For the moment, put aside your love affair with social media and forget the jokes about Viagra and adult diapers. Just consider that there might be a way to profit, not from the next new thing, but from the old, familiar baby boomers.
More than 3 million baby boomers turned 65 in 2014. Another 3 million will hit that milestone in 2015, and the number will keep growing for at least another decade. The number of people enrolled in Medicare, for example, currently stands at about 50 million beneficiaries. That group is projected to swell to some 80 million over the next 15 years.
By the time all the baby boomers retire, some 78 million baby boomers will have cashed billions of Social Security checks, swallowed trillions of Advil and survived myriad hip replacements and heart transplants. Along the way they will be managing their finances through asset managers and mutual funds. And before it’s over many will have bought long-term care insurance, done time in a senior citizen facility and dropped an average of more than $8,000 for a funeral.
J. P. Morgan has taken the trend seriously enough to create an “aging population index” of stocks expected to profit from baby boomers. The list features a number of health care companies, but also includes travel companies, retailers that cater to this older demographic and even Scotts Miracle Grow, because many aging baby boomers are interested in gardening.
Individual stocks on any list may or may not be good investments. Unless you read their balance sheets and income statements and know something of their future plans, how can you be sure? The wiser, more mature way to play the baby boom phenomenon is to identify the trend, then let the experts pick specific companies. Here are four ideas:
1. Health care. It doesn’t take a genius to figure out that older people use more medical products than younger people do. The average 70-year-old gulps about three times more prescription drugs than the typical 40-year-old. Janus has a mutual fund called Global Life Sciences (JAGLX) with a fairly low expense ratio. It focuses on all aspects of health care, and with its largest holding in Johnson & Johnson, rates four stars in the Morningstar rating system. Another four-star fund is the Fidelity Select Health Care Portfolio (FSPHX). And if you can stomach the pain of more volatility, Fidelity also offers the five-star Select Biotechnology Portfolio (FBIOX). There are also a number of health care exchange-traded funds, including the always-solid Vanguard Health Care (VHT).
2. Insurance and finance. Retirees are increasingly responsible for their own savings, income and financial future. Money managers are developing more products to meet this need, from annuities to reverse mortgages to asset management. But are you in a position to figure out whether Aflac or American Express is a better investment? Vanguard has an ETF called Vanguard Financials (VFH) that invests in over 400 financial stocks. Schwab has a four-star financial mutual fund (SWFFX), while Fidelity offers several financial funds including its top-rated Select Insurance Portfolio (FSPCX).
3. Consumer staples. This category includes adult diapers and Oil of Olay, and all the other personal care products targeted to older people. Vanguard offers an ETF called Vanguard Consumer Staples (VDC), Guggenheim has an ETF called Equal Weight Consumer Staples (RHS), while Rydex offers a four-star mutual fund labeled Consumer Products Fund (RYCIX). These funds invest in companies like Procter and Gamble, which cooks up the fiber supplement Metamucil, and Kimberly Clark, which deals out Depends.
4. Real Estate. Finally, if you’re more venturesome, you might try to predict where all those baby boomers are going to live. One way to play the trend is to invest in real estate investment trusts that focus on health care facilities, or more conservatively, in an ETF such as Vanguard’s REIT ETF (VNQ), which invests a substantial share of its assets in health care and travel related REITs. Or, if you want to get in on the fun, you might consider buying property — a vacation house or condo — in an area where you think baby boomers will flock over the next decade, whether it’s Cape Cod, Cape Coral or the California coast.
Of course, there’s no guarantee that any of these ideas will produce better returns than investing in a low-cost index fund, or even hiding your money under your mattress. But can 78 million baby boomers be wrong?
Tom Sightings blogs at Sightings at 60 .
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4 Ways to Invest in Baby Boomers originally appeared on usnews.com
