Spending by seniors is expected to grow twice as fast as overall Canadian consumers by the end of the decade as Baby Boomers start enjoying their retirement years, a new CIBC report says. That could create a “silver” lining for investors who make the right bets on which stocks will benefit.
The evidence has already turned up in CIBC’s so-called “grey index” of 17 travel, leisure, retirement home and health care stocks, which is up 17 per cent so far this year and 30 per cent since 2012, far outpacing Canada’s main S&P/TSX Composite Index.
“The ongoing aging of the population is a tremendously important development, one that neither firms, investors, nor government officials, for that matter, can afford to ignore,” CIBC economist Peter Buchanan writes in the report.
“For investors and firms it also represents an opportunity to cash in on sectors that will benefit from the expanding ‘grey’ market.”
While there are fears that Baby Boomers will pull all of their money out of the markets causing it to crash, known as the “asset market meltdown hypothesis,” Buchanan doesn’t buy it.
“Fears of Boomer-induced massive selloffs are overdone,” he said in an interview.
Instead, he believes retirees will be cautious with their money, but spend it willingly on items such as travel, gardening, cable TV, pharmaceuticals, and for some, the inevitable nursing home.
It’s stocks in those categories, such as WestJet, Tim Hortons, Rona and Extendicare, that make up CIBC’s grey index. Buchanan acknowledges other factors have helped to drive up its index over the past year, but the growing Baby Boomer population is one of them.
The trend is expected to continue. As Buchanan points out, seniors are healthier than those in the past, and living longer. That means more trips and a lot more sitting around talking about the good ol’ days over coffee and Timbits.
Canada is also ahead of the curve, Buchanan notes, given our population is aging faster than other countries.
So, instead of looking at Baby Boomers as a burden – taking jobs from younger generations and clogging the health care system – they can be viewed instead as an investment opportunity.
The CIBC report follows a survey last week showing seniors are spending more – and racking up more debt. Equifax said the average debt for consumers over age 65 grew 6.5 per cent in the second quarter, more than any other age group.
While that’s bad news for Canada’s near-record household debt ratio, it could be good for investors looking for ways to make some extra bucks.
But before you go pouring all of your money into airline stocks and seniors homes, CIBC points out that there is one financial factor even more powerful than a giant demographic shift: “The unknown moves markets most,” says Buchanan. “Compared to other developments, demographic shifts are … relatively predictable.”