Where to Invest for the Next 25 years

If you know where we've been, you'll know we have NO IDEA where we're going.

In my previous article on this newsletter, How to Invest for the next 25 years | LinkedIn, we learnt that the world will look completely different in 25 years when compared to today. The winners of today will most likely not be the winners of tomorrow.

If that is true, how can we begin to think about where to invest for the next 25 years?

Hint: The answer is not just simply buying an S&P 500 index fund and forget about it. Because if you look through history, you'll find decades where US equities lost money. In fact, we saw in the previous article that GOLD did better than US equities between 2000 and 2024.

So, the simple answer, could be wrong. What else can you do?

If you can think of what the key issues of the next 25 years are going to be, then you can think of ways to make money from investing in those areas.

One way to think about where to invest for the long term is to figure out which issues will be relevant over the next 25 years. Let's look at 5 that I find most interesting today. Starting from the one with highest certainty to the one with least certainty.

5 key themes that will drive the next 25 years

Theme 1: Demographics

2025-2049 is expected to be the first quarter century where many large countries will see their population shrink!

China’s population is expected to fall 149 million over the next 25 years. Europe saw a very small dip in the working age population between 2000 & 2024, losing 13 million working adults. Experts expect Europe to lose 69 million working adults over the next 25 years.

Why is this important?

It is incredibly rare for country's populations to fall.

Since 1800, the only countries here who have seen a fall in population in a quarter century are: China (between 1850-74), and Japan and Russia (in the 2000-2024 quarter century).

A growing population (more people) means more goods & services being produced for more buyers who spend more money and ultimately results in the economy growing and everybody benefiting (sorta).

However, when population falls, it means fewer people to work and spend money, which can slow economic growth and challenge industries unless improvements in technology or productivity help offset the smaller workforce and gives more money to a small population to spend more.

So where are the 25-year investment opportunities in this?

A few things could happen as a result of falling population

1. Increased immigration from areas with growing populations to shrinking populations to plug the gaps. Possible investment angle: What businesses are facilitating this move?
2. Humans get more efficient such that we don't need more people. Investment angle: Which companies are building products & services to make humans more efficient?
3. People work for longer as we live healthier for longer. Investment angle: Which companies are building products & services that can make people healthier for longer?
4. Falling populations means aging population is higher than young population. So, businesses that offer services to the old like care, (and more morbidly) death care etc. could be interesting
5. The forecasts are wrong in ways that are not obvious today.

"We are very good at predicting the future, except for the surprises--which tend to be all that matter" - Morgan Housel

For example: Since 2000, Japan has seen its working-age population shrink by around 13 million, but the labor force has increased by around 2 million and total employed by 3 million. They have managed to eke out slightly more workers from a bad demographic situation. This is a lesson for other countries, but it'd be a hard problem to solve altogether.

This creates opportunities to invest in companies that are likely to benefit from 1-4.

PS: While populations are expected to fall in many developed countries, not all countries are created equal. For example, the US, UK, Canada, Australia and a few others are expected to continue to see population growth. How much of that is immigration driven? Back to opportunity 1?

Theme 2: Geopolitics: Shift from globalization to nationalism & protectionism

The unofficial promise of globalization was shared prosperity. Richer nations ship manufacturing to poorer nations and get cheaper goods as a result while the poorer nations get manufacturing jobs.

While the promise of cheaper goods and manufacturing jobs were fulfilled, the greater monetary benefits of globalization accrued immensely to a select few countries and a select few individuals within those countries. And many people feel cheated and are demanding change.

The outcome of this shift manifests in many different ways: bans on exports to certain countries, tariffs, and even subsidies for companies to invest in certain countries.

Geopolitics are incredibly complex and can have many ripple effects that are hard to predict over a long timeframe. But, hey, if you have some interesting ideas of possible long term ripple effects of the current geopolitical landscape, please comment below.

Finally, over a 25-year time frame, it's worth remembering that new alliances can emerge in unlikely places. For instance, despite World War 2 the US and Japan are close allies today, same thing with France and Germany, despite BOTH World Wars. So, things can change very quickly, even between countries that may seem like fierce rivals.

Which alliance could be born in the next 25 years and what investment opportunities could that beget?

