1970 2020

The world of investment gets more complicated by the day, which is why I was thrilled to accept an invitation to attend the Walter Scott conference in Edinburgh, Scotland earlier this month. Walter Scott is a long-established and highly respected fund manager with over £70 billion under management, much of it on behalf of large pension funds.  They run their conferences once every four years, which means they can really pull out all stops to make them extra special.

Dr Ian Goldin, Director of the Oxford Martin School, set the scene with his address “Crystal Ball”. He told us that the world is undergoing the most rapid period of innovation in history, with five billion more people connected to the internet now than there were in 1980. Already 70% of people are living in cities as they seek better opportunities to escape poverty. This has caused a reduction in illiteracy of 70% in the last 35 years.

This increase in world standards of living has been accompanied by rising life expectancies, and falling birth rates – as a result the time the average person spends in retirement has risen from eight years to over 20 years. This has caused havoc with pension funds’ projections because they are facing the double whammy of plunging rates of return, and their members living much longer than was expected. On current projections, life expectancy is growing by two years per person each decade.


Goldin warned us to “expect radical rewriting of pension contracts”. That’s academic speak for “the pension you expected might be much less than you had planned for”.

Baroness Susan Greenfield of Lincoln College Oxford gave a presentation on “The challenges facing young and old minds in the 21st century”. There was some great material on the plasticity of the brain, which was especially powerful when combined with visualisation. However, she brought us back to earth with the sobering observation that advances in mental health have not kept up with the huge breakthroughs being made in physical health. Right now, the gap is about 30 years.

Everybody seems to be chasing eternal life, but I’m not sure we want a world populated by fit centenarians who don’t have mental capacity.

Demographics is the key, and Professor Sarah Harper, Director of the Oxford Institute of Population Ageing, expanded on the theme of the ageing population. The crux of the problem is that increased prosperity leads to a reduction in the number of children being born. Infant mortality rates have vastly improved, and as women become increasingly educated, they are taking control of their fertility – with many regarding two children as ample.

This exacerbates the problem caused by rising life expectancies because the number of people entering the workforce is continually reducing. As a result, the number of tax-payers per retiree is dropping causing even more pressure on government budgets. Already, Singapore has moved retirement age from 60 to 67 – other countries are sure to follow.

Number of workers per retiree (Australia)


Source: “Australian Bureau of Statistics” & “Macro Business”

One piece of information they told us was particularly scary – obesity does not have much effect on life expectancy per se. In fact, it may reduce your life by just one year. The bad news is that it will probably give you seven more years of living with a disability.

For further reading on this topic I suggest you buy the recently published bookHow Population Change Will Transform our World by Prof Sarah Harper. It’s easily available from Book Depository.

Professor Paul Marsh of the London Business School put the case for “long term equity investment”. He pointed out that the bull market for bonds is now over, and returns on cash are likely to stay low for a long time. After inflation is taken into account, these two asset classes are virtually guaranteed to produce negative returns.

Historically, shares have outperformed cash by 4.2% over the long-term, and should continue to outperform by 3% to 3.5%. His advice to investors is to reduce volatility by diversifying, and focus on after-inflation returns. He suggests we remain fully invested, and not to panic and cash out when the market has one of its normal falls. As he so quaintly put it: “don’t damage, and don’t touch”.

Those are some of the key ideas dancing around in my head after such a stimulating conference. Isn’t it interesting that the more things change the more they stay the same? You need to think about investing for your own old age: good-quality, long-term share investment remains one of the best vehicles to do so.