269: From Bliss to Guilt – Knowledge, Ignorance and Age
Do you want to take control of your financial freedom and plot a course to successful investing, or do you want to plod to an uncertain retirement and ignore business opportunities that are taking shape as the world changes.
You are probably the former – otherwise you would not be reading this Special Report on a website call PropertyInvesting.net. The reason you visited was to improve your knowledge of investment in property, improve returns and reduce business risk.
There are incredible opportunities for entrepreneurs in the current business climate. There are massive threats. Where there are threats, there are also opportunities. One needs to consider things half full rather than half empty. This is of course the case for something like Peak Oil – we are half away through producing the world oil reserves. It took thousands of years to produce half the amount of oil, but at current production rates, it would take only 35 years to produce the remaining oil. Obviously when the decline gains momentum, the tail will be extended so in 35 years time we will still be producing oil, but at vastly reduced rates.
What the PropertyInvesting.net team did was seek out the opinions of different generations – people’s views on how they see things. It’s a reflection of the motivation, interest and knowledge of economics, social and environmental matters that shape the investment world. We then summarise this.
Below are some commentary from the different generations – that attempt to capture thoughts and concerns.
Age 65+ : I don’t get too worried about Peak Oil – I need to focus on enjoying myself as much as possible in the time I have remaining and stay in good health – I’ll leave this for the younger people. It’s too late to spend too much time on this. I need to learn to be content with what I now have – I am lucky that I was part of a dramatic industrialisation of the world fuelled by low cost oil that encouraged dramatic growth rates and increases in prosperity in the western world – it also kick-started industrialisation in China, India and the Middle East. I got out at a good time just before the crash in 2008, and I should be thankful of that. I do feel in tinge of guilt, but I am proud that I was part of the society that recovered from World War II and built this great world. I was always very vocal on politics – it’s always interested me - I always voted. Its a very important democratic right. I still think about WWII and how bad it was – I’m just glad the world is so relatively peaceful now. I've seen so much war and strife and hardship - I think its so peaceful these day and we are all so prosperous!
Conclusion – Elderly – proud to have been the generation that worked hard to create huge wealth after the destruction from World War II. Less worried now about global issues because time left is shorter – still very interested in politics and social-environmental issues but would struggle to find ways of helping now retirement has started.
Aged 45 to 65 : I am a bit concerned with Peak Oil but I frankly don’t know whether these gloomy predictions will come true or not. I probably need to be a bit worried but I would not know how to help in any case – so it’s probably not worth worrying too much about – I’ll see what happens.. I am part of the baby-boomer generation that has seen huge prosperity. I have also seen four recessions and know what it’s like in bad times as well – I don’t like to go down there - unemployment is bad news. I saw my parents work hard to get the world back on its feet after WWII – I am concerned about my retirement plans as the government takes more of my pension, taxes me more heavily, every year prices go up. All the social spending and waste bugs me. I don’t think Peak Oil has occurred yet, but it’s probably going to happen sometime soon – I see it with Petrol Pump prices. I’m hoping the problem will go away, but I have some feeling that it might not. I do think about business quite a lot – it interests me. My parents were also interest in business and economics, and also politics. I’m a bit worried for my kids, because they’ve never seen hard times before. I’ll try and help them, but there is a limit to what I can do. With all the taxes I’ll probably end up running out of money when I get older – this worries me. Indeed, these are uncertain times economically – I do wander if the next ten years will be a period of stagflation – I don’t want to be one of those middle class people that end up being poor into their old age. I’m considering investing, but I don’t trust those fund managers. I’m not sure how to go about it myself. Last time I tried I lost money – I was one of those mugs that bought on a high. I can choose to watch what happens, but my feeling is I should act before it’s too late. It’s just a question of motivating myself to do something – get myself out of the comfort zone so to speak - with so many other pressing priorities with the kids going to college and my work it's difficult.
Conclusion: Baby-boomers – know they have extracted huge wealth from a period of plentiful resources and growth in the western world. They are now being taxed more heavily and are concerned that even though their net worth is high, this will deplete as they reach old age and they will find no money for their retirement years. They have enjoyed the "land of plenty" but are concerned the current environment will deteriorate. On the whole, they are hard working, business savvy and motivated – they worry about the younger generation and want to help them. They wander if it would have made much difference if energy and environmental conservation would had begun earlier.
