Updated on Thursday, January 14, 2021
When COVID-19 hit, the whole world anxiously watched the pharmaceutical sector for a cure. And it came through, creating a vaccine in record time.
This success led to a new surge of investor interest, as 36% of investors expect to put more money in pharmaceutical stocks in 2021, according to the latest MagnifyMoney survey of nearly 1,000 investors. In addition, 57% of investors said the promise of a vaccine made them more likely to invest.
MagnifyMoney looked at this new interest from multiple angles, including the expectations, regrets and ethical concerns people had about pharmaceutical investments.
As noted, our survey showed that 36% of respondents said they expect to invest more in pharmaceutical stocks in 2021:
Male investors (43%) seemed more interested in investing more in pharmaceutical stocks in 2021 than female investors (25%). Gen Xers (47%) led the way among the age groups, compared with:
Tendayi Kapfidze, LendingTreeâ€™s chief economist, believes there are good reasons to consider pharmaceutical stocks for investors looking to make money.
â€śHealth care is one of the fastest-growing sectors of the U.S. economy,â€ť Kapfidze said. â€śAn aging population means that demand for health products, including pharmaceuticals, will continue to increase.â€ť
Still, he acknowledged that pharmaceutical investing does have its downsides.
â€śThe products are complex, which can be difficult for the average investor to analyze,â€ť he said. â€śDrug development is also a risky process, as potential drugs have low odds of reaching the market.â€ť
Given the potential risks and downsides of pharmaceutical stocks, it makes sense that 20% of investors donâ€™t expect to invest in pharma at all in 2021. However, given that 31% of investors didnâ€™t have any pharmaceutical stocks in 2020, this is another sign that the promise of a COVID-19 vaccine increased interest.
Our survey data backs this up, as 57% of respondents said the vaccine made them more likely to invest â€” once again with a greater impact on male investors than female investors (62% versus 47%, respectively).
Some stocks working on vaccines have performed very well the past year, said Kapfidze, explaining the appeal. However, he cautioned that those gains may be already realized, so future investment earnings could depend on new innovations.
Overall, 61% of investors have at least one pharmaceutical stock in their portfolio. Of those investors, the most likely to invest in pharmaceuticals include those with a household income of $100,000-plus (71%), men (68%) and millennials (also 68%).
Noteworthy: 18% of baby boomer investors werenâ€™t sure if there were any pharmaceutical stocks in their portfolio, while only 6% of both millennial and Gen X investors said the same.
Of those investors who have at least one pharmaceutical stock in their portfolio:
As for how investors decide which pharmaceutical stocks to invest in, the reasons vary:
Nearly 2 in 10 (18%) noted a financial advisor or robo-advisor makes those decisions for them. Thatâ€™s especially true for baby boomers, as nearly a third (32%) who invest in pharmaceuticals said an advisor helps them select which investments to make, versus 17% of Gen Xers and 13% of millennials.
More than 8 in 10 (82%) investors have made some sort of pharmaceutical investment over the past nine months â€” amid the coronavirus crisis. Hereâ€™s how those numbers break down:
The constant news about COVID-19 and the vaccine rollout made an impact on investors. They seem to be tracking the news, as 28% made their most recent purchase within the past month â€” during the vaccine rollout â€” and another 27% made their most recent purchase more than a month ago but within the past three months, when the vaccines were getting close to launch.
Investors overall have been active, as 74% have reallocated their portfolio in some way over the past month. Of this group, 35% reallocated their portfolio to put more money in pharmaceutical investments â€” with men being more likely to invest more compared to women and Gen Xers and millennials being more likely to move into pharma than baby boomers.
The majority of investors â€” nearly 60% â€” believe itâ€™s ethical to invest in pharmaceutical stocks. Interestingly, another 10% said itâ€™s unethical, but do it anyway:
Whether investing in pharmaceuticals is ethical is a topic of debate. After all, these companies can profit off life-saving discoveries. They can also end up putting shareholder returns above helping others, such as charging a high price for an essential medicine.
Thatâ€™s why 12% of investors reported not putting their money in pharmaceutical stocks due to ethical concerns. Female investors (14%) were more likely than male investors (10%) to avoid pharma due to ethics.
Still, money talks, as another 10% of investors put money in pharmaceutical stocks even though they had issues. Millennial investors were the most likely of all generations to override their concerns, as 14% put money in pharmaceutical stocks despite seeing the industry as unethical.
Interesting finding: Though Democratic and Republican voters seem to have trouble agreeing on most anything these days, they generally felt the same way in terms of the ethics of pharmaceutical investing.
In the end, 58% believe itâ€™s ethical to invest in pharmaceutical stocks. Kapfidze also believes that the good outweighs the bad.
â€śPharma advancements over the past 100 years have increased life expectancy significantly, and the industry is currently at the forefront of the response to the coronavirus,â€ť he said.
When you invest in pharmaceutical stocks, youâ€™re putting your money toward funding these innovations.
For investors sitting on the sidelines, it was tough watching the recent gains in pharmaceutical stocks. In fact, 47% of investors regret not investing in these stocks in the past:
Male investors (53%) were more likely to regret not investing in pharmaceutical stock than female investors (38%). This makes sense given that men were more involved with managing their investments, so they may be more aware of what theyâ€™ve missed. It would likely be even more frustrating for the 42% of investors who sold stock at the start of the pandemic, as nearly all regret doing so.
When asked why they regretted not investing in pharmaceutical stocks, the top reasons these investors gave were:
Still, not all investors regret keeping their money out: Nearly a third who donâ€™t invest in pharmaceutical stocks said itâ€™s because they donâ€™t trust big pharma.
Here are the rest of their reasons:
When it comes to not investing, female investors (52%) were more likely to not have a specific reason than male investors (39%).
Kapfidzeâ€™s main piece of advice for investors looking to get in on pharmaceutical stocks is to do so cautiously.
â€śMake sure your investments in pharma are part of a diversified portfolio in order to manage risk,â€ť he said.
Even if you are optimistic about pharmaâ€™s potential, you should still make these investments only a part of your portfolio rather than the entire thing, so you donâ€™t have all your eggs in one basket. After all, diversification is one of the most important strategies for trading stocks.
Tip: You should avoid putting all your money in just one or two pharmaceutical companies, even if you think theyâ€™ve got great developments in the pipeline. Since itâ€™s difficult and unlikely for any one drug to reach the market, spreading your money across multiple stocks increases your chances of finding one that comes through.
Another option is to invest through an ETF or mutual fund (used by 37% of investors). These funds take your money to buy a large portfolio of pharmaceutical stocks, managed by a professional investor. That way, they handle the research and picks for you.
Finally, consider meeting with a financial advisor before making trades and putting more money into pharmaceutical stocks. Given the high interest in this sector these days, it should be a topic theyâ€™re used to discussing.
MagnifyMoney commissioned Qualtrics to conduct an online survey of 954 consumers with at least one investment account. The sample base was proportioned to represent the overall population, and all responses were reviewed by researchers to ensure quality control. The survey was fielded Dec. 17, 2020 through Dec. 21, 2020.
We defined generations as the following ages in 2020:
The survey also included responses from Generation Z (ages 18 to 23) and the silent generation (75 and older). However, their responses werenâ€™t included in the generational breakdowns due to low sample size among investors in those age groups.