There is a unique interplay between the distribution of age cohorts, the investment needs of those age cohorts, the search for Yield, and corresponding institutional confines that limit the investment opportunity set.
In general, a country wants to be in a situation where it has more people working vs. retiring and more births than deaths (no I am not advocating anti-abortion laws). When you have a combination of more people retiring vs. working and more deaths than births it is going to create meaningful strain on the economy, which doesn’t even include the impacts from widening income inequalities which only exacerbates economic strains on the system.
In the United States, the average life expectancy is roughly 80 years old. Slightly less than half (roughly 47%) of the population will be retired/retiring/or dependant over the next 20 years (retiring/retired is roughly 23%).
There are many people that work multiple part-time jobs without any contingent benefits. The working age cohort also has meaningful student debt, relatively high housing costs, and with many more independently geared women in the workforce, household formation rates have trended lower. Against this backdrop, the working population faces reasonable strain and the ability to invest is somewhat limited skewing asset allocation towards those retiring/retired.
I am defining retiring/retired as 60-90 years. Remember, average life expectancy is roughly 80 years old, so there is a 20 year investment horizon for a 60 year old. That being said, investments for this cohort will be more conservative in nature and structured more so with fixed-income securities. Very low interest rates have allowed the stock market to remain at high-levels. However, the combination of a greater allocation towards fixed-income coupled with low-interest rates to support equity markets has caused a search for Yield. This dynamic naturally will force investors further out on the risk spectrum.
It is clear that the demands of the retired/retiring age cohort coupled with market machinations creates bounded constraints. In the search for Yield environment, additional constraints are investor policy statements as well as institutional structures that limit the ability to take on greater risk. As a result, this creates crowded trades, less diversification, and less liquidity given the limitations of asset allocation models. Collectively, this creates far greater downside risk than what is currently anticipated.