Broker Check

Age Based Demographics

July 01, 2020
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Investing Fundamentals

Summer greetings and our best wishes that you and your family are safe and healthy, and getting outdoors to enjoy the warmer weather. With all of the news and facts reported, we know that at times the information flow is overwhelming. This quarter we return to some basic, fundamental details about our investment process and underlying factors from which we begin our analysis, highlighting two areas: Timing and Demographics.

Timing The Market vs. Time In The Market

Knowing precisely when is a "good time to invest" gets a lot of attention in the press but is of less importance to us than the time frame one has for a given investment. The chart below starts at a pretty dark time, the middle of the '09 financial crisis and the decade that followed, and tracks a hypothetical investment in the S&P 500 stock index. By staying fully invested over that period, the index grew from an initial value of $1000 to $2775. However, if you tried to time the market and happened to miss the best 10 days over that market cycle, the hypothetical investment would have only grown to $1722, and missing even just the 20 best days (2 days a year!) over a decade would have resulted in less than 1 /2 of the investment growth. Who could know, in advance, which specific 10 days over a decade, would turn out to be the best? That is a great example of why "time in the market" is so important. Timing for us is much more about length of time one plans to be invested for. As an investor, you "earn" your returns when you ride through market storms. We build in a fair amount of flexibility to our portfolios, by allowing for a cash buffer, by closely monitoring expected income and cash reserves for pay­outs and other needs - this is why we regularly ask about your cash position. Since "time until expected need" is so critical, a material change in those plans can create issues, although we certainly understand some changes are outside of investors' control. Investments left undisturbed will almost certainly do better than those where significant changes are requested every other year or more frequently.

Demographics

Another area of critical importance to us when making asset allocation decisions are the overall population and corresponding economic trends that are observable. Who is working, buying homes, cars, traveling, etc. is often defined by generational preferences. Below we examine just a few characteristics of the four largest generations in America today, which can provide some clues as to the direction of consumer trends and the overall economy. 

1. BabyBoomers, are those born after WWII between 1946-1964 (now age 55-74), currently represent about 27% of the population or 68 million people here in the United States. They are either entering their peak earnings years, are about to retire or or may have already retired. Many are business owners or self-employed individuals with no clear plan or path to wind up or transfer their life's work.

2. Gen X (my age group), born between 1965-1981 (now age 39-55) has of course the best taste in music - as all generations think they do! This group, at 65 million, is sometimes referred to as the sandwich generation since they are frequently caring for aging parents while still raising children. Gen X is thought of as an autonomous group since many were raised in households where both parents worked full time outside the home and thus the description "latch-key" children.

3. Millennials, also known as Gen Y, generally born between 1981-1999 (now age 21-39), is the nation's 2nd largest cohort at 82 million. This group was raised in a computer age, was shaped by 9/11, and imprinted by the great recession of 2008/09. Their advanced education is often accompanied by large student loans, and although many predicted they would not embrace home ownership, the data on that topic is changing as they form new households and begin families.an Millennials, also known as Gen Y, generally born between 1981-1999 (now age 21-39), is the nation's 2nd largest cohort at 82 million. This group was raised in a computer age, was shaped by 9/11, and imprinted by the great recession of 2008/09. Their advanced education is often accompanied by large student loans, and although many predicted they would not embrace home ownership, the data on that topic is changing as they form new households and begin families.

4. Gen Z, or those born between 1999-2020, are the current students in elementary and high school and most college students, encompassing about 86 million Americans strong. They grew up playing on their parent's phones/devices, receiving their first mobile phone at around age 10 - truly a "native digital" mindset. They bank and transact most things online, communicate via new and ever-changing apps, watch their millennial counterparts struggle under debt loads, and seem interested in saving more and borrowing less. There can be differing interpretations as to exactly when each generational line stops and another starts, however the above description and graphic below can provide an overview of how demographers describe these large groups. As Americans, we account for nearly 330 million people, and with consumer spending representing some 2/3 of all economic activity, we believe it is very important to understand how these different generations are participating in the economy.