Your 40s are a somewhat transitional time when it comes to your investing goals. What I mean by that is you are still a couple decades away from retirement, so you still have time to let your money grow, but you don't have quite as much risk tolerance as someone in their 20s or 30s. So, you want to invest in stocks that have plenty of upside potential, but are protected against volatility and risk. Here are two examples that might make good additions to your portfolio.
Defensive properties in a growing market
I've written before about how healthcare real estate could be a great opportunity over the next few decades. In fact, I own several healthcare REITs in my own portfolio. Of those, HCP (NYSE:HCP) is the one I'm strongly considering buying more of.
Broadly speaking, healthcare is and should continue to be a growing market. The U.S. population is aging rapidly, with the 65+ age group expected to roughly double over the next 30 years, and older individuals utilize healthcare services more frequently and spend more when they do.
Additionally, the healthcare real estate industry is highly fragmented, and in the early stages of REIT consolidation. Of the $1.1 trillion worth of healthcare properties currently in the United States, only about 15% are REIT-owned, and no company has more than a 3% market share.
HCP specialized in senior housing (which should really benefit from the aging population), medical office buildings, and life science properties. 94% of the portfolio is private-pay, which generally translates to stability, as opposed to healthcare facilities dependent on government reimbursement programs.
Going forward, HCP plans to expand in its three core property types, and sees a lot of opportunities to do so. For example, there is a noticeable shift from acute-care toward outpatient settings, which creates tremendous opportunity, especially for on-campus medical offices where the available supply of care providers is high. HCP also plans to grow through development, which can produce better yields than simply acquiring properties, and has more than $800 million of ground-up development projects in the pipeline.
If I could buy just one stock, this would be it
First, I love Berkshire's overall business model, which basically consists of using the float (money collected but not yet paid out) from its insurance businesses such as GEICO and General Re to purchase other businesses. The resulting cash flow from these acquired businesses allows Berkshire to complete more acquisitions and invest in common stocks, and so on.
The effect of this strategy is that Berkshire's management team has built a collection of about 60 subsidiary companies, including some household names like Duracell, The Pampered Chef, and many others. And since Warren Buffett and his stock-pickers are willing to invest in businesses they don't control (aka common stocks), the company has amassed an impressive and diverse stock portfolio, which includes massive positions in Wells Fargo, Apple, Coca-Cola, IBM, and American Express, just to name a few.
In a nutshell, Berkshire Hathaway is like buying a well-diversified investment portfolio all in one stock, and with some of the best minds in the financial industry making decisions with your money. While Berkshire is unlikely to keep up its track record of 20%+ annualized returns going forward (the company has simply gotten too big), there's no reason to think the company's business model won't beat the market over long time periods.
Matthew Frankel owns shares of American Express, Apple, Berkshire Hathaway (B shares), and HCP. The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends American Express and Coca-Cola. The Motley Fool has a disclosure policy.