In 1982, John Naisbitt's book "Megatrends - Ten New Directions Transforming Our Lives" popularized the idea of looking at the world and figuring out the main things that were happening and that were likely to happen in the future. More than 25 years later, we can see that a lot of what he wrote was right. We do have massive globalization, a knowledge-based economy and so on. Understanding and acting on such trends is fundamental to long-term investment strategies.

This article takes a look at some of these key (mega) trends and how they are likely to influence the investment landscape over time. There are in fact many such trends, and all have some sort of impact on the financial sector. We will examine a few major and a few minor trends to gain an impression of this broad field and what one can do to benefit from it.

The Aging Society
This is probably the dominant trend and a true megatrend that will influence the financial landscape for decades. In industrialized countries, the age pyramid has changed radically - from a nice triangle with lots of young people and a few elderly, to a bell shape with an alarming number of aged. This means that growth rates in the current top economic nations such as the U.S.A., Germany and France are likely to stagnate or decline. Immigration can counter this aging trend to some extent, but it cannot eradicate the effects.

As far as investment is concerned, this means that industries that care for the aged are likely to flourish, while industries and careers that rely on young people (teaching, for example) are likely to face hard times. Also, developing countries with more traditional age pyramids are growing fast. There will be investment opportunities in the developing countries, not just in the obvious cases of China and India, but in all sorts of places in Asia, South America and even Africa as these countries continue to industrialize. (Find out how factors such as a country's age group can affect your investments in Demographic Trends And The Implications For Investments.)

The Battle for Resources and Raw Materials
The combination of population and economic growth in the "tiger" regions (Southeast Asia) must use up resources, which is likely to increase demand - and prices - for energy, food, water and just about anything else needed to keep these young economic powerhouses operating.

Any well-constructed and managed portfolio will take advantage of such trends. This could be accomplished by putting some money into resource-based investments and funds.

Climate Change
Climatic change and carbon dioxide emissions are ugly problems that seem to be with us to stay. If the polar ice caps continue to melt as many scientists predict, sea levels are likely to rise and storms may increase in frequency and severity. Although these events present a serious global challenge, investing in the solutions can be both philanthropic and lucrative. (To learn more, read Evaluating Green Equity Investments and Top 10 Green Industries.)

No one really knows exactly how the climatic situation will develop, and it is important not to assume either that a total disaster is pending or that everything will be just fine. In terms of investment, however, it is clear that how environmental issues are handled by companies will impact the future. Putting this simply, firms, products and services that are environmentally friendly, should, other things being equal, present better opportunities than polluters. And products providing wind or solar power, or other forms of alternative energy are likely to have a bright future. (For more insight, see For Companies, Green Is The New Black and Five Companies Leading The Green Charge.)

The 21st Century Is Asiatic
Naisbitt advised people to forget about countries and focus on regions. Indeed, many investors now work more in terms of international industry sectors, such as steel or pharmaceuticals, rather than countries.

Countries will still remain important, but investors may find it prudent to invest more than before in areas that are growing particularly rapidly. Alternatively, American companies that themselves have become more globalized, may benefit.

Further Trends: Mega and Not So Mega
There is no shortage of other trends that will influence our lives - and our money. For instance, international terrorism acts cost money to counter. Billions have been spent in this area and, unfortunately, it appears to be a trend that will not be going away any time soon.

Values also evolve over time. For instance, in 2007, many technology publications indicated that people are developing a desire for simplicity. As such, products and services that cater to such needs and preferences may become important. As technology becomes an essential part of communication so does making it more user friendly. After all, many people are driven to distraction by having to learn complicated new software applications and how to work intricate new gadgets every few months.

Mobility is also likely to continue to advance and progress and goods and services, as well as people, will move around.

And then there are mutating life models, an evolving working world and consumer patterns, microtechnology and also an increasing number of derivatives in the financial world. All in all, there are trends galore.

