A Dividend Economy

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

July 2006

Most if not all developed economies (and including some developing economies too) are now having a graying population, largely the result of the baby-boomer generation, defined as those born after WWII from 1945 to 1960 or thereabouts, getting old. The first batch of them has just crossed over the 60th year old line. While projections vary from economy to economy, this baby-boomer generation, of which your humble author also belongs, could constitute 20% or more of the overall population in any one economy now or in some not too distant future.  

As such, their economic and financial well-being, plus their health of course, can insert a significant influence and impact on the economy as a whole. Already many industries are targeting this group, ranging from health care, insurance, mutual fund investment, and the like to tourism, sea-cruising, pet care, hobby-building and so on. It is not just retirement and sitting at home reading a book, but a sort of active lifestyle which could go on for another 20 years after retirement from active work.  

This implies that this generation collectively not only lives longer and spends more because of enhanced longevity than the previous generation, but also spends more per capita than the previous generation owing to having a more active living style especially when health permits. This in turn implies the need for a larger recurrent income stream than the earlier generation to support such an active lifestyle. While to some such income streams may still involve some active income from active work / business, there are others who may wholly depend on passive investments to generate such an income stream.  

This leads to the importance of recurrent income-generating capability of such passive investments, be they real estate, mutual funds, REITS, bonds, equities, currencies, and the like. Readers at this point may wonder why the emphasis on recurrent income, rather than investment asset (price / value) appreciation. The answer is that we are not saying asset appreciation is not vital anymore, but just that overall as people get older, they tend to prefer to enjoy life and this means they would spend less attention on various investment markets with a view to do overly numerous buying and selling decisions.  

Hence, while an actively working baby-boomer may spend more when his or her investment assets grow in prices (feeling richer etc), he or she may not do the same or spend as much when he or she is retired from active work and thus an active income, despite his or her investment having gone up in prices. On the contrary, he or she may spend more when the recurrent income generated by the assets increases. Naturally, one may always argue that assets can be liquidated for cash (without reinvesting into other form of assets), but then again this may work when one is 80 years of age, not when one is only 60 and can expect to live another 20 years. 

Not being economists, it must be stated that the above hypothesis remains to be observed. Also, it is the first time that the global economy experiences such a huge group of prospective retirees who are generally better off and more numerous than their earlier generation. It brings not only opportunities but also challenges i.e. when this generation can take care of itself in the broadest sense of the phrase, all the better, if not, everyone would be in deep trouble, and one gauge would be to observe their recurrent income stream, a dividend-dependent generation so to speak.

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