21 December 2010

Baby Boomer Investing

As someone at the tail end of the baby boomer era I have often wondered when "our" bulge in the population would start to assert itself. Why is it that most advertising is targeted at the 20's and 30's? Why is the TV at the gym always showing MTV (a constant stream of music videos if you haven't heard of that channel!)? There is an assumption that the world is for the young. Now, up to a point that is true, and as someone with an entrepreneurial leaning I can fully understand advertisers' desire to target their marketing spend at those who will buy (some would say - at those who haven't yet learnt only to buy what matters!).

So it was good to hear an investment fund manager having thoughts along the same lines. Stewart Cowley manages the Old Mutual Global Strategic Bond fund. Presumably because of that he thinks all the time about where the economy is going and what might be profitable in the future. So he created a list of goods and services which might increase in price in future due to the increased demand of baby boomers. Here is his list. 
  • Bungalows - nobody will want to live in multistorey ‘trophy house’ accommodation
  • Healthcare - the desperate need to live longer will overwhelm the accumulation of wealth and they will pay anything for it
  • Bonds* - a secure income without having to bother with the daily volatility of stock markets interrupting their day on the golf course
  • Travel - having worked for the past 30 years, it’s time to live a little and see more of the world than the hotel room and airport with which they became familiar whilst away on business trips
  • Internet connectivity - their children probably live far away, so keeping in touch will be a priority
  • The secondary or tertiary career - sitting at home all day will become boring and a desire to have a portfolio of activities will be attractive, especially if it involves ‘putting something back’ into the community
  • Cheap transport - getting around at an affordable price, especially as the oil price rises
  • Funding their children - the alternative to having them live at home will see them investing in housing and subsidising the beginning of their careers
  • Tax planning - how can they legally hand as much of their accumulated wealth as possible on to the next generation?
  • Care homes - in their final years, where can they live comfortably in security and surrounded by like-minded people?
Whether there is any opportunity to benefit from that list in terms of investing, I don't know. Changes of a demographic nature do, by definition, tend to arrive rather slowly giving everyone a chance to jump on the bandwagon.

The other interesting point he made in the same article was that the emphasis will (continue to?) shift towards bonds* and away from equities. As a fixed interest (bond) fund manager he would say that wouldn't he? But the point he makes about the golf course is a good one.

It all goes to show that you can't just invest in isolation. The world is ever-changing and being aware of the wider implications of what you are doing is always going to be helpful - or at least working with someone who can keep you aware.

* "Bonds" is an over-used word in finance. Here he (and I) are referring to "fixed interest" investments such as government gilts and corporate bonds (loans to companies) which pay a regular income and are fairly stable relative to equities.

6 December 2010

The End of National Insurance?

The Centre for Policy Studies (CPS) has published a new report which proposes the abolition of National Insurance.

That sounds kind of drastic, but given that it has changed significantly since its introduction and that the Government are considering a flat rate, non-means-tested state pension, it becomes little more than some extra tax to pay.

Of course, that doesn't mean that we will end up paying less tax (you didn't really expect that did you?) but it could mean a significant saving in government costs - always worth aiming at.

The CPS describe National Insurance as "complex, cumbersome, misleading and ramshackle". There is no longer any real relationship between what you contribute and what you get, since most benefits paid for out of NI are now flat rate benefits, even though contributions are still related to earnings.

However, I can't see its abolition happening any time soon. It is useful to politicians who are still able to hide behind it as a way of raising taxes without calling it a tax. And with all the reform going on in the pensions world - mostly good stuff - tackling NI in the near future is probably a step too far.

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