TL/DR –
The US healthcare industry made up 17.3% of the country’s GDP in 2022, with Americans spending $4.5 trillion on medical bills. Given the increasing aging population and the consequent demand for healthcare services, health equities have become a significant part of the US stock market, with health care equities having the 10th-highest total returns of any sector in 2023. However, the potential for political pressure and reform in the healthcare system introduces an element of unpredictability to this market.
Health: A Profitable Industry and Investment Opportunity
Health care isn’t just crucial for wellbeing in the US, but also a lucrative sector. In 2022, it constituted 17.3% of the country’s GDP, with Americans spending $4.5 trillion on health, averaging $13,493 per person. Consequently, health has become a significant segment of the US stock market.
Growth of Health Care Equities
In 2023, health care stocks recorded the 10th highest total returns of any sector. Investing in health care is not only common sense but also a profitable venture, says Kashif Ahmed, president of American Private Wealth. Given the ageing US population, the demand for health care is only set to increase.
Increasing Demand for Health Care
Between 2010 and 2020, the population aged 65 and older ballooned by 38.6%, growing at its fastest rate since the 19th century, as per U.S. Census. By 2034, it projects that seniors will outnumber children for the first time in the nation’s history. This ageing population will generate high demand for drugs, medical equipment, and services, making health care a safe investment bet for many wealth managers.
Health Care Investments – Opportunities and Risks
Investing in health care is tricky, but ETFs offer the diversification that most financial advisors suggest. However, the sector’s significant advantage – the US’s high health care spending, the highest globally according to the Organization for Economic Cooperation and Development – is also a risk. High profits invite political pressure for reform, introducing unpredictability into this otherwise stable market.
However, major policy changes are rare, with the last significant reform being the Affordable Care Act of 2010. Regardless, health-related funds have remained profitable, with the top eight health care ETFs yielding more than 10% annualized returns over the past decade.
For more information, check out: The financial advisor’s guide to Medicare.
Consequently, it’s hardly surprising that these ETFs have done well. Investing in health care is investing in a daily global necessity, adds Ahmed. The data from Morningstar Direct as of May 14, 2024, presents the top 20 health care funds of the past decade.
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