The Big "To Whom"

Seigel reports that the returns from bonds have actually been going down over the years.

What about the sustainability of those returns? Siegel looks at the demographic trends and when considered just domestically, they don’t look good. In 1950, for example, the average life expectancy of a retiree once he or she quit working was only 1.6 years, according to Siegel’s analysis coupled with data from the United Nations Demographic Project. Today, it’s 14.4 years.

Now, add the number of individuals in the work force available to produce goods and services for retired people. Right now, there are 3.3 workers for every retired person in the U.S. But by the time all of the baby boomers are retired in 2050, we’ll have only 2.5 workers per retiree, according to U.S. government projections.

What that means is a situation where there isn’t enough income being generated in an economy, so there isn’t enough wealth to buy the assets. And, as Siegel says, “You cannot consume your stock certificates.”

One dire conclusion that could be reached is that we’ll have to work considerably long-er than our parents, because the value of our investments will be considerably less than we might expect.

But Siegel isn’t quite so pessimistic. Based on current trends, he sees a knight in shining armor in the wings: The new groups of consumers living in developing industrialized nations such as China, India, Brazil, and Mexico will not only produce many of the world’s goods in the coming decades, but will also buy up most of the world’s assets.

Consider China, a country with a population five times the size of the United States. The population ratio won’t change, but the economic ratio will. By 2050, according to the United Nations Department of Economic and Social Affairs, Population Division, China will be home to a projected 1.39 billion people and the U.S. population will be about 395 million.

“If China achieves just half the per capita income of the United States by the middle of the 21st century,” Siegel says, “China’s economy will be almost twice the size of the United States economy at that time.” Add to that the growing consumer groups in India and Latin America, which Siegel says will produce more economic output than the United States by 2030, and there’s your “to whom.”