"Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

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"Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by arcticpineapplecorp. » Mon Mar 05, 2018 6:00 pm

Thought this was interesting. It has been written by Vanguard and discussed here before but there were some additional details about millennials reported here (regarding their increased investing, risk taking and decrease in student debt since 2005) which is contrary to what we might have heard. I thought this was interesting and worth sharing. Enjoy!

https://vanguardblog.com/2018/03/05/dem ... ror-story/

conclusion:
The scariest stories are those that are simple and believable. The plotline of an aging population causing a sell-off in equities meets these criteria but collapses under empirical analysis. The demographic changes occurring in the United States will have noticeable implications for labor markets, public finance, and political developments. However, Vanguard finds no credible evidence that demographic changes alone will negatively affect future stock returns. Your best bet is to ignore scary headlines and remember that an investment strategy focused on discipline, diversification, and patience continues to offer the clearest path to financial success.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by nedsaid » Sat Mar 17, 2018 1:36 pm

Demographer Harry Dent made some scary predictions based upon demographics. His key premise is that spending peaks at about age 46. Based on this, he forecasted a big economic boom followed by a bust. Somehow, things didn't work out quite as he predicted. I do believe demographics are an important factor in the markets and the economy but economies and markets are complex, no one factor controls everything. The world has been going to Hades in a handbasket as far back as I can remember. I invested systematically in stocks and I am very happy that I did, ignoring the doomsayers.
A fool and his money are good for business.

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by randomizer » Sat Mar 17, 2018 1:57 pm

I find this comforting. Prepared for the worst, but hoping for the best. Staying the course in any case.
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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by jayk238 » Sat Mar 17, 2018 1:59 pm

So i posted something like this and it got deleted but a flurry of related posts like this are a-ok?

Seems like after i started that post theres been a trend of commentary on it despite the deletion.

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by jayk238 » Sat Mar 17, 2018 2:07 pm

Sorry but this fails to allay any real concerns.
1. He states that macroeconomic issues are the bigger contributor as opposed to demographics. How about macroeconomic issues that are due to demographics. Until recently all of the us population has trended up. The population growth rate has been growing enough to lead to a economic growth. But over the next several decades projections show a slowing of growth. And a lack of population today has been shown to be a prime cause of limited gdp growth-ie 2% vs 3% goal. The analysis fails to account for this shift.
2. The analysis looks, in general, at improvement in millenial investments over time either due to education investment declines and increased allocation -but what happens when growth tapers off and more taxes are needed to pay for ss and medicare?
None of these issues are properly addressed.
I agree buy and hold is appropriate but color me skeptical.

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by willthrill81 » Sat Mar 17, 2018 3:34 pm

Chapter two of the story centers on the notion that, burdened with student loans and shell-shocked from the dot-com bubble and global financial crisis, the millennial generation is risk-averse and reluctant to invest in the stock market. When Vanguard analyzes the data, however, this narrative arc appears a bit far-fetched.
Research conducted directly with Millennials has shown that they are indeed risk averse.

Larson et al. (2016) sampled 128 college-age students and reported the following (and much more). The bolding is mine.
The sample was fairly conservative in its choices: 15.3 percent selected the 100 percent guaranteed annuity, 65.3 percent selected the 75 percent guaranteed annuity, 16.1 percent selected the 25 percent guaranteed annuity, and 3.4% selected the 100 percent S&P stock fund.
https://www.tandfonline.com/doi/abs/10. ... 16.1089765

The referenced annuity guaranteed a return of 1%.

I agree with the author that target date funds combined with automatic enrollment are great for Millennials, and the information on their participation in stocks as a result is encourage, but make no mistake that they are very conservative in their risk tolerance levels.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by jayk238 » Sat Mar 17, 2018 5:00 pm

willthrill81 wrote:
Sat Mar 17, 2018 3:34 pm
Chapter two of the story centers on the notion that, burdened with student loans and shell-shocked from the dot-com bubble and global financial crisis, the millennial generation is risk-averse and reluctant to invest in the stock market. When Vanguard analyzes the data, however, this narrative arc appears a bit far-fetched.
Research conducted directly with Millennials has shown that they are indeed risk averse.

Larson et al. (2016) sampled 128 college-age students and reported the following (and much more). The bolding is mine.
The sample was fairly conservative in its choices: 15.3 percent selected the 100 percent guaranteed annuity, 65.3 percent selected the 75 percent guaranteed annuity, 16.1 percent selected the 25 percent guaranteed annuity, and 3.4% selected the 100 percent S&P stock fund.
https://www.tandfonline.com/doi/abs/10. ... 16.1089765

The referenced annuity guaranteed a return of 1%.

