What are High-Growth Trends You'll Want to Invest in for 2021
Following these high-growth trends for 2021
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We've learned a lot in 2020 about where the future of healthcare is headed. There's little question that you'll want to invest in precision medicine. By precision medicine, I'm talking about drugs, devices, and services that are designed to personalize a previously one-size-fits-all treatment process.
A good example is telemedicine giant Teladoc Health (NYSE:TDOC), which saw virtual visits more than triple from the prior-year period in each of the past two quarters. Teladoc fully understands that virtual visits are more convenient for patients and physicians. They're also usually cheaper for health insurers than office visits. With the addition of fast-growing applied health signals company Livongo Health, Teladoc is on the leading edge of treatment personalization.
Investors might also consider a leader in medical devices like DexCom (NASDAQ:DXCM). DexCom produces and sells continuous glucose monitoring (CGM) systems that help diabetics monitor their blood sugar levels. DexCom's CGMs can also be used to provide instant data to physicians. Considering that there are 34.2 million people with diabetes in the U.S., and another 88 million with prediabetes, DexCom should remain busy.
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Prior to the coronavirus disease 2019 (COVID-19) pandemic, businesses big and small were steadily building online presences and increasingly sharing data via the cloud. The pandemic has simply accelerated this trend and demonstrated the importance of cloud building-block infrastructure.
One of the more obvious key players in cloud infrastructure is e-commerce giant Amazon (NASDAQ:AMZN). Retail comprises the bulk of Amazon's total sales, but most of its operating income comes from cloud infrastructure platform Amazon Web Services (AWS). AWS currently has an annual sales run rate of $46 billion. It should be responsible for tripling Amazon's operating cash flow over the next four years.
Don't overlook Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), either. Ad placement on Google, its internet search platform, is Alphabet's key growth driver. Yet the company's fastest-growing segment is Google Cloud, with 45% sales growth in Q3 2020. Cloud has an annual sales run rate approaching $14 billion. Alphabet's deep pockets and the Google brand name should be more than enough to give Amazon a run for its money.
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Growth seekers would also be wise to consider putting their money to work in U.S. marijuana stocks in 2021. The U.S. is the largest cannabis market in the world. 2021 looks as if it'll be the year vertically integrated multistate operators (MSO) push into recurring profitability. Additional state-level legalizations could further bolster industry sentiment.
Green Thumb Industries (OTC:GTBIF) is one MSO on the cusp of going green for good. The company generates approximately two-thirds of its revenue from derivatives (i.e., edibles, infused beverages, vapes, topicals, and concentrates). These derivatives boast considerably higher margins than dried cannabis flower, which will help Green Thumb beat some of its peers to the profit column. Green Thumb has 50 operational dispensaries at the moment, but holds enough licenses to open 96 total stores in a dozen states.
Cresco Labs (OTC:CRLBF) should also be on track for a banner year. Nearly half of the company's 19 open dispensaries are in the limited license state of Illinois. The Land of Lincoln opened the door to recreational pot sales on Jan. 1, 2020, and looks well on its way to north of $1 billion in annual sales by 2024.
Further, Cresco has a massive wholesale presence in California that gives it access to more than 575 dispensaries. California is the largest cannabis market in the world by annual sales.
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A fourth and final high-growth trend that investors should be all over is pet ownership. According to the American Pet Products Association, nearly 85 million households own a pet today, with $99 billion expected to be spent on companion animals in 2020. At no point over the last quarter-century have U.S. pet expenditures declined year over year.
Pet health insurer Trupanion (NASDAQ:TRUP) is one of the biggest opportunities in its industry. Trupanion has been building up rapport with veterinarians at the clinic level for two decades, which gives it a priceless advantage over other competitors entering the pet insurance space. At the moment, only 1% of U.S. pet owners have health insurance on their furry family member. Ongoing pet owner education at the clinic level should help drive these penetration rates significantly higher in years to come.
Freshpet (NASDAQ:FRPT) is yet another fast-growing company in the companion pet space. Like grocers who latched onto the organic and natural foods growth phase of the 2000s, Freshpet understands that pet owners will pay for higher-quality pet food and treats. Freshpet is still in its marketing infancy, yet has already found its way into over 22,000 retail doors. A sustainable double-digit growth opportunity lies ahead.
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Top long-term investments in January 2021
1. Growth stocks
According to bankrate, in the world of stock investing, growth stocks are the Ferraris. They promise high growth and along with it, high investment returns. Growth stocks are often tech companies, but they don’t have to be. They generally plow all their profits back into the business, so they rarely pay out a dividend, at least not until their growth slows.
Growth stocks can be risky because often investors will pay a lot for the stock relative to the company’s earnings. So when a bear market or a recession arrives, these stocks can lose a lot of value very quickly. It’s like their sudden popularity disappears in an instant. However, growth stocks have been some of the best performers over time.
If you’re going to buy individual growth stocks, you’ll want to analyze the company carefully, and that can take a lot of time. And because of the volatility in growth stocks, you’ll want to have a high risk tolerance or commit to holding the stocks for at least three to five years.
Risk/reward: Growth stocks are among the riskier segments of the market because investors are willing to pay a lot for them. So when tough times arrive, these stocks can plummet. That said, the world’s biggest companies – the Facebooks, the Alphabets, the Amazons – have been high-growth companies, so the reward is potentially limitless if you can find the right company.
2. Stock funds
If you’re not quite up for spending the time and effort analyzing individual stocks, then a stock fund – either an ETF or a mutual fund – can be a great option. If you buy a broadly diversified fund – such as an S&P 500 index fund or a Nasdaq-100 index fund – you’re going to get many high-growth stocks as well as many others. But you’ll have a diversified and safer set of companies than if you own just a few individual stocks.
A stock fund is an excellent choice for an investor who wants to be more aggressive but doesn’t have the time or desire to make investing a full-time hobby. And by buying a stock fund, you’ll get the weighted average return of all the companies in the fund, so the fund will generally be less volatile than if you had held just a few stocks.
If you buy a fund that’s not broadly diversified – for example, a fund based on one industry – be aware that your fund will be less diversified than one based on a broad index such as the S&P 500. So if you purchased a fund based on the automotive industry, it may have a lot of exposure to oil prices. If oil prices rise, then it’s likely that many of the stocks in the fund could take a hit.
Risk/reward: A stock fund is less risky than buying individual positions and less work, too. But it can still move quite a bit in any given year, perhaps losing as much as 30 percent or even gaining 30 percent in some of its more extreme years.
That said, a stock fund is going to be less work to own and follow than individual stocks, but because you own more companies – and not all of them are going to excel in any given year – your returns should be more stable. With a stock fund you’ll also have plenty of potential upside. Here are some of the best index funds.
3. Bond funds
A bond fund – either as a mutual fund or ETF – contains many bonds from a variety of issuers. Bond funds are typically categorized by the type of bond in the fund – the bond’s duration, its riskiness, the issuer (corporate, municipality or federal government) and other factors. So if you’re looking for a bond fund, there’s a variety of fund choices to meet your needs.
When a company or government issues a bond, it agrees to pay the bond’s owner a set amount of interest annually. At the end of the bond’s term, the issuer repays the principal amount of the bond, and the bond is redeemed.
A bond can be one of the safer investments, and bonds become even safer as part of a fund. Because a fund might own hundreds of bond types, across many different issuers, it diversifies its holdings and lessens the impact on the portfolio of any one bond defaulting.
Risk/reward: While bonds can fluctuate, a bond fund will remain relatively stable, though it may move in response to movements in the prevailing interest rate. Bonds are considered safe, relative to stocks, but not all issuers are the same. Government issuers, especially the federal government, are considered quite safe, while the riskiness of corporate issuers can range from slightly less to much more risky.
