Vanguard Health Care Fund in my portfolio?

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Slothmeister
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Vanguard Health Care Fund in my portfolio?

Post by Slothmeister » Wed Sep 13, 2017 5:33 pm

Does anyone think it's a good idea to start an investment portfolio that includes Vanguard Health Care Fund in the equities portion?

Vanguard Health Care Fund 20%
Vanguard Total Stock Market Admiral Shares 20%
Vanguard Total Bond Market Index Fund Admiral Shares 40%
Vanguard Total International Stock Index 20%

I'm still around 12-13 years out from retirement but I'm thinking the market is overvalued and a correction is imminent. From what I've gathered, health care doesn't quite mirror the market so it might be a productive fund whether the market hits the skids or not? I'm trying to collect a group of funds that diverge in correlation in order to withstand a serious correction yet maintain a pretty decent return in our current market.

fabis
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Re: Vanguard Health Care Fund in my portfolio?

Post by fabis » Wed Sep 13, 2017 6:32 pm

First, I am only 29 , not much experience in the markets. Take everything I say with half a grain of salt.

Secondly, with single payer looming in the distance, do you think the fund will appreciate or depreciate if it passes?

livesoft
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Re: Vanguard Health Care Fund in my portfolio?

Post by livesoft » Wed Sep 13, 2017 6:46 pm

1. Not in a taxable account.

2. Definitely not if you work in the healthcare sector.

3. No.
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RyeWhiskey
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Re: Vanguard Health Care Fund in my portfolio?

Post by RyeWhiskey » Wed Sep 13, 2017 6:47 pm

No. This is a pure gamble on your part; you have no idea if the HC fund will outperform the overall index; and it is far too large a portion of your portfolio to take such risk with. What if it underperforms for the next 10 years? Do you think you can hold it through such times? I doubt it.

I'm 31. When I joined this forum a while back I tinkered with all sorts of portfolios for myself. I tried to put things together that I thought would do better only to learn that I knew very little. I ultimately fell back on holding the Total World Market Index and I add/remove short-term bonds as needed for comfort (I'm adding now). I check my portfolio once a quarter for record keeping. Let compounding do the work. Simple. Easy. Don't complicate things. :beer
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nervouscorps
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Re: Vanguard Health Care Fund in my portfolio?

Post by nervouscorps » Wed Sep 13, 2017 6:51 pm

20% is way too much. I like the fund and is one of the only sector funds I own but I think doing more than 5% is very risky. I think my allocation is 3%.

dbltrbl
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Re: Vanguard Health Care Fund in my portfolio?

Post by dbltrbl » Wed Sep 13, 2017 6:59 pm

If you truly have the stomach go for it. I know, I am in minority on board but you decide. I went in at it's highest price in 1994 and kept adding by DCA. did cash 20k to buy a vehicle. Would it be good going forward who knows but your money and and you can go for 20%. Just do not rub at first sign of trouble or lag total stock market.

Nate79
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Re: Vanguard Health Care Fund in my portfolio?

Post by Nate79 » Wed Sep 13, 2017 7:12 pm

Nope, not for me I wouldn't. I am not interested in a sector bet and consider Healthcare to be extremely risky sector bet as it is too much tied to government policy compared to other sectors.

Slothmeister
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Re: Vanguard Health Care Fund in my portfolio?

Post by Slothmeister » Wed Sep 13, 2017 7:49 pm

This is a pure gamble on your part; you have no idea if the HC fund will outperform the overall index; and it is far too large a portion of your portfolio to take such risk with. What if it underperforms for the next 10 years?

If it underperforms, I'm thinking it still outperforms Total Stock Market. It's volatile, but consistently so.

shanefairman
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Re: Vanguard Health Care Fund in my portfolio?

Post by shanefairman » Wed Sep 13, 2017 8:05 pm

The conventional wisdom is to avoid sector bets and just purchase the market.

On the other hand I too have a sector bet in VGHCX. It's around 20% (19.91%) of my portfolio. On the other hand I'm 30 years out from retirement and have no plans to sell even if it takes a dive. I held it just fine through the last several years when healthcare took a minor beating while the rest of the market greatly out performed it.

My thought on the sector is that it has greatly outperformed the rest of the market for a sustained period. Also the demographics are right with baby boomers already starting to retire. Even if the US goes to a single payer system there are a lot of people that will still need healthcare.

I can sleep well with 100% equities now and I suspect I will be able to sleep just fine up to and into retirement at 100% equities. If you are risk averse just buy the market and be happy with market returns.
“You must not only think for yourself, you must plan for yourself, and you must plan ahead, and you must live up to these plans. You must know exactly what you want to do.” -George Carlin, Boston Rant

Slothmeister
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Re: Vanguard Health Care Fund in my portfolio?

