How to Invest in the Fountain of Youth

Like many of you, I’m a Baby Boomer. Now I find myself north of 50 and the prospect of getting “old” isn’t very attractive.

What does this have to do with investing and ETFs? Plenty! 

Social and demographic trends eventually show up in the financial markets. The post-war generation’s passage into retirement age is driving growth for a certain sector. Today I’ll describe that sector, and then list some ETFs that will help you participate.

The Fountain of Youth

Humans have sought eternal youth for thousands of years. Ancient stories describe Alexander the Great crossing a vast desert in search of a spring whose waters would reverse aging. The Spanish explorer Ponce de Leon may have been looking for the same thing when he discovered Florida in the 16th century.

He wanted the Fountain of Youth, but found Florida instead.

There’s no evidence any such fountain ever existed, but people still seek it today. Baby Boomers are particularly resistant to riding quietly into the sunset. Many of us want to hold on to youth as long as we can.

When consumers want something bad enough, capitalism usually obliges. The biotechnology industry’s explosive growth in the last two decades was no accident … and I think it’s only just beginning.

As I described in my 2009 column, Get on the Biotech Bandwagon with ETFs, modern genetics are the key to unlocking the real fountain of youth. The resulting biotechnology hasn’t made us any younger … but it helps us not feel so old!

The demographic trend is this sector’s friend. By 2020, the world will have more than 1 billion people age 60+. Those in the developed world (a group that by 2020 will include China) control vast wealth.  How will they spend it? By searching for that same elusive fountain.

Baby Boomers are pouring their capital into the best medical treatments money can buy. They aren’t just after longer life; they want better life. They want cures for whatever stands in the way of an active retirement. Cancer, heart disease, obesity, arthritis, wrinkles, you name it: Scientists are working on expensive treatments for well-heeled patients.

Genetic research may lead to a real fountain of youth.

Is eternal youth really a reasonable expectation? No, of course not.  Nevertheless, this generation grew up watching men travel to the moon. They received polio vaccines and saw smallpox wiped off the map. If they think any challenge can be overcome with enough cash and effort … well, it’s hard to blame them.

Biotech Thrives
Even in Crisis

All well and good, you might say, but we live in tough times. Can health care in general, and particularly biotechnology, keep flying into the wind?

Yes, it can, and here’s why:

Some very wealthy people will gladly spend almost any amount of money to extend their lives. Once they do, the knowledge gained in the endeavor doesn’t just disappear. It spreads quickly. Then the price starts to drop. The new treatments become available everywhere.

The rich guy who financed the initial research? He got what he wanted. If his investment lets other people live longer, too, then he did a good thing. 

All this remains true whether the economy is in boom, bust, recession or depression. Will biotech have ups and downs? Of course. But as long as people want more years and better lives, this sector will have a bright future.

ETFs: Custom-Made for Biotech

You can, of course, jump into any number of biotech stocks that are pursuing some kind of breakthrough. Unfortunately, many will fail. The key is to have a diversified portfolio so the winners offset the losers.

And how do you accomplish this? ETFs, of course! With a sector ETF, you can have instant access to an entire index of biotech stocks. I think this approach is far better than trying to pick stocks.

Here are some biotech-oriented ETFs you may want to consider:

• iShares Nasdaq Biotechnology (IBB)
  

• SPDR S&P Biotech (XBI)
  

• First Trust NYSE Arca Biotechnology (FBT)
  

• PowerShares Dynamic Biotech and Genome (PBE)
  

• ProShares Ultra Nasdaq Biotechnology (BIB)

My personal favorite is XBI. The others have their attractions as well, though, so make your own decision. Note that BIB has 2X daily leverage and is consequently more volatile than the others.

For those times when biotech is retreating, you can also get 2X inverse leverage in ProShares UltraShort Nasdaq Biotechnology (BIS).  That means you stand to make 2 percent for each 1 percent drop in the Nasdaq Biotechnology Index.  So this ETF can be used as either a speculative inverse trade, or to temporarily hedge your longer-term biotech positions.

And for clear, concise alerts on when to get into an ETF — and when to get out — you may be interested in my International ETF Trader service. Watch my latest video here.

Biotech isn’t right for everyone, of course. But if you have a long-term perspective and are willing to ride out the dips, the potential is huge.

Best wishes,

Ron