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Investing in Generation Y and the Next Great Baby Boom
Posted by: Charles Sizemore (IP Logged)
Date: November 16, 2013 07:59AM
Generation Y, like Rodney Dangerfield, has a problem: they get no respect.
I’m joking, of course, but at this stage of their lives Gen Y really isn’t taken as seriously as they would like to be. It is to be expected; they’re young.
The front end of Generation Y was born in the early 1980s, but the biggest cohort was born in the “mini baby boom” between 1989 and 1991. This puts them in their early 20s today, in their last years of college or their first years on the job.
There are a few things you should know about Generation Y. Growing up in such a large generation, they are competitive. I grew up in Generation X, a much smaller generation. For me and my peers, everything from making the little league baseball team to getting accepted to college was comparatively easy; there were relatively few of us competing for each slot. Not so for Generation Y. This is the generation that had to start studying for the SAT at age 11 and spend their summers building homes in Africa in order to be considered for admission to a decent university. Having grown up in comparative abundance, they may be a little spoiled. But they’re certainly not slackers.
Your last experience with a member of Generation Y may have been having your order taken at Starbucks. But as hard as it may be to believe today, that barista is going to be a mom or dad in a few short years. And in the process, they are going to create a massive boom in everything from baby formula to starter homes.
Let’s take a look at the numbers here. Depending on where you draw the precise lines, Generation Y is either a little bigger or a little smaller than the Baby Boomers. But we’re talking about approximately 80 million people.
The average age of first childbirth is about 25-26 years today for American women, though that number continues to rise a little each year. The higher educated a woman is, the longer she is likely to postpone motherhood, and Gen Y women are the highest-educated generation of women in U.S. history. A bad economy with high unemployment among the young has probably added another year or two to the average as well.
But biological clocks don’t stop ticking, and the largest cohort of Gen Y women is quickly approaching their peak family formation years. I expect the number of live births to increase every year from now through the early 2020s. And if Gen Y has the standard two kids per family, you’re talking about 80 babies being born in the years ahead.
How do you invest in this macro trend? Take your pick. You could invest in the makers of infant formula, such as Abbott Labs (ABT ) or Mead Johnson Nutrition ( MJN ). You could buy a portfolio of rental houses in the neighborhoods where young families are moving…or for that matter, you could selectively invest in homebuilder stocks. You could start a business that caters to new parents…or grandparents! Any or all of these are perfectly viable ways to play this trend.
But if you want to be a successful investor in the U.S. equity markets over the next two decades, a general rule of thumb applies: figure out what Gen Y will be buying in the years ahead and invest in it before the crowd catches on. And give Gen Y a little respect. Their consumer preferences will shape the U.S. economy for the next generation.
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Stocks Discussed: ABT, MJN,