Investing In The New Millennium

One theme that is prevalent currently is the dawn of the new millennium, focusing on the concerns of the baby boom generation. This is the largest segment of the population -- roughly defined as having been born between 1945 and 1961 -- and as such they are the most influential. Given that most baby boomers at present are in their peak spending years, they also represent the wealthiest segment of the population. Baby boomers' spending is influenced mostly by experiences derived from things rather than from things themselves. With most of their material needs satisfied, they place a higher value on intangibles.

Based upon this information, five key trends have been identified for the new millennium.

ENTREPRENEURIALISM

We are truly in the midst of an entrepreneurial economy. Waves of workers are leaping from the corporate ladder to float as free agents. Home offices are becoming more and more common; start-up companies are dotting the horizon from Silicon Valley to Silicon Alley and the dining-room table in between. Gone are the big, benevolent bureaucracies of the1950s-70s, when corporations promised a job for life, unions fought for job security and better pay, and government programs were on the rise.

The 1990s were the start of a new entrepreneurial economy that is still raising living standards more rapidly than at any time since the early 1960s. Today, Americans are forced to behave like entrepreneurs when managing their careers, planning for their retirement, and supervising their children's education.

The boom in venture capital is leading to an increase in initial public offerings. In the United States, firms with 20 employees or fewer currently employ more than a quarter of all workers. Close to 30% of all workers are working in firms with 20-99 employees. In addition, these small firms are offering a pay structure with a disproportionate amount of stock options rather than a straight salary, thereby tying the workers' fortunes more directly to the company's success. Rather than offering lifetime employment, today's corporations are quick to cut payrolls on the slightest hint of a downturn. This has forced workers to become more proactive and flexible in managing their careers.

The retirement realm has also felt the shift of entrepreneurialism. In the 1970s, companies offered a defined benefit plan in which workers were offered specific compensation for their length of employment. But that choice vanished with the profit crunch of the 1980s. Now companies have shifted to defined contribution plans such as the 401(k), where workers and employers have the option to contribute a specific amount and the investment responsibility is left in the hands of the workers. Thus, workers' net worth and retirement prospects are now directly tied to their own investment decisions.

Education, too, is changing in light of the new economy. Though US spending for public education has increased, students' performance still lags their international peers. Many parents are taking matters into their own hands and using private education firms, which offer programs designed to bring students up to speed with essential knowledge and skills necessary for entry-level employment or college entry.

Another factor affecting this entrepreneurial economy is that the typical American is living longer than ever before. However, those of retirement age are opting for the continued stimulation of work as opposed to the monotony of idle leisure -- though they are choosing to restructure their lives to relieve stress and working on their own terms in occupations they enjoy. This is seen as their long-awaited gift to themselves for years of servitude.

Consequently, products and services are being altered to cater to the needs of the new-economy American. Companies that cater to home-office needs by supplying office products, Internet capabilities, and outsourcing services stand to benefit widely from the entrepreneurialism trend.

TIME DROUGHT

The progress of technology has brought with it a new phenomenon -- "time-deepening," in which time is used more effectively by performing more than one task at a time (also known as "multitasking"). It is a misconception that Americans are working more and longer. In fact, according to authors John Robinson and Geoffrey Godbey, Americans have less working time and more leisure time. Yet, the use of this added leisure time gives rise to more stress. There was a time when families would sit together and listen to the radio. By the 1950s, they listened to the radio as they drove. Today, Americans listen to the radio, talk on the phone, and watch TV -- all at the same time.

Even the layout of homes has been customized for this phenomenon. Living rooms are being replaced by great rooms that connect to the kitchen, allowing for cooking, TV viewing, and socializing all at once. The ultimate time-deepening appliance is the computer. It allows people to balance their checkbooks, e-mail a friend, check sports scores and stock prices, and follow the news.

Products and services that benefit from the time-drought trend are those that save consumers time and make shopping easier. This makes consumers more brand conscious, eliminating their need to do extra research before shopping.

Overburdened, overstressed consumers are spending more and more on leisure activities such as exotic vacations to compensate for a lifestyle increasingly forced toward multitasking. However, there are key elements that baby boom consumers look for in the perfect leisure package: less effort, less risk, and fewer logistics to worry about.

All-in-one packages such as cruises appeal to the baby boom   consumer, with their hassle-free,   all-inclusive nature. Quick getaways and day spas are also popular forms of stressless leisure. Activities that offer a sense of adventure without taking the consumer out of his or her element are also appealing. Theme parks and themed casinos are good examples, particularly with the latter striving toward family-oriented activities.

NO-SERVICE/FULL-SERVICE ECONOMY

The US service sector is being affected by a shortage of workers. Thus, the sector is divided between those offering full-service premium quality, fully staffed with well-trained employees, and automated, do-it-yourself services. Thus, companies that offer selling solutions as opposed to offering simple selection and price solutions stand to benefit best from this trend. Contrasting examples are the rising prevalence of no-attendant gas stations where self-service is key, compared to luxury day spas for full-service pampering, where a customer could spend $50 and up to get his or her toenails painted.

THE NEW DRUG CULTURE

The first wave of the baby boomers is reaching retirement age. In addition, boomers are living longer and better with modern diet and at least partly due to their preoccupation with preventive medicine. From Propecia to Viagra, baby boomers are still searching for the fountain of youth. Boomers are making unprecedented numbers of trips to doctors, who in turn are writing unprecedented numbers of prescriptions. As the boomers age, other drug company stocks that could benefit from this trend are providers of solutions for arthritis, prostate problems, and osteoporosis.

CONCLUSION

Today's "Wall Street meets Main Street" economy seems to be strongly influenced by the advertising executives of Madison Avenue. As baby boomers continue to age and continue to demand more from their dollars, this cross-section of the United States stands to leave an indelible impression on investment outlook.

Xhayni De Mur is an investment executive who has provided consultation to institutions and individuals in the areas of retirement, domestic partnerships, and estate planning.

RELATED READING
Robinson, John, and Geoffrey Godbey [1997]. Time For Life, Pennsylvania State University.