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Good Old America

Investing in the Aging Population

Written by Jason Stutman
Posted December 26, 2013 at 7:00PM

Are you aware of the single most surefire way to make money as an American investor for the next 40 years?

If you think I'm pulling your chain, I don't blame you...

I realize that's a pretty outlandish statement.

But the truth is the strategy I'm going to tell you about today isn't based on speculation, like the majority of other investment angles out there.

It's based on cold, hard, inevitable facts.

If you were to ask me about the market outlook for mobile devices in 2014, I could give you a pretty accurate prediction: Low-margin Asian manufacturers will reap the benefits of a highly saturated premium-end market.

But if you were to ask me about the mobile device outlook in 2025, I couldn't be so sure. Wearable devices will be taking a significant chunk out of mobile phone revenue by this point, but to what extent? Well, no one can say.

If you were to inquire about the state of the consumer technology market in 2040, I'd be happy to speculate about the mind-blowing technologies that might exist, but I certainly won't be offering my take as an investor.

The reality is that there are very few certainties when it comes to investing, especially the further you look down the line.

If you want reward, you're going to have to take a risk — no matter what.

You can, however, certainly mitigate these risks by putting your money in a market that's guaranteed to grow.

Good Old America

Gold mines deplete and oil reserves run dry... but you can't stop time.

The age structure of the United States is changing, and there is nothing that will change this fact.

Today there are six million American citizens aged over 85. By 2050, that number will triple to 19 million.

Goods and services for the aging population are virtually guaranteed to see increased demand and revenues, and those of us that position our investments accordingly will certainly be able to get a piece of that growth.

We'll talk about several ways to play this inevitable trend in just a minute, but first let's look at some of the data...

The figure below is from the U.S. Census Bureau and represents the changing age structure of American men and women (the dark green represents 2010, turquoise represents 2030, and purple covers 2050).

agre structure

You'll notice that in 2010, the population thins heavily starting at around age 65. Yet by 2030 and 2050, things get increasingly top heavy. This is primarily the result of the aging baby boom generation.

Though most people don't talk about it, the implications of this are actually quite alarming.

The U.S. will see an increasing number of "age dependent" citizens for the next three decades.

In fact, the number of non-age dependent citizens will be cut in half by 2030, leaving only 17% of the population between the ages of 20 and 64.

The figure below shows the inevitable growth of American dependency through 2050.

age dependency outlook

While these figures are undoubtedly alarming by plenty of economic standpoints, there's certainly a silver lining here for the taking: a select number of industries stand to benefit from the aging U.S. population.

Health Care/Biotechnology

There are a slew of age-related diseases that will increasingly common as U.S. citizens become older. This will drive the demand, as well as the top line for many breakthrough biotechnology companies.

The majority of these diseases are chronic and have yet to see a marketable cure, so treatments that break new ground will result in massive gains for biotech investors.

Dementia

Dementia covers a broad range of diseases that result in the loss of mental functions. The most widely known forms of dementia include Parkinson's, Alzheimer's, and Huntington's. These diseases are becoming increasingly prevalent, and many of us have unfortunately experienced their detrimental effects in one way or another.

Fortunately, there are new and promising therapies in the FDA pipeline that could significantly improve treatment for various forms of dementia. This is good news not only for those of us affected by these diseases, but also for those of us invested in the companies developing groundbreaking drugs.

Just last week we enjoyed triple-digit gains from this particular dementia play:

1 yr huntingtons

Diabetes

While diabetes is most often associated with obesity and eating habits, the disease is undoubtedly age related. At under 20 years, less than 1% of Americans have diabetes; yet at 65 and older, an astonishing 26.9% develop the disease.

Like many other age-related diseases, diabetes is chronic and will almost always stay with a patient forever. From a market perspective, this means years of recurring revenue and approximately $6,000 in annual medical expenses for each individual. A large portion of these funds filters into diabetic supplies such as needles, pumps, and insulin.

Normally, this would be a standard picks-and-shovels play into the market, but recent government cuts to reimbursement has dropped the bottom out from suppliers. If you're interested in this particular space, you'll want to wait until the dust settles.

Death

The premise here is quite simple: An aging population means an increased mortality rate and higher revenues for funeral and cemetery services.

All morals aside, this is an incredibly profitable space and will be for the next several decades.

With over 85% of businesses being privately owned, the funeral industry is highly fragmented. This provides an excellent opportunity for parent companies looking to gain market share through mergers and acquisitions.

For the past decade, the largest operators in this space have been Service Corporation International (NYSE: SCI) and Stewart Enterprises (NYSE: STEI).

After several years of negotiating, Service Corp. agreed just last week to acquire the majority of Stewart's assets, driving shares for the latter up 77%.

Service Corp. can accurately be considered the Wal-Mart of funeral homes. There's little doubt the company will continue to grow, and it's likely we'll see additional acquisitions in the near future.

Look to Carriage Services, Inc. (NYSE: CSV) in particular as one of these candidates. 

Turning progress to profits,

  JS Sig

Jason Stutman

follow basic @JasonStutman on Twitter

Energy and Capital's tech expert, Jason Stutman has worked as an educator in mathematics, technology, and science... Before joining the Energy and Capital team, Jason served on multiple technology development committees, writing and earning grants in educational and behavioral technologies. Jason offers readers keen insights on prominent tech trends while exposing otherwise unnoticed opportunities.


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