Wealth in all Stages of Life


My associate, Kimber, frequently points out that my bookshelves contain a number of real “downer” books on death. She’s not wrong: I have an abiding interest in what it means to grow old and how we die. My bookshelves creak under the weight of Greek and Roman philosophy texts, medical studies about aging, and financial guides for estate planning and preparing heirs. This interest goes back years for me, as part of a philosophical question about what it means to not just live, but also die well.

I’m not alone in this seemingly macabre fascination. Many others, including other philosophically minded people, ask similar questions regarding the difference between being rich and being wealthy. In simple terms, being rich is relatively easy (okay, maybe not easy – but certainly easier to define) while being wealthy asks us to consider what it is that makes us happy beyond material acquisition.

In one respect, this has been the great achievement of Western societies. By enshrining a key number of rights and making them central to our society, we have removed barriers to free association, free movement, freedom of religion and freedom from oppressive institutions. To get up every morning and know that the government isn’t going to seize your lands, punish you for your beliefs or race, or force you to pick up and flee your home in the night is the path towards building wealth. It’s possible to be rich in China, but it is not possible to be wealthy in the same way.

Being wealthy in life also grants the possibility of being wealthy in death. To know that your affairs are in order, to choose what happens to your physical remains, to be able to bequeath in confidence your assets to another generation and even help your children or grandchildren are all things that, until relatively recently, did not always reside in one’s control.

When we were choosing our new trade name, I briefly toyed with the name Walker FINANCIAL Management. But given our 25 year history, the things we’ve helped people do or try to do, limiting our scope to merely the finances of our clients seemed narrow and imprecise. While its true that my role in people’s lives is to help accumulate and save, my job is to help people save for things. I manage money so that children can get an education without leaving school encumbered by massive debt;to help people buy homes and pay down mortgages faster; to help families travel; to help retirees enjoy their time free from worry; and even to facilitate one generation helping another. We’re in the wealth business, not the financial business.

Which brings me back to my abiding interest in dying. I periodically like to point out that we, as a society, are getting older. Demographically, we will feel the effects of a population age across multiple aspects of our society. From health care to real estate, our greying society will challenge us in unique and surprising ways. How we face those challenges will determine how well we preserve our wealth, and it will mean tackling tough questions around independence, lifestyle, and even death.

So, while Kimber looks at my bookshelf and thinks I’m a bit of a downer, I look at it as the next big stage in building and preserving wealth. That’s why we’re Walker Wealth Management of ACPI.

If you have questions about wealth and aging, please give us a call! We can provide retirement planning, help you to find good solutions for Wills, Trusts, and Estates, and walk you through the different questions you should consider when considering passing on assets to heirs.

The Demographic Deformation

oldmanThis week the IMF concluded that we were entering a prolonged period of slow growth for the globe. Inflation had failed to materialise in Europe and the United States. China’s economy is “transitioning” from one of infrastructure building to internal consumption, easily said but in practice hugely complicated and fraught with peril. A failing China and a rising US dollar have also put the squeeze on the Emerging Markets, and added to that is the low price of oil that has put many oil dependent economies on their heel. Throw in a refugee crisis and an escalating situation with Russia and there just may not be enough rose tint in the world for your glasses.

I am encouraged though by the idea that much of this is temporary. These are the challenges we face right now and they will pass. So I try to keep some perspective about the problems of “now”. Because there are some real challenges that are facing us that we haven’t even begun to address.

Like old people.

This man is 104 years young. Which is another way of saying he is very old. Which is why he is sitting in a Tim Hortons.

Old people. I’m sure you’ve seen them out on the street, hanging out in Tim Hortons and frustrating you in traffic by driving 5km under the speed limit. But it may surprise you to learn that we are all getting old, and at such a regular pace you could time it by the Earth’s rotation around the sun. And somewhat surprisingly we are about to have a lot of old people, a historically large amount.

The baby boomers are obviously not babies anymore. The name was coined to account for the post war boom in children, but the most interesting fact about them may be how few children they had. Wealthy populations with low infant mortality and high education rates simply have less kids. Globally this is a positive trend, as every country has seen a slowing rate of population growth. But in the day to day management of an economy a large number of elderly people can create significant challenges.

This is Japan’s current demographic make-up. The population is inverted, with the largest segments being the oldest, and the smallest being the youngest, a reversal of a typical population chart. This means that there are fewer workers to pay the taxes to support the benefits of the oldest segments of the population, a problem that will only get worse with each passing year.

There are the usual problems, like benefits and entitlements which grow exponentially as a population ages. Those programs that the elderly depend on become highly burdensome when there isn’t a workforce to create enough economic activity to tax. This has been the long understood problem of Japan, whose debt to GDP ration now tops 240% and is thought to be the source of much of Japans economic malaise. But there are also less well understood issues, like how a large aging population affects behavior.

China’s Self Created Demographic Disaster Is Coming

As a group, the elderly tend to seek similar things from their investments: less risk, less volatility, and consistency in income. But when put into practice it has the effect of warping the investment world if done on mass. Dividend stocks, a popular source for lower risk equity that pay consistent income, have been driven up in price through demand, making them both more expensive and reducing the relative yield. The same is true for fixed income, as investor demand has compounded the effect of quantitative easing and kept interest rates low and pushed conservative investors into more risky bonds.

Liquidity is something most investors value, and this is especially true for retirees. The fear of being locked into an investment as its value plummets keeps many up at night and it is reasonable that people depending on their investments to fund their lifestyle have the option . The attraction of liquidity though also magnifies the volatility we seek to avoid. The ease with which investors can opt out of a market on short notice makes bad market days terrible market days as mass selling can take hold.

Lastly, the sheer number of people that are retiring and leaving the workforce depresses economies. In case you’ve missed it, countries everywhere have low, or lowered their interest rates. The purpose of that is to encourage investors to seek out riskier investments for better returns, thus stimulating the economy. But retirees aren’t crazy and have largely resisted this trend. Instead they have held on to lower risk investments even as the returns have dropped, meaning that the richest segment of the economy isn’t putting money to work in a way that undermines government monetary policy.

This is from the "Value of Advice" report from 2011. You can read it HERE, but it's primary purpose was to show the difference in household values when people work with an advisor. This chart on the other hand gives some indication of where most investable assets lie. It should be no surprise that an older population seeking conservative investments means less money pumping into growth sectors of the economy.
This is from the “Value of Advice” report from 2011. You can read it HERE, but it’s primary purpose was to show the difference in household values when people work with an advisor. This chart on the other hand gives some indication of where most investable assets lie. It should be no surprise that an older population seeking conservative investments means less money pumping into growth sectors of the economy.

We are beginning to see a demographic deformation, one that will challenge many of the ways we mange the finances of a nation. Everything from healthcare to education to interest rates will be affected. And this is all uncharted territory. When we talk about challenges we face we tend to focus on near term issues, but big challenges are glacial, slowly altering the world around us and exposing weaknesses in our assumptions and institutions. Dealing with these challenges could require some significant sacrifice, asking much of a wealthy generation to part with their entitlements at the moment they would most like to use them. But even then these are challenges to which we have no good answers yet.