The most important news is often the easiest to miss.
Because for a story to be truly important, it usually needs to be about something that is both long lasting and/or has exponential characteristics.
Most of what really affects your life is long-term exponential trends.
A terrorist attack using aeroplanes may make for a spectacular news story, but the long-term improvement in air safety is very easy to ignore.
You are almost never going to be affected personally by a terrorist attack, but the massive increase in air travel safety affects your life directly.
One of the best ways to invest is to identify powerful long-term trends and to ensure your investment strategy profits from them. Take, for example, the internet revolution of the last two decades. If you'd managed to identify the trend, and focused your investments on internet related businesses, you would have significantly outperformed the overall market.
But there's another trend that has been going on for more than 200 years…
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It’s called Poverty
Perhaps the strongest trend in modern history is the escape of most of the world from extreme poverty. It’s been going on for over 200 hundred years. This is a process that is both long lasting and exponential.
For all of human history, until 200 years ago, over 90% of the world lived in extreme poverty. Today that number is less than 10% and much of that improvement has happened in the last few decades. As recently as 1980, over 40% of the world lived in poverty. Between 1990 and 2019, over 45 million people escaped extreme poverty each year.
Along with the general improvement in wealth, has come a greater acknowledgment of our rights and responsibilities as humans. Certain attitudes that were commonplace a few decades ago regarding the abilities of women for instance are now seen to be ignorant. And our treatment of the environment, though still not perfect, is slowly improving.
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Is there really a way to profit from this trend?
Some may worry that after 200 years the trend could be running out of steam. However, I don’t believe that it is too late to profit from the trend. There is certainly room to grow from here. Getting out of extreme poverty is just the first step. After a country passes this barrier, it usually experiences a period of spectacular growth. We have seen this happen in China and other East Asian tiger economies and it is currently happening in India where growth rates have surged over the last couple decades. It is only just beginning in Africa.
Given global demographics and current levels of development, it is likely we have several decades to go before the steam runs out. And history shows growth rates tend to accelerate near the end as countries break out of the cycle of poverty. Just look at the spectacular rates seen in Japan, Korea and Taiwan in the past and China and India now.
So, if this is true, which investment products will help you take advantage of it?
ETFs are a great way for investors to gain thematic exposure. In fact, I’d say they’re an ideal tool for long-term trend-based investors. They give you an investment that automatically reweights your underlying exposure passively, making them both tax efficient and requiring little regular attention.
As a private investor you can pretty much buy and forget about them so long as you’re certain they’re focused on the right trend.
I also like the ETF based approach, because it allows private clients to cheaply capture returns from large macro-economic regions.
To play a world exiting poverty, looking for an ETF like the Vanguard FTSE Emerging Markets ETF (ticker VWO) would be a sensible pick.
The costs are SUPER low at only 0.10% annually and it gives you exposure to emerging economies like China, Brazil, and Taiwan.
Now, while this is a good broad-based option, you know I’m a fan of structured products. I currently have a unique structure closing on the 26th of November 2021. As the world moves out of poverty and attitudes change, I believe this ESG backed structure will capture the returns of a changing world, and thanks to the gearing, will dramatically outperform the ETF I’ve mentioned above. It’s a five-year structure, and only time will tell. If you’d like to read more about it, you can do so here
Have a wonderful weekend!
Senior Analyst, Rand Swiss