Here’s Why You Should Invest in All the Sectors, Not Just One
Why You Should Invest in All the Sectors, Not Just One
Investors often try to predict which sector will be the next big winner. Whether it’s energy, technology, or healthcare, there’s always a temptation to bet on the “hot” sector and hope for outsized returns. But data from 2014 to 2023 tells a different story: no single sector consistently outperforms. In fact, sectors that are at the top one year often end up at the bottom the next.
For example, energy was the best-performing sector in 2016, 2021, and 2022, but it also delivered the worst returns in six of the last ten years. Similarly, the technology sector, which many consider a growth engine, ranked first in 2023 but came in ninth out of eleven sectors just a year earlier.
This unpredictability is a key reason why a diversified investment strategy—one that includes exposure to all sectors—is far more effective in the long run. Holding a broad range of sectors ensures that when one underperforms, the others in your portfolio can help balance the impact. Essentially, diversification reduces risk while still offering the potential for strong returns.
Investing across multiple sectors also allows you to capture returns as they emerge from different parts of the economy. Each sector experiences growth at different times, depending on a variety of factors such as technological innovation, global demand, and economic conditions. By holding a diversified portfolio, you’re positioned to take advantage of these sector-specific opportunities without the need to time the market.
The key takeaway for investors is simple: sector picking is fraught with risk. Instead of trying to predict which sector will be next to outperform, focus on a diversified approach that includes all sectors. This will position you for success in both rising and falling markets, helping you build wealth steadily over time.
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Robert J. Pyle, CFP®, CFA, AEP® founded Diversified Asset Management, Inc., in 1996 to provide personalized, comprehensive wealth management services to successful individuals, families, single women, and business owners. His specialty is addressing the complex financial needs of self-employed professionals, corporate executives, and small-business owners. Our disclosure can be found here. The views, opinion, information, and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting, or tax advice.