3 Healthcare Stocks for Retirement Investors

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If there’s one thing that wreck a retirement faster than anything, its huge unexpected medical expenses.

healthcare stocks, retirement

According to healthcare advocacy group — the Kaiser Family Foundation — Americans spent around $253 billion on healthcare back in 1980. By the time the clock rolled over to 1990 that number had swelled to nearly $714 billion. But it gets much worse. In the late half of this decade, Americans spent a whopping $2.3 trillion on healthcare — equating to roughly 16% of America’s GDP.

That’s a lot of coin.

But the situation is much worse for retirement investors. The average retired couple will spend around $220,000 in healthcare costs not covered by Medicare or other insurance programs. That amount of money is more that some investors have saved in their entire portfolios.

But the situation doesn’t have to be so dire. Given the rising costs, it makes perfect sense to include a hefty dose of healthcare stocks in your portfolio — especially for retirement investors. But how exactly should investors go about adding healthcare stocks to a portfolio? Here’s one stock, one exchange-traded fund (ETF) and one mutual fund to get you started:

Healthcare Stocks For Retirement — Johnson & Johnson (JNJ)

healthcare stocks, retirement, jnj stockFor retirement investors looking at individual healthcare stocks, a dose of stability and dividends could be in order. Fitting both of those requirements is Johnson & Johnson (JNJ).

JNJ can be seen a balanced healthcare play — featuring top name-brand consumer products as well as high-tech therapies for infectious disease and cancer. It even dabbles in medical devices. That product breadth has allowed JNJ to become a dividend stalwart over the last few decades. In fact, JNJ has managed to boost its dividend for the last 52 consecutive years, and that dividend has increased at an annualized rate of about 12.1% since 1997.

The latest boost came in April of 2014. However, more rises could be in store — JNJ is only paying out about 57% of its cash flows as dividends. Adding in increased sales and a robust drug pipeline, Johnson & Johnson could be one of the best healthcare stocks for retirement investors around. It’s definitely a buy-and-hold for portfolios.

JNJ stock currently trades for a forward P/E of 17 and dividend yield of 2.7%.

Healthcare Stocks For Retirement — First Trust Health Care AlphaDEX ETF (FXH)

healthcare stocks, retirement, fxh stockThere has been a lot written on the merits and potential pitfalls of so-called smart-beta funds. These funds use various factors to screen for the best stocks within a certain broad index. The idea is that you can cut out the fat and gain potentially higher returns over the longer haul. The First Trust Health Care AlphaDEX ETF (FXH) has certainly lived up to the hype when it comes to healthcare stocks.

The $2 billion ETF has managed to beat the pants off of both the S&P 500 Healthcare Index as well as the broader Russell 1000 Healthcare Index by nearly 6% over the last five years.

FXH does this by screening healthcare stocks for various growth and value metrics — including sales-to-price, one year sales growth, book value-to-price as well as screening for momentum/price appreciation. That produces a basket of cheap, quickly growing healthcare firms. FXH currently holds 74 different healthcare stocks — including industry stalwarts like McKesson (MCK) and Eli Lilly (LLY). So this isn’t just a portfolio of high-flying biotech start-ups.

As such, it makes it a perfect play for retirement investors looking to add some extra healthcare oomph to their portfolios. Expenses for FXH run 0.70%, or $70 per $10,000 invested.

Healthcare Stocks For Retirement — Vanguard Health Care Mutual Fund (VGHCX)

healthcare stocks, retirement, vghcx stockWhile Vanguard is best known for its ultra-cheap passive index products, it does have some pretty impressive actively managed mutual funds, as well. One of the best happens to be the Vanguard Health Care Fund (VGHCX).

VGHCX has been an amazing performer since it was first launched back in the 1980s. Fund manager Edward Owens guided the $37 billion mutual fund through various market cycles and managed to be on the right side of various trends in the healthcare sector. Since its inception, VGHCX has managed to produce a 17.65% annual total return.

Owens retired back in 2012, but his successor — Jean Hynes — has been on the fund’s team for over 20 years. VGHCX is being run the exactly same way as before … meaning the hefty returns should continue for the longer haul.

And despite being an active product, Vanguards commitment to low costs continues with it active offerings. VGHCX features a low expenses ratio of just 0.35% — about 1% lower than the industry average for the healthcare stocks mutual fund. The minimum investment is $3,000.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

Aaron Levitt is an investment journalist living in Ohio. With nearly two decades of experience, his work appears in several high-profile publications in both print and on the web. Also likes a good Reuben sandwich. Follow his picks and pans on Twitter at @AaronLevitt.


Article printed from InvestorPlace Media, https://investorplace.com/2014/06/healthcare-stocks-jnj-fhx-vghcx/.

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