An investment in the Japanese stock market has been a losing proposition since 1989. Slowly but surely the Nikkei has fallen over time. The problem with Japan is the lack of growth in earners/spenders in their economy. Here is a breakdown of the number in billions of residents in three separate age groups in 1990, 2000 and 2010
We can see that across all three age groups, 15-29 (young earners), 30-44 (middle income earners), and 45-59 (peak income earners), there is relatively the same amount of residents. If we look out ten and twenty years, in order for an economy to be robust, there has to be many more people in each of the bottom two tiers than the top tier. The reason for this is as folks move from one tier to the next, they earn and spend more. Over time, if each tier group is simply being replaced with the same number of people, the economy stagnates.
Let’s take a look at the same age brackets in the United States starting in 1980.
|United States||Age||# people|
Notice in 1980 the United States had 62 Billion in the first tier, 43 in the second tier and 35 in the third tier. This demographic profile is conducive to growth. As the 62 Billion people moved up the age tiers, they earned/spent more, and the economy grew because they were replacing only 43 Billion people in the next tier. In 1990, the situation was still good, with 58, 60, and 35 Billion respectively in the three age tiers. There were 60 Billion people replacing 35 Billion in the next age tier. So, many more people were moving from the middle tier to the top earning/spending tier, which again, was good for growth. The 1980s and 1990s were boom years in the stock market, and this was all due to a positive setup in demographics.
But then it all changed in 2000. The population was aging and although there were more people in the middle tier than the third tier, it wasn’t enough to help the economy on its upward trajectory. If we look at the United States demographic profile of these three tiers in 2010, it is exactly like Japan’s has been since 1990 with all three tiers relatively equal.
What this means is, the United States stock market will likely see stagnation with many boom and bust cycles for decades to come until the demographic trends shift. We have already seen a gyration in the stock market since 2000 where it has not provided any growth.
So where can you invest in order to make money over the long term? Here is the same information for 8 countries that have ETFs/mutual funds available for investment.
As we can see, Russia is in the same exact demographic situation as Japan and the United States. Germany is in for a disastrous situation. Therefore, stay away from investing in Germany and Russia. China looks okay. The rest of the countries on this list look fabulous. The conclusion is it might be a good idea to begin overweighting investments in countries that have positive demographic trends for economic growth.
Note: All information was taken from U.S. Census Bureau and was rounded.