A visionary presentation by Jeremy Seigel is always a treat if you like to guess where your money is going.
In our latest Greater Philadelphia Venture Group Luncheon he presented findings from his latest book, the Future for Investors.
Siegel, notorious for calling market tops and bottoms far in advance dedicated his speech less to the market but to wealth management. His insights were useful regardless what level your investments are.
A couple of highlights from Siegel:
- Over the next 25-30 years there will be a tectonic shift in the ratio of working vs retired people in the US. The ratio will move from 5:1 to 2.5:1 in only 20 years. This will cause a massive shift in liquidity of assets. The relative diminishing income earning part of society will have less and less current income (in relative terms) to buy the assets of the increasing retiring baby boomer group.
- Retiring baby boomers “cannot eat” their wealth - i.e. you have to sell your appreciated assets (real estate, securities, etc) in order to get current income for consumption. Unless there are sufficient buyers of these appreciated assets there can be a very significant correction (30-50%) of the value of these assets to find supply/demand equilibrium if only US buyers can buy these assets.
- To dispose appreciated assets (real estate, businesses, investments) at highest value the buyers need to come from outside the US economy - primarily from large non-aging societies - India and China. A large majority of these assets will be acquired by Asian and Eastern European consumers and investors.
- As a result there will be a shift in economic contribution with India, China controlling more of productive assets and over time eclipsing the size of the US economy. Today 7% of the capital is in the developing world, by 2050 67% of capital will be controlled by the current developing countries.
- Unless these transfer of assets are enabled the baby boomers cannot dispose of their assets and will have to retire at a much higher age (if at all) probably pushing their mid-to late 70s.
So as a society either we work into old age or we yield our global capital leadership to the less demographically challenged emerging economies.
He also pointed out that currently stocks are better investments than debt or real estate - but the audience was already reallocating their portfolios to distant relatives in Beijing…
There is little for policy to influence these trends. As Siegel put it: “Demographics is the future that has happened”.
Technorati Tags: investments, Jeremy Siegel, value creation, wealth, Wharton
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