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The Best Way to Invest Money in an Aging Population

By Sean Williams - May 3, 2015 at 2:06PM

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According to the latest report from the CDC, Americans are living longer than ever. If you're an investor, one sector offers you the best way to invest money in America's aging population.

Source: Pixabay.

It's not often that I get chance to do this, but I have a double-dose of good news for everyone.

First, according to the latest data from the Centers for Disease Control and Prevention, U.S. life expectancies have risen to 78.8 years -- the highest ever recorded within the country. In other words, a mixture of living a healthier lifestyle (e.g., not smoking, eating right, and exercising) combined with improved pharmaceutical know-how is substantially extending our lifespan.

But, the other side to this news is also good, because it means you as an investor have an opportunity to take advantage of the needs of an aging population.

Think about this for a moment: If people are living longer than ever before, it means extra years of consuming items they love, taking advantage of products and services they need, and potentially spending a lot more than seniors did in previous decades.

I believe the best way to invest money in an aging population, and perhaps the most logical choice, is to consider buying stocks in the healthcare sector.

Source: Alzheimer's Society, Facebook.

Healthcare's bright future
Why healthcare? There's obviously a plethora of reasons, but the most important of those is that as people age they become more reliant on the healthcare system to support their needs. This could be as simple as more frequent visits to the doctor, or the need for a few pharmaceutical medications, to something long-term such as the need for nursing home care.

In addition, the Affordable Care Act, better known as Obamacare, is transforming the healthcare landscape. While senior citizens aged 65 and up are far and wide covered by Medicare, those under the age of 65 are being introduced into a system that's designed to encourage people to visit their primary care physician more frequently. More visits to the doctor could lead to earlier disease diagnoses and the need for long-term maintenance therapies, which also where healthcare investments could come in handy.

As noted above, an aging population is also more likely to need senior housing or a nursing home at some point in their life. Based on data from the U.S. Census Bureau, slightly more than 5% of those aged 65 and up live in a nursing home. This figure jumps to nearly 50% for those aged 95 and up. As life expectancies grow and our population of elderly citizens increases -- remember, baby boomers are retiring in full force over the next 15 years -- the need for end-of-life care is going to take precedence.

Lastly, investing in the well-being of others is a socially good thing to do. Putting your money behind companies that are potentially changing millions of lives is often a good proposition.

Where to safely invest your money?
Now that you've listened to my generalized spiel of why the healthcare sector is the best way to invest money in an aging population, let me offer a few specific examples of where you can consider parking your money.

For more risk-averse investors there are a couple of relatively safe ways to approach the idea of investing in America's aging population.

Source: Johnson & Johnson, Facebook.

One idea is to focus on a healthcare conglomerate like Johnson & Johnson (NYSE: JNJ). It's unlikely J&J's consumer segment would see a major boost from an aging population, but its diagnostic and device segment could potentially be a big winner. According to a Johnson & Johnson press release from last year, J&Js device and diagnostic segment competes in approximately 30% of the $370 billion global diagnostic and device market. With a strong position in knee, shoulder, and hip replacements, J&J could find itself a busy bee as America ages.

Another smart idea, especially for older investors themselves that are seeking stability and income, would be Senior Housing Properties Trust (DHC -5.10%). Its business strategy is to acquire properties focused on seniors -- such as hospitals, senior apartments, nursing homes, and independent living properties -- and then lease those properties out over the long-term. With baby boomers' retirements in full swing, the pricing power pendulum is fully in favor of a senior property manager like Senior Housing Properties.

Source: Flickr user PJ Johnson. 

Senior Housing Properties is also real estate investment trust, or REIT, which means that it avoids high corporate taxes if it pays 90% or more of its net income to shareholders in the form of a dividend. Translation: shareholders are currently receiving a very handsome 7% yield.

Another way to safely play the healthcare sector's aging population is with an ETF, such as the Vanguard Healthcare ETF (VHT -1.80%). Its expense ratio, or the fee to manage the fund, is just 0.12%, 92% lower than comparable funds with similar holdings. Also, it has a whopping 317 stocks with total net assets of $6 billion within the fund, meaning you'll be protected and well diversified if a few companies perform poorly.

If you want to be more aggressive, consider these stocks
For those investors still angling for the long-term, but which have more penchant for risk, I'd suggest you take a closer look at Intuitive Surgical (ISRG -2.86%) and Isis Pharmaceuticals (IONS -3.48%).

Source: Intuitive Surgical.

Intuitive Surgical is the developer of the da Vinci robotic surgical system, far and away the most successful robotic surgical system for soft tissue procedures in the country. If you believe that seniors living a longer life may require more surgical procedures, such as knee and hip replacements, then you'll recognize that Intuitive's robotic devices, which result in smaller incisions and quicker heal times, may be called upon with more frequency. There are obvious risks that Intuitive Surgical won't remain the only dominant force in robotic surgery, but for now its vast network gives it a defined advantage over its peers.

Source: Isis Pharmaceuticals, Facebook.

Despite currently losing money, Isis Pharmaceuticals is an attractive, but aggressive, bet for two reasons. First it has nearly three dozen drugs currently in clinical development, and has roughly two-thirds of its pipeline partnered with approximately one dozen collaborative partners. Long story short, there is a wide gambit of drug development opportunities for Isis, as well as many ways to monetize its antisense drug development platform.

Also of importance is the idea that the risk of some diseases goes up with age. Cancer and inflammatory diseases are all examples of potentially chronic diseases, and Isis Pharmaceuticals is working to fight them.

If you're looking to invest money in an aging population, the healthcare sector could be your prescription to a healthy profit.

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Stocks Mentioned

Johnson & Johnson Stock Quote
Johnson & Johnson
$176.94 (-2.84%) $-5.18
Apple Inc. Stock Quote
Apple Inc.
$137.44 (-2.98%) $-4.22
Intuitive Surgical, Inc. Stock Quote
Intuitive Surgical, Inc.
$201.99 (-2.86%) $-5.95
Ionis Pharmaceuticals, Inc. Stock Quote
Ionis Pharmaceuticals, Inc.
$37.97 (-3.48%) $-1.37
Diversified Healthcare Trust Stock Quote
Diversified Healthcare Trust
$1.86 (-5.10%) $0.10
Vanguard World Fund - Vanguard Health Care ETF Stock Quote
Vanguard World Fund - Vanguard Health Care ETF
$234.64 (-1.80%) $-4.31

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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