The stellar gains in global equity markets over the past half a century has been driven by a handful of powerful undercurrents. These undercurrents are dramatically altering their course from right under our feet and investors should not expect the next 10 years to be anything like the past.
" Investors should not expect the next 10 years to be anything like the past."
Over the short and medium term, economic cycles dominate investment outcomes. However, over the long term the relentless demographic and structural undercurrents, or trends, drive investment performance.
The trends may be hidden by economic events like recessions, but on the other side of the recession the trends re-emerge intact.
In this, the first in a two-part series, we will introduce six megatrends which have driven performance over the last 50 years and highlight the changes now occurring.
In this first part, we look at the two major demographic changes and changing tax rates. In the second part we will examine debt, trade and inequality.
Long-term trend one: Baby Boomers - the pig in the demographic python
Following the Second World War, most developed countries around the world experienced a baby boom - the charts above show the US experience and many other countries share the same basic structure.
What this has meant is the proportion of workers in the economy has been growing for the last 40 years to 50 years as this age group went from being dependent (under 18) to workers (18 to 34) to prime-age workers (34 to 54).
Age and sex structure of the population for the United States: 1945 to 2060