Post by Slothmeister » Wed Sep 13, 2017 8:05 pm

Nope, not for me I wouldn't. I am not interested in a sector bet and consider Healthcare to be extremely risky sector bet as it is too much tied to government policy compared to other sectors.

I think you're right that it's tied to government policy, but I i've read that pharmaceuticals will play big in the international arena (yet probably cheaper there than here).

Slothmeister
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Re: Vanguard Health Care Fund in my portfolio?

Post by Slothmeister » Wed Sep 13, 2017 8:10 pm

My thought on the sector is that it has greatly outperformed the rest of the market for a sustained period. Also the demographics are right with baby boomers already starting to retire. Even if the US goes to a single payer system there are a lot of people that will still need healthcare.

Another great point!

fundseeker
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Re: Vanguard Health Care Fund in my portfolio?

Post by fundseeker » Wed Sep 13, 2017 8:42 pm

Well...while you're betting, take a look at Fidelity® Select Medical Equipment and Systems Portfolio (FSMEX) and its awesome returns for 1, 3, 5, AND 10 years! I bought just a little for fun, so I am not quite as committed as you.

Wakefield1
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Re: Vanguard Health Care Fund in my portfolio?

Post by Wakefield1 » Wed Sep 13, 2017 8:54 pm

I think having 20% of that in a portfolio is more prudent than having 20% in a single stock.
Whether it beats or lags the market long term is anyone's guess but I think health care is a part of the society that will continue to be extremely well funded (a lot of money spent) especially as more people get old (is average age in USA or developed world increasing?)

venkman
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Re: Vanguard Health Care Fund in my portfolio?

Post by venkman » Wed Sep 13, 2017 8:57 pm

Slothmeister wrote:
Wed Sep 13, 2017 8:10 pm
My thought on the sector is that it has greatly outperformed the rest of the market for a sustained period. Also the demographics are right with baby boomers already starting to retire. Even if the US goes to a single payer system there are a lot of people that will still need healthcare.

Another great point!
Yes, baby boomers are getting older, and that suggests overall usage of the health care system will increase, which in turn suggests that companies in the health care sector will see increased business and profits. All of this is true. And all of this is already priced into every stock in the health care sector. The market already expects health care business to increase by a certain amount. The performance of health care stocks will depend on whether profits increase by more or less than the amount predicted.

"Greatly outperformed the rest of the market for a sustained period" should be a GIANT red flag for anyone thinking of investing in ANY given sector of the market.

Slothmeister
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Re: Vanguard Health Care Fund in my portfolio?

Post by Slothmeister » Wed Sep 13, 2017 9:03 pm

"Greatly outperformed the rest of the market for a sustained period" should be a GIANT red flag for anyone thinking of investing in ANY given sector of the market.

I think you have something, and I believe at some point, it will nose-dive, but how could a sector inherently necessary for survival be in the dumps for an extended period?

Slothmeister
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Re: Vanguard Health Care Fund in my portfolio?

Post by Slothmeister » Wed Sep 13, 2017 9:10 pm

Well...while you're betting, take a look at Fidelity® Select Medical Equipment and Systems Portfolio (FSMEX) and its awesome returns for 1, 3, 5, AND 10 years! I bought just a little for fun, so I am not quite as committed as you.

Wow! That's a lively fund. Very high returns, but of course the ER is up there. Too high to hold if the market tanks though. Vanguard's Health Care at .37 is probably too high come to think of it.

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dwickenh
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Re: Vanguard Health Care Fund in my portfolio?

Post by dwickenh » Wed Sep 13, 2017 9:37 pm

I also have about 5% in Vanguard health care. I put it in our Roth IRAs as I was looking for something last year that I could buy at a discount, and leave alone for 20 years. I don't believe that single payer will be bad for the Healthcare sector if it ever comes to that. Healthcare was down 8% last year so I tried to be contrarian and buy what was down(reversion to mean). So far it has been a good investment, but who knows. I will leave it alone and kids can have it when we are gone.

20% is too much to gamble with in my opinion.

Best of luck to you,

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

venkman
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Re: Vanguard Health Care Fund in my portfolio?

Post by venkman » Wed Sep 13, 2017 9:39 pm

Slothmeister wrote:
Wed Sep 13, 2017 9:03 pm
"Greatly outperformed the rest of the market for a sustained period" should be a GIANT red flag for anyone thinking of investing in ANY given sector of the market.

