Lasting Situations of Wealth

The Quest for Relevant Financial Information
One of the essentials of planning for anything is making reasonable projections regarding the future. If you’re planning a vacation in the Caribbean, you want to go when the possibility of a hurricane is slight. If you’re thinking about starting a business, you want to have an idea of the demand for your goods or services. If you’re going to invest, you want to put your money in places where the likelihood of profit is greatest.  

When it comes to your financial programs, what kind of information about the future is reliable for making decisions?

• Is it a mountain chart in an investment prospectus that reads: “Past returns are no guarantee of future performance?"
• Is it a (completely fabricated but perfectly plausible) sound byte from one of the business channels on cable television that drones on like this: “Stocks closed slightly lower today as investors reacted to news that unemployment remained essentially unchanged, while concerns about the effect of a colder-than-expected spring continue to drive futures higher for oranges while dampening new construction in western markets...”
• Is it a book or periodical that blares: “The Insider’s Secret to Real Estate in Today’s Economy?”

If you’re looking for help discerning the future, what can you do with this type of information? Some of it is past history, some of it is happening now. But how reliable are these items in determining what might happen tomorrow, next week, a year from now, or even the next decade?

Before going any further, here’s the disclaimer:
No one can predict the future. Got it?

What follows is not a list of specific predictions for the future. Rather, it’s a discussion of several macroeconomic (i.e., big view) trends that are already in place today. In the past, these trends have yielded some very consistent cause-and-effect results, and they are worth careful consideration.

Demographic trends as macro-economic indi-cators. These macro-economic indicators fall under the category of demographics. According to the dictionary, “demographics” is:

“…the statistical characteristics of human populations (as age or income) used especially to identify markets.”

Why pay attention to demographics? Demographics can be huge long-term drivers of economic activity. First, they are important because they involve large numbers of people, which means what happens demographically occurs on a large scale, affecting millions.

Further, economic trends powered by demographics have typically played out over long time periods. We’re talking several decades, even centuries. One of the most prominent examples in recent American history is the impact of the Baby Boomers – the dynamic population expansion in the United States that took place from 1946-1964. In one way or another, almost every major financial trend of the past fifty years has the imprint of the Boomers, from the growth of suburbia to the demise of employer pension plans. The ripple effects continue today – and probably will do so for another decade or two.