The Biggest Generation
Today, we’re going to talk about millennials. Why millennials, when there’s so much market-moving stuff going on, like Fed rate hikes, record highs and elevated valuations for the S&P 500, the uncertainty surrounding Obamacare, and other fiscal policy from President Trump?
Well, as the editor of The Wealth Advisory dividend and income newsletter, I take the long view on investing. My goal is to find great companies whose stock my subscribers can hold for years, buy more when they can, reinvest the dividends, and grow their wealth over time.
In a very general sense, investment works because of demographics. Populations grow, incomes increase, and more people with more money buy more stuff. Great companies will do more than their share of selling stuff to people.
Great companies will also control costs and boost productivity better than their competitors. And great companies will adapt to change faster than their competitors.
That’s why IBM has thrived while Hewlett-Packard has floundered. It’s why Netflix is a household name and Blockbuster is effectively gone.
Great companies not only survive, they thrive. And a big part of the reason is that they understand their customers. They “get” demographics. As investors, we need to do the same thing. We need to keep an eye on demographic trends, because these are the customers of the future.
When I took over The Wealth Advisory in 2012, one of the cornerstones of the investment philosophy I put in place was “buy U.S. stocks.”
This wasn’t some patriotic gesture on my part. It was because of demographics. Not only does the U.S. have one of the wealthiest populations, but the U.S. is also the only developed nation whose labor force is growing.
It’s not growing quickly, mind you. After growing 1.7% a year from 1960 to 2005, the U.S. labor force growth has slowed to an annual rate of 0.5%. The labor force is actually shrinking in China and Germany (in Germany’s case, this is a big reason it has such an open immigration policy).
In the next five years, the working-age population is also expected to shrink in Poland, Russia, and Thailand.
As an aside, simple statistics like these show us why global GDP growth has been so stagnant over the last decade. And investors should pay attention to where populations are headed. There are really only a few areas where populations will grow over the next 30 years: Africa, some parts of Asia and South America, and — you guessed it — the United States.
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Our Mission, Should We Choose to Accept It
You probably see where I am headed with this. The millennial generation is the future of the American workforce. They are the future of Starbucks and Netflix and Apple, as well as companies that don’t even exist yet. (The millennial generation is defined as those born between 1980 and 1996, currently 18 to 34 years old.)
By sheer numbers, the millennials are the biggest generation yet. They became the largest part of the U.S. workforce in 2015. And the millennials will become a powerful economic force. They will be inheriting $30 trillion from their boomer parents. They already account for $1.3 trillion in annual consumer spending.
But here’s the problem: What do they want? What are their values? We know some things about the millennial generation. They like Starbucks, they don't like Dunkin Donuts. They don’t value driving like the boomers did. (I have a 25-year-old stepdaughter who didn’t get her license until she was 20. She didn’t care. I had mine the day I turned 16.)
Millennials like Uber, AirBnB, and the sharing economy. They like Adidas, but they don’t like Under Armour. (This is one I missed. I thought UA was popular with the cool kids, but apparently it is not.)
They like Chipotle, but not McDonald’s. They like craft beer, not Budweiser.
In fact, if you look at retail in general, you can see that they are having a hard time with this millennial generation. Former young person superstar companies like Abercrombie & Fitch and the Gap are struggling to resonate with this generation.
Fact is, the millennials are a tough nut to crack for most companies. They use Instagram, but not so much Instagram’s parent company, Facebook. They use body wash, not soap. And they apparently don't use fabric softener.
Millennials are only just starting to have kids and buy homes. Their emergence as the newest American households is the most significant demographic and investment trend of the next 20 years or more.
We need to get to know them.
There’s a reason I hired Jason Williams as my assistant at The Wealth Advisory and to write for you here at Wealth Daily. Aside from his impressive credentials and experience, he’s a millennial. And what's more, he wants to help his generation understand investing and finance for when that $30 trillion inheritance gets passed down.
Because the data suggests that the millennials really haven't started investing yet. But that will change.
In fact, anecdotal evidence shows that the millennials showed up for the Snapchat IPO a couple weeks ago. That was one of the first truly millennial companies to go public. There will be more.
And so Jason and I are asking the questions: Who are the millennials? What products and services do they like and will they like in the future? What stocks will they buy?
You should be asking these questions, too. Because the answers will lead you to some of the best investment opportunities in the years to come.
Until next time,
A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.
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