Retirement & Financial Planning Report

In 2008, mutual funds specializing in health care stocks lost ”only” 23%, on average. That was much better than the broad market. Those funds also had a great year (up 57%) in 2000, a year that technology stocks collapsed and the broad market fell. Thus, health care funds have proven they can provide some protection in bear markets.

In fact, health care funds have outperformed the S&P 500 index over the last one, three, five, 10, and 15 years. Over the past 15 years, health care funds have returned over 10% a year, on average.

Looking ahead, the prospects for health care stocks are promising, even if a federal health care program results in some price controls. Any new program probably will provide coverage for more people, effectively increasing the number of patients and the demand for medical services. Moreover, a worldwide aging population is bound to require more pharmaceuticals, tests, and so on.

Therefore, you might want to include a health care fund in your portfolio, as a long-term holding. Morningstar’s picks are Hartford Global Health Fund, T. Rowe Price Health Sciences, and Vanguard Health Care.