Demographics Show a Shrinking Economy

The state of interest rates (the recent lowering of the Fed fund rate vs the still-high bond market) is contradictory. The stock market is at a recent high, and the question is, how long can this last? Not to mention, we are in the midst of an election at the forefront of our nation.

With all this in place, one of the items no one is talking about is demographics. Specifically, the birth rate.

An Increasing Population is Good for the Economy

The birth rate across the globe has greatly decreased in the last several decades. We are not replacing the number of people who die. This is creating a global demographic problem; the U.S. is just one example.

We've always been growing and adding to our population until recently. The boomer generation, my generation, really drove a lot of the economy coming out of World War II and then into the fifties, and even into the nineties.

My generation also had a fair number of children. These are the millennials who are getting their feet on the ground and starting to have families.

Demographics Are Destiny

What does a decreasing population size mean?

Our labor supply will decrease as people age out. A larger population means there is a greater amount of productive people. A smaller population means a lesser amount of productive people.

The government will also continue to pay for entitlements such as Social Security, Medicare, Housing, etc., that accompany an aging population. But the heavy burden of creating such resources will rest on the shoulders of a dwindling younger generation. 

This alone will have a major effect outside all other variables in the economy, including the massive national debt.

Other Factors Affecting Our Economy

Interest rates will most likely stay higher for longer. Why?

Because the high inflation we had was not transitory. The inflation rate may exhibit volatility in the short term, but a long-term view predicts higher inflation for longer, leading to stagflation.

The interest rate on our national debt has now surpassed our yearly defense budget with no paydown in sight. This leads to the question, how long can the dollar sustain this? Some believe the only way out is to default or inflate the debt away. The writing is clearly on the wall.

Our decreasing consumer base (a large population with the ability, capacity, and capital to buy, build families, businesses, innovation, etc.) will cause a shrinking economy.

Investing in a Shrinking Economy

You can no longer rely on old models of investing. They might have worked well in a growing, bustling economy with lower interest rates and a lower cost of debt, but today is different.

You must be more on the forefront of maneuvering your capital, whether in your own business or your retirement. Especially for those no longer generating active income, shepherding your capital in the right assets, with the right people, in the right locations will be critical.

This requires developing the skill sets and relationships to navigate your capital in your chosen assets.

A Case for Tangible Assets

My bias is in alternative investments, specifically tangible assets like real estate. I'm not saying you can't do it in the stock market, but in the stock market, you have much less control than in alternative investments.

My entire freedom plan is based on alternative assets. While it took considerable effort to build it out, it still works today on a more passive modality than previously.

It also gives me the predictability and the certainty that I need to manage my assets, not only for myself, but for my family going forward. Stewarding generational wealth, the successful transfer of wealth and wisdom is vital to ensure the younger generations are prepared to navigate with resourcefulness and resilience in the current and coming economy.

Wherever you are today, my encouragement is to do something different. You must make some moves today by finding the right people who have done what you want.

Advisors are fine, but have they done what you want to do? Have they successfully retired without volatility or active involvement? Have they successfully transferred their wealth and wisdom to the next generations? 

You must be the orchestrator of your future.