CHICAGO (Reuters) – One of the most difficult terms to understand in long-term investing nowadays is “new normal.”
Coined by PIMCO Chief Executive Mohamed El-Erian, it means the “world of muted growth” that followed the 2008 meltdown. And although stock returns have been strong this year, down the road, the “new normal” will largely be driven by demographic forces.
And unless the current fight over the U.S. government’s debt limit forces a deep and prolonged market meltdown, now is the time to focus on an investment strategy with a longer view.
A combination of rising wealth, lower fertility rates and a smaller working-age population in developed countries will depress economic growth. Fewer younger people in the workforce and more older, retired people could translate into lower stock returns.
So how do you adjust your expectations? Follow the demographic trends. More than 10,000 “Baby Boomers” turn 65 every day and will continue to do so for the next 19 years, so as an investor, you need to focus on what this population will demand. Retired people require fewer consumer goods and that means fewer homes, appliances and lower sales for many items.