I agree with the author that target date funds combined with automatic enrollment are great for Millennials, and the information on their participation in stocks as a result is encourage, but make no mistake that they are very conservative in their risk tolerance levels.
Hat n is so small though. Hard to generalize when its so severely underpowered

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by willthrill81 » Sat Mar 17, 2018 5:31 pm

jayk238 wrote:
Sat Mar 17, 2018 5:00 pm
willthrill81 wrote:
Sat Mar 17, 2018 3:34 pm
Chapter two of the story centers on the notion that, burdened with student loans and shell-shocked from the dot-com bubble and global financial crisis, the millennial generation is risk-averse and reluctant to invest in the stock market. When Vanguard analyzes the data, however, this narrative arc appears a bit far-fetched.
Research conducted directly with Millennials has shown that they are indeed risk averse.

Larson et al. (2016) sampled 128 college-age students and reported the following (and much more). The bolding is mine.
The sample was fairly conservative in its choices: 15.3 percent selected the 100 percent guaranteed annuity, 65.3 percent selected the 75 percent guaranteed annuity, 16.1 percent selected the 25 percent guaranteed annuity, and 3.4% selected the 100 percent S&P stock fund.
https://www.tandfonline.com/doi/abs/10. ... 16.1089765

The referenced annuity guaranteed a return of 1%.

I agree with the author that target date funds combined with automatic enrollment are great for Millennials, and the information on their participation in stocks as a result is encourage, but make no mistake that they are very conservative in their risk tolerance levels.
Hat n is so small though. Hard to generalize when its so severely underpowered
They did multiple studies and had the same finding throughout them all.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by JBTX » Sun Mar 18, 2018 12:29 am

nedsaid wrote:
Sat Mar 17, 2018 1:36 pm
Demographer Harry Dent made some scary predictions based upon demographics. His key premise is that spending peaks at about age 46. Based on this, he forecasted a big economic boom followed by a bust. Somehow, things didn't work out quite as he predicted. I do believe demographics are an important factor in the markets and the economy but economies and markets are complex, no one factor controls everything. The world has been going to Hades in a handbasket as far back as I can remember. I invested systematically in stocks and I am very happy that I did, ignoring the doomsayers.
I suspect that demographics will have an impact on US economic growth. With a stagnating work force due to aging boomers, and if the moderation of immigration continues, once the US reaches full employment long term GDP growth should be fairly modest, all else equal.

However, all else may not be equal. It is always hard to predict the impact of technology will be on economic growth on corporate profitability and the stock market in general. The US stock market doesn’t always exactly follow gdp growth given that most large companies have substantial stakes outside of US borders.

Also, I don’t think the Harry Dents of the world necessarily anticipated all the impacts of worldwide aging and increased savings, and the resulting downward pressure on interest rates, which tends to lead to higher PE ratios with stocks.

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by Valuethinker » Sun Mar 18, 2018 7:37 am

nedsaid wrote:
Sat Mar 17, 2018 1:36 pm
Demographer Harry Dent made some scary predictions based upon demographics. His key premise is that spending peaks at about age 46. Based on this, he forecasted a big economic boom followed by a bust. Somehow, things didn't work out quite as he predicted. I do believe demographics are an important factor in the markets and the economy but economies and markets are complex, no one factor controls everything. The world has been going to Hades in a handbasket as far back as I can remember. I invested systematically in stocks and I am very happy that I did, ignoring the doomsayers.
I believe he has been predicting a Crash for decades?

Discretionary spending might peak at 46. That's the classic middle class stuff on housing, food, education, kids clothing etc.

But older people spend more on healthcare and home care, etc. That's true whether you have a private medical system or a state one (the NHS here is feeling the pain). That's not discretionary but they spend it. A few years in a nursing home will wipe out most asset pools.

Further, old people *die* and pass their assets on to younger people (either by inheritance or taxation).

Another factor is early wealth transfers. I see a lot of younger people buying their first home with grandparent or parental support. Ditto paying for private education (high school); don't know about university (funding system is different here).

Also because healthy lifespans have increased (if not by as much as lifespans) I see older people as travelling much more than their parents were able to do. That's certainly been my experience -- lots of spry (and even wheelchair bound) 75 and 80 year old Americans seeing Europe, etc. SE Asia or Carribean - Central America even more so. Friend of mine went to Paris w. 90 year old mother, another friend to Berlin w 90 year old father-- you didn't see that, say 40 years ago?

