You know the conventional wisdom – don’t put all your eggs in one basket.
This means that it’s a good idea to keep your investment portfolio diversified over different asset classes. You should even diversify within an asset class itself. For example, do you hold stocks? If so, spread your funds over various industries and companies.
If you’re a beginner to investing in the stock market, then do yourself a favor and diversify! This simple move will help mitigate risks and volatility in your returns. While you can get technical with asset allocation, simply investing in many different areas can do a lot in protecting your investment portfolio.
In this article, we’ll explore one industry that you might want to add to your portfolio – Healthcare! We’ll talk about some of the upsides and downsides to investing in healthcare.
Constant need for development
This could be both a pro and a con. The healthcare industry is always changing and developing. New and better drugs are always being developed. Better equipment is always in demand to make hospital visits as pain-free as possible.
An optimist would consider this a plus point for the industry, as young companies have a chance to carve out a niche market for themselves. A pessimist would view this negatively – market leaders could be overthrown. An established product today could be obsolete by tomorrow.
It’s easy to see why the healthcare industry is such an exciting industry to invest in. With all the competition that’s going on, you’ll have to keep your eyes peeled and your ear to the ground!
Diversified industry
The healthcare industry itself is diverse. It has a mix of cyclical and non-cyclical sub-industries. It includes companies that can be grouped into:
- healthcare providers (e.g. hospitals),
- pharmaceuticals
- medical equipment and implements
- insurance
This represents an opportunity for diversification and protecting your portfolio. All these options come with their own headaches as well – you might not know where to put your money. For example, iqv stock is one company you could sink your funds into, but how does it measure up against its competitors?
A great “set and forget” solution is to invest in an index fund or ETF that tracks a healthcare index, like S&P500 Health Care. You’ll be able to gain exposure to the industry as a whole, and let the experts decide which companies to include.
Increasing demand for healthcare
You might have heard of the term, “being ahead of the curve.” Investing in healthcare will help you achieve just that.
I’m talking baby boomers. Baby boomers refer to people born during a population explosion between 1946 and 1955. If you’re looking for a trend to get ahead of, just look at what baby boomers will be buying next.
I once heard of it described as a garden hose. Imagine a big surge or balloon of water coursing through that hose. You’d want to position yourself ahead of that balloon so that you can catch the trend before it reaches its peak.
Now think – what would baby boomers need as they get older? That’s right – probably healthcare. More meds, managed healthcare, that sort of thing.
Not to mention – these people are likely retirees with a lifetime of savings. They’re wealthy! So you’d do yourself a favor by investing in healthcare today.
Intellectual property protection
Again, this cuts both ways. Companies can often patent new drugs and techniques. Pro – if one of your portfolio companies invents something, they’re probably going to be protected in selling that particular drug. Con – if your portfolio company isn’t inventing things, it’ll be hard for them to compete.
This gives rise to another point – many pharmaceutical companies in your portfolio will be investing in Research and Development (R&D). This can form a huge part of a company’s expenses. The payoff on these activities are not guaranteed and their timelines not set in stone. Do you have the stomach for this?
Also, given the competitive nature of the industry. Certain patents may not mean anything if there are viable alternatives in the market. Your new drug could have taken 3 years to create. It could be a solid solution to a widespread epidemic. But alas, if another company comes up with a different drug that solves the same problem. Then it’ll likely be a fight to the death.
Conclusion
The bottom line is that healthcare is a solid industry to invest in. As with any industry, it comes with its pros and cons. But that’s why diversification exists, right? Approach your asset allocation with diversification in mind – you’ll probably come to agree that healthcare is a necessary addition to your portfolio.
Have any thoughts on investing in healthcare or investing in general? Share it with us in the comments!
