Health care industry looking fit for investors

If you've got a headache, you're going to reach for a pain reliever. If you've got a sore throat, you'll go for the lozenges. If you cut yourself, it's time for the bandages. And when you do these things, you probably won't give a thought to what's happening in the economy.

That's why health care rarely goes out of style as an investment.

Regardless of what's going on in the markets, people still get sick, visit doctors, require prescriptions and use other medical procedures.

The health care industry has grown rapidlv over the past few years and it could be attractive to investors, due to several important trends.

Aging populace

Of course, we're all getting older. But now, more Americans are getting older than ever before.

In fact, the over-65 segment will expand by 55 percent over the next 20 years, according to a Census Bureau estimate.

And despite a movement toward healthier lifestyles, people still generally need more health care services as they age.

New international markets

Developing nations and Third World countries spend only a fraction of what the United States spends on health care.

However, as these developing nations build their economies, they will likely devote a higher percentage of their total income to health care.

Medicare reform

Congress continues to debate Medicare reform proposals. Various bills ranging in topic from significant government involvement to a subsidized, private-payer system are being drafted.

Ultimately, a middle-of-the-road settlement may well emerge one that helps consumers and continues to provide growth opportunities for the health industry.

Within the broad heading of "health care," companies typically fall into four segments:

Drug companies: Although prescription medicines are extremely costly to develop, a "blockbuster" drug, such as Viagra or Vioxx, can prove lucrative to the drug company involved.

Medical devices: Medical device manufacturers produce products and equipment used to diagnose and treat medical conditions.

Some of the most promising companies offer products designed to combat cardiovascular disease.

Health care services: Health care service providers, such as hospitals and health maintenance organizations, must overcome considerable obstacles.

Facing increased competition, HMOs have been hurt by not being able to pass higher costs on to consumers. And the hospital industry is in the midst of rapid consolidation.

Biotechnology: Biotechnology firms use genetic engineering and DNA technology to produce therapies and products.

Although biotechnology draws a lot of attention, there are substantial risks involved in investing in this sector. Smaller biotech firms, for example, often operate at a substantial loss and typically lack product diversification.

Furthermore, these firms tend to rely on outside sources to fund their research and development.

Finally, there's no assurance that the Food and Drug Administration will approve the drugs that biotech firms are developing.

Although some health care segments are riskier than others, the industry in general has a bright future.

So, if your portfolio doesn't currently contain much in this area, you may want to consider some of the possibilities.

It's a good way to diversify your holdings in a healthy way.

(Betty J. Neal, CFP, is an investment representative with Edward Jones in Springfield.)