In this article we’ll look at the latest long term trends in demographics, economics and technology to answer the question – what would a future proof portfolio look like?
Future-proofing an equity portfolio is about more than just picking the best companies to invest in now. You want to ask the question ‘what should I invest in next?’ rather than ‘what to invest in now?’. If we’re talking about a retirement portfolio, you want to ensure that the investments will be still hot performers in the next 20 years, not 5 years.
Property & land
The emerging technologies enabling 3D Printing and other scalable manufacturing methods for properties may reduce the cost of building in the future.
However, these don’t look like they will impact the demand for the land itself. In fact, the cheaper construction becomes, the more valuable land becomes – getting hold of some of this scarce resource becomes the major constraint to investing in property.
Billionaires have been investing in land for many decades. Jeff Bezos and Bill Gates both own significant tracts of farmland in the US. In the UK, the majority of Scotland’s land is already carved up between a disturbingly small number of owners.
The best books about investing in land and forestry suggest that retail investors should try to ensure they hold a piece of this commodity over the long term to hedge against being priced off all land in the future.
The space race
If you can’t find enough space on land, then perhaps the next logical option is to find it in… space itself?
The private space industry has exploded since 2010 as a number of rocket-launching companies, with SpaceX at the vanguard, have developed systems for launching satellites (and occasionally, humans), into space.
Launches cost tens or hundreds of millions of dollars, leaving ample room for a sizeable profit margin for any operator who can innovate to launch quickly and cheaply. The revolutionary development of the last decade has been the pursuit of full-reusability of rockets. This seismic change has already seen the cost of launching a satellite fall by about 90%.
SpaceX remains a private company, frustratingly off-limits to retail investors. However, there are no shortage of space-related companies which can be invested in to tap into this technology trend. There are even space-related exchange-traded funds (ETFs).
The UK has recently announced an ambition to source all electricity from clean technologies by 2035. This will further add weight to the argument that the economies of the world will be ‘decarbonised’ over the next few decades.
The amount of renewable energy infrastructure which will be required to replace traditional fuel-burning power plants is significant. This gives rise to an investment opportunity in those companies operating in the renewable space.
We’ve written a lot about cryptocurrencies such as bitcoin on this blog and never recommend it as a solid part of an ordinary investment portfolio. However, for the sake of this future-proof thought experiment, we would be remiss to not mention cryptocurrencies as a potential asset class.
Cryptocurrency books admit that they could go to zero, or they could continue on an exponential upward trend. Therefore it is useful to think of them as a ‘call option’ on crypto success to include them in a small way in a future-proof portfolio.
One of the longer-term trends of the current century will be the ageing of populations in developed and some developing countries.
As countries have gotten richer, and encouraged full participation in the workforce of females, we’ve seen families get smaller and families started later.
As a result, this has created a generational ‘wedge’ that is gradually ageing and will eventually change the ‘demographic pyramid’ to a ‘column’. Economics books have long warned that this demographic issue will require a structural change to how we tax and fund health and social care.
Instead of there being a huge number of young people to support a modest elderly population, they’ll be fewer working adults and more old people with advanced care needs.
The providers of these healthcare services will therefore see a growing market over the next few decades. This is, without doubt, an opportunity for many companies in this sector to grow significantly. Investors may be on the lookout for companies that they feel will be able to ride this demographic trend.
AI & self-driving vehicles
Lead by Tesla, Google and other Chinese manufacturers, research and development in self-driving cars has exploded in recent years. Local governments have permitted self-driving cars to roam the streets in order to accelerate their development, although this fast progress is not without critics who claim that lives are being endangered at this fragile stage in the development of autonomous vehicles.
Autonomous vehicles, once ‘cracked’ will be extremely valuable intellectual property that can be quickly leveraged across partnerships with multiple car markets to reach the world at scale.
Investors appreciate the tremendous financial upside of being the company that gets first-mover advantage in the automobile market and are current assessing which tech companies have the credibility in this area.