How to Profit From the Coming Age Wave

Feeling old? You're not alone: Six people turn 60 every minute.

The U.S. Census Bureau projects that the elderly -- technically, those 65 or older -- will double their 2003 ranks by 2030.

But hold on. Do you know anyone 65, or close to it? I'm going to guess he or she doesn't fit your connotation of elderly.

We're healthier, especially later in life. We're becoming a nation of healthier older people. But underneath that pleasantry is both a disturbing trend -- of a rapidly aging workforce -- and a whopping investment opportunity I'll tell you how to capitalize on shortly.

More elderly, fewer doctors
First, I'll refer you to an article by PIMCO bond guru Bill Gross. In weaving though his case -- a compelling one -- for the coming worker shortage, he arrives at a chart built with data from the Association of American Medical Colleges and the U.S. Census Bureau. According to the chart, the ratio of first-year medical students per 100,000 people is projected to drop from 7.3 around 1980 to 5.0 in 2020. That's a 32% plummet!

So doctors will be in short supply and in big demand. But doctors aren't the only folks providing health care. In fact, according to BusinessWeek, huge demand for health care has already juiced U.S. employment in a major way. More specifically, all of the 1.7 million new jobs added in the private sector over the past five years were in the health-care field. That doesn't say much for the rest of the economy, but it does show that health-care demand isn't going away.

Problem for the economy
Let's back up to the effect of aging on our overall economy. Last year, Forbesreported that in the 1970s, U.S. workforce growth was 30% ... whereas growth is projected to dwindle to a meager 3% by 2010. Moreover, a whopping half of the federal civilian workforce is eligible to retire within five years.

Fewer workers and truckfuls of retirees drawing on Social Security. That spells an eventual perfect storm for the economy and for the large caps like Wal-Mart (NYSE: WMT  ) that tend to track it -- doesn't it?

Except some boomers won't retire. Forbes goes on to say that according to AARP, 79% of baby boomers don't plan to quit working at 65. It's safe to say much of their motivation is financial.

But not all ... 65 is the new 40, remember? In fact, think tank Civic Ventures states that the odds of a 65-year-old living to 90 have doubled in the past 40 years.

But there's gold in them hills
Health care has done wonders, and aging Americans will need all of the medical juju they can get. Sounds like a slam-dunk for health-care companies -- and a can't-miss sector bet for investors -- right?

It may be, but if a gold mine lies open long enough, miners will come, increasing competition to the point -- assuming we're talking about the lawless Wild West (read: a market economy) -- where only the strongest make off with the bounty.

One of my favorite examples is the U.S. auto industry in the early 1900s, when there were several hundred automakers based in the United States.

And now? We've got Ford, GM, and maybe DaimlerChrysler.

Or take the tech boom. Did you lose money on seemingly good companies such as Microsoft (Nasdaq: MSFT  ) , Corning (NYSE: GLW  ) , or even Dell (Nasdaq: DELL  ) ? If so, you know the pain of being in the wrong stocks when the tide goes out.

If a gold rush to health care ensues -- and it may be starting already -- you can expect an eventual bubble, followed by an eventual popping of that bubble.

The keys to the future
Long-term investing success -- the kind we implore you to focus on, for your sake or that of your progeny -- will be about finding the best operators. eBay (Nasdaq: EBAY  ) , for instance, declined along with other tech stocks but has since earned much of its former gains back.

Long-term success is about finding the best managements, the best returns on capital, and the best strategic operating plans -- the things investors talk about but actually scrutinize all too seldom. That's my suggestion to you: Find the best-managed companies.

And I have another
We at the Fool have seen the age wave coming, and we've done a lot of research on it. That has led to our newest report: The Big Boom: ExplosiveOpportunities in Biotech and Health Stocks. It's got 10 of our best investment ideas -- including a mutual fund and an ETF -- to profit from the coming age wave. (Click this link for more information.)

The bottom line is that our nation is facing an unprecedented future. I suppose it always has, but this time it really is different. Despite broker buzz or -- uppity though this sounds -- the vibe you may pick up from elsewhere in the media, scoring big will not come from throwing indiscriminate money at sectors. The big winners will be those who took the time to track down experienced management teams, defensible business positions, and companies able to deliver sound operating results.

This advice isn't new. In fact, many of the most successful investors in history -- names like Warren Buffett, Ben Graham, and Philip Fisher -- have made fortunes following such nuts-and-bolts guidelines. Strangely, what should work in the future looks remarkably similar to what's worked in the past.

This article was originally published on Sept. 26, 2006. It has been updated.

Motley Fool Income Investor advisorJames Earlyowns no stocks mentioned in this article. Dell and eBay are Stock Advisor recommendations. Wal-Mart, Dell, and Microsoft are Inside Value recommendations. The Fool has adisclosure policy.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 510509, ~/Articles/ArticleHandler.aspx, 7/29/2014 8:12:50 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement