a couple of years ago with the last one due to hit retirement in 2029. Remarkably at this age, many say they are more afraid of outliving their income than they are of death in the first place. Their fears are not unfounded, today's 75 year old males can expect to live another 11 years, females another 13. It's no surprise that they are putting a strain on pensions and healthcare systems worldwide.

From an investment perspective, retiring boomers have quite a task ahead of them. The retirement phase is fundamentally more difficult than the accumulation phase, as the goal shifts from growth to income. Investing for income is more complicated than investing for growth, and there are some very difficult decisions that must be made. How much should be annuitised? What should be done with illiquid assets such as real estate, privately held businesses, or restricted stocks? Other issues arise such as long-term-care and health insurance payments that increase exponentially with old age.

Generations X & Y

Born between 1966 and 1994, sometimes referred to as the 'lost' generation, this is the generation whose psychology was worst-affected by the financial crisis. They never experienced that long run of bull markets that their parents enjoyed in the 1980s and 1990s. The sad fact is that the increased longevity of their parents and grandparents puts a massive financial strain on Gen X and Y. They know that the state will no longer be able to provide for them as it did for previous generations, those days are gone.

As they start to work, get married and have their own children they begin to realise that their goals are still ahead of them. Putting their own children through university and funding their own retirements should be at the forefront of their minds. They are going to have to start accumulating wealth for the long term. In a low interest rate environment, their long-term money needs to find a better home than the bank. Investing is their only salvation and they are starting to realise this fact. Luckily, with time on their side they can afford to invest aggressively and let diversification and time take care of the rest.

The Rise of Women

Today, 40 per cent of working wives in the developed world out-earn their husbands and are very involved in the decision-making when it comes to family finances. Women outlive men, which is why a recent study conducted by the Boston College's Centre on Wealth and Philanthropy concluded that women will be on the receiving end of 70 per cent of inheritances over the next two generations.

Research has shown that the majority of female investors want to align their financial resources with their values, and tend to direct their investments towards socially responsible entities. However, like all investors, they also require a solid return.

What women need to be wary of is the fact that the financial services industry has caught onto the rise of women, and the marketing gurus of the financial world have been actively targeting female investors. Do not fall into the trap of investing into inferior financial products that have been 'pink-washed' for feminine appeal.

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Publication:CPI Financial
Date:Dec 21, 2014
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