I think you have something, and I believe at some point, it will nose-dive, but how could a sector inherently necessary for survival be in the dumps for an extended period?
Hypothetically speaking, just for illustrative purposes, and without making any speculations as to whether or not it will occur: :happy

Any sort of legislation that results in the government having more power to negotiate health care prices could drive down costs (also driving down profits for health care providers). The health care sector obviously isn't going to go away, but the private profits generated by that system could permanently become much lower than they are today.

TropikThunder
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Re: Vanguard Health Care Fund in my portfolio?

Post by TropikThunder » Thu Sep 14, 2017 12:35 am

Slothmeister wrote:
Wed Sep 13, 2017 9:03 pm
I think you have something, and I believe at some point, it will nose-dive, but how could a sector inherently necessary for survival be in the dumps for an extended period?
"Necessary for survival" does not guarantee profitability if reimbursements become limiting. Everyone needs food, so why aren't grocery stores a great investment?

TropikThunder
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Re: Vanguard Health Care Fund in my portfolio?

Post by TropikThunder » Thu Sep 14, 2017 12:37 am

venkman wrote:
Wed Sep 13, 2017 9:39 pm
Any sort of legislation that results in the government having more power to negotiate health care prices could drive down costs (also driving down profits for health care providers). The health care sector obviously isn't going to go away, but the private profits generated by that system could permanently become much lower than they are today.
That's potentially VERY significant for drug prices, and thus for pharmaceutical profits. One of the primary features/bugs of the Medicare Part D drug coverage was that CMS was expressly prohibited from using bulk purchasing power to negotiate drug prices. That won't happen again.

Slothmeister
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Re: Vanguard Health Care Fund in my portfolio?

Post by Slothmeister » Thu Sep 14, 2017 5:02 am

TropikThunder wrote:
Thu Sep 14, 2017 12:35 am
Slothmeister wrote:
Wed Sep 13, 2017 9:03 pm
I think you have something, and I believe at some point, it will nose-dive, but how could a sector inherently necessary for survival be in the dumps for an extended period?
"Necessary for survival" does not guarantee profitability if reimbursements become limiting. Everyone needs food, so why aren't grocery stores a great investment?
Good point.

Slothmeister
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Re: Vanguard Health Care Fund in my portfolio?

Post by Slothmeister » Thu Sep 14, 2017 5:06 am

TropikThunder wrote:
Thu Sep 14, 2017 12:37 am
venkman wrote:
Wed Sep 13, 2017 9:39 pm
Any sort of legislation that results in the government having more power to negotiate health care prices could drive down costs (also driving down profits for health care providers). The health care sector obviously isn't going to go away, but the private profits generated by that system could permanently become much lower than they are today.
That's potentially VERY significant for drug prices, and thus for pharmaceutical profits. One of the primary features/bugs of the Medicare Part D drug coverage was that CMS was expressly prohibited from using bulk purchasing power to negotiate drug prices. That won't happen again.
Does the drug pricing involved in Part D and CMS involve international marketing?

Slothmeister
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Re: Vanguard Health Care Fund in my portfolio?

Post by Slothmeister » Thu Sep 14, 2017 5:08 am

venkman wrote:
Wed Sep 13, 2017 9:39 pm
Slothmeister wrote:
Wed Sep 13, 2017 9:03 pm
"Greatly outperformed the rest of the market for a sustained period" should be a GIANT red flag for anyone thinking of investing in ANY given sector of the market.

I think you have something, and I believe at some point, it will nose-dive, but how could a sector inherently necessary for survival be in the dumps for an extended period?
Hypothetically speaking, just for illustrative purposes, and without making any speculations as to whether or not it will occur: :happy

Any sort of legislation that results in the government having more power to negotiate health care prices could drive down costs (also driving down profits for health care providers). The health care sector obviously isn't going to go away, but the private profits generated by that system could permanently become much lower than they are today.
I think it would be wise to keep a close eye on legislation. That would make holding this fund much more difficult long term.

gd
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Re: Vanguard Health Care Fund in my portfolio?

Post by gd » Thu Sep 14, 2017 5:49 am

I had lots of VGHAX for 2 decades, and it did quite well for me through many cycles of criticism. It put out a *lot* of cg distributions at times, complicating my increasingly-detailed tax bracket planning at end of year. I now hold less of the index fund, agonizing about the differences before the switch and never thinking about it after.

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midareff
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Re: Vanguard Health Care Fund in my portfolio?

Post by midareff » Thu Sep 14, 2017 6:33 am

I have VGHAX @ 10% of total portfolio and have had it for many years, and done very well with it. It throws significant capital gains 2 to 3 times a year which I would not want in a taxable account. With an aging population wave and healthcare penetrating the third world I see it as a lifelong holding.

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jhfenton
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Re: Vanguard Health Care Fund in my portfolio?

Post by jhfenton » Thu Sep 14, 2017 9:41 am

If I had a broad market portfolio, I would not add a health care fund on top of it. Health care has adequate representation in the broad indices.

But I think a small position (5%?) can make sense if you have a portfolio very heavily tilted to small value. Vanguard's small and mid cap value index funds have next to no healthcare sector exposure, and the healthcare sector is less correlated with small value than most of the other sectors. (The flip side is that real estate is over-represented in Vanguard's small and mid value funds, so I see no need for a sector fund, whereas I might if I had a broad market portfolio where real estate is arguably under-represented.)

I would certainly not do 20%. That's far too big a sector bet.

Nicolas
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Re: Vanguard Health Care Fund in my portfolio?

Post by Nicolas » Thu Sep 14, 2017 8:03 pm

Slothmeister wrote:
Wed Sep 13, 2017 8:10 pm
My thought on the sector is that it has greatly outperformed the rest of the market for a sustained period. Also the demographics are right with baby boomers already starting to retire. Even if the US goes to a single payer system there are a lot of people that will still need healthcare.

Another great point!
If you really want to get ahead of the curve with baby boomers buy Service Corp. International, SCI. Their profits could be amazing going forward.

Finance-MD
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Re: Vanguard Health Care Fund in my portfolio?

Post by Finance-MD » Thu Sep 14, 2017 8:32 pm

along the line of choosing your allocation of health care, i've wondered if Vanguard or someone else might make an index that particularly excludes a sector... e.g. VXHC (vanguard excluding health care total stock market index)...

that way i could divest our investments from health care as over 90% of our household net earnings currently come directly from healthcare... i could potentially add a bit of the vanguard health care fund to the level i desire (but below market weight).

ColoradoRick
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Re: Vanguard Health Care Fund in my portfolio?

Post by ColoradoRick » Fri Sep 15, 2017 11:30 am

A previous poster posted this:

My thought on the sector is that it has greatly outperformed the rest of the market for a sustained period. Also the demographics are right with baby boomers already starting to retire. Even if the US goes to a single payer system there are a lot of people that will still need healthcare.

Another great point!
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Below is Colorado Rick:
It is against BH policy, but when I retired 4 yrs ago I had
5% Int'l Stocks
5% Vanguard Healcare
5% Emerging Mkts
30% S&P 500
5% Play Money Div. Aristocrats
Balance in Gov't STT

After watching above for 10 yrs with Greek Crisis and Meh! performance I got out of Emerging Markets and Int'l Stocks. I've added to Healthcare to where it is now 12% of financial assets. I realize it is risky but we have 7 yrs expenses covered with FDIC CDs (laddered) and I've been very pleased with Healthcare, with the caution of only tax-exempt accounts as they pay 1-2 dividends/yr and have large capital gains once or twice a year. Many of my friends are getting hips/knees replaced and having health issues. I buy when it dips. Bought low 5 figures around year end when it was just above and below $80. Couldn't be happier. As far as int'l exposure depending upon where you read S&P has 40% of earnings oversees and that's good enough for me. But I know the risk I am taking, and like many here I pick and choose minor exceptions to BH philosophy. I truly believe the managers of the fund know the industry extremely well.

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flamesabers
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Re: Vanguard Health Care Fund in my portfolio?

Post by flamesabers » Fri Sep 15, 2017 11:52 am

OP,

I think having 1/3 of your equities in a single sector fund is a bit too risky, especially since you're only about 12-13 years from retirement. If you really want to invest in this fund, I suggest going with a much smaller percentage.

TIAX
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Re: Vanguard Health Care Fund in my portfolio?

Post by TIAX » Fri Sep 15, 2017 2:23 pm

Slothmeister wrote:
Wed Sep 13, 2017 5:33 pm
I'm thinking the market is overvalued and a correction is imminent.
If a correction is imminent, why not go 100% bonds?

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Re: Vanguard Health Care Fund in my portfolio?

Post by hushpuppy » Fri Sep 15, 2017 5:14 pm

delete
Last edited by hushpuppy on Fri Nov 17, 2017 10:43 am, edited 1 time in total.
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Coachrhino11
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Re: Vanguard Health Care Fund in my portfolio?

Post by Coachrhino11 » Sat Sep 16, 2017 4:51 pm

I've been thinking around 5-10% myself as well. 20% is more than I feel comfortable with, but I do feel like healthcare is something that will always be in high demand and continues to evolve.

