Macro perspectives on wealth

CIO Global Blog

21 May 2019

It's natural to think of our own wealth from a micro perspective: how much money we have in our bank account or how much our investments are worth. However, it's also important to keep in mind the macro backdrop, especially when planning for retirement. In a series of future blogs, I will explore a variety of related issues from four broad categories.

1) The basic concepts of savings and wealth are different when considered from the perspective of a country or the world rather than an individual:

  • From a macro perspective, there's no savings without investment.
  • Cash and debt aren't wealth unless issued by someone in another country.
  • Sustainable investing is a macro concept requiring micro changes in behavior.

2) If the perilous state of public finances is a problem for a country, sooner or later it will become a problem for its citizens:

  • In most advanced economies, public finances are on an unsustainable path, requiring some combination of tax hikes and spending cuts.
  • Higher taxes on corporations would imply lower after-tax earnings growth and lower returns. Higher personal taxes could lower after-tax income and make it more difficult to save.

3) As individuals we have to consider where we are in our life cycle, but when the entire population is aging, that also has effects that we shouldn't ignore:

  • Demographic forces have generally negative implications for retirement planning.
  • Interest rates may remain lower than in the past, which implies that returns on many assets may be lower.
  • Population aging could cause the inflation rate faced by retirees to be higher than the overall inflation rate in the economy.

4) Technological progress offers hope:

  • Labor-saving technologies, including AI, may help to maintain living standards in aging populations.
  • The same technologies that help people live longer should also allow people to remain healthy enough to work for longer.

Author:

Brian Rose, Senior Economist Americas, UBS Financial Services Inc. (UBS FS)