Back at the end of the Second World War, troops returned
home in massive numbers and, as is always the case with young men and women,
started to settle down to have families. The result was the baby boom, a period
of time between 1946 and 1964 which saw the average marriage age drop nearly 2
years, and family sizes increase by approximately 25%. That population bulge is
still working its way through the American economy, as the first wave of baby
boomers start to retire.
So, what does this fundamental shift in American
demographics mean for investors? What are some of the ways of taking advantage
of an aging America?
Probably at the top of the agenda lie investments in
healthcare companies, which are set to see a rapid increase in demand for
treatment as the boomer population develops diseases associated with age. While
hospitals and other institutions will see benefits, one of the biggest winners
is likely to be companies that provide home health care services for seniors.
While these services may be susceptible to any significant changes in Medicare
funding, the fact remains that caring for the elderly in a home environment is
a much more cost-effective approach than tying up long-term beds. This may also
translate into investment potential for retirement communities that provide
ongoing care for aging residents, so a continuing
care community in Terre Haute, IN, for example, may be a long-term investment that you should
investigate.
Staying on the healthcare front, we know that an aging
population creates increased demand for pharmaceuticals, so these may also
represent a strong investment opportunity. However, while keeping an eye on the
mainstream, investors would do well to look for disruptive research programs
that have the potential to transform the lives of aging people. For instance,
Alzheimer’s and other diseases such as Parkinson’s and Huntington’s place an
enormous strain on the healthcare system. A recent study in the UK has now shown that it is possible to
stop Alzheimer’s and potentially other neurodegenerative diseases in mice.
While the therapeutic compound used to do this is nowhere near ready for human
trials, this is exactly the sort of opportunity that investors should be
looking for to take advantage of the aging trend.
On the other hand, a word of caution is needed around the
domestic real estate market. Opinions are mixed on this, but one real
possibility is that the housing market will decline significantly due to the 78
million Americans who make up the boomer generation downsizing as they retire
over the next 20 years or so. This could lead to a significant oversupply,
especially in the single-family dwelling market, with some pundits forecasting
a crash of a similar magnitude to that which we experienced back in 2008 – and
potentially with a longer time horizon.
However, the length of time over which this situation will
unwind may actually act to mitigate its effects – and there are other
countervailing forces. For instance, if there is a trend toward smaller
households, this could drive a significant increase in demand for single-family
dwellings. There is also an increasing trend for children to come back home to
live with their parents, leading to multigenerational households that could delay
or prevent single-family dwellings being released onto the real estate market.
This may be accentuated by an increase of Hispanics and Asians who are of school-age
and working-age, since some studies have shown that these minorities are more
likely to have multiple generations within one house.
We are already starting to see a number of other sectors
starting to target the boomer demographic. Television advertising is a
bellwether of this. Insurance companies are increasingly advertising products
such as life insurance that does not require a medical exam. Another example is
the reverse mortgage – the US government offers a Home Equity Conversion Mortgage
(HECM) program for seniors, but there are a number of other commercial
providers. Whether or not we will see a further increase in the number and
diversity of financial instruments designed for seniors is an open question,
but again investors should be on the lookout for potential
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Finally, the boomer generation represents a significant pool
of pent-up cash, which investors can tap into with products and services
specifically targeted at them. For instance, it may well be worth looking at
companies that specialize in senior travel, as well as resorts that see high numbers
of senior visitors. The medical device field may also be attractive – as a
hypothetical example, companies that have innovative hearing aid designs could offer
profit opportunities.