Monday, October 11, 2010

Should You Invest According to Demographics?

Country19502000 2015 20252050
World2,519,4956,056,715 7,207,361 7,936,7419,322,251
Dem. Rep. of the Congo12,18450,94884,045114,876203,527
Philippines 19,99675,65395,881107,073128,383

The above chart details the United Nations Population Fund's estimate of population growth throughout the world. By 2050 India is estimated overtake China the world's most populous country, with the US ranking third. The surprise in this list is the countries that make up some of the remaining slots. Also note the estimated population shrinkage in Japan and Russia.

What's an investor to do with this information? I've always believed that capital should go to countries with growing populations, increasing economic freedoms and sound currencies. It's not always easy to find countries that satisfy all three criteria, or to have a crystal ball that can predict the future. These demographics point out the importance of being diversified overseas to harvest the growth of these economies. However, population growth alone is not the main determinate of stock market returns. Economic freedom is, and excessive controls and regulations by governments inhibit growth and innovation.

Since I am not clairvoyant, I split my equity investments 50-50 between the US and overseas, and attempt to indexes that cover as many countries as possible, both developed and emerging. Each individual will have to determine the appropriate investment mix for themselves based on risk tolerance. But the US will not be the world's growth engine like it has in the recent past. Increasing affluence and a rising middle class in many of the listed countries spell great opportunity for those willing to invest.


  1. Biz, You're spot on about demographics. I've been thinking hard about India, after a trip there this past April. Perhaps it's time to look into a targeted country ETF?

  2. I use VEU, a global ex U.S. fund, for the bulk of my other country investing. I keep it at 30% or less - U.S. companies are global so the resulting allocation is higher. I also like to add an emerging markets exposure of up to 5% with EEM.

  3. Personally, I use VEU, EFV, VSS, DLS and VWO,

  4. That is an interesting concept. I hadn't previously thought of really considering population growth when deciding on investments, but it makes perfect sense.

    (I wonder if the US chart considers the population growth anticipated from the 19-child Duggar family reproducing. :) )

  5. I've a read a couple of articles theorizing Warren Buffet's investment success is based on his ability to recognize demographic trends-- the growth of credit with Amex, the growth of the world population with Coke, etc.

  6. The only country that comes close to your definition of an ideal location for investing seems to be India.

    But one should watch out for bubbles to avoid getting burned!