Driven by the movement of the Baby Boomers into their peak spending years and by the movement of technology into mainstream use and affordability, the economic boom will accelerate from 2002 to 2009, followed by a deflationary period from 2009 to 2023, predicts financial advisor Harry S. Dent Jr. At the top of the boom, Dent predicts the Dow will hit 35,000, while the NASDAQ will reach 25,000 to 30,000.

Dent, author of  "The Roaring 2000s Investor," and president of the H.S. Dent Foundation in Williston, Vt., will share his financial forecast with planning professionals and explain how demographics drive economic trends in a keynote address Monday, Sept. 11 at the Financial Planning Association's three-day national convention in Boston. Dent will also discuss the changing role of the financial planner and effective asset allocation.

Using demographics, financial planners can tell clients what the economy is going to be like over their lifetime and determine what investment strategies to use, said Dent, who advises the AIM/Dent Demographic Trends Fund, the Van Kampen Roaring 2000s Unit Investment Trust, and manages the Dent Strategic Sector Fund.

According to Dent, the classic asset allocation model, which uses four standard investment categories, is a failure. "It reduces risk, but it reduces returns more," he said. "(Classic asset allocation) assumes a 70-year time horizon and a never-touched portfolio."

Dent favors a different approach to asset allocation. He describes four seasons of the economy: inflation and innovation; the first phase of the growth boom; the second phase of the growth boom; a deflationary shakeout; and a maturity boom, each of which favor two of the assets allocation categories.

For instance, during a boom period, large caps and bonds are the heroes, while small caps and international stocks are the dogs, Dent said. Planners can achieve better returns by diversifying within the two leading sectors than by sticking with classic asset allocation. In addition, planners can help their clients plan for the "bust" periods.

Dent's economic model, based on the premise that demographics drive the economy, uses a 46-year lag on the birth index to predict the peak in spending of the average family. The economy goes through a boom and bust period every 40 years, with the typical cycle seeing 26 years of boom, and a 13 to 14-year bust, Dent said.

The economy will remain strong as Baby Boomers enter their prime spending and productivity, which will peak between 2008 and 2010, Dent said.

In addition, the emergence of technology, specifically the Internet, into the mainstream is driving major changes in business models, Dent said. Companies are in the process of leveraging technology to increase productivity. The effect will be changes in the way businesses are run.

"Companies will run from the bottom up, not from the top down," he said. "Network organizations are designed for customization, not organized for standardization, like assembly lines."

In the financial services sector, that means a movement towards customization and the development of a new "human browser" that represents investors, not products, he said. Financial planners must specialize and be integrators of all aspects of their clients' financial lives.

"Advisors must be life planners," he said. "They have to integrate all aspects of what impacts their clients."

In addition, planners should focus on a narrow group of customers with distinct needs and find what fits them, he said.

Planners add value for their client by providing customized services all in one place, according to Dent. Consumers can get financial planning over the Internet, they can buy any investment online, or they can get customized investments and planning all in one place from a financial planner."

-- By Melissa Klein

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