TIAX
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Re: Vanguard Health Care Fund in my portfolio?

Post by TIAX » Sun Sep 24, 2017 4:53 am

Coachrhino11 wrote:
Sat Sep 16, 2017 4:51 pm
I've been thinking around 5-10% myself as well. 20% is more than I feel comfortable with, but I do feel like healthcare is something that will always be in high demand and continues to evolve.
And why wouldn't that be true of other sector funds? For example, won't energy always be in high demand and continue to evolve?

hushpuppy
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Re: Vanguard Health Care Fund in my portfolio?

Post by hushpuppy » Sun Sep 24, 2017 4:24 pm

delete
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TIAX
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Re: Vanguard Health Care Fund in my portfolio?

Post by TIAX » Mon Sep 25, 2017 5:53 pm

hushpuppy wrote:
Sun Sep 24, 2017 4:24 pm
TIAX wrote:
Sun Sep 24, 2017 4:53 am
Coachrhino11 wrote:
Sat Sep 16, 2017 4:51 pm
I've been thinking around 5-10% myself as well. 20% is more than I feel comfortable with, but I do feel like healthcare is something that will always be in high demand and continues to evolve.
And why wouldn't that be true of other sector funds? For example, won't energy always be in high demand and continue to evolve?
You and others may not agree, but I think healthcare is different from other sectors. I respect the opinions that others hold, but I would like to give the main difference I perceive.

I can reasonably choose whether to purchase practically all goods and services. Even in cases of water and power I can take steps to reduce use/cost. Healthcare in many cases does not allow reasonable options. It often comes down to your money, or your life (or quality of life). As a related matter, much sought after medical innovations (new drugs and procedures) are likely to be payed for by our society, assuming an at least quasi-capitalist system survives. For those who have not contemplated the ramifications of poor health, diseases and general aging, I would posit they are enjoying a condition that will not last.

However, I subscribe to the "To each their own" philosophy.

Regards,

hushpuppy
You don't think it's possible to reduce your health care costs? Ever heard of medical tourism? Or shopping around? In any case, even if if you're right, why do you think the returns will be higher than TSM?

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Re: Vanguard Health Care Fund in my portfolio?

Post by minesweep » Mon Sep 25, 2017 6:41 pm

Your Total Stock Market fund has 13.3% in healthcare. And your Total International Stock Fund has 7.75% in that sector. With the addition of the 20% healthcare fund Morningstar's Instant X-Ray shows that 39% of your stock exposure would be in healthcare.

The S&P 500 has 15% healthcare exposure.

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Re: Vanguard Health Care Fund in my portfolio?

Post by Grt2bOutdoors » Mon Sep 25, 2017 6:56 pm

Think of healthcare as cutting edge technology or not. The firms that gain an edge over the competition and improve health outcomes will prosper enormously. However, since you just don't know which firms will gain that edge, far better to own the entire enchilada. The Healthcare fund has had a good run but runs come to end from time to time, I would not risk 20% of my retirement dollars on anyone industry unless the market weights reflect that, you might get lucky or you may just seriously under-perform the broad market.
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Re: Vanguard Health Care Fund in my portfolio?

Post by hushpuppy » Wed Sep 27, 2017 1:14 pm

delete
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Re: Vanguard Health Care Fund in my portfolio?

Post by hushpuppy » Wed Sep 27, 2017 5:42 pm

delete
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Miriam2
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Re: Vanguard Health Care Fund in my portfolio?

Post by Miriam2 » Wed Sep 27, 2017 7:37 pm

OP here are several other threads on health care sector funds:

viewtopic.php?f=10&t=160286
viewtopic.php?f=1&t=180302

My husband owns T.Rowe Price Health Sciences Fund (PRHSX) in his 401k. I read it owns a different mix of health care companies than the Vanguard Health Care fund (VGHAX), so it appears they are not just following each other around.

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Re: Vanguard Health Care Fund in my portfolio?

Post by Richard1580 » Wed Sep 27, 2017 8:07 pm

I may be mistaken, but doesn't health care represent about 20% of our GDP?
Personally, I would not put 20% into health care, but 10% or less seems reasonable. I will add that I have made a pile of money in the Vanguard health care fund/ETF. It is one of the funds I just can't part with, although I do sell off from time to time. I am planning to have between 7.5% and 10% in my retirement portfolio.

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Re: Vanguard Health Care Fund in my portfolio?

Post by hushpuppy » Wed Sep 27, 2017 9:35 pm

delete
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