Aged 30 to 45 : I don’t know anything much about Peak Oil, science or business. I do believe in Climate Change though – we should stop pumping so much CO2 into the atmosphere. My parents are wealthy, they call them baby-boomers – they helped me get onto the property ladder. Things have been relatively easy so far – I have a good job, did a University degree, things may change but I haven’t given this much thought. Hopefully life will be similar or better tomorrow than it is today. I struggle to get time to do anything with the kids, wife, daily commuting in the car and long working hours. I’m always tired – knackered – I feel stressed out most of the time. Sometimes I wish I could be on my own, but I haven’t got the guts to admit it to my partner. I collapse in front of the TV and sleep most evenings after the kids are in bed! I don’t want to give any problems too much thought because I’d rather slump in front of the TV, go on vacation and enjoy myself travelling and meeting friends. All those doom mongers bore you. I’ve got two kids to look after and that's it for me. I need to worry about the new bathroom as well – and we still haven’t got a flat screen TV – I also want a BMW 1 series. On politics – I don’t trust any of them. I don't care much about it either.
Conclusion: The X-Generation - are overworked, overtaxed and too knackered to think of the ramifications for Peak Oil and other pressing world issues. They like to have the nice things in their homes and focus on their job and kids. Too much work, not enough relaxation. Things may get worse, but they’ll have time to recover.
Aged 18 to 30 : I’ve never seen a recession before. I've also never heard of Peak Oil - what is it? My parents talk about recessions and unemployment from back in 1991, 1981 and 1973 but I’m hoping the government will protect me from any real hardship. I have a job, it pays the bills and allows me to go on holiday – frequent weekend breaks to the continent being my speciality! It’s fun. I never seem to have much money. I enjoy the internet – Facebook and MySpace especially. I like my iPod – great music helps me through the day and on the train to work – it’s de-stresses me. I like cooking for friends. I rent a property – it’s too expensive to purchase now - I lost my chance back in 2002 when I was 25 years old. In any case, I met my partner and we need to save up for marriage one day – it will cost 20,000 pounds so they say – that’s four years savings for me. And my University and credit card loans are massive - 32,000 pounds be be precise – it will take years to pay off. My parents help a bit, but I don’t want to ask for any more hand-outs. It’s not worth trying to pay off my loans anymore – I’d rather enjoy life while I’m still young. I don’t think I’ll have any kids – they would be too demanding and get in the way of my life plans. I haven't though about getting old or retirement - may be when I'm 40 I'll start thinking about this. My partner's not keen on kids either – at least not in the next ten years. We're both too busy and working. Come to think of it, I’ve heard some talk of Peak Oil on the web, but I think it’s those old opinionated scientists – grey hair bloggers - with graphs kicking up a stink – they always complain about politics too – I can’t be bothered with all of that stuff, I don’t even bother voting – it won’t make any difference anyway.
Conclusion: Y-Generation – blissfully unaware of the underlying causes of global economic issues, Peak Oil or the inter-play between economics, environment and social issues on a global level. That’s for the older people to worry about. Too busy having fun. See lots of wealth in older people – wander if it will ever come their way, but are sceptical whether it ever will since student loans, high cost of marriage, houses and renting all zap their income even before tax takes another chunk. Global warming is a longer term concern, but again, its something those older people have created and are responsible for fixing. Meanwhile, hope they continue to be able to travel by plane to exciting new destinations.
Of course this is just opinions from a narrow cross section of people. We will always get cardre of very intellectually astute and mature Y-Generation people who know about Peak Oil, economics, global warming, politics and the inter-play between these issues. The analysis is meant to give some insights into the different ways people think. And business opportunities and threats that may spring out because of these attitudes and traits.
As an example, in Japan in 1990 – the population started to decline just as the stock market crashed. Despite the global land of plenty, older people hoarded money for retirement, interest rates crashed, property prices crashed, and deflation set in. GDP growth was suppressed for many years – inflation only started again in earnest 2004. It was a low growth period of 14 years. It’s possible this could happen in aging countries such as Italy and Spain from now onwards – if new ideas, innovation, creativity and motivation are stifled. If there is no incentive to invest, then deflation and slow growth or stagnation will set in. If everyone is heading for retirement, don’t expect them to be putting their money into the latest hot high risk Green Tech venture or property portfolio – they will be divesting from risk and putting their money away in a safe bank.
