Investing in health care: What to consider
- Health care is a defensive sector, which means that it generally provides stable earnings that are uncorrelated with the overall stock market or economy. As such, health care may outperform when the general market is weak or the economy is slowing.
- The health care sector is made up of many different industries that react to market trends and conditions in their own way.
- Although the sector is generally considered less volatile, it is subject to risks, including regulatory risk.
Investors looking for new sectors during times of volatility might turn to the health care sector as an option. Representing around 9% of the S&P 500, health care is a significant chunk of the market. However, before you start investing, here are some things you should consider.
What is the health care sector?
The health care sector is made up of many different industries, with companies as diverse as hospitals, drug makers, health insurers, medical device manufacturers and more. Each industry has its own dynamic, reacting differently to various trends and market conditions.
This was clearly displayed during the COVID-19 pandemic, when some companies benefited greatly, while others suffered a loss. For example, vaccine developers and diagnostic test providers greatly benefitted from the health crisis, but "other parts of the market, like medical device companies, were really hit by the lack of elective surgeries," said J.P. Morgan Private Bank U.S. Equity Strategist Abigail Yoder. Additionally, some health insurers were negatively affected by the rising unemployment rate because they insure people through corporate plans and missed out on those premiums.
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Investing in health care: Pros and cons
Health care is considered a defensive sector, which means that it generally provides stable earnings that may be uncorrelated with the overall stock market or economy. Like any investment, however, it has its own pros and cons.
Pros of investing in health care
Some of the benefits of the health care investments include:
- Consistent earnings: Since health care earnings aren’t necessarily as closely tied with the market or economy, investors in this sector may see more consistent earnings growth. According to Yoder, prior to 2023, health care was the only sector that had positive annual earnings growth every single year for 21 consecutive years, including throughout the pandemic.
- Lower volatility and steady growth: "Health care has lower beta and lower volatility. It’s a structural, long-term growing sector," Yoder said.
- Portfolio diversification: Health care can provide diversification benefits to an investor’s portfolio. Advisors often recommend pairing health care with cyclical stocks that have higher growth potential but are riskier.
Cons of investing in health care
Despite boasting some impressive benefits, health care investments also have some potential downsides to consider as well:
- Regulatory risk: A major headwind for the sector is regulatory risk, which relates to drug pricing and cost control, as well as potential shifts in health care policy.
- Clinical trial risk: Every clinical trial is a potential make-or-break moment for certain companies in the health care sector. For example, if a company’s clinical trial data shows that its new drug is ineffective, that can cause the stock price to plummet.
- Aftermarket risk: Aftermarket data – like the number of prescriptions written, FDA warnings or the loss of a patent – can also affect investments in the pharmaceutical industry.
- Potential underperformance: Although health care has historically been one of the only sectors with consistent growth, it may sometimes lag other sectors during periods of strong economic growth.
Investments in health care: Trends and opportunities
Health care provides individuals with the opportunity to invest in companies that are constantly innovating to improve quality of life. One of the top megatrends of the sector has been the advent of GLP-1 weight loss therapies that could have the potential to revolutionize health care as we know it by accelerating the shift from a therapy- and treatment-oriented system to a more preventative model that attempts to stem illnesses before they amplify.
Why is that the case? Obesity and Type 2 diabetes come alongside a whole host of other illnesses such as heart disease, kidney disease, chronic inflammation and even certain types of cancer, that are often a direct result of being obese or having Type 2 diabetes.
So, if enough patients take these medications, we could see not only those illnesses fall in prevalence, but also a decline in the rate of people developing obesity/diabetes. While it will likely take years for this to play out, we are encouraged by the progress that has been made so far and will only continue to learn more as patients are on these medications for longer.
Other megatrends that influence the health care sector include artificial intelligence, an aging population and personalized medicine. The U.S. Census Bureau projects that by 2030, adults over 65 will account for nearly 21% of the U.S. population. This demographic tends to spend more on health care as they age.
Following recent underperformance, the market capitalization weighting of the health care sector in the S&P 500 dropped from highs of over 15% at the end of 2022 to around 9% in September 2025. “You can attribute that to a few things, but overall industry disruption since the height of the pandemic and policy uncertainty have weighed on the sector,” Yoder said.
There are different ways to invest in the health care sector. For example, investing in health care mutual funds and exchange-traded funds (ETFs) can be a low-cost, focused way to gain exposure to the sector. For those interested in investing in individual health care stocks, it is important to understand the industry dynamics that each company falls under. For example, drug companies are greatly affected by clinical-trial data, and surprise outcomes can influence their stock price.
The bottom line
Investing in health care may help with diversifying your portfolio. The health care sector has seen consistent growth over time, even during market downturns, and may be exposed to less volatility compared to some sectors. However, it’s not without its challenges, including regulatory and clinical trial risks. It’s also helpful to remember that health care isn’t a monolith, and certain areas of the industry may do better than others at different times. As with any investment decision, consider speaking with a financial advisor to learn how investing in health care might fit into your portfolio strategy.
Frequently asked questions about investing in health care
Whether or not you choose to invest in health care is a matter of deciding how it fits within your investment strategy. You may consider researching all the pros and cons thoroughly to understand what best fits your approach. Alternatively, you can consult a qualified financial advisor for more specific advice.
Long-term investments in health care are generally focused on companies or funds that seek sustainable growth over time. This could include established pharmaceutical companies or companies that are poised to benefit from long-term demographic trends, just to name a few.
Investing in health care is a lot like investing in any other sector of the market. You can buy individual shares of companies within this sector, or purchase shares of mutual funds or exchange-traded funds (ETFs) focused on the health care sector as a whole. You need to consider your understanding of the pros and cons, your risk tolerance and time horizon when deciding how and when to invest.
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