What Will Be The Top-Performing Sector of the Next Decade?

The tech sector has dominated over the last decade as the FAANG stocks have emerged as the leaders of the stock market.

But what about the next decade? In this segment of "The Five," recorded on Sept. 1, Fool contributors Jeremy Bowman, Jason Hall, and Trevor Jennewine debate which sectors have the best prospects, discussing healthcare, real estate, and financials in particular.

Jason Hall: Here's what I want to hear from you. I want to hear you thinking about nothing about from a diversification perspective. But thinking about these sectors and looking out over the next year, three years, five years, ten years, what's a sector that's not tech, I'm still going to do this to you guys, do you think is going to generate better performance than the total S&P 500? Jeremy, you want to go first? I can go first if you guys need a minute to think about it. You want a minute to think about it?

Trevor Jennewine: I can jump in.

Jason Hall: Trevor, do it.

Trevor Jennewine: Going out over those time horizons, I do like financials. My answer was narrow. I know healthcare and financials, I had it narrowed down to those two. I went the wrong direction with that, but I'm going to say financials over that time period is going to outperform.

Jason Hall: Awesome. Make the case for it. What are the reasons? 

Trevor Jennewine: A lot of innovation going out, especially with a lot of different fintechs companies like Square (SQ -1.97%), and then Shopify with digital payments, MercadoLibre in Latin America, you got Sea Limited in Southeast Asia. It's just a lot of innovation changes. These apps like Venmo and the Square's Cash App, I read that Square's acquisition cost for a cash app uses about five dollars, it cost a bank about $1,500 to acquire customers, just orders of magnitude, smaller acquisition costs. They can operate more efficiently. They can afford to serve customers with a lower lifetime value because they're not investing that much to get that customer in the beginning, so I think that changes the landscape.

Jason Hall: Jeremy.

Jeremy Bowman: Yeah, I think it's hard to pick a whole sector because each sector has some good and some bad. But I think I will go with healthcare because I think healthcare, we have a long track regular spending going up. Obviously, it's something we all need.

Jason Hall: The trend is your friend here, right?

Jeremy Bowman: Yeah. I think the trend with expenditures is that, I think technologies are certainly... consumer goods. The TVs is a classic example. Prices for that stuff tend to go down over time. I think healthcare, as we have more money to spend on it, that money is going to be directed toward in. Like Trevor was mentioning with innovation, there's a lot of innovation going on in healthcare. I think it's going to be exciting to see what kind of treatments pop up with some of these genomic and that sort of space. Not an area I follow closely, but I think just from a human perspective, it's very interesting. Medical device space. I think as far as innovation and healthcare, the sky is the limit because we all need it, we'd like to a live longer, I'm sure. I think a pretty good growth industry over the next 10, 20 years.

Jason Hall: Well, that's the thing, we all need it. The more money we have, the more we want to get. We're living longer, the older we get, the more healthcare we use, just all of those things. I want to throw the demographic trend up there because I think you're spot on on healthcare here, is in 2010, there were around 40 million Americans who are 65 or older. In the end of 2029, the last baby boon was going to turn 65. There will be 80 million of us in the United States alone that will be 65 or older.

It's a doubling of that cohort that uses not quite an order of magnitude, but substantially more healthcare. The number of Americans who are 80 will have doubled over that same period, there'll be 40 million Americans who are 80 or older at the end of 2029 who use a massive amount more healthcare. Disruptive, lowering cost of care, increasing access, improving those outcomes, it's all important and a huge opportunity, and we're living longer. These same cohorts are going to be living longer and using more care over this time of their life.

Jeremy, I think maybe there is a really good case for healthcare here. I'm going to say real estate. I'm going to go with real estate. The winner this year, I think can be a market-beating investments. We're so far behind on the residential real estate side, there's just not enough inventory. Part of the story that's playing out is that boomers are aging in place. There was this idea, sometimes talk with Deidre Woollard a lot about, the term, and I forgot about this term, that 10 years ago, they were saying that silver tsunami was going to be happening. You were going to have 10,000 baby boomers a day retiring turning 65.

There's going to be as 10-year period of these massive retirements that were all going to sell their five-bedroom, 3,000 square-foot homes and they are all going to move to condos in Florida and start living off their retirement assets. We were going to get flooded with all these old giant houses that nobody wanted to buy, and all the boomers were going to be selling their retirement assets and the stock market was going to crash.

Last I checked, homes have never been more expensive and the stock market has never been more expensive. It's literally the opposite of what everybody said that was going to happen, all the economists were saying was going to happen 10 years ago. What's happened is we have half as much inventory of existing homes for sale, so prices continue to go up, as younger people our ages and younger are trying to buy houses, there's no inventory. By the way, homebuilders have spent the past 10 or 11 years not building entry-level housing. We have like a three-year shortage of new housing. The supply and demand dynamics are so out of whack, I think that there's enormous potential for for the real estate market.

That's just on the residential side, guys. I haven't even talked about commercial real estate. I haven't talked about data centers, all of those things, companies like the STORE Capital as the experiential retail real estate becomes more and more a part of our lives. Repurposing commercial office space as we do more work from home, figuring how to repurpose that and monetize it. I think it's just a great age for real estate. You think about investors that are looking to capture stable returns in a low interest rate environment, that also makes real estate a really, really attractive place to invest.