Demographics and Investment Horizons

Demographics have always been a fascinating investment topic for me.  They present an interesting time dilemma in that the data is so long-term that it literally takes decades for themes to emerge and progress.  That's great if you have a 30-40 year investment horizon, but for most people it means the signals just take too long to have a real impact on their investments.

So when I saw a well-designed visualization of German demographic data, I struggled a bit to relate it to my investment strategy, geared for the 6-12 month range.

The visualizations in the article are fantastic, and the population pyramid they use truly shows the value of a dynamic illustration of a robust dataset.  You can literally feel the data changing over time, and understand the evolving demographics in a way that a traditional line chart can never provide.

So how do we think about long-term data such as demographics?  

Broadly speaking, I find they can provide a valuable big picture backdrop to your investment outlook.  Many global economies, including China and Japan, face the headwind of an aging population and lower birth rates.  Why is this a headwind?  Over time there are less people at a stage in their lives where they're looking to invest in risky assets.

In the US, we have millennials entering their prime investing years.  We also have baby boomers entering retirement age.  The net result?  Truly unknown.

As a technical analyst, I tend to bucket things like demographics in the "interesting to think about but difficult to incorporate into any sort of meaningful investment thesis" category.  The reality is demographics are one headwind/tailwind out of numerous headwinds/tailwinds that can affect the markets on any given day/week/month/year.

The one thing that is always relevant?  Price.

EWG 2018-01-18.png

Demographic headwinds aside, the iShares MSCI Germany ETF (EWG) is breaking to new weekly highs, trading above two upward sloping moving averages.  A potential RSI bearish divergence was negated when it broke above the trend line using recent peaks.

For now, the trend is up.


Disclaimer: This blog is for educational purposes only, and should not be construed as financial advice.  Please see the Disclaimer page for full details.