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Are You Ready for the 2020s?

From demographic shifts to tech innovation and climate change, the coming decade promises to transform the world. Here's what investors need to know.

Are You Ready for the 2020s? image

WHILE SOME DECADES SLIP QUIETLY AWAY, the 2020s promise to be a time of extraordinary disruption, change and opportunity. Robots and automation are expected to open up remarkable possibilities—and also potentially eliminate hundreds of millions of jobs. A billion people are forecast to be added to the planet’s population,1 the majority of them in urban areas, while “smart cities” should help to make life better, cleaner and more efficient for many. 

And solutions to some of today’s most pressing environmental and social challenges could finally materialize. “We see an unprecedented number of forces converging to transform the global economy,” notes Candace Browning, Head of BofA Global Research. “While the road ahead won’t always be easy, there’s a lot of reason for optimism.”

From addressing climate change to reenergizing the global economy, that optimism is informed by urgency. “Many of the issues we’re watching closely will approach the point of no return in the coming decade,” says Haim Israel, Head of Thematic Investing for BofA Global Research and co-author of a new report, Transforming World: The 2020s. Here’s a look at what we might expect.

The planet and its people 

As average lifespans stretch to an expected 73.8 years by 2030 (from the current 71.9), the world for the first time is forecast to have more people over the age of 65 than under five2 —or, to put it another way “more grandparents than grandkids,” Israel says. The burgeoning “silver” economy will likely boost healthcare technology and other industries, but could hamper growth in other ones, since older people tend to save more and spend less. 

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Peak Globalization

For decades, the world economy has pursued frictionless connections and commerce between and among nations around the globe. But now countries are looking inward, focused on resolving trade disputes while creating stronger local and regional economic ties. 

Recession

Over the past decade we’ve seen a long economic expansion—the longest on the record books in the U.S.—but now, with companies highly leveraged and central banks having little room to maneuver, some fear it wouldn’t take much for the economy to slip into recession.

Quantitative Failure

The U.S. Federal Reserve and other central banks have pushed the limits of monetary policy tools to stimulate the global economy. But with interest rates already very low—below zero in Europe and Japan—there may be little left that they can do.

Demographics

Advances in technology and medicine are leading to increasing life expectancy, an aging global population and a growing middle class in developing countries. More older people and more people with disposable income are boosting demand for a diverse array of consumer goods.

Climate Change

Halting responses to a warming planet have led to extreme weather, rising sea levels and economic and political dislocations. Now attention is turning to solutions, policy changes, and technology that could stem the damage while generating economic benefits.

Robots & Automation

The plunging cost of industrial robots coupled with advances in artificial intelligence are transforming the workplace and everyday life, putting as many as half of all current jobs at risk by 2035—changes may upend global supply chains and promote customized local production.

Splinternet

China’s surging technological self-sufficiency may lead to a split in global supply chains and technology rules and digital standards, as some countries adopt Chinese standards while others stick with the currently ubiquitous U.S. standards.

Moral Capitalism

Traditionally, capitalism has focused on maximizing profits for shareholders. Now, companies are expanding who they consider stakeholders and how they measure success, giving more weight to social responsibility, environmental sustainability, and employee satisfaction.

Smart Everything

We expect that more and more things will be connected to the internet, with powerful, flexible 5G networks leading to a proliferation of smart buildings, homes, cities, energy and mobility. These changes could improve life, especially in cities—but may come at the expense of privacy.

Space

In the new space age, private companies, reusable rockets and technology breakthroughs could transform a former government monopoly. One possible outcome: Nanosatellites extending broadband connectivity to the 40% of the world without good access to the internet.

At the same time, the global middle class is expected to rise from 3.6 billion in 2018 to 5.3 billion by 2030. Thanks to these newly prosperous consumers (90% of them in Asia), for the first time ever the majority of people on earth will no longer be poor.3

That still leaves hundreds of millions of people facing problems such as hunger, poverty, inadequate housing, and lack of access to clean water and health care. And the entire world is grappling with climate change and other environmental issues requiring concerted action. “If the 2010s was when fears over climate change peaked, this has got to be the decade of climate change solutions,” says Michael Hartnett, Chief Investment Strategist for BofA Global Research. “Fortunately, whatever combination of renewable energies, new technology and political will that takes, history tells us that people are good at finding solutions to the biggest problems.” 

One force helping drive those solutions is a broad rethinking of capitalism. A new “moral capitalism” calls on companies to expand their missions beyond profits and shareholder interest to include supporting their communities, addressing climate change and the environment, and making their workplaces more inclusive, among other changes.

