As an investor, your fortunes are pretty much aligned with those of the companies you invest in. Most of the companies you are invested in, depend heavily on consumer activity to generate their sales and ultimately their profits, which will boost their share price. If consumer activity should slow down for some reason, losses will trickle down the chain to ultimately end up with your investment value going down. We saw this during the 2020 Covid pandemic where everything just stopped. It should then be of concern to you as an investor, that the world’s population is aging. Older people are less active when it comes to consuming goods and services. A 70-year-old person is going to eat less, drink less, travel less, drive less, stay in the same house and generally just spend less than a 35-year-old. Between 1974 and 2024, the worldwide population share of people aged 65 almost doubled – increasing from 5.5 per cent to 10.3 per cent. Between 2024 and 2074, this number will double again, increasing to 20.7 per cent, according to United Nations population projections. During the same time, the number of persons aged 80 and above is projected to more than triple.
An aging population not only impacts you as an investor, but also governments and pension funds, which have to spend more on social benefits and pension payments without younger people entering the tax base or contributing to pension plans. We see countries like France raising their retirement age to buy them some more time, and countries like China ending their one-child policy and Vietnam ending their two-child policy due to their shrinking working-age populations.
The surprising solution to this problem is twofold. Firstly, as mentioned in our previous blog, AI is taking over many jobs currently performed by young and old alike; and secondly, 70 is now the new 53. Paul Theron from Vestact mentioned in one of their recent newsletters that a study had found that, on average, a person who was 70 in 2022 had the same cognitive ability as a 53-year-old in 2000; and also that the physical frailty of a 70-year-old today corresponds to that of a 56-year-old in 2000. So, if companies can lower their production costs by using AI, their sales might go down because fewer people buy their products or services but their profitability would increase. And, with the rejuvenation of older people, sales might not drop as sharply as would have been the case a decade ago.