Getting Started in Healthcare Investing

I am often asked by beginners with limited capital, “How does one start building a portfolio of Healthcare stocks?” After asking the appropriate questions about risk tolerance, general financial well-being (or lack thereof, as is sometimes the case with young individuals with near crippling student loan debt), and if they have an emergency fund, I usually steer them toward the world of exchange traded funds (ETFs). Assuming they are ready to take a step in building a portfolio, ETFs are an excellent way to get started investing in general.

There are three reasons why ETFs make sense for beginners or those with limited capital.

    1. ETFs offer a diversified portfolio of stocks that usually track a benchmark index. For example, the S&P 500 Healthcare sector ETF (ticker: XLV…which is part of the ISAW personal portfolio) contains 60 healthcare stocks. To duplicate a portfolio that diverse, you would need substantial capital reserves. See holdings and weights within the healthcare sector ETF in the chart below.
      Top Ten Holdings by Weight as of 3/24/2017
      Symbol Company Name Index Weight
      JNJ Johnson & Johnson 12.05%
      PFE Pfizer Inc. 7.16%
      MRK Merck & Co. Inc 6.14%
      UNH Unitedhealth Group Inc. 5.60%
      AMGN Amgen Inc. 4.32%
      MDT Medtronic plc 3.94%
      ABBV AbbVie Inc. 3.70%
      CELG Celgene Corp. 3.40%
      BMY Bristol-Myers Squibb 3.32%
      GILD Gilead Sciences Inc. 3.12%


    2. Management fees are rock bottom. Since ETFs are passive investments (they track well known index benchmarks and don’t require teams of portfolio managers and research staff to choose stocks), they can be run at a fraction of the cost of your typical mutual fund that does try to beat the market. Over the long run, 75% of mutual funds fail to beat the indexes. The management fee for the Healthcare sector ETF is .14%. The average management fee for mutual funds is 5 to 8 times that cost.


  1. Investment minimums are affordable to nearly everyone. Assuming you have a brokerage account, you can buy one share of an ETF. The XLV ETF costs about $75.00 a share. It also pays a dividend of about 1.5%… still better than a typical CD rate or money market account. But if interest rates rise, that may change.


Hence, for those with smaller amounts of risk capital, ETFs make an excellent way to start building long-term wealth in the healthcare sector.


Dave Lerman and Jodie Warner

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