Dan Chung: How Demographics Propel the Economy
February 28, 2019​​
Innovation is a dominant force that extends throughout the economy and virtually all aspects of our daily lives. When viewed through the lens of demographics, the pervasive influence of technology and the investment opportunities innovation is creating quickly come into focus. This is particularly true when understanding the values and personal finances of Baby Boomers, Gen X and Millennials. To date, Baby Boomers, with an estimated total wealth of $30 trillion​, are believed to be the richest generation in history, while Gen X and Millennials as a group have overtaken all other generations in terms of spending power. With those points in mind, we believe we can gain meaningful insights into potential investment opportunities by understanding the unique characteristics of Baby Boomers, Gen X and Millennials.

​Baby Boomers’ finances have benefited from a soaring real estate market, economic growth and in many instances, pension plans, while their health and longevity continue to benefit from novel medical developments including immunotherapy for treating cancer. With longer retirements than prior generations and better health in their later years, they favor spending on active pastimes, such as travel. This preference for travel and other forms of entertainment and “experiences” rather than leaving behind an inheritance results in part from many Baby Boomers having a “you only live once” mentality. The combination of their wealth, active lifestyles and interest in travel is creating opportunities for airlines, hotel and lodging companies and online travel reservation services as well as for owners of unique entertainment services.

As Baby Boomers seek to maintain active lifestyles, they are increasing their expenditures on health care. We believe the Health Care sector offers many attractive long-term investment opportunities. Technology, including software and cloud-based data analytics, as well as health care specific advancements, such as genetic screening and research, are rapidly transforming the sector.

Gen X and Millennials have their own unique characteristics, although both have become used to being “always connected” with Gen X having come of age as the computer revolution unfolded while Millennials grew up during the internet explosion. Gen X, like their parents, seem to enjoy experiences over acquiring material possessions and they tend to spend more on food, drinks and restaurants than any other generation. They are also willing to pay more for healthier food alternatives. Gen X seeks high quality at the best value. Luxury products, travel, food and wine are popular categories for them.

Millennials are enjoying a noteworthy strengthening of their finances. Their careers and finances suffered substantially from the Great Recession because many came of age in 2008 or 2009 and many have continued to live with their parents. More recently, their finances have strengthened because they are beneficiaries of a tight labor market and strong demand for tech savvy employees. Millennials are now buying homes and along with Gen X, they are reshaping consumer spending with their “digital first” behavior. This includes everything from ride sharing services as an alternative to cabs, Airbnb as an alternative to hotels, streaming media as an alternative to movie theaters and online shopping as an alternative to brick and mortar stores.

Companies need to satisfy the needs of Gen X and Millennials if they are to earn their business in the coming decades, in part by implementing effective mobile internet marketing strategies and services. The tech savvy nature of Gen X and Millennials is also driving long-term demand for the underlying technologies, from hardware and software to semiconductors, that support these generations’ digital lifestyles. At Alger, we will continue to focus on using our research driven strategy to find potentially attractive companies that are benefiting from demographics, innovation and other rapidly occurring changes that are pervasive across the business landscape and in individuals’ daily lives.​

Fred Alger & Company, Incorporated is the parent company of Fred Alger Management, Inc. The views expressed are the views of Fred Alger Management, Inc. as of February 2019. These views are subject to change at any time and should not be interpreted as a guarantee of the future performance of the markets, any security or any strategies managed by Fred Alger Management, Inc. These views should not be considered a recommendation to purchase or sell securities. Individual securities or industries/sectors mentioned, if any, should be considered in the context of an overall portfolio and therefore reference to them should not be construed as a recommendation or offer to purchase or sell securities.

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