I read an article from The Guardian which reported high levels of people retiring early in their 50’s, based on stats from the ONS (the UK equivalent to Stats NZ).
I can definitely see why this would be a thing. I’m age 40 and ready to retire once I’ve managed to exit my largest private holding (so I can put the money into something that can give me a reliable income).
We’ve all enjoyed over a decade of bull markets throughout the developed world and people must be flush with cash and/or assets which can be deployed into an early retirement.
Interestingly, NZ’s low unemployment figures suggest that this phenomenon isn’t happening over here. Nevertheless, anecdotal evidence suggests that this is also happening in other countries, such as America.
This has got me thinking about inflation risk. Yes, sorry, I’m taking about inflation again, but you were warned in the title of this article and it’s the most significant financial thing happening at the moment which needs to be considered, planned for, and therefore predicted… hostilities with large trading partner countries coming a close second (a brief note on this at the bottom of this article).
Anyway, I have two thoughts on this at the moment.
Firstly I think that with a mass exodus of the employment pool, there will likely be high inflation resulting from inefficiencies (including restricted growth) due to lack of staff, leading to supply and logistics issues. We all know what that means. This will put pressure on GDP, which will make these countries poorer by this measure.
Secondly, due to affluent newly retirees with all that extra time to spend their permanent holiday money, this could put additional demand on economies.
In other words, I foresee additional pressure on both sides of the supply and demand diagram, which leads to higher prices and less supply. To rephrase that into non school of economics speak, on average people will have less money because things will cost more and people will have less things over time because less stuff is being made. In other words, we could be looking at really big inflation over a number of years.
This change of GDP profile also adds to my theory that the trading / industrial profile of such countries will change. For example, those countries whose GDP is mostly made up of financial products might change to be mostly made up of manufacturing products. Such a change would be very disruptive to employees being made redundant, retraining and taking lower wages as novices in their new fields in lower earning companies with less money to pay people. Foreign consultants with newly required skill sets could become the flavour of the day… though this will take along time to play out.
Finally, it’s worth a quick note to say that I will be reducing my exposure to business that rely on trade with countries that could potentially become hostile and are not politically well aligned.
I feel like the coming years will be very difficult to pick long term investments in, due to the volatility, with lots of opportunities for mistakes. I suspect agile investors could be in a position to make a lot of money. This does not bode well for my aim to have minimal effort managing my portfolio and tax.