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by Valuethinker » Sun Mar 18, 2018 7:54 am

JBTX wrote:
Sun Mar 18, 2018 12:29 am
nedsaid wrote:
Sat Mar 17, 2018 1:36 pm
Demographer Harry Dent made some scary predictions based upon demographics. His key premise is that spending peaks at about age 46. Based on this, he forecasted a big economic boom followed by a bust. Somehow, things didn't work out quite as he predicted. I do believe demographics are an important factor in the markets and the economy but economies and markets are complex, no one factor controls everything. The world has been going to Hades in a handbasket as far back as I can remember. I invested systematically in stocks and I am very happy that I did, ignoring the doomsayers.
I suspect that demographics will have an impact on US economic growth. With a stagnating work force due to aging boomers, and if the moderation of immigration continues, once the US reaches full employment long term GDP growth should be fairly modest, all else equal.

However, all else may not be equal. It is always hard to predict the impact of technology will be on economic growth on corporate profitability and the stock market in general. The US stock market doesn’t always exactly follow gdp growth given that most large companies have substantial stakes outside of US borders.

Also, I don’t think the Harry Dents of the world necessarily anticipated all the impacts of worldwide aging and increased savings, and the resulting downward pressure on interest rates, which tends to lead to higher PE ratios with stocks.
+1

You've nailed some key issues:

- w aging population, lower immigration, US labour force is going to grow slowly (if at all). It's pretty clear the Great Recession caused a drop in birth rates, and that will be felt 18 years later (ie 10-15 years from now) as well

- but Machine Learning/ AI technology is moving so fast, along w robotics, that we don't really know where this is going to end up. Retailers are dying, Amazon is putting robots into its distribution centres - that's a lot of jobs lost and not replaced. Self-driving taxis or trucks is a huge number of jobs just wiped out-- those people aren't likely to become web site designers or social media coordinators

- on the other hand robots probably don't make good home health care aides, or hospital sanitary cleaners. Aging population, more health care, more home care, that's going to take a lot of able bodied people

- US companies are globalized and the impact of global economic trends (such as Chinese oversupply of steel or solar panels) hits them, too

- probably older people hold more bonds (either directly, or via the pension schemes and insurance policies which support them) and that tends to drive down interest rates -- thinking Japan, where the government is highly indebted, but it is Japanese households that own a lot of those bonds

Generally you have to look at Japan now and see the rest of the developed world 20 years on. But to some extent, the US never - different demographic profile.

Overall, the Japanese seem to be doing amazingly well. The big problem is it is a society which does not accept immigration. So they have a significant illegal workforce, but none of the demographic benefits that immigration might bring - -even those of Korean descent who have lived in Japan for generations are seen as undesirables. However, given that constraint, theirs seems to be a society with a much better place for old people than our own societies.

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by tibbitts » Sun Mar 18, 2018 8:05 am

Valuethinker wrote:
Sun Mar 18, 2018 7:37 am
Also because healthy lifespans have increased (if not by as much as lifespans) I see older people as travelling much more than their parents were able to do. That's certainly been my experience -- lots of spry (and even wheelchair bound) 75 and 80 year old Americans seeing Europe, etc. SE Asia or Carribean - Central America even more so. Friend of mine went to Paris w. 90 year old mother, another friend to Berlin w 90 year old father-- you didn't see that, say 40 years ago?
A lot of the travel I see is (economically speaking) fueled by two things:

1. the "pension generation" (or even better, the "cola pension generation"), which mostly won't exist in the future;

2. careers that featured increasing real incomes for most of their duration, which seem to exist for a decreasing percentage of the poppulation.

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by nedsaid » Sun Mar 18, 2018 11:54 am

Valuethinker wrote:
Sun Mar 18, 2018 7:37 am
nedsaid wrote:
Sat Mar 17, 2018 1:36 pm
Demographer Harry Dent made some scary predictions based upon demographics. His key premise is that spending peaks at about age 46. Based on this, he forecasted a big economic boom followed by a bust. Somehow, things didn't work out quite as he predicted. I do believe demographics are an important factor in the markets and the economy but economies and markets are complex, no one factor controls everything. The world has been going to Hades in a handbasket as far back as I can remember. I invested systematically in stocks and I am very happy that I did, ignoring the doomsayers.
I believe he has been predicting a Crash for decades?

Discretionary spending might peak at 46. That's the classic middle class stuff on housing, food, education, kids clothing etc.

But older people spend more on healthcare and home care, etc. That's true whether you have a private medical system or a state one (the NHS here is feeling the pain). That's not discretionary but they spend it. A few years in a nursing home will wipe out most asset pools.

Further, old people *die* and pass their assets on to younger people (either by inheritance or taxation).

Another factor is early wealth transfers. I see a lot of younger people buying their first home with grandparent or parental support. Ditto paying for private education (high school); don't know about university (funding system is different here).

