There’s no sure way to predict the future for investing, so we rely heavily on trends. Currently, there’s been a lot of good news on the overall U.S. economic outlook, as exports and consumer spending are up and the job forecast is improving.
But, at the two-year anniversary of the bull market, there are also causes for concern on the recovery, which will have critical impacts on an investment strategy. Gas prices are rising, the Middle East is in upheaval and the U.S. Government at all levels is making drastic cuts.
With this in mind, taking advantage of long-term demographic trends is becoming an important way to safeguard an investment portfolio.
Backed by day-to-day headlines and reinforced with facts and figures from government and private reports on the U.S. population, there are currently four dominant trends that can be leveraged for investment decisions today.
- Aging and growth of the “Baby Boomer” demographic
- Coming of age of the “Echo Boomer” or millennial generation
- Growth of the Hispanic market in the U.S.
- Transitory nature and decreased job tenure of the American worker
When considered as a basis for investment decision making, the aforementioned macro-trends have been proven to generate resilient cash flow streams even in difficult economic environments. Overall risk is also decreased as these targets become a part of wealth building.
While there are numerous examples of stocks, bonds and hedge funds that are taking advantage of the current demographic shifts, commercial real estate can serve as a great example of putting these macro trends to work for an investment portfolio.
In a downturn, commercial real estate, like all other assets, is affected immensely. In the past several years, property values took huge hits as vacancy rates rose upward, placing hundreds of large properties in default.
Further examination of the overall market shows there were some commercial real estate asset classes that weathered the storm in good condition, such as self-storage, student housing, senior housing and medical office.
These property types are poised for even further success looking down the road as they will continue to leverage demographic trends. However, knowing how to invest in these highly fragmented properties requires deep market knowledge.
And the same can be said for any traditional investment, using these trends as a basis. Moving forward, the decision rests with the investor on whether to use these trends to at least gain insights and a level of predictability on the evolution of demand in the U.S.
The latest downturn only served to reinforce the validity of these trends. Be prepared for when the next bubble breaks.