Drugs, medical devices and animal health products have all become key ways of investing in medical stocks; Make money by choosing the best of these investments

The amount of money the U.S. spends on healthcare could grow to $5.5 trillion by 2025. Some studies project the average growth in health spending will be 6% per year. Rising costs for medical services and products are key drivers of that increase. The rapid aging of the population is another major factor.

Investing in medical stocks has become more diverse as industries change and grow, including stocks associated with drug companies, medicinal devices, and animal well-being.

Investing in medical stocks: Invest in medical-supply firms as well as to drug companies to cut your risk

If you want to invest in drug stocks, we think you should focus on those that have high cash holdings and a number of drugs in the pipeline. All the better if they have access to fast-growing markets such as China, India and Latin America.

Alternatively, instead of drug companies, consider medical-equipment suppliers. Demand for medical equipment tends to grow, or at least hold steady, regardless of swings in the overall economy. Many of these firms also get recurring revenue, mainly from long-time customers. They also face little competition from generic products, and stand to gain from the continued aging of baby boomers.

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Investing in medical stocks: Growth in animal health provides opportunities for portfolio gains

Animal health, a long-time important service, has become a significant growth industry in the past decade or two. Pets (now often referred to as “companion animals”) have turned into family members in many households, especially those with just one or two members. Owners are willing to spend far more on their pets’ diet, comfort and health than ever before. Businesses are rushing to fulfill and profit from this new demand.

At the same time, rising global living standards continue to boost demand for protein-rich meat diets. That in turn has fuelled the livestock business, expanding its health-care needs.

Many medical discoveries apply to both human and animal drug development. However, animal medications are largely free of complex U.S. human-health regulations and insurance-company restrictions. Clinical trials to win approval for new veterinary drugs are also far less costly and onerous than trials on humans. So animal-health advances can contribute to better care for people, and vice versa.

Use our three-part Successful Investor approach to get long-lasting portfolio benefits—including investing in medical stocks

1. Hold mostly high-quality, dividend-paying stocks.
2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
3. Downplay or stay out of stocks in the broker/media limelight.

Some medical stocks are more controversial than others. How do you find confidence in the medical stock picks you make?

The news around some pharmaceutical companies can make them a risky investment, but how do you think that news impacts other drug manufacturers? Are they just as risky?