Future For Investors Prof. Jeremy J. Siegel The Wharton School Global Aging Initiative CSIS November 16, 2005

Future for Investors
Prof. Jeremy J. Siegel ~ The Wharton School

Global Aging Initiative ~ CSIS ~ November 16, 2005
The Next Fifty Years
The Aging of the

Population
The Most Critical Long-term Economic
Issue Facing the Developed World
Copyright Jeremy J. Siegel Stocks for the Long Run and Future For Investors by Jeremy J. Siegel
2
Long Term Demographic Trends
Past marked by (1) rising life expectancy
and (2) falling Retirement Age
U.S. Life Expectancy and Retirement Age
80
Life Expectancy
76
Retirement Age
72
1.6 Years 14.4
68
Years
64
60
56
1950- 1955- 1960- 1965- 1970- 1975- 1980- 1985- 1990- 1995-
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
But this trend Cannot Continue

3
Age Wave -- US
4
Age Wave – Japan
5
Big Questions
The Biggest Questions Facing the

Developed World
Who Will Produce the Goods?
Who Will Buy the Assets?
6
19
50
56
60
64
68
72
76
80
84
88
19 -1
55 95
Copyright Jeremy J. Siegel

19 -1 5
60 96
19 -1 0
65 96
19 -1 5
70 97
19 -1 0
75 97
19 -1 5
80 98
19 -1 0
85 98
19 -1 5
90 99
19 -1 0
95 99
20 -2 5
00 00
`
20 -2 0
Life
Age
05 00
20 -2 5
Expectancy
Retirement
10 01
20 -2 0
15 01
20 -2 5
14.4
20 02
20 -2 0
Years
25 02
20 -2 5
30 03
20 -2 0
35 03
20 -2 5
40 04
20 -2 0
45 04
Retirement Age must rise to 73
-2 5
9.2
05
0
Years
Stocks for the Long Run and Future For Investors by Jeremy J. Siegel
7
Productivity Growth and Retirement
Can faster productivity growth help the

Aging Problem?
Let us be extraordinarily optimistic and
assume future productivity growth
averages 3 ½ % per year, 70% above
long term average of 2.2%.
8
3.5% Productivity reduces retirement age 2-3 years

88
84 Life
Expectancy
80
76
72
68 Retirement
`
3.5%
Age Productivity
64
60
56
19 5-1 55
19 -1 0
19 -1 5
20 -2 5
20 0-2 00
20 -2 5
20 -2 0
20 -2 5
20 -2 5
20 -2 0
-2 5
19 -1 0
19 5-1 65
19 -1 0
19 -1 5
19 0-1 90
20 -2 5
20 0-2 10
20 -2 0
0
70 97
75 9 7
95 9 9
15 01
20 02
25 0 2
35 03
40 04
45 0 4
60 96
80 98
8 5 98
05 00
3 0 03
05
9 9
6 9
1 0
5 9
0 0
19 0-1
5
19
9
Immigration?
The number of immigrants to the US

over the next 45 years needed to keep
the retirement age in the mid 60s would
be about one-half billion, far in excess
of the current population.
10
But there is Hope
Outside the developed countries,

the population of the world is much
younger.
Let’s look at India.
11
Age Wave -- India
12
Trade Deficits and Aging
Throughout history, the “old” have sold
assets to the young in exchange for
goods.
Today in US, Florida’s retirees sell
assets to and import goods from other
49 states.
In the future the US will sell its assets
to the rest of the world.
Success depends on rapid growth in the
developing world.
13
Population 2000 World GDP 2000
15.2% Sub- 56.4%
Saharan
Indonesia
Africa
U.S. Western Low Income 1%
Japan 2%
Indonesia 4.68% Europe 5%
6.41% 2.10%
3.50% U.S.
Sub- Mid Income
22%
Saharan Canada 5%
Africa 0.51%
Eastern
10.74% Europe
Aus / NZ 5%
0.38%
Low Income
Latin
13.64%
Am/Carib
8%
Hi Inc. Western
nonOECD India Europe
Mid Income 1.12% 5% 21%
5.63%
China China Japan

