Profit from Three Investment Megatrends

10/08/2007 12:00 am EST


Robert Froehlich

Senior Managing Director, The Hartford Financial Services Group, Inc.

Dr. Robert Froelich, vice chairman of DWS Scudder, told attendees that most advisors spend too much time focusing on blizzards—unpredictable events that occur so quickly that you can’t benefit from them, instead of icebergs—the megatrends that you can see coming, major events that you can plan for and profit from.

He commented that megatrends can take up to 30 years to develop. The demographic changes that began with the baby boomers are a case in point. Demographics determine what you buy, how much you will save, how many households are created in the country, and ultimately, even government policy.

As we age as a nation, our spending and savings trends naturally change. We change from net consumers to net savers as we get closer to retirement age.

Dr. Froelich forecasts that the stock market will be driven by three important demographic trends:

The Senior Boom: Life expectancy in the US has gone from an average 35 years in 1776 to 76 years today, fueling a consumption binge like we’ve never seen before.

Baby Bust: Baby boomers are not having as many children; 20% have none and 25% have just one.

Aging of Baby Boomers: In each decade of the 20th century, this segment of the population created sea changes: the diaper industry in the 1950s, fast-food restaurants in the 1960s, real estate in the 1970s, media in the 1980s, and investing in the 1990s.

Now in an unprecedented wave, the baby boomers are focusing on the same topic—investing—in this decade. Although often called “retirement planning,” it means the same. Dr. Froelich predicts that if they invest just one-half as much now as they did in the 1990s, the Dow Jones Industrial Index could easily reach 17,000.

For the sake of growing your clients’ wealth, it’s crucial to know which industries will be receiving the largest from these demographic changes. For instance:

Discount stores benefit from the aging boomers with two to three kids in college, as well as senior citizens who didn’t expect to live this long, and who more importantly, are living on a fixed income.

The growth in the food industry can be traced to the fact that for the first time, the current crop of 18-to-24-year-olds is being raised by working moms. So, when they shop, they go right to convenience foods, salad bars, and precooked meals—tremendously growing segments of the food industry.

The average 75-year-old buys 18 prescription drugs per year, perhaps creating a future boom in pharmaceuticals.

Some specific stocks Dr. Froehlich thinks may help clients make money from these demographic trends include:

  • Merrill Lynch (NYSE: MER) since savings will become of prime importance
  • Dell (NASDAQ: DELL) since the baby boomer generation is very tech-savvy and hunger for customized products
  • Carnival (NYSE: CCL) to take advantage of seniors’ desire to travel around the globe
  • Molson-Coors (NYSE: TAP) as this segment of the population are drinkers
  • Johnson & Johnson (NYSE: JNJ), to cash in on the health-conscious, albeit aging population.
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