How Reliably Can One Predict These Trends?
Despite the above, the future cannot be predicted accurately, at least not in all respects. There are so many considerations, elements and unknowns that one cannot take anything for granted. Nonetheless, it is necessary to be aware of trends and take them into account in your investment strategy. And - if you look closely - it's possible to get a pretty good idea of how many will develop.

What is less certain than the trends themselves is how exactly they will develop and interact with one another. Yet, it is certainly possible to draw some sensible conclusions about likely impacts on investment and what best to do with one's money. Truly reliable and accurate predictions, on which you can put the proverbial bottom dollar, are not in the cards. The prudent approach is to keep as informed as possible on the various trends and be guided by your knowledge - within the constraints of the standard wisdom on investment. (For more on investing using a more traditional approach, check out Advanced Financial Statement Analysis.)

Conclusions
The world is evolving constantly and partly in the form of various mega, middling and minor trends. While it is essential to be aware of and act on these trends, the sheer number of them and their complex and ever-changing interaction prevents any analysis from being smooth sailing. The trends can be your friends, but which ones and to what extent?

The bottom line is that you should bear the trend landscape in mind, but don't take wild risks on a future that ultimately remains uncertain.

(To read more on this topic, see Taking Global Macro Trends To The Bank.)

Related Articles
  1. Chart Advisor

    3 Ways to Trade the Rising Volatility

    With volatility increasing in the markets, many are turning to these three volatility-capturing exchange-traded products.
  2. Investing Basics

    A Primer On Investing In The Tech Industry

    The tech sector can provide fantastic returns for investors with a little know-how in the field.
  3. Chart Advisor

    Gold Struggles to Climb Higher and May Fall Soon

    Traders will be watching the price of gold over the coming weeks. We'll take a look at how a couple major moving averages are suggesting that the next move could be lower.
  4. Mutual Funds & ETFs

    7 Best ETF Trading Strategies for Beginners

    Exchange-traded funds are ideal instruments for beginning traders and investors. Learn the seven best strategies for trading ETFs.
  5. Technical Indicators

    Understanding Trend Analysis

    Trend analysis is the use of past performance to predict future price movement of a security.
  6. Forex Education

    These Are The Best Hours To Trade the British Pound

    The best times to trade the British pound are centered around economic releases at 1:30 am, 2:00 am, 8:30 am and 10:00 am U.S. ET.
  7. Chart Advisor

    Value Stocks Offer Stability in a Volatile Market

    With volatility on the rise, investors are turning to segments of strength such as value stocks. We'll take a look at several ETFs that could be worth a closer look.
  8. Chart Advisor

    Stocks to Short...When the Dust Settles

    Four short trades to consider, but not quite yet. Let the dust settle and wait for a pullback to resistance for a higher probability trade.
  9. Trading Strategies

    Are You a Trend Trader or a Swing Trader?

    Swing traders and trend traders execute market timing strategies that require different skill sets.
  10. Technical Indicators

    Detrended Price Oscillator Trading Strategies

    The detrended price oscillator (DPO) offers a simple approach to cycle analysis, removing momentum and long-term trends from the equation.
RELATED TERMS
  1. Tactical Trading

    A style of investing for the relatively short term based on anticipated ...
  2. Bid Wanted

    An announcement by an investor who holds a security that he or ...
  3. Hindsight Bias

    A psychological phenomenon in which past events seem to be more ...
  4. Paper Trade

    Using simulated trading to practice buying and selling securities ...
  5. Financial Exposure

    The amount that one stands to lose in an investment. For example, ...
  6. Vertical Line Charting

    A technique used by technical traders and market technicians ...
RELATED FAQS
  1. What is a stock split? Why do stocks split?

    All publicly-traded companies have a set number of shares that are outstanding on the stock market. A stock split is a decision ... Read Full Answer >>
  2. Is there a difference between financial spread betting and arbitrage?

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>
  3. How do I place an order to buy or sell shares?

    It is easy to get started buying and selling stocks, especially with the advancements in online trading since the turn of ... Read Full Answer >>
  4. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  5. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  6. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!