One concern is for younger generation in the western world – whether they have seen too much of an easy life from their parents – always being helped – and are not being able to cope with a more turbulent world of economic and social issues. Not to mention environmental issues.
The X-Generation and pre-Babyboomers got a shock in 2001 when the stock market crashed. They entered buy-to-let investing to get in control of their financial fortunes and strive for financial freedom – they’d had enough of being ripped off by underperforming fund managers. From 2001 to 2007 there was a massive increase in 35 to 60 year old millionaires from the property boom – who put all they could into property. Up to half of this wealth has evaporated over the last 18 months after property prices crashed, but most are still sitting pretty on substantial net worth. The tax man if circling ever closer – but the drop in capital gains tax from 40% to 18% has helped.
Some key insights into these attitudes are the following:
Competition in the property market from the younger Y Generation (aged 18 to 35) is in large part weak because of their:
· Short and weak credit history
· Lack of savings
· Massive student loads, credit card debits and marriage-wedding liabilities
· Lack of motivation and business savvy
· Parents not encouraging them to fend for themselves
· Schools not teaching business acumen skills
· First time buyers – no experience
Investors with large well funded property portfolios are able to build these if they wish because of lack of competition during housing purchases – they have:
· Long and strong credit history
· Large savings
· No student loans, low credit card debits to savings ratio, no wedding to pay for
· Motivated because retirement is in 10-20 years – and experience in investment
· Parents encouraged them to invest, work hard and fend for themselves
· Although never got taught business acumen skills at school, learnt most from reading papers, talking money-property-investing with friends/family and reading financial books and websites
· Are in no "housing chain", have purchased many properties before, much experience
Because of the above – property investors are able to get finance easily and put in low-ball offers for property and hence make an immediate equity gain on a purchase in a short time. They then have the financial and organisation resources and experience to renovate and upgrade property to then add further value and make an additional financial gain. They are also experienced at letting property and can handle this risk – if they then see property prices rise they make a further gain – and potentially achieve stellar returns. Then repeat.
Summary - start young
The younger Y Generation are, with regret, at a massive disadvantage to the X-Generation in short term property investing. The one thing the Y Generation do have of course is more time and their age on their side. Whether they choose to use this to their advantage in investing is open to question. The people who start investing the youngest normally making the most – from a purely compounding annual time basis (Warren Buffet is a classic example – he started when he was 18, as did Richard Branson and David Beckham - take a guess how much David Beckham will be worth when he is 70 - it wont be the same as today! - look at Paul McCartney as an example of time and money if you are sceptical).
So if you can start property investing at age 18, your chance of becoming a multi-millionaire by the time you are 65 is probably about ten times that of someone who starts aged 38. Through doing, you will learn, and from learning you will make money. Don’t expect to make any money if you don’t do!
And if you’re 45 – it’s not too late – but instead of 40 years of investing, you may only have 20 years before you probably would wish to reduce your investment risk profile and have a quieter life!
So for the young Y-Generation, start young, learn, do and get rich – you have a disadvantage starting, but when you learn you will have a huge advantage in the form of little competition and many years of investment compounded growth. And you can make money in property on an up or a down market – it’s just a question of putting in suitably low-ball offers to highly motivated sellers and you will make big gains. And if you flip a property, instead of 40% capital gains tax, you now only have to pay 18%.
If you invest in countries with a growing (and non aging) population (e.g. USA, UK, Holland), you'll find property prices more likely to continue rising. If you invest in countries with a declining and aging population (Italy, Spain, Greece), expect stagnant or deflating property prices as GDP growth is impacted and innovation and business becomes less strong.
And watch out for Peak Oil (which happend July 2008 we believe) - safe havens are Norway and Canada (plus Switzerland, with UK and USA hedged to a significant extent, and Russia a strong growth area despite a declining population). Expect the Canadian and Norway currencies to strengthen in the next few years as well - which would help returns. For a pure oil play, Qatar and UAE/Dubai are worth considering.
We hope you have found this Special Report helpful in giving insights into the opinions and investment view of the different generations and it can help provoke some thoughts on how you can improve your short and long term investment returns.
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