Technology at the turning point

Rapid technological change is nothing new, of course. The past two decades have witnessed entire industries, from retailing to media, upended and recast by consumers’ migration to the internet. For the 2020s, what may be different is the pace of change. “Global data is expected to multiply itself by 32 times in this decade,” Israel says.4

The ongoing trade dispute between the United States and China is likely to morph into a race for technological supremacy, and the stakes couldn’t be higher. “Whoever is the leader in technology over the next 10 years is likely to lead the world economy,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank.

That said, innovation should yield extraordinary benefits for society, and opportunities for investors. Technology should help an ever-more-urbanized global population overcome challenges such as inadequate infrastructure, rising inequality and crime. In “smart” cities, connected by universal broadband internet, buildings are expected to leave smaller environmental footprints and advanced security and monitoring systems should make people safer.

Few such gains come without costs – and in smart cities, individual privacy is likely to diminish. And as robots and artificial intelligence continue their advance into virtually every aspect of business and society, job losses may increasingly come not just in manufacturing but in service positions.

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Our Chief Investment Officer shares some strategies to explore as you consider how you might invest in the 2020s.

One thing we can likely count on in the coming decade is that change will be a constant, notes Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. And that can present new risks and opportunities. Here, Hyzy offers some ideas on how investors can prepare for both.

Stick with stocks

With U.S. and global interest rates stuck at historic lows, stocks will likely offer the best opportunities for growth during the 2020s, Hyzy believes. While many investors have been reluctant to embrace stocks since the 2009 financial crisis, “over the next 10 years, we could see the rise of a new ‘equity culture’ of Millennials and younger investors seeking returns,” Hyzy says.

Choose your sectors

As robotics, automation and artificial intelligence play an ever-larger role in business and daily life, “we expect the technology sector to produce above-average returns during the 2020s,” Hyzy says. With people 65 or older set to outnumber people under the age of five globally for the first time in history, health care presents another area of potential growth. Other growth areas include industrial stocks and financial services, he adds. With climate change taking center stage, renewable energy stocks also hold promise.

Protect with bonds

Although stocks on the whole may represent the best opportunities for return in the 2020s, bonds should remain an important part of portfolios. Bonds can add protection against market volatility, Hyzy notes, as well as a source of income. High-quality corporate bonds, short-term Treasury and municipal bonds are among the most promising fixed-income choices, he adds.

Expect—and prepare for—volatility

Amid an uncertain outlook for the U.S. and global economies—as well as an upcoming U.S. presidential election that could influence tax and regulatory policies for years to come—investors should be prepared for market volatility throughout the coming decade, Hyzy advises. “We’ve had so much episodic volatility in recent years that markets are getting used to it,” he says.

For individual investors, “having a portfolio that’s well diversified across multiple asset classes and sectors is an effective way to prepare for the unexpected.” Another key is to continually rebalance your portfolio, as events and markets change, to be sure that your investments stay aligned with your long-term goals.

Speak with your financial advisor about your financial goals, and how you might adjust your portfolio for the decade ahead.

A global economy looking for answers 

Even as we look ahead, one startling statistic hurtles us back in time – interest rates haven’t been this low for 5,000 years.5 Investors today hold $12 trillion worth of bonds with negative interest rates6—essentially paying for the security of owning sovereign bonds. What that means for the 2020s is a monumental task to jumpstart lethargic economies around the world. “What happens with credit in the next five to seven years is going to be incredibly important,” Hartnett says. 

Yet all this comes at a time when economists and investors are beginning to doubt the ability of central banks to stimulate growth through economic policy. Since the financial crisis of 2009, central banks worldwide have lowered interest rates a total of 784 times and devoted more than $12 trillion to quantitative easing,7 which leaves many wondering whether central banks have any tools left for countering a possible recession, Hartnett says.

Countries looking for answers—to this and to the other problems the world is grappling with—are increasingly looking inward rather than outward for solutions, Israel says. While the trend towards globalization has seemed inexorable, the 2020s are likely to change that course, with tariffs and regulations that favor local economies and homegrown producers.

What investors should consider

The decade ahead suggests potential winners among industries, such as clean energy, e-commerce, healthcare technology and local manufacturers, among others. Other sectors may struggle: fossil fuels, bonds, and brick and mortar retailers.

In a larger sense, investors may need to shift their focus away from short-term gains and individual stocks and think more broadly about ways to invest in global themes that will dominate the decade. “The old paradigm of investing needs to change. We have to look at the big picture, and at long-term mega trends,” Israel says. “Disruptions are going to come at us left and right in this decade. We need to understand that what was in the past will not be in the future.”


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