Uncertainty can take many forms. It can arise from the short-term noise of economic data – growth missing expectations or an unclear outcome from trade tensions – but also from much deeper structural shifts that shape economies and markets over decades. At its core, uncertainty is a symptom of change being digested by an economic system, as economic agents adapt to this change. This idea ties back to Plosser’s image of a rocking horse1 – a metaphor that illustrates how economies swing back and forth as they adjust to new equilibria before finding balance again. While some forms of change are necessary – such as controlling debt trajectories – others are imposed on us, such as the impact of artificial intelligence on employment.
Among the current agents of change, demographic transformation stands out. In the coming years, the world’s population will grow at a slower pace while ageing at the same time. This slow but relentless evolution will redefine savings, consumption and investment behaviour across the globe.
In the 2000s, Campbell and Viceira published a well-known book2 about the optimal portfolio as a function of a saving period, a theory which could offer a key to understanding and anticipating what awaits us. This week, Simply put joins forces with our quantitative team to tackle this important topic, exploring the connection between demographics and population change.
We explored the theme of income and demographics in our debut Simply Put Live webinar.
watch the webinar replay
The demographic shift is upon us
We have spent much of this year focusing on the medium-term consequences of the ongoing trade war, which – let’s be honest – has largely been in vain. Yet, other, far more pressing issues deserve our attention. One of them is the demographic shift now at our doorstep. A transformation that is actually a double one.
According to the latest IMF forecasts, the world’s population growth rate is set to slow dramatically – from around 1.5% over the past 30 years to only 0.9% over the next five. In developed economies, the decline is even sharper – from 0.6% to 0.3%, effectively half. Yet this is not just about fewer births: it is also about populations ageing rapidly and longevity rising. The evidence is striking. Japan already counts nearly 30% of its population aged 65 or older. Germany stands at about 23%, while China – once a symbol of demographic vitality – has now crossed the 15% threshold.
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What was once a Japanese challenge has become a global reality, reshaping labour markets, public finances and the very structure of household savings. Figure 1 illustrates these changes across countries and makes one thing clear: this demographic shift is now a worldwide phenomenon. Economists have examined its many dimensions – from its potential effects on inflation to its influence on savings behaviour and debt dynamics – with little consensus so far.
Our point is that such profound changes will likely generate a lasting shift in demand toward stability and income, characteristics that could gradually reshape global portfolios and, ultimately, the way we as asset managers construct and manage them.
FIG 1. Annualised population growth and ageing metrics3
The foresight of Campbell and Viceira
While there is little consensus among economists, we believe Campbell and Viceira’s line of reasoning provides a particularly valuable perspective. Their work focused on how investors’ risk preferences evolve as a function of age and how this evolution shapes optimal portfolio choices over time.
In 2000, Campbell and Viceira anticipated many of the financial consequences of an ageing society. Their framework demonstrated that as individuals – and by extension, entire economies – grow older, their capacity to bear risk diminishes, while their need for stable income rises. In portfolio terms, this suggests that long-term investors should gradually tilt toward more balanced, income-orientated allocations, favouring bonds over pure equities, dividend-paying stocks and real assets with more predictable cash flows. The authors also emphasised the importance of long investment horizons and intergenerational portfolio adjustments – concepts that resonate strongly with the macro-financial dynamics we are witnessing today.
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One way to visualise their argument is illustrated in Figure 2, which approaches diversification from two different angles:
- From a cross-sectional perspective, combining assets that are not perfectly correlated – such as equities and bonds – helps mitigate total portfolio risk
- From a time-horizon perspective, holding riskier assets over longer periods helps diversify unfavourable periods with more favourable ones.
A simple illustration of this ‘time-diversification’ effect comes from plotting asset-class volatility as a function of the holding period. As shown in Figure 2, using a 20-year investment horizon, equities and bonds exhibit roughly the same volatility. When the population is young, holding equities appears highly attractive: the ability to endure short-term volatility allows investors to capture long-term returns that often surpass those of bonds. However, for an ageing population, the story changes dramatically. A shorter perceived investment horizon leads to a preference for income security over capital appreciation, even if the latter offers higher expected returns.
FIG 2. Annualised asset-class volatility as a function of the holding period4
Campbell and Viceira’s insight is remarkably timely: as societies age, the collective preference shifts from risky capital gains toward stable cash flows. In that sense, today’s demographic uncertainty is not a random shock but rather a structural compass. Markets evolve with societies, and as the world grows older, portfolio construction must evolve too and become less focused on chasing growth and lean more towards collecting steady income through coupons and dividends.
This underlying logic may help explain why yields in Japan have remained so low for so long: an older society naturally favours security and income over volatility and growth. The message, then, is clear – let’s not miss the income train while this structural shift unfolds before us.
The investment implications for multi-asset investors
Price appreciation is one of the key sources of performance for any investment strategy, but it is not the only one. We also invest across markets to capture carry and diversification benefits, both of which play a crucial role in smoothing returns over time. Striking the right balance between these three components – price trends, carry and diversification – is essential when navigating an environment as uncertain as today’s, as valuations and momentum can send mixed signals. In this context, maintaining a well-diversified allocation – across styles, regions and asset classes – becomes even more critical.
This approach is particularly relevant in the face of an ageing global population that is gradually tilting investor demand toward stability, income and capital preservation rather than pure growth. Under such conditions, carry overlays – designed to secure consistent income streams – complement the search for balanced risk exposures and provide resilience against changing market cycles. Ultimately, combining these elements allows investors to build portfolios that are not only more robust to demographic and macroeconomic shifts, but also better positioned to adapt to the complex, multi-speed world ahead.
Simply put, demographic shifts could result in a long-lasting increased preference for income – a trend that shouldn’t be overlooked by investors.
To learn more about our All Roads multi-asset strategy, click here. Macro/nowcasting corner
The most recent evolution of our proprietary nowcasting indicators for global growth, global inflation surprises, and global monetary policy surprises is designed to track the recent progression of macroeconomic factors driving the markets.
Our nowcasting indicators currently show:
- Our growth signals remained unchanged across regions – situated in a low but rising regime
- In the eurozone, the inflation indicator has risen due to increased activity in the sector, while remaining stable in other regions
- There was a marginal increase in the monetary policy nowcaster, which remains in a low but rising regime.
World growth nowcaster: long-term (left) and recent evolution (right)
World inflation nowcaster: long-term (left) and recent evolution (right)
World monetary policy nowcaster: long-term (left) and recent evolution (right)
Reading note: LOIM’s nowcasting indicator gather economic indicators in a point-in-time manner in order to measure the likelihood of a given macro risk – growth, inflation surprises and monetary policy surprises. The nowcaster varies between 0% (low growth, low inflation surprises and dovish monetary policy) and 100% (the high growth, high inflation surprises and hawkish monetary policy).
