Is retirement a death sentence

Life cycle: No death sentence for assets

According to the life cycle theory, the demand for financial assets is falling due to demographic development - a fallacy, as a reality check shows.

Guest contribution by Maxime Alimi, Axa Investment Managers

Due to rapid progress, especially in medicine and healthcare, people's life expectancy is steadily increasing. The discussion about the future effects of this demographic development on the value of Asset classes has been going on for a long time.

From an economic point of view, the possible consequences can best be analyzed with the life cycle theory.

This states that a person exhibits different saving behaviors in the course of his life: Younger people tend to take out loans. They borrow money to finance their education or home ownership, for example.

As they age, they save, pay off their debts, and accumulate wealth for retirement. Then, when people retire, they spend their money and use their wealth to finance their consumption needs.

The older the investor, the lower the equity component

According to this theory, the demand for assets is shifting in the face of an aging society: First, demand declines because the proportion of savers gradually declines.

This leads to falling asset prices. Second, the willingness to take risks declines with age, which in turn reduces the demand for stocks. According to the rule: the older the Investors, the less equity in the portfolio.

In general, the recommendation applies to gradually switch from volatile stocks to bonds with less volatility in order to keep reducing the investment risk until retirement.

Side two:"Asset Meltdown Hypothesis"