Eastern 21.05% 11% 8%
Europe
5.02% India Canada
Latin 16.66%
Am/Carib Hi Inc. 2%
Aus / NZ
8.57% nonOECD
1%
84.8% 44.6% 4%
Examples of High Income Non-OECD countries: Singapore, Hong-Kong, Israel, Saudi Arabia
Mid Income Countries: Turkey, South Africa, Phillipines, Iran, Malaysia
Low Income Countries: Pakistan, Bangladesh, Nigeria
Examples of Eastern Europe: Russia, Poland, Ukraine
Population 2050 World GDP 2050
11.8% 23.1%
Western
Western Japan U.S.
Indonesia Europe Japan
U.S. Europe 1.17% Sub- 11%
3% 6% 2%
4.26% 3.76% Saharan
Indonesia Africa
Canada Canada
3.34% 7%
0.43% 1%
Aus / NZ
Sub- Low Income
0.33% Aus / NZ
Saharan 10%
Africa 1%
18.88%
Hi Inc. Mid Income Hi Inc.
nonOECD 6% nonOECD
1.32%
3%
Low Income China Eastern
17.38% 15.68% Europe China
3% 20%
Mid Income India India

5.54% 16.86% Latin 16%
Latin
Am/Carib
Eastern Am/Carib
11%
Europe 8.64% 76.9%
88.2% 2.39%
Per Capita Income Per Capita Income
Relative to US 2000 Relative to US 2050
0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%
U.S. U.S.
Western Europe Western Europe
Japan Japan
Canada Canada
Aus / NZ Aus / NZ
Hi Inc. nonOECD Hi Inc. nonOECD
China China
India India
Latin Am/Carib Latin Am/Carib
Eastern Europe Eastern Europe
Mid Income Mid Income
Low Income Low Income
Sub-Saharan Africa Sub-Saharan Africa
Indonesia Indonesia
Per Capita Income Per Capita Income
Relative to US 1960 Relative to US 2003
0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%
US 100.00% US 100.00%
Hong Kong, Hong Kong,

China 11.50% China 72.36%
Japan Japan 74.46%

12.83%
South Korea 8.05% South Korea 47.84%
Singapore 7.35% Singapore 65.18%

Retirement Age with high growth in LDCs

88
Life
84 Expectancy
80
No Growth
76
72
High Growth
68 Retirement
`
64 Age
6% Growth
60
56
1 9 5-1 55
19 0-1 60
19 -1 5
19 -1 0
19 -1 5
19 -1 0
19 5-1 85
19 0-1 90
2 0 -2 5
20 -2 0
20 -2 5
20 -2 0
2 0 5-2 15
20 0-2 20
20 -2 5
20 -2 0
20 -2 5
20 0-2 40
-2 5
0
95 99
0 0 00
65 9 6
70 97
75 97
80 98
05 00
10 0 1
25 02
30 03
35 0 3
45 04
05
5 9
6 9
8 9
9 9
1 0
2 0
4 0
19 -1
50
19
18
The Global Solution
The answer to our question:
Who will produce our goods?
Who will buy our assets?
Is the same:
The Developing Countries
By the middle of this century Developing Countries will
own most of world’s capital.
Developed Economies will run increasing trade Deficits