The return on a bond or bond fund is typically much less than it would be on a stock fund, perhaps 4 to 5 percent annually but less on government bonds. It’s also much less risky.
4. Dividend stocks
Where growth stocks are the sports cars of the stock world, dividend stocks are sedans – they can achieve solid returns but they’re unlikely to speed higher as fast as growth stocks.
A dividend stock is simply one that pays a dividend — a regular cash payout. Many stocks offer a dividend, but they’re more typically found among older, more mature companies that have a lesser need for their cash. Dividend stocks are popular among older investors because they produce a regular income, and the best stocks grow that dividend over time, so you can earn more than you would with the fixed payout of a bond. REITs are one popular form of dividend stock.
Risk/reward: While dividend stocks tend to be less volatile than growth stocks, don’t assume they won’t rise and fall significantly, especially if the stock market enters a rough period. However, a dividend-paying company is usually more mature and established than a growth company and so it’s generally considered safer. That said, if a dividend-paying company doesn’t earn enough to pay its dividend, it will cut the payout, and its stock may plummet as a result.
The big appeal of a dividend stock is the payout, and some of the top companies pay 2 or 3 percent annually, sometimes more. But importantly they can raise their payouts 8 or 10 percent per year for long periods of time, so you’ll get a pay raise, typically each year. The returns here can be high, but won’t usually be as great as with growth stocks. And if you’d prefer to go with a dividend stock fund so that you can own a diversified set of stocks, you’ll find plenty available.
5. Target-date funds
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Target-date funds are a great option if you don’t want to manage a portfolio yourself. These funds become more conservative as you age, so that your portfolio is safer as you approach retirement, when you’ll need the money. These funds gradually shift your investments from more aggressive stocks to more conservative bonds as your target date nears.
Target-date funds are a popular choice in many workplace 401(k) plans, though you can buy them outside of those plans, too. You pick your retirement year and the fund does the rest.
Risk/reward: Target date funds will have many of the same risks as stock funds or bond funds, since it’s really just a combination of the two. If your target date is decades away, your fund will own a higher proportion of stocks, meaning it will be more volatile at first. As your target date nears, the fund will shift toward bonds, so it will fluctuate less but also earn less.
Since a target-date fund gradually moves toward more bonds over time, it will typically start to underperform the stock market by a growing amount. You’re sacrificing return for safety. And since bonds are yielding less and less these days, you have a higher risk of outliving your money.
To avoid this risk, some financial advisers recommend buying a target-date fund that’s five or 10 years after when you actually plan to retire so that you’ll have the extra growth from stocks.
6. Real estate
In many ways, real estate is the prototypical long-term investment. It takes a good bit of money to get started, the commissions are quite high, and the returns often come from holding an asset for a long time and rarely over just a few years. Still, real estate was Americans’ favorite long-term investment in 2019, according to one Bankrate study.
Real estate can be an attractive investment, in part because you can borrow the bank’s money for most of the investment and then pay it back over time. That’s especially popular as interest rates sit near attractive lows. For those who want to be their own boss, owning a property gives them that opportunity, and there are numerous tax laws that benefit owners of property especially.
That said, while real estate is often considered a passive investment, you may have to do quite a bit of active management if you’re renting the property.
Risk/reward: Any time you’re borrowing significant amounts of money, you’re putting extra stress on an investment turning out well. But even if you buy real estate with all cash, you’ll have a lot of money tied up in one asset, and that lack of diversification can create problems if something happens to the asset. And even if you don’t have a tenant for the property, you’ll need to keep paying the mortgage and other maintenance costs out of your own pocket.
While the risks can be high, the rewards can be quite high as well. If you’ve selected a good property and manage it well, you can earn many times your investment if you’re willing to hold the asset over time. And if you pay off the mortgage on a property, you can enjoy greater stability and cash flow, which makes rental property an attractive option for older investors. (Here are 10 tips for buying rental property.)