Also because healthy lifespans have increased (if not by as much as lifespans) I see older people as travelling much more than their parents were able to do. That's certainly been my experience -- lots of spry (and even wheelchair bound) 75 and 80 year old Americans seeing Europe, etc. SE Asia or Carribean - Central America even more so. Friend of mine went to Paris w. 90 year old mother, another friend to Berlin w 90 year old father-- you didn't see that, say 40 years ago?
This is why predicting the future is difficult, you can see clear trends emerge but also countervailing trends right along with them. One thing you pointed out is the increased spending on health care as the population ages, this would be a counterweight to the fall in discretionary spending. Pretty much the "want to" spending decreases as the "has to" spending increases.

Hopefully, I will be able to travel the world in my seventies and eighties. What I have seen is that health issues start to seriously crop up at about age 75. If one spouse remains really healthy, the other spouse starts developing health issues which limits travel. Certainly, people are healthier longer and medicine can do a lot more to help with the effects of aging. The most dramatic example are hip replacements. My parents are in their eighties, and certainly their travel days are over.

As far as early wealth transfers, that assumes you have wealth to transfer. We have a fairly substantial upper middle class here in the United States but they are not in the majority. Most people here will retire with less than Boglehead retirement portfolios of a million dollars plus. A lot of that money gets spent financing college educations. So yes, there is substantial wealth, there are early wealth transfers but this is not the norm for many Americans.

My suspicion is that technology and artificial intelligence will alleviate the labor shortages that are foreseen. My take is that there is plenty of willing labor but employers seem to like a younger work force. Not always easy for experienced and willing workers to get good jobs in their fifties. I see on business TV programs CEOs complain about a lack of skilled workers but these seem to be the same people who outsourced so many jobs overseas. There is a lack of willingness to train, they expect prospective employees to arrive on the job 100% ready to go. But the economy is improving as well as the job prospects for everyone.
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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by Big Dog » Sun Mar 18, 2018 12:18 pm

Research conducted directly with Millennials has shown that they are indeed risk averse.
Full article is behind a paywall, but the obvious question that jumps out is, what was the risk aversion of Gen Y, of boomers at the same age? In other words, is this a sea change, or just that young 'ens are still financially unaware?

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by JBTX » Sun Mar 18, 2018 4:00 pm

Valuethinker wrote:
Sun Mar 18, 2018 7:54 am
JBTX wrote:
Sun Mar 18, 2018 12:29 am
nedsaid wrote:
Sat Mar 17, 2018 1:36 pm
Demographer Harry Dent made some scary predictions based upon demographics. His key premise is that spending peaks at about age 46. Based on this, he forecasted a big economic boom followed by a bust. Somehow, things didn't work out quite as he predicted. I do believe demographics are an important factor in the markets and the economy but economies and markets are complex, no one factor controls everything. The world has been going to Hades in a handbasket as far back as I can remember. I invested systematically in stocks and I am very happy that I did, ignoring the doomsayers.
I suspect that demographics will have an impact on US economic growth. With a stagnating work force due to aging boomers, and if the moderation of immigration continues, once the US reaches full employment long term GDP growth should be fairly modest, all else equal.

However, all else may not be equal. It is always hard to predict the impact of technology will be on economic growth on corporate profitability and the stock market in general. The US stock market doesn’t always exactly follow gdp growth given that most large companies have substantial stakes outside of US borders.

Also, I don’t think the Harry Dents of the world necessarily anticipated all the impacts of worldwide aging and increased savings, and the resulting downward pressure on interest rates, which tends to lead to higher PE ratios with stocks.
+1

You've nailed some key issues:

- w aging population, lower immigration, US labour force is going to grow slowly (if at all). It's pretty clear the Great Recession caused a drop in birth rates, and that will be felt 18 years later (ie 10-15 years from now) as well

- but Machine Learning/ AI technology is moving so fast, along w robotics, that we don't really know where this is going to end up. Retailers are dying, Amazon is putting robots into its distribution centres - that's a lot of jobs lost and not replaced. Self-driving taxis or trucks is a huge number of jobs just wiped out-- those people aren't likely to become web site designers or social media coordinators

- on the other hand robots probably don't make good home health care aides, or hospital sanitary cleaners. Aging population, more health care, more home care, that's going to take a lot of able bodied people

- US companies are globalized and the impact of global economic trends (such as Chinese oversupply of steel or solar panels) hits them, too

- probably older people hold more bonds (either directly, or via the pension schemes and insurance policies which support them) and that tends to drive down interest rates -- thinking Japan, where the government is highly indebted, but it is Japanese households that own a lot of those bonds

Generally you have to look at Japan now and see the rest of the developed world 20 years on. But to some extent, the US never - different demographic profile.

