One of the things that people fall into when looking to the future is normalcy bias. We wrote about this problem a few blogs back. The basic issue is that we think things will continue to go on the same in the future as they did in the past. This is especially true when we look at the economy.
One of the issues when looking at the economy and how and where to invest in the future is demographics. Most people fail to step back and look at the big picture of where will spending and consumption occur.
First of all, we know that consumer spending accounts for 70% of GDP. This is important to understand because every country and economy has a breakdown by age. There tends to be larger groups within that age breakdown. Depending how large these groups are will dictate how and what goods and services are consumed.
Spending Life Cycle
Depending on your age, your consumption of goods and services vary. Here are some rough examples:
- < 25: More on education, entertainment
- 30s: Starter homes, children, vacations, shopping, some health care.
- 40s: More expensive homes, higher end cars, investing, more health care.
- 50s: Retirement homes, reduced spending on children, and vehicles, more on health care, more savings
- 60s: mostly savings, not much in the way of consumer goods, more health care
So, you get the idea. Your needs and spending habits change as your age.
Current US Demographics
As many of you already know, the baby boom generation is by far the largest portion of our population. This generation is in their 50s and 60s. Because of this, you will naturally see an overall decline in the consumption of goods and services.
What does this all mean?
Its this reduced consumption factor that will continue to drag the economy. The people with the most money that represented the bulk of consumer spending are spending less. This has been enhanced with the recession. This pattern is not going to change itself. Its a way of our life and economy.
Its because of this reduced spending and fear on the part of the consumer that the Fed has spent trillions of dollars with little noticeable improvements. Some would argue that the spending has prevented or avoided more dire circumstances, and some of that may be true. But it could also be argued that we are delaying the inevitable slow down by engaging in massive currency manipulation.
No matter how much money is printed or manipulated, its not going to change the basic demographics and spending patterns. In fact, it could be argued that more intervention may be doing more harm than good because the government will not allow the natural market forces to work in an orderly manner.
How does this impact my Self Directed IRA?
As we wrote on the prior article, we believe the Fed will be compelled to continue stepping in with currency manipulation to help bolster the economy. Spending patterns and demographics support the notion that consumer spending is not likely to ever come back to where it was. These disconnects will continue cause our economy to see very slow growth, with people losing pace with inflation thereby losing earnings power.
This is ultimately going to push politics and the government to do more not less. Do more means spending, printing. More spending and printing means that you need to be positioning your self directed IRA into metals and real estate.
The information provided is for educational purposes only and are not a solicitation or offering of an investment, investment advice, or tax advice. You should consult with your tax, legal or financial advisor to determine the suitability of any investments made with a self directed IRA account.