7. Small-cap stocks
Investors’ interest in small-cap stocks – the stocks of relatively small companies – can mainly be attributed to the fact that they have the potential to grow quickly or capitalize on an emerging market over time. In fact, retail giant Amazon began as a small-cap stock, and made investors who held on to the stock very rich indeed. Small-cap stocks are often also high-growth stocks, but not always.
Like high-growth stocks, small-cap stocks tend to be riskier. Small companies are just more risky in general, because they have fewer financial resources, less access to capital markets and less power in their markets (less brand recognition, for example). But well-run companies can do very well for investors, especially if they can continue growing and gaining scale.
Like growth stocks, investors will often pay a lot for the earnings of a small-cap stock, especially if it has the potential to grow or become a leading company someday. And this high price tag on a company means that small-cap stocks may fall quickly during a tough spot in the market.
If you’re going to buy individual companies, you must be able to analyze them, and that requires time and effort. So buying small companies is not for everyone.
Risk/reward: Small-cap companies can be quite volatile, and may fluctuate dramatically from year to year. On top of the price movement, the business is generally less established than a larger company and has fewer financial resources. So small-caps are considered to have more business risk than medium and large companies.
The reward for finding a successful small-cap stock is immense, and you could easily find 20 percent annual returns or more for decades if you’re able to buy a true hidden gem such as Amazon before anyone can really see how successful it might eventually become.
8. Robo-adviser portfolio
Robo-advisers are another great alternative if you don’t want to do much investing yourself and prefer to leave it all to an experienced professional. With a robo-adviser you’ll simply deposit money into the robo account, and it automatically invests it based on your goals, time horizon and risk tolerance. You’ll fill out some questionnaires when you start so the robo-adviser understands what you need from the service, and then it manages the whole process. The robo-adviser will select funds, typically low-cost ETFs, and build you a portfolio.
Your cost for the service? The management fee charged by the robo-adviser, often around 0.25 percent annually, plus the cost of any funds in the account. Investment funds charge by how much you have invested with them, but funds in robo accounts typically cost around 0.06 percent to 0.15 percent, or $6 to $15 per $10,000 invested.
With a robo-adviser you can set the account to be as aggressive or conservative as you want it to be. If you want all stocks all the time, you can go that route. If you want the account to be primarily in cash or a basic savings account, then two of the leading robo-advisers – Wealthfront and Betterment – offer that option as well.
But at their best a robo-adviser can build you a broadly diversified investment portfolio that can meet your long-term needs.
Risk/reward: The risks of a robo-adviser depend a lot on your investments. If you buy a lot of stock funds because you have a high risk tolerance, you can expect more variability than if you buy bonds or hold cash in a savings account. So risk is in what you own.
The potential reward on a robo-adviser account also varies based on the investments and can range from very high if you own mostly stock funds to low if you hold safer assets such as cash in a savings account. A robo-adviser will often build a diversified portfolio so that you have a more stable series of annual returns but that comes at the cost of a somewhat lower overall return. (Here are the best robo-advisers right now.)
9. IRA CD
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An IRA CD is a good option if you’re risk-averse and want a guaranteed income without any chance of loss. Like the name says, this investment is just a CD inside an IRA. And inside a tax-friendly IRA, you’ll avoid taxes on the interest you accrue, as long as you stick to the plan’s rules.
Even if you don’t get a CD within your IRA, an IRA is a very smart investing decision.
|Risk/reward: The risk on an IRA CD might not be quite where you expect it. You have almost no risk at all of not receiving your payout and your principal when the CD matures. It’s about as safe an investment as exists, and the FDIC can guarantee your account at any individual insured institution up to $250,000 per depositor. |
The real risk on an IRA CD is whether you’re earning enough to beat inflation. It’s one reason that, if you have a core CD portfolio, a great strategy actually adds some risk to get a much better long-term return, especially if you have a long time until you need the money.
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