Overall, the Japanese seem to be doing amazingly well. The big problem is it is a society which does not accept immigration. So they have a significant illegal workforce, but none of the demographic benefits that immigration might bring - -even those of Korean descent who have lived in Japan for generations are seen as undesirables. However, given that constraint, theirs seems to be a society with a much better place for old people than our own societies.
Great points.

For all of Japan’s problems, unemployment isn’t one of them. Also, people always look at their top line stagnant GDP. But their GDP per capita isn’t nearly as bad when compared ours. The difference really is population. And you are correct their immigration policies have not been helpful in this regard.

The big problem for them is the growing public debt burden. All these aging people and a shrinking workforce to pay their public pensions and health care. Their debt is huge, but they mostly fund it themselves as high savers, resulting in very low interest rates in spite of their huge public debt. This US will have some similar issues but not nearly to the same degree.

I tend to think the impact of technology will be so disputive (both good and bad) that it will tend to dwarf all of these other things. Automation of jobs. Life extending technology. Automation in health care.

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by willthrill81 » Sun Mar 18, 2018 8:15 pm

Big Dog wrote:
Sun Mar 18, 2018 12:18 pm
Research conducted directly with Millennials has shown that they are indeed risk averse.
Full article is behind a paywall, but the obvious question that jumps out is, what was the risk aversion of Gen Y, of boomers at the same age? In other words, is this a sea change, or just that young 'ens are still financially unaware?
Other research has shown that financial risk tolerance increases with age. For instance, see this article not behind a paywall.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by Marketman » Mon Mar 19, 2018 9:52 am

Demographics probably do make a significant difference in my opinion. Common sense tells me the US aging population will be a drag on performance, ALL OTHER THINGS EQUAL. This is why I feel it's best to diversify across the world. Empires come and go but the world keeps chugging along.

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by willthrill81 » Mon Mar 19, 2018 9:59 am

Marketman wrote:
Mon Mar 19, 2018 9:52 am
Demographics probably do make a significant difference in my opinion. Common sense tells me the US aging population will be a drag on performance, ALL OTHER THINGS EQUAL. This is why I feel its best to diversify across the world. Empires come and go but the world keeps chugging along.
Diversification may not alleviate the 'problem' (we don't even know that it really is or will be one) of aging populations. Throughout the developed world, populations are growing older. What we now know to be a common trend is for birth rates in nations to decline and, correspondingly, for populations to grow significantly older as the nations move from 'developing' status to 'developed'. In agrarian cultures, having many children tends to be an asset, whereas this tends to be a liability in developed nations.

Perhaps if one was heavily tilted toward emerging markets, this could be alleviated to some degree, but that introduces a whole new set of risks.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by MI_bogle » Mon Mar 19, 2018 11:40 am

willthrill81 wrote:
Sat Mar 17, 2018 5:31 pm
jayk238 wrote:
Sat Mar 17, 2018 5:00 pm
willthrill81 wrote:
Sat Mar 17, 2018 3:34 pm
Chapter two of the story centers on the notion that, burdened with student loans and shell-shocked from the dot-com bubble and global financial crisis, the millennial generation is risk-averse and reluctant to invest in the stock market. When Vanguard analyzes the data, however, this narrative arc appears a bit far-fetched.
Research conducted directly with Millennials has shown that they are indeed risk averse.

Larson et al. (2016) sampled 128 college-age students and reported the following (and much more). The bolding is mine.
The sample was fairly conservative in its choices: 15.3 percent selected the 100 percent guaranteed annuity, 65.3 percent selected the 75 percent guaranteed annuity, 16.1 percent selected the 25 percent guaranteed annuity, and 3.4% selected the 100 percent S&P stock fund.
https://www.tandfonline.com/doi/abs/10. ... 16.1089765

The referenced annuity guaranteed a return of 1%.

I agree with the author that target date funds combined with automatic enrollment are great for Millennials, and the information on their participation in stocks as a result is encourage, but make no mistake that they are very conservative in their risk tolerance levels.
Hat n is so small though. Hard to generalize when its so severely underpowered
They did multiple studies and had the same finding throughout them all.
Is it really just a millennial thing though? I suspect it's an "everybody" thing, but since the study focused on millennial, it's being reported as a judgment on a specific cohort rather than all Americans.

I've observed the same behavior is extremely prevalent among ALL cohorts. The issue IMO is poor financial education, which is rampant in our society.

My 457 plan has a ton of participants, and the workforce has very few millennials- and yet 62% of the dollars invested in our plan in aggregate are in the "Guaranteed Fund". And that's 3 years AFTER they enacted the default to set to Target Date funds

There's also a problem of study timing... everybody is aware of the Great Recession. Many people have acted conservatively in it's wake.

