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Make no mistake, the COVID-19 pandemic has been a wake-up call for millions of people around the world. Suddenly, maintaining our health is the most important thing on our minds, overtaking all of the usual daily tasks like work, school and entertainment.

Economies have shut down, governments have scrambled to adapt and we’re still not yet sure what the world will look like on the other side of this.

But one area that’s seeing direct impacts is the healthcare industry. Not only are millions turning to their healthcare providers for help addressing COVID-19, but they’re also doing so in new ways as a result of the pandemic. Stay-at-home orders and concerns over exposure at hospitals have led to an explosion in the use of telehealth and digital health services.

This isn’t all new, of course. It’s been a long time since the stereotype of the lone country doctor doing house calls has been even close to true, and the industry has been evolving and growing ever since its earliest stages prior to the Civil War. In those days, medical care was a luxury with hospitals located in a few major cities to serve patients but little else available. The first hospital in the U.S., the Royal Hospital in New Orleans, opened in 1722 as a military facility but was later switched over for civilian use. By that point it was too expensive for the majority of the residents in the area to visit, so a second, charity-based hospital was built nearby, starting the tradition of hospitals serving all as a type of public service.

Medical innovation accelerated dramatically in the 20th century, with the advent of new technologies like X-ray and Magnetic Resonance Imaging improving doctor’s diagnostic capabilities, the expansion of vaccines helping to protect public health from infectious diseases, to new surgical anesthetics, antibiotics, heart surgeries, radiologic imaging and more.

As ABC News explained in 2007: “Whether it’s the technology that allows us to peer deep into the body or medicines that extend the lives of those with chronic diseases, it’s easy to see how advances in health and medicine have touched the lives of nearly every person on the planet. Yet considering the ubiquitous nature of these developments, it is easy to see how many people take for granted the technologies and practices that, at one point or another, almost certainly saved their own lives or the lives of people they’ve loved.”

The history of healthcare is a history of innovation.

That’s one of the reasons that it has become such a popular segment for investors looking to generate gains while also supporting work that’s protecting the health of millions of people. But, for those interested in the investment potential of this booming market, there are a few important points to understand.

What Is Included in ‘Healthcare’?

According to Webster’s dictionary, “healthcare” includes any “efforts made to maintain or restore physical, mental, or emotional well-being especially by trained and licensed professionals.” This includes everything related to maintaining or improving a person’s health, including the prevention, diagnosis, treatment, recovery or cure of diseases, injuries and any other physical problems that they might be experiencing.

And the list of other professionals involved in delivering healthcare is equally long, including doctors, nurses, surgeons, pharmacists, dentists, optometrists, psychologists, therapists, athletic trainers and more. Anyone providing care to people – including on the scale of public health – is involved in healthcare.

Here in the U.S., the term “healthcare” also typically applies to the entire healthcare delivery system, ranging from individual doctor’s offices all the way up to hospitals and pharmaceutical companies. A health system is a network of related facilities – usually three to 10 hospitals – that work together to deliver health services to patients in their geographic area. The National Bureau of Economic Research defines health systems based on three types of arrangements: (1) organizations with common ownership, (2) those that are contractually integrated, and (3) those that are part of informal care systems, such as common referral arrangements. “Systems include organizations combined horizontally (e.g., a hospital system) or vertically (e.g., a multihospital system also owning physician practices and post-acute care facilities).”

These systems are typically major employers in their communities and are effectively one-stop-shops for all of their patient’s healthcare needs.

Of course, delivery is just part of the healthcare equation. It also has to be paid for, and that’s where the health insurance side of things comes into the picture. Health insurance today is a tangled web of private plans, employer-provided plans, government-backed programs like Medicare and Medicaid and more. Add to this the Affordable Care Act, introduced in 2010, intended to overcome some of the limitations of the private, for-profit health insurance industry and expand affordable coverage to all Americans.

Why Invest in Healthcare?

As an industry, healthcare is massive.

Worldwide, the industry was worth $8.45 trillion as of 2018 and accounts for about 10% of most GDPs. This is on track to exceed $10 trillion by 2022.

In the U.S., it’s even bigger. As of 2019, healthcare accounted for nearly 18% of U.S. GDP and is the country’s largest employment sector, employing 1 out of every 8 Americans. We also spend the most on our health individually, at more than $10,000 annually per capita.

It’s also an extremely lucrative segment of the economy. Among the 784,000-plus companies in U.S. healthcare, more than $1 trillion in annual revenue comes from patient services, with $74 billion coming from rehab services, $50 billion from dental services and more than $44 billion from government grants and contributions. Healthcare deals with a lot of big numbers.

But there are hopes that new technologies can help tame this system and unlock new efficiencies. According to some estimates, the internet of things (IoT) can lower the costs of operational and clinical inefficiencies by $100 billion per year, and 64% of physicians believe it can help reduce the burden on nurses and doctors.

Beyond IoT, healthcare is finding new applications for Artificial Intelligence in managing patient care, blockchain in handling patient health records, chatbots for customer service and virtual reality for physician training. That’s to say nothing of the potential for marketing automation, supply chain logistics and other proven technologies that are finally finding applications in the healthcare space.

How to Invest in Healthcare

Naturally, healthcare is a large and sprawling industry. For investors, it can be challenging to choose where to invest in a segment that includes everything from drug development, to medical devices, to home health services and much more.

Investing in a mutual fund or ETF that offers exposure to the entire healthcare world is a good way to overcome this limitation, and a search on Magnifi suggests that there are a number of such funds for investors to choose from.

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The information and data are as of the June 3, 2020 (publish date) unless otherwise noted and subject to change.  This blog is sponsored by Magnifi.

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