Theme 3: Inflation & Government Intervention

This ties into the previous point.

Most developed countries saw really low inflation after the Global Financial Crisis (GFC) from 2009-2020.

Post 2020, we've seen significant inflation which, although is falling in many countries, is still not as low as the dozen years between 2009 and 2020. And most experts expect the inflation of the next 10-15 years to be higher than the last 10-15.

One important contributor to low inflation was the move towards deeper globalization (as discussed in the previous point), particularly with China's integration into the global economy. If manufacturers are forced to move to more expensive countries, prices will inevitably increase and so will inflation.

Some people argue that perhaps the US-China tensions are really just that (between those 2 countries). It is a long-established pattern that when an established power faces off against a rising power, tensions are likely to result. So, manufacturers can move to other countries and set up factories which reduces long term inflation risk.

If that be the case, rightly investing in the countries and the companies that will be the next production hub could be a well-paying investment opportunity for the next quarter century.

Government intervention has been an invisible hand smoothening the uncertainty of the past. For example, the government's intervention in the "banking crisis of 2023" with SVB, Credit Suisse, etc." no doubt avoided a potential financial crisis.

The government has shown that they are willing to step in early enough to prevent another 2008.

Because the government steps in so frequently and essentially prevents consequences of too much risk taking, does the government become the risk? What does this mean for asset bubbles? Do asset bubbles continue indefinitely because there's a bottomless pocket of government funds to insure against any systemic risk?

If the government interferes to prevent the decline part of the economic cycle, does this reduce future long term growth? I.e. if there is no decline, there can be no recovery. What does 25 years with "no economic cycle" mean for asset prices?

Theme 4: Rising wealth inequality

Do you remember the French Revolution? I asked ChatGPT for a teaser.

There are 4 factors of production: Land, labor, capital, entrepreneur. Land, capital and the entrepreneurs (evidenced in asset prices) have outperformed wages (labor) for the last half century. How much longer can this continue before something changes in a significantly positive or negative way (French revolution)?

Theme 5: Ever Changing Technology

Without a doubt, the technology in the next 25 years will be nothing like the technology of today (see technological progress table in this article). And the companies that may make the new technology may not have been formed yet (like Facebook at the start of 2000) or may have been (like Microsoft at the start of 2000).

I couldn't tell you with any certainty how technology will be different. But I'm pretty certain it'd be different in dramatic ways.

Here is some food for thought today, especially in the US technology sector. Markets are expecting many years of extremely strong profit growth to come from tech/AI, and while you may well see a tech/AI revolution, is it possible that the benefits have already been largely factored into many companies’ share prices, thus limiting future profit from this starting point? Remember, the price you pay...

A confluence of all the last 5 themes could lead to the emergence a new world power. General consensus seems to be India. Only time will tell.

Now that we know (some of) the issues, what's the right way to play this?

What is the right asset? And Do stocks always win?

Over the very long term, stocks have historically been the best asset class (remember lesson 1). Since 1800, US equities have done better than bonds, gold and keeping your money in cash.

However, when you zoom in one certain time periods, stocks don't always look so good.

In fact, US equities saw a negative real return in the 1910s, the 1970s, and the 2000s. So, there can be long periods where you can lose money in stocks.

Stocks rarely lose. But they don't always win.

However, stocks are great! Because what even is a stock?

It is a piece of a company. And a company is (often) a means by which goods and services are produced in a country. The best companies continue to make more, or better-quality goods and services and they get rewarded for that in more sales and more profits. More profits often mean owners of stocks benefit. Companies also benefit from population growth because it means there are more people to buy products (i.e. more sales, more profits). So, companies tend to grow in prosperity with the country.

Speaking of countries, if stocks is one of the best assets, which country's stocks?

Internationally, the best places to have invested over the past century were some of the most stable. The countries that had the best equity returns are Sweden, and Denmark came first for bonds.

Remember lesson 2: the price you pay always matters. So, if you put it together, the right asset is one where the price is not too high today and is in a fairly stable country.

Happy hunting! I hope you find something worthwhile.

Next week, I'll share some tips on some things you can do today to help you hit your 2025 financial goals! See you then!