Trade Deficits will be demographically determined
19
Stock Market Stock Market
Capitalization 2000 Capitalization 2050
33.0%
7.7% Eastern
92.3%
Mid Income
Latin Europe 0.53%
1.14% Sub-
Am/Carib
Low Income Saharan
2.00%
0.53% Africa
India Low Income Indonesia
Sub- 4.23%
1.90% 6.37% 2.36%
Saharan
China
Africa
1.19%
0.38% Mid Income U.S.
Hi Inc. Indonesia 5.56% 16.59%
nonOECD 0.03%
5.30%
Eastern Western
Aus / NZ Europe Europe
2.08% 3.43% 8.84%
Japan
Canada 2.64%
2.99%
Latin
U.S. Canada
Am/Carib
41.21% 1.11%
10.62%
Japan
14.82%
Aus / NZ
India
Hi Inc. 0.72%
14.06% China
nonOECD
Western 67.0% 20.33%
3.15%
Europe
25.88%
20
Projected Trade Surpluses and Deficits
Trade Surplus/ Deficit Percent of GDP

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
US -0.2% -1.0% -2.0% -3.2% -4.6% -5.5% -5.0% -4.2% -3.6% -3.4%
Europe -1.5% -2.7% -3.5% -4.2% -5.3% -7.2% -8.5% -9.1% -9.3% -9.0%
Japan -4.8% -9.7% -12.7% -13.3% -12.6% -12.3% -13.0% -15.7% -18.8% -20.3%
China 1.4% 2.3% 2.3% 1.9% 1.9% 1.4% -0.1% -1.3% -1.3% -0.6%
India 2.2% 3.8% 4.9% 5.6% 5.9% 6.3% 6.3% 6.1% 5.7% 5.2%
Eastern Europe 2.3% 3.4% 2.4% 0.3% -1.5% -2.3% -2.9% -5.1% -8.9% -12.8%
Hi Inc. nonOECD -1.5% -3.0% -4.0% -5.2% -6.3% -6.9% -7.3% -7.9% -8.7% -9.5%
Latin Am/Carrib 1.8% 2.8% 3.4% 3.5% 3.3% 2.9% 2.4% 1.5% 0.3% -0.5%
Mid Income 1.8% 3.0% 3.6% 3.8% 3.8% 3.6% 3.3% 2.5% 1.3% 0.1%
Indonesia 2.5% 4.4% 5.5% 5.8% 5.7% 5.2% 4.3% 3.2% 1.9% 1.1%
Sub-Saharan Africa 2.9% 5.1% 6.7% 8.0% 9.1% 9.9% 10.4% 10.7% 10.5% 10.3%
Low Income 3.1% 5.2% 6.3% 6.7% 6.9% 6.9% 6.9% 6.6% 5.9% 5.2%
21
Conclusions
I believe that growth in developing world
will offset slowing in aging economies
and support future equity prices.
Developing countries allow world to do
“intertemporal trade” of goods today for
goods tomorrow, rather than rely on their
own resources.
Faster growth in developing countries
critically important to developed world.
22
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23

Future For Investors Prof. Jeremy J. Siegel The Wharton School Global Aging Initiative CSIS November 16, 2005

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Future for Investors

Prof. Jeremy J. Siegel ~ The Wharton School

The Aging of the

But this trend Cannot Continue

The Biggest Questions Facing the

Who Will Produce the Goods?

Who Will Buy the Assets?

Copyright Jeremy J. Siegel

 Can faster productivity growth help the

U.S. Life Expectancy and Retirement Age

 The number of immigrants to the US

 Outside the developed countries,

China China Japan

Mid Income India India

Western Europe Western Europe

Hi Inc. nonOECD Hi Inc. nonOECD

Latin Am/Carib Latin Am/Carib

Eastern Europe Eastern Europe

Mid Income Mid Income

Low Income Low Income

Sub-Saharan Africa Sub-Saharan Africa

Hong Kong, Hong Kong,

Japan Japan 74.46%

South Korea 8.05% South Korea 47.84%

Singapore 7.35% Singapore 65.18%

U.S. Life Expectancy and Retirement Age

Developed Economies will run increasing trade Deficits

Trade Surplus/ Deficit Percent of GDP

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Can faster productivity growth help the

The number of immigrants to the US

Outside the developed countries,