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by Valuethinker » Tue Mar 20, 2018 6:26 am

willthrill81 wrote:
Mon Mar 19, 2018 9:59 am
Marketman wrote:
Mon Mar 19, 2018 9:52 am
Demographics probably do make a significant difference in my opinion. Common sense tells me the US aging population will be a drag on performance, ALL OTHER THINGS EQUAL. This is why I feel its best to diversify across the world. Empires come and go but the world keeps chugging along.
Diversification may not alleviate the 'problem' (we don't even know that it really is or will be one) of aging populations. Throughout the developed world, populations are growing older. What we now know to be a common trend is for birth rates in nations to decline and, correspondingly, for populations to grow significantly older as the nations move from 'developing' status to 'developed'. In agrarian cultures, having many children tends to be an asset, whereas this tends to be a liability in developed nations.

Perhaps if one was heavily tilted toward emerging markets, this could be alleviated to some degree, but that introduces a whole new set of risks.
I think it's fairly sure there is a problem. Healthcare bills are rising across the world is the first sign. That's about aging-- probably before I was 50 I consumed less than USD 1000 of healthcare per annum. After 50? Things start to go wrong.

In some emerging markets (India, China) that's partly about western affluent lifestyle related diseases (obesity, at least among India's middle classes).

And if the medical technology exists, someone will want to use it. We are getting our first proton beam gun-- used in some forms of cancer treatment. That's something like £20m + building to house it.

But generally aging populations are causing all kinds of shifts. For example the decline of retail is partly about that (older people buy less "stuff"; and are less addicted to buying "new stuff" to replace good enough old stuff). Many industries that use skilled labour are suffering from a retirement wave (nuclear industry for example; there's also going to be a shortage of airline pilots, apparently).

And of course there is a migration of young people into richer, older countries-- leading to different faces on the streets. That's become the political issue of the last few years, and it's only likely to become a bigger issue. See Italian election this month.

It will be a different world, and because of the One Child Policy, China will join us much sooner than EM usually do.

EM stocks don't well track EM economies-- big differences in sectoral composition. And the EMs that really have young demographics, like Sub Saharan Africa, aren't in the EM indices. You are talking about Frontier Markets there, and that's really getting speculative and edgy.

It suggests to me there really will be enormous demand for robots as mechanical assistants (see the film Robot and Frank for a take on that-- Frank Langella's last movie, I think) and artificial intelligence generally-- when I watch my mother struggle with email problems and with help desks far away (she suffers from deafness, so she cannot understand their accents).

Since this aging of the world is a combination of total human population flattening out, plus our success at keeping humans alive to at least their "Three Score and Ten" years, well, you have to think this is a triumph of our civilization-- if we can sustain it. The problems of having more old people are as nothing compared to the human suffering of societies where the life expectancy is 35 years.

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by bottlecap » Tue Mar 20, 2018 6:40 am

Even some of the most risk averse will join in a long bull market.

I have family members that do it all the time...

JT

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by Epsilon Delta » Tue Mar 20, 2018 1:41 pm

In the 20th century the US population grew by a factor of 3.7, while GDP grew by a far larger factor of 25. Most of the growth was not due to demographics.

Health care is not a drain on the economy, it is the economy. Or at least a substantial part of it. Increasing health care increases GDP. And despite what many people think medicine is a service that people want, just like growing food or running sporting events. It is also increasingly productive like most industries.

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by Valuethinker » Tue Mar 20, 2018 2:23 pm

Epsilon Delta wrote:
Tue Mar 20, 2018 1:41 pm
In the 20th century the US population grew by a factor of 3.7, while GDP grew by a far larger factor of 25. Most of the growth was not due to demographics.

Health care is not a drain on the economy, it is the economy. Or at least a substantial part of it. Increasing health care increases GDP. And despite what many people think medicine is a service that people want, just like growing food or running sporting events. It is also increasingly productive like most industries.
When you get to the boundaries of productivity advance, it gets hard. The sort of "take offs" that various countries undertook post 1945 (first Japan, then South Korea, Taiwan, Singapore etc.) inevitably slow down. The US or the UK already use the best available technology, have lots of physical capital, advanced education systems etc. It just gets harder to keep growing on a per capita basis. Every time you think someone has cracked it (Iceland, Ireland) they then seem to have a financial crash to remind us that, in the words of the Roman lictor to the victorious Consul in his Triumph(al parade) "you are mortal. You are mortal".

