Demographics and Your Investments — Part III

Demographics and Your Investments — Part III

Last time, I talked about who the middle-young ratio (ratio of 40somethings to 20somethings in the population) correlated with financial market activity in the U.S. and Canada. A population with a lot of 40somethings poured money into the stock markets through the 1990s, then a slightly older one held back a little on equities. The demographics certainly are not the whole story behind why the markets dipped over the past few years, but they were most certainly a contributing factor.

So where do we go from here? The MY Ratios are not promising for North America.

According to my quick calculations (using data from the United Nations Population Division) the MY Ratio for Canada and the U.S. is going to dip, quite steeply actually, between now and about 2020. That means a decade of fighting the demographics to achieve market gains.

The ‘good news’ is that the five or ten years after that are a much more promising time for stocks.

By the early 2020s (less than a decade from now, actually) the 1980s baby boom becomes distinctly middle-aged. This is the first wave of the ‘millenial’ generation, or Gen Y, or whatever you want to call them. They will be thinking of retirement and socking money away – or at least they will if they follow the conventional path of their elders. That means a demographically-driven bull market could well prevail in the 2020s.

Just for fun, I’ve graphed the MY Ratio through to 2050, in case anyone has that long a time horizon (and trusts the population projections these are based on). Post-2030 looks like it might hold some dark times for the markets too.

But wait.

There are lots of caveats to using the MY Ratio – and certainly very different demographics in other countries.

Look for more on all of that in future blogs.

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