The Dark at the End, of the Investing for Retirement Tunnel

You’re probably aware that Port Phillip Publishing has unleashed World War D in Melbourne. And as the first day of this two day event draws to a close, we can say for certain that our marketing team was not exaggerating.

This really IS the biggest investment conference in Australia of the decade.

With so much going on and so many remarkable presenters, your regular Markets and Money editors were overwhelmed enough to enlist their managing editor to help cover the event.

It was our luck to pull our good pal Nick Hubble from the hat. Well not literally. Nick’s not a big guy, but he’d hardly fit in a hat. We did get to cover his speech though, and that was huge.

You’re not going to like what he said on the subject of retirement and superannuation. But that’s okay. No one in the packed conference room liked it much either. Not that he didn’t say it well. Or that his conclusions don’t sound frighteningly plausible. It’s just one of those ‘no one likes the bearer of bad news’ things. Fortunately this is Australia, not the US, and nobody shot the messenger.

To Nick this stuff is obvious. But we had to wrack our brains to get our head around it. And when we did came to see the light at the end of the tunnel — or the dark at the end of the tunnel — we almost wished we hadn’t.

Let us explain.

Nick prepared the audience by warning this could be the most bearish investment presentation anyone had ever given. He then surprised us, not once, but twice.

First he changed the name of the conference, as he sees it. ‘The World War D you really need to worry about is not World War Digital. It’s World War Demographic.

Then he changed the subject of his speech, leaving us scratching our heads and staring a bit myopically at our glossy conference programs. It seemed we would not be enlightened on ‘opium and gunboat diplomacy’ after all.

It turns out Nick had a rather jarring epiphany recently. Jarring enough for him to drop his apple into his coffee, a trend that’s yet to catch on with the rest of the office.

With a slide of the apple floating in the coffee projected behind him, Nick dropped the following bombshell: ‘The modern western welfare system is based on saving and investing for retirement. The idea is you accumulate investments that you then sell during retirement instead of scrounging off the government. After all, we have an ageing population. There won’t be enough taxpayers to support the pension.

But let me ask you, if the government run welfare system is unsustainable because of demographics, why would the investing welfare system be sustainable? In the end, the cash for both comes from the same place — younger taxpayers are the same people as younger investors.

The buyers you expect to turn up in the stock market, property market, small business market and other asset markets during your retirement will not be there for one simple reason: You never conceived enough of them!

Researching material for his The Money for Life Letter, Nick studied the population pyramids of developing and developed countries across the world, including Australia. These ‘demographic charts’ go from youngest at the base to oldest at the top. Historically they’ve been shaped as their name implies, like pyramids, with many younger people working to support a smaller number of older people at the tip of the pyramid. Because of this there has always been enough demand from the younger generations to buy the investments that the older generation are selling to fund their retirement.

But due to declining birth rates most population pyramids are getting top heavy, a fact Nick attributes to the rapid growth of prophylactics. To illustrate, and likely to lighten the punch he was delivering, Nick showed another slide.

Population pyramids in many countries are no longer shaped like pyramids. If you look at this one… it looks like the tip of a prophylactic… I only point that out because it is brilliantly ironic that population pyramids are now shaped like a condom because of condoms.

The critical issue Nick mentioned here is that number of young people no longer dwarf the number of old people. And this is especially true for the baby boomer generation. And Nick points out that asset prices can fall even as earnings rise, not boding well for your retirement plans.

If you’re like us, you’ve been taught that investing money will, over time, make you wealthier. And today’s Australian baby boomers have accumulated the greatest trove of wealth in the country’s history. But what, Nick asked the crowd, What‘f, when you retire, nobody is willing to buy your investments at a price anywhere near what you expect? If you want to sell your investments for a profit, you have to find someone who is willing to buy the same asset at a higher price. Cynics call this person the ‘greater fool’.

Sharing that he was 24 years of age – making us feel decidedly old – Nick proclaimed he would not serve as anyone’s greater fool. He also took a moment to apologise to his father, sitting in the audience, for planning to ruin his retirement.

As an example of what happens when population pyramids get top heavy, Nick put the spotlight on Japan, the only country to experience a demographic crisis like the one now facing the rest of the western world.

In Japan, a demographic bulge reached the peak of their saving and investing phase in 1990. But after 1990 the bulge of investment buyers turned sellers. And, for the first time ever, they were selling to a group of buyers smaller in number than themselves. Supply overwhelmed demand. The result was the famous tumble in the stock market. Even with an impressive rally recently, the Japanese stock market is still nowhere near it’s all time high.

Of course Nick had much more to say. He looked at Ponzi Schemes of the past, international demographics, and different variables which could affect the impact of an ageing population on the supply and demand for your investment assets.

Prices could plunge much faster than declining demographics. That’s why you can’t wait for the crisis to come around. The selloff could be sudden and severe,’ Nick warned.

Nick offered his insight and best investment advice on how best to position yourself in this ageing nation. He addressed the advice to his dad, so as not to offend anyone (else) in the audience.

We won’t share everything he said here, but we will say that to protect yourself from the coming crisis, Nick told the audience they needed to make the most of ‘first mover advantage’.

If you’d like to hear Nick’s entire speech with all his advice and conclusions, we brought in a professional film crew to record the two day WWD conference. You can order that here.

Well that’s all from us today. It sounds like the delegate wine tasting has commenced. And we don’t want to miss that.


Bernd Struben
Managing Editor, Markets and Money

From the Archives…

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21-03-2014 – Nick Hubble

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Bernd Struben is a contribution Editor of Markets & Money. He holds a degree in Economics and is a published novelist. Bernd’s career spans multiple countries on four continents. With his diverse background, he brings unique business insight and a libertarian twist to his columns and analysis in Markets & Money.

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