There's also the "middle income trap" whose boundaries are debated. But if you look at Mexico, say, it seems to be a thing. Even Israel, which is a top ranked developed nation on many measures, also struggles with a large part of the economy which is not part of that white heat of technology & innovation that is our stereotype of Israel. Or consider London & places like Oxford and Cambridge, which are as highly productive and affluent as Munich & Bavaria say, vs. the North East or South West of England- -they could almost be in different countries.

So one of the ingredients of GDP growth is labour force growth and, barring a big change in US immigration policies, that's going to slow down. (I have a half hope of a repeat of the late 1990s, when general economic conditions brought all sorts of people into the labour force-- mentally handicapped, ex cons, other types of people who traditionally have difficulty accessing the job market. US labour force participation rate reached an all time high in 2000 from memory).

I have not seen any data about productivity rises in health care? One problem may well be measurement-- better health outcomes (cancer survival rates etc.) are a good thing but may not be measured by productivity measures. That's a problem with all service industries, but health care particularly intractable, perhaps.

There's a big gap between US health care spending (% of GDP, per capita) and other countries and it's a subject of debate what the US gets for that-- is it just the cost of more and better health care technology? What about outputs?

Aging demographics does imply a shift towards more health care spending, though. That's absolutely clear across all developed nations. Japan, oddly, which has some of the healthiest old people, perhaps the least.

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by wrongfunds » Tue Mar 20, 2018 2:55 pm

Epsilon Delta wrote:
Tue Mar 20, 2018 1:41 pm
In the 20th century the US population grew by a factor of 3.7, while GDP grew by a far larger factor of 25. Most of the growth was not due to demographics.

Health care is not a drain on the economy, it is the economy. Or at least a substantial part of it. Increasing health care increases GDP. And despite what many people think medicine is a service that people want, just like growing food or running sporting events. It is also increasingly productive like most industries.
I have no idea but if I had to guess, your paycheck comes from health care industry. Please tell me I am wrong.

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by Epsilon Delta » Tue Mar 20, 2018 3:10 pm

wrongfunds wrote:
Tue Mar 20, 2018 2:55 pm
Epsilon Delta wrote:
Tue Mar 20, 2018 1:41 pm
In the 20th century the US population grew by a factor of 3.7, while GDP grew by a far larger factor of 25. Most of the growth was not due to demographics.

Health care is not a drain on the economy, it is the economy. Or at least a substantial part of it. Increasing health care increases GDP. And despite what many people think medicine is a service that people want, just like growing food or running sporting events. It is also increasingly productive like most industries.
I have no idea but if I had to guess, your paycheck comes from health care industry. Please tell me I am wrong.
You are wrong. My income has never been dependent on health care industry, except to the extent they use a portion of ordinary goods, like computers, furniture, etc that everybody uses.

There is no doubt a lot wrong with the health care industry, but that is no different from every other industry. And it does not mean they are not getting better in many ways, even if they get worse in some.

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by willthrill81 » Tue Mar 20, 2018 7:40 pm

Epsilon Delta wrote:
Tue Mar 20, 2018 3:10 pm
wrongfunds wrote:
Tue Mar 20, 2018 2:55 pm
Epsilon Delta wrote:
Tue Mar 20, 2018 1:41 pm
In the 20th century the US population grew by a factor of 3.7, while GDP grew by a far larger factor of 25. Most of the growth was not due to demographics.

Health care is not a drain on the economy, it is the economy. Or at least a substantial part of it. Increasing health care increases GDP. And despite what many people think medicine is a service that people want, just like growing food or running sporting events. It is also increasingly productive like most industries.
I have no idea but if I had to guess, your paycheck comes from health care industry. Please tell me I am wrong.
You are wrong. My income has never been dependent on health care industry, except to the extent they use a portion of ordinary goods, like computers, furniture, etc that everybody uses.

There is no doubt a lot wrong with the health care industry, but that is no different from every other industry. And it does not mean they are not getting better in many ways, even if they get worse in some.
The healthcare sector grew faster than any other from 2006-2016 (3.8 million new jobs) and is projected to continue that trend from 2016-2026 (4 million new jobs) by the Bureau of Labor Statistics. It's not just a cost; it's a source of income for about 19 million people.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by jalbert » Wed Mar 21, 2018 3:04 am

In the US, the millenial generation has already surpassed the baby boom generation in size.
Index fund investor since 1987.

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by wrongfunds » Wed Mar 21, 2018 7:24 am

The healthcare sector grew faster than any other from 2006-2016 (3.8 million new jobs) and is projected to continue that trend from 2016-2026 (4 million new jobs) by the Bureau of Labor Statistics. It's not just a cost; it's a source of income for about 19 million people.
I mean when 1 in every 5 dollar in this country is spent on healthcare, a ton of jobs have to be associated with it! The question become: "should it be that way?" "how come no other developed country pays that much?"

