When it comes to personal finance, it’s good to be an American. Better than being a resident of Europe or Japan — or anyplace else. That’s one of the key takeaways of “Surprising Relief: Global Wealth Report 2024” by insurance and financial giant Allianz.
In an exclusive interview with Rethinking65, Allianz chief economist Ludovic Subran elaborated on the report and why American investors are better off than they were a few years ago.
Boomers: The Richest Generation
The report offered a surprising insight: Baby boomers are the richest generation ever, and none of the following generations likely will be able keep up with them. That’s thanks to strong economic growth, affordable housing markets and booming equity markets that have put them on top and left millennials the “big losers,” according to the authors.
As the report explains, shortly after millennials began to accumulate wealth, “crisis followed crisis,” resulting in an annual return of just 3.1%. However, Gen Z may have a good chance to outperform all their predecessors, the authors say, if they align their savings behavior to the “new realities.”
These new realities refer to the need to save more and smarter, such as thinking more broadly about diversification, including private markets, Subran elaborated. “Fortunately, access to alternative assets is much better today than in the past,” he said. Plus, “advice always helps,” he added, when asked how Gen Z and the other generations can improve their chances.
A major reason American investors have done so well is that they dominate the global investment markets. Almost half of all financial assets worldwide are held by households in North America, according to the report.
“The decisive driver for financial asset growth in the U.S. are stock market returns,” said Subran. But the French economist credited the initiative of American investors themselves for much of their financial success relative to those in other countries.
When asked what surprised him about Americans, Subran responded, “One is the financial savviness of U.S. households. They are quick to change financial decisions and redirect their investments to seek opportunities and/or realize gains. European savers are much slower and inert.”
The other thing that Subran says surprises him is is the “debt discipline” of American consumers. “Since 2007 the debt ratio [liabilities in percentage of GDP] has more or less continuously fallen, from 100% to 75%,” he said. “The stereotype of the credit-card addicted U.S shopper no longer applies.”
2023: Dramatic Investment Shift
Last year, Americans dramatically shifted their investments, withdrawing $686 billion from bank accounts for a decline in new savings of 10% to $1.714 trillion, according to the report. Meanwhile, they increased securities purchases by 7.95% to a record $1.717 trillion, with $300 billion going into fixed income.
The report called the big bank withdrawals a “normalization” following “forced” savings during the Covid era. “People were ‘forbidden’ to consume services – from eating out to traveling – during lockdowns,” Subran explained.
U.S. households saw an 8.6% increase in gross financial assets – total assets not including liabilities – in 2023. American household assets grew twice as fast as those in Western Europe and faster than the global average.
It’s been a consistent trend. Over the last 20 years, increases in the value of portfolios in America – with its strong preference for capital markets – have contributed an average of 62.4% to annual growth, compared with 34.2% in Western Europe, according to the report. In Germany, long-term growth is driven almost exclusively by savings efforts.
2024 and Beyond
So, what’s ahead for the markets and economy?
Subran and the Allianz report predict that U.S. equities returns will moderate. “Given the slowing U.S. economy and high valuations, we expect that returns will normalize in the coming years, falling in the (upper) single-digit range,” Subran says.
However, there’s a big caveat to all the good news. Adjusted for inflation, global real growth was only 3.6% in 2023. According to the report real financial assets remains at the level of 2020, meaning “three lost years for savers worldwide.”
Nevertheless, the outlook is “positive” for 2024, the report says, with U.S. financial assets projected to increase by over 7% for the year. The report predicts “modest” growth in global financial assets of 4% to 5% in the next few years – although with high volatility. “The economy and markets are likely to oscillate between fear of crisis and euphoria about change,” it says.
Subran praised the U.S. Federal Reserve for a “remarkable job” in bringing the economy in for a recession-free soft landing following its inflation-fighting interest rate hikes. Asked about the economic outlook for America in 2025 and beyond, Subran said conditions appear favorable, “but this is before factoring in the high political uncertainty on the national and international scene – which is at this point in time still impossible.”
Despite this, Subran expressed faith in the resilience of American equities. “Stock market corrections are impossible to predict. But they happen, triggered by a financial crisis, a war or a pandemic,” he said. “But the point is: Markets most of the time recover quickly. U.S. markets, in particular, showed a strong long-term performance over decades, reflecting the strength and innovativeness of U.S. companies. No reason to think that this will change in future.”
Underpinning the success of U.S. stocks, Subran said, is the American economic system. “Its corporate sector is an incredible innovation machine, oiled by global talent and plenty of risk capital. At the moment, it’s hard to see that other economies can copy this model at scale – or that the U.S. corporate sector will lose its ‘mojo.’”
While the equity sector of household portfolios has surged, the report notes gains in another area, insurance/pensions, up 6.9% to 28% of portfolios. “Almost all” of that is due to growth in annuities, Subran says.
Among fixed income options, U.S. treasuries drew the most investment, a situation he predicted will continue. “Treasury yields will remain elevated. We see them range-bound between 3.5% and 4.0%. For a risk-averse investor, it remains a relatively attractive investment,” Subran said.
Although Subran was bullish on the finances of American households, he declined to offer any advice for the financial advisors who serve them. “As economists, we give no financial advice. But one thing is clear: Even as the inflation surge is behind the U.S. – inflation returned to stay. It should be a topic in any conversation,” he said.
He also demurred at offering any insights on wealthier Americans. “We don’t focus on this segment,” the Allianz economist said of U.S. mass-affluent and high-net-worth households.
In a four-decade career in journalism, Ed Prince has served as an editor with many of New Jersey’s leading newspapers, including the Star-Ledger, Asbury Park Press and Home News.
