The world population is aging, and we will soon reach the highest number of over 65 year olds in human history. Despite millennials being the center of attention, getting older could prove to be more investment-friendly.
According to the World Bank, by 2050 the age dependency ratio (dependents as a percentage of the working-age population) in high-income nations will increase from 53.3 to 73.9. This means that in 2050 more than 40% of the population will be made up of dependents, and in developed markets most will be aged over 64. These figures suggest that the elderly (and their needs) will play a stronger role in the economy going forward, meaning new investment opportunities will arise. After the rise of sustainable and ethical investment products, we will witness the emergence of “silver investing” aimed at capitalizing on the needs of the aging population.
The property market picked up quickly on this trend, and a new type of real estate investment trust (REIT), which predominantly focuses on investing in care homes, is now well established across different markets. Octopus Healthcare, Primonial, and Daiwa are just a few examples of providers that have launched such products. Similarly to other sector-specific REITs, they are designed to be less affected by general macroeconomic conditions than commercial or retail property, which is useful for portfolio diversification purposes. Although rental yields from nursing homes might be below those of student housing and shopping centers, investors are offered the stability of a growing sector and lower risk levels compared to high-yielding property investments.
Many other aging-related products are available, including sector-specific mutual funds. The Vanguard Health Care fund manages portfolios centred on the pharmaceutical and biotechnology industry. The number of listed companies focused on services related to the aging population (from care home servicing companies in Europe to luxury funeral providers in Asia) has been increasing, and they will find their way to the portfolios of asset managers.
As always, wealth managers should apply some filters when approaching silver investments. They will have higher growth potential in countries where government spending for healthcare services is low, as there is much more room for private ventures to succeed. They should also look into markets where aging rates are faster, like Japan. Growing demand from the older population will put pressure on government budgets, and the private sector will have to pick up the challenge.
Generally, as investors shy away from stock market volatility, advisors must find ways to diversify clients’ portfolios with more stable options. In the past, fixed income would be an obvious choice, but low yields and fears of the bond bubble bursting make these investments riskier. Therefore, silver investing and the opportunities it presents will be a good alternative. On top of that, wealth managers will do well to boost their pension planning services offering – after all, their clients’ life expectancy is set to increase, meaning they will need to sort out their finances before the long retirement period begins.
By Silvana Amparbeng, Wealth Management Analyst