The baby boomers have been a huge purchasing force in the U.S. for the past 30, almost 40, years. They have now begun to shift gears to retirement and their buying will continue be a driving force, but it will be in different areas.
A recent MarketWatch article by Robert Powell says we have to start adjusting a portion of our portfolios to match the change in their spending.
This is part one of three of how to do exactly that: follow the boomers’ money!
Retired boomers will spend an average of 35% of their income on housing, 14% on transportation, 13% on out-of-pocket healthcare, 12% on food, 5% on entertainment, 3% on apparel and another 17% on miscellaneous items: travel, alcohol, etc.
Housing is first.
Chris Pavese of Broyhill Asset Management suggests Two Harbor Investment Corp. (NYSE: TWO), an RMBS REIT, as the housing play. RMBS means residential mortgage-backed security. Essentially, it holds all kinds of home mortgages.
The stock price has taken a beating since the Fed announced the imminent demise of its bond-buying program, but Pavese says this is a buying opportunity.
It pays a 12%-plus dividend and according to the CIO of Broyhill has an attractive risk/reward relative to other housing plays.
Or, on a broader scale, you can look at the Vanguard REIT ETF (NYSE: VNQ). It tracks the MSCI US REIT Index, which tracks both commercial and residential mortgage markets but only yields about 3.6%.
But, one of the strongest recommendations in the MarketWatch article came from Greenwich Wealth Management’s CIO. If you are thinking about buying a house, from both a cost and investment perspective, now is the time.
Prices are way down, and actually back to the long-term average for increases, and mortgage rates – even though they moved up recently – are still way below long-term average costs.
My first mortgage was at 13.375%, so no whining about rates at 4% and 4.25%.
As the boomers move on to retirement, and their huge buying power is redirected, it will affect housing and many other sectors.
Be a part of the boomer shift.
A Sure Winner for Years to Come
This is part two of a three-part series on adjusting your portfolio to follow Boomer money into their retirement.
The one guarantee in the huge shift from working- to retirement-spending for boomers is an increase in healthcare spending. As we age we have more and greater health problems, and the massive number of boomers moving into this category guarantees a big spike.
And, with the advent of Obamacare, healthcare providers who currently are paid about 4% of the costs of providing care to the uninsured will be receiving 100% reimbursement. This alone will drive numbers way up for many parts of the healthcare industry.
One broad-market healthcare play that will directly benefit from increased boomer spending will be Bristol-Myers Squibb (NYSE: BMY).
I know, it is one of the most recognizable pharma plays, and there are probably a dozen big name pharmas that would work, but BMY is one that is poised to continue to capitalize on the growing demand for health services and it deserves a look.
It has been paying a dividend since 1933 and has a broad range of products that treat everything from heart attacks to arthritis, stroke, diabetes and adult leukemia, all of which are focused on our aging population.
It is expected to show an 8.2% growth factor for the next five years and currently pays a very competitive 3.2% dividend.
BMY also meets all of our requirements for a suitable holding in a retired portfolio; an essential industry, stable returns, solid long-term growth prospects, and a competitive dividend with a long history of paying and increasing the dividend.
Healthcare is one absolutely essential industry that will benefit from both the boomers’ shift in their spending habits and from the greater number of insured persons under Obamacare. BMY’s broad base of products makes it a sure winner for many years to come.
Take a look at BMY.
Next week, part III: Transportation…
Growth Potential: Unlimited
This is part three of how to capitalize on the changes in the spending habits of the baby boomers as they enter retirement. The focus this week is transportation.
Boomers will eventually buy fewer cars and travel less, so this idea is not one of the usual car manufacturers, parts rentals or even an airline play. But, it is still a transportation stock and one with a big future: Kinder Morgan (NYSE: KMI).
KMI provides transportation services for just about every kind of energy. It has 62,000 miles of natural gas pipelines, 8,600 miles of petroleum product pipelines, 62 petroleum storage facilities, 113 liquid and bulk terminals, and 2,500 miles of pipeline in Canada.
The one thing we will never do without is energy, and demand for energy transportation is expected to grow at a staggering pace as the shale opportunities in this country are developed. And an energy transportation play allows you to tap into the energy revolution without the risk the exploration and development side offers.
This play will make money no matter how many cars or trips the boomers buy or take and no matter what the price of energy does. That’s a double header! And, keep in mind that we are only on the cusp of the energy explosion in this country. There’s a lot more to come.
The growth the energy sector is expected to see in the next 30 years makes KMI a perfect source of income and growth for those looking for an essential industry that will make money in any kind of energy market.
This is a secure play with a very bright future and an excellent sleep factor.
KMI has a 47% growth factor for the next five years, which dwarfs the industry and the energy sector by more than 30%.
In just the next year, it’s expected to grow its earnings by 18% and revenues by 12.4%, and it meets all of our requirements for a retirement-friendly investment.
It has also increased its dividend every year since it was founded in 1992, from $0.08 to a current $1.32 per share. Going forward this one really could be huge.
The growth potential is unlimited.
KMI: Take a look.