It can feel like there is no such thing as a slow news day anymore. Coronavirus dominates the agenda as governments, businesses and individuals try to adapt to a world changing by the day. Meanwhile, Brexit negotiations and the US election present strong cases for a share of the headlines.
All have serious implications for investors – their decisions and their strategy – over the near and medium term. But the next century of wealth management will be defined by long-term factors that outlive viruses, trade deals and elections. Climate change is one. Another is the dramatic demographic shifts brought about by an ageing global population.
The consequences of this shift are far-reaching and present both challenges and opportunities that require expert advice to navigate.
The economic effects of ageing populations
In 2018, for the first time in history, there were more people over 65 than children under five, according to the United Nations, and by 2050, one in six people in the world will be over age 65, up from one in 11 in 2019.1 As working-age populations shrink in many countries, the number of pensioners will increase, and wealth will increasingly be held by those of retirement age. The wealthiest cohort in Britain, for example, are aged between 60 and 69. In this category, the top decile has total wealth of more than GBP1.25 million per person. By comparison, half of those between 20 and 29 have no retirement resources.2
Those statistics underscore the importance of maximising financial stability to mitigate the economic effects of an ageing world, and ensuring that wealth is transferred securely to the next generation.
There are undoubtedly challenges. Even if productivity remains constant, the presence of fewer people of working age means that economic growth could suffer. With older populations saving rather than spending, interest rates are expected to remain low, making the search for yield in a low-growth environment a difficult proposition for the foreseeable future.
In this environment, safe-haven bond yields offer little attraction. Investment-grade credit, combined with geographical diversification and alternatives such as gold, offer one route to finding yield. Such strategies can be accessed through multi-strategy hedge funds, while private equity's long-term approach provides a buffer to short-term volatility.
As demographics change, so do opportunities
Yet the trend for longer lives and wealthier retirees also brings investment opportunities, with potential across several industries. The low-growth environment means that growth stocks in technology, digital consumption and 5G – businesses providing the infrastructure for people to live comfortable lives at home – are likely to outperform the market average, according to analysts.3
An ageing population also will place greater demands on healthcare. Those companies able to facilitate that demand could increase in value. Virtual appointments have surged during the coronavirus outbreak, and many of those patients who have switched to remote consultations are expected to continue with them.4 Other areas are also seeing rapid progress, and there are plenty of investment opportunities in healthcare-related technology and innovation. Among the most promising health technology companies are those that are developing robotic technology able to perform surgery: use of robotics for tissue surgery applications stands at just 5 per cent in the US and only around 2 per cent globally, according to HSBC.5
Evolving priorities, renewed focus
Considerations beyond investment portfolios are also becoming more significant as populations age, especially in the wake of the pandemic. Many of us are re-evaluating and redefining our priorities in response to the crisis, and while philanthropy has long been a consideration for many investors, perhaps a greater proportion of giving will soon focus on age-related causes.
The world of impact investing is evolving rapidly as well, with a broadening set of opportunities to match individuals' range of interests and priorities.
Business leaders, too, might increase efforts to retain and recruit older workers to accommodate these demographic changes, or pivot their business models to benefit from changing consumer demands.
With the prospect of 100-year life no longer so remote, understanding the opportunities available to secure your wealth for the long term is more important than ever. HSBC Private Banking can help you recognise and plan for fundamental, emerging global challenges – and provide you with the perspectives and tools you need to sustain and grow your wealth, reach your goals and fulfil your ambitions.
1 United Nations, World Population Prospects 2019
2 "Accumulation of wealth in Britain: What the distribution of wealth tells us about preparedness for retirement", FCA Research Note, May 2019
3 "Change and Continuity: Investment Outlook Fourth Quarter 2020", HSBC Private Banking
4 "GP appointments by phone and video surge during coronavirus lockdown," The Guardian, July 2020
5 "Change and Continuity: Investment Outlook Fourth Quarter 2020", HSBC Private Banking