‘This will probably be the most bearish investment presentation you’ve ever heard…’
That was how Nick Hubble of The Money for Life Letter opened his speech at World War D last week. He wasn’t wrong…
The modern western welfare system is based on saving and investing for retirement.
The idea is you accumulate investments, which you then sell when you hang up your work-boots.
You hope that over time your investments will be worth many times what you paid for them. They will have grown enough to support your lifestyle in retirement when you sell them. And, if you’re like most people, you believe that investing inherently makes us wealthier.
But at the Grand Hyatt last week Hubble asked a crucial question: what if that assumption is wrong?
What if the buyers you expect to turn up in the stock market…property market…small business market…and other asset markets during your retirement, turn out not to be there? Without young and middle-aged Australians buying your shares, small businesses and investment properties…who will you sell them to?
Nick’s answer last week was that you WILL be able to find some buyers…but probably at prices a fraction of what they are today.
The premise of Nick’s thesis is pretty simple: There won’t be enough younger people to buy your retirement investments when you want to sell them
Why? Short answer: You never conceived enough of them.
As Nick told the audience:
‘If I had to summarise my presentation to you in one sentence, it would be this: You accumulated the greatest store of wealth in history to prepare for retirement…but you forgot you’d need someone to sell it to.
‘Investments need to be sold to someone for you to get your hands on the cash they promised, right? And you need that cash to pay for your retirement. You need it to be many times more than the amount of cash you invested over the years.
‘But if you want to make that kind of profit, you have to find someone who is willing to buy the same asset at a higher price.
‘Cynics call this person the ‘greater fool’. Well I have news for you. I will not be your greater fool…’
Nick Hubble, by the way, is 24 years old. You’d think a 24 year old telling a room full of mostly baby-boomers he’s going to ‘ruin your retirement’ would have gone down like a lead balloon. In fact many attendees found it was the most lively and entertaining talk of the whole two days. ‘Nick Hubble — what a star,’ wrote conference-goer L. McMahon, ‘Excellent, fun & thought provoking.’ (You can watch the full speech by getting a DVD of the event. To find out how click here.)
‘Truth is,’ Nick continued, ‘It’s my age that allowed me to arrive at my conclusions.
See, I know how I feel about having to fund your retirement. I don’t feel very good about it. At all…
‘And I don’t just mean paying taxes to support your pension. I’m sure the pension is not your fall-back plan anyway. What I mean is I will not be your greater fool.
‘More importantly,’ Nick continued, ‘there aren’t enough greater fools amongst Australia’s younger generations to buy all your assets. In fact, there aren’t enough of us full-stop (no matter how foolish we may be).
‘We do not have the buying power to buy the investments you are going to try and sell us to pay for your retirement. At least not at prices anywhere near what the superannuation industry is promising you…’
Nick went on to prove his case.
Demographics drive investment prices. And Australia is at a demographic turning point…as are many other places around the world.
We are indeed an ageing country. Australians aged over 65 will soon make up one quarter of the population. One in six Aussies will be aged 75 or more. A Productivity Commission research paper released last year says there is currently one person aged 100 or over for every 100 Australian babies under 12 months. By 2060 there will be 25 centenarians for every 100 babies.
This, starting now according to Nick, is going to radically alter the investment markets.
Nick asserts that one of the key reasons investment prices have been going up over long periods of time is demographic. The overall demographic trend of the 20th century made asset prices go UP. But what happens when that demographic trend reverses? Prices go down.
And, as Nick prophesised: ‘Investing in the way you have been will be a losing proposition.’
To understand why, you need to see his presentation. In it Nick links Population Pyramids with the asset markets in a very clear, compelling way. If you want to be able to plan and prepare for the impact changing demographics might have on your retirement, you should check out Nick’s speech here.
Michael Graham,
Contributing Editor, Money Morning
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