Baby boomers can drive your investments
Follow that group’s spending habits
Sure, millennials are the trendy crowd these days. But that doesn’t mean your stock portfolio can’t profit from investment trends tied to aging baby boomers.
Boomers, born between 1946 and 1964, range in age from 56 to 74 now. And just because they’re getting older doesn’t mean they don’t still carry clout.
There are more than 71 million boomers; only the millennial generation is bigger. Boomers are also the wealthiest generation. And if you follow the money – i.e. what the babyboom generation spends their money on – you’re likely to find investment opportunities.
Money is made by profiting from big societal trends. The aging of the U.S. population is a big one. So is “aging in place.” Virtual medicine is fast emerging as a big business, too. And don’t forget about new pharmaceuticals that keep hearts beating longer and blood sugar levels steady.
What do these trends have in common? They intersect with the lives and spending habits of aging baby boomers.
Baby-boomer expenditures drive sales and profits of publicly traded companies. Below is a sampling of stocks and funds that would fit into a “baby boomer” portfolio.
Home in on health care
The most obvious beneficiary of an aging population is health care companies, says Daniel Wiener, chairman of Adviser Investments
“It’s all about the baby boomers wanting to live longer, more active lives,” says Wiener. “Boomers are replacing knees and hips. They’re taking drugs to reduce their cholesterol and control their diabetes.”
Three are ways to invest in health care: Buy individual stocks or funds exposed to a diverse group of health care companies. Investors not comfortable trying to identify the individual pharmaceutical company to come up with the next big lifesaving drug or the most profitable medical device maker, for example, can invest in funds that own a broad basket of health stocks, Wiener says.
One way is to invest in a lowcost, broadly diversified index focused fund such as Vanguard Health Care ETF (symbol VHT). But if your goal is to own the best health care companies with the most growth potential, Wiener advises buying a fund managed by a portfolio manager that specializes in picking potential winners.
“Why not let a smart active manager decide which stock and which subsector of health care are the best ones to own?” Wiener says.
Still, there’s no shortage of stocks poised to profit from the aging boomer trend. All boomers will be 65 or older by 2030.
Sel Hardy, an analyst at research firm CFRA who covers drug manufacturers and managed care stocks, says health insurers will benefit from the emerging telemedicine trend, as well as greater use of health care by aging Americans.
Insurers like Anthem (ANTM), Centene (CNC) Humana (HUM), and Molina Healthcare (MOH), she says, will benefit from “lower costs from telemedicine.” Virtual appointments are viewed as a key component of preventative care that will result in fewer patient visits to the doctor’s office and emergency rooms.
Big drug companies such as Merck (MRK), Pfizer (PFE), Johnson & Johnson (JNJ) and Eli Lilly (LLY), Hardy adds, are also well-positioned, given their large footprint of drugs that treat cancer, diabetes and heart disease.
Profit from pets
Increasingly, people are treating their pets, well, like people. The “humanization of pets” trend is driven in part by baby boomers. Over the past decade, this generation is the only age group to have seen an increase in their pet ownership rate, rising from 50% to 54% between 2008 and 2018, according to market research firm Packaged Facts.
And the shelter-in-place-driven isolation caused by COVID-19 has resulted in a rise in pet ownership among boomers, who are now spending more time with their animals and viewing them like companions, says Richard Bodzy, lead manager of Putnam Growth Opportunities Fund.
“Whether it’s a case of the kids moving away to college or having more free time at home, pet ownership has increased a lot in the baby-boomer demographic,” says Bodzy.
And as pet ownership rises, so does the need for pet care. That’s why Bodzy is bullish on IDEXX Laboratories (IDXX), which provides diagnostic testing equipment to veterinarians. Preventative testing of pets is on the rise, he says.
Tech is for boomers, too
Tech, the hottest segment of the stock market this year, isn’t only benefiting from gadgetloving millennials. Nearly half (46%) of baby boomers older than 65 keep in touch with grandkids, children and friends via Facebook (FB), according to Pew Research Center. The use of Facebook by this older age group has more than doubled since 2012, Pew says.
Baby boomers are also moving away from cash and increasingly using contactless payment systems as the digital economy takes root. “A lot of services we historically thought were more geared to millennials are increasingly applicable to baby boomers,” Putnam’s Bodzy says.
One stock benefiting from this trend is Paypal (PYPL), the digital payment company. The company added a record 21.3 million new accounts in its fiscal second quarter, and it expects to add 70 million new accounts in fiscal 2020. And don’t count out Zoom (ZM), the video communications platform that enables remote fact-to-face interactions.
“It’s about wanting to stay in touch,” Wiener says.
Telemed technology
Telemedicine is getting buyin from baby boomers who value the option of talking to a doctor and getting prescriptions prescribed without leaving home. It’s more convenient and less expensive than a visit to the doctor’s office. Telemedicine, which once was used mainly for basic diagnostics and dermatology, is now seeing wider uses, CFRA’s Hardy says.
Other baby boomer plays
The aging-in-place trend will boost the need for home improvements, which makes a stock like Home Depot (HD) attractive. It also benefits stocks like home health care provider LHC Group (LHCG).
Boomer investment plays such as cruise lines, airlines and resorts have been hurt and will take time to fully recover, says Stephen Dover, head of equities at Franklin Templeton. “Travel is likely to be curtailed for the next year or two, and it remains to be seen what the longer-term effect will be.”