This is precisely why there will never be any real reforms on how health care is administered in this country. Don't get me wrong, there are many such industries which are immune to rationalization such as newly minted private prisons or soft drugs. Too many people's livelihood depend upon status quo.

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by blueblock » Wed Mar 21, 2018 7:45 am

wrongfunds wrote:
Wed Mar 21, 2018 7:24 am
The healthcare sector grew faster than any other from 2006-2016 (3.8 million new jobs) and is projected to continue that trend from 2016-2026 (4 million new jobs) by the Bureau of Labor Statistics. It's not just a cost; it's a source of income for about 19 million people.
I mean when 1 in every 5 dollar in this country is spent on healthcare, a ton of jobs have to be associated with it! The question become: "should it be that way?" "how come no other developed country pays that much?"

This is precisely why there will never be any real reforms on how health care is administered in this country. Don't get me wrong, there are many such industries which are immune to rationalization such as newly minted private prisons or soft drugs. Too many people's livelihood depend upon status quo.
Which reminds me to ask, how is it that five of the top 15 of Fortune 500 companies are pill pushers—not manufacturers and not retailers, but wholesale distributors. It knocks me out that there is so much money to be made in between the makers and users.

McKesson (5), United Health (6), CVS Health (7), AmerisourceBergen (11) and Cardinal Health (15).

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by Epsilon Delta » Wed Mar 21, 2018 2:07 pm

Valuethinker wrote:
Tue Mar 20, 2018 2:23 pm
Epsilon Delta wrote:
Tue Mar 20, 2018 1:41 pm
In the 20th century the US population grew by a factor of 3.7, while GDP grew by a far larger factor of 25. Most of the growth was not due to demographics.
When you get to the boundaries of productivity advance, it gets hard. The sort of "take offs" that various countries undertook post 1945 (first Japan, then South Korea, Taiwan, Singapore etc.) inevitably slow down. The US or the UK already use the best available technology, have lots of physical capital, advanced education systems etc. It just gets harder to keep growing on a per capita basis. Every time you think someone has cracked it (Iceland, Ireland) they then seem to have a financial crash to remind us that, in the words of the Roman lictor to the victorious Consul in his Triumph(al parade) "you are mortal. You are mortal".
It is an interesting question if the US in 1900 is more analogous the US in 2000 or to a developing market of today.

Certainly the 1900 US GDP per capita is in line with modern emerging markets. And the absolute level of technology in the 1900 US was primitive by todays standards, much lower than is commonly available today in all but the least developed areas.

However absolute levels of GDP and technology are not how I would distinguish a developed market from an emerging one.

I would say a developed market is one that is using the best available technology (including business practices, law etc.) and must invent something new to make progress. A developing market only has to adopt already known better (not even best) practice to grow, shameless plagiarizing is a virtue. It is not clear which is easier, but it is clear that a underdeveloped country can make far faster progress if they get things correct. Korea is one example. Japan and Germany after WWII were in a similar position, with the added advantage that the defeated axis powers had a large number of survivors who already knew the best available techniques.

By that standard the 1900 US (and UK and Germany) was using the best available technology. The history of the 20th century was the relentless pursuit of even better technology, despite set backs such as the great depression, sundry wars and a few epidemics.

The US was at the known boundaries of productivity gains for the entire 20th century and grew despite this. It is possible that the US (and developed economies generally) will encounter some absolute limit to productivity, but I would not bet on that.

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Re: "Demographics and equity returns: A far-fetched horror story" by Joe Davis of Vanguard

Post by willthrill81 » Wed Mar 21, 2018 2:39 pm

wrongfunds wrote:
Wed Mar 21, 2018 7:24 am
The healthcare sector grew faster than any other from 2006-2016 (3.8 million new jobs) and is projected to continue that trend from 2016-2026 (4 million new jobs) by the Bureau of Labor Statistics. It's not just a cost; it's a source of income for about 19 million people.
I mean when 1 in every 5 dollar in this country is spent on healthcare, a ton of jobs have to be associated with it! The question become: "should it be that way?" "how come no other developed country pays that much?"
It is that way because that's what consumers pretty much want as evidenced by their behavior. We whine about the cost of healthcare, but most are unwilling to take the necessary steps to reduce their own healthcare expenses; see the thread in the personal finance section that discusses how at least 50% of those visiting ERs shouldn't be there at all. I would argue that insurance has exacerbated the problem because it reduces the link between our healthcare decisions and our personal costs. The industry has also obfuscated the cost of treatment because it is in their interest to do so; further, most of us aren't willing to shop around for low cost providers, partly because of the perceived price-quality relationship.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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