Andrew Herrig, Wealth of Geeks
There’s a stock sector that yields a 50% return on investment? Most investors are happy hitting the 7-10% target – the potential of five times that in 12 years seems like a fantasy. Of course, the only sure bet in the investment community is there are no sure bets, at least when it comes to a guaranteed return on investment (ROI).
A recent study by InvestinGoal.com examines the consistency, reliability, and average return on investment by sector instead of individual entities listed on the S&P 500 index. The results reveal the IT (information technology) sector is the most promising for investors. This ranking is based on several factors, including advancements in AI technology, cloud computing, and software development.
Other shortlisted sectors include real estate, healthcare, and industrials – all enterprises with tangible, real-life applications. The study breaks down its findings into specific percentages: Average returns on investment, minimal returns on investment, and maximum returns on investment.
Here are the top ten sectors investors should consider in the current economic atmosphere:
1. IT
The IT sector holds the top spot, with an average return over ten years of 18.1%. IT includes companies researching, developing, or distributing technology-related goods and services.
The minimum return in the last decade was -28.2% in 2013, while the maximum was 50.3% in 2019. High-performing stocks within the IT category include Advanced Micro Devices (153% growth), Lam Research (117% growth), and KLA (100% growth).
2. Consumer discretionary
The consumer discretionary sector earns the second spot, with an average return of 15.3%. The minimum return on investment was -37% in 2022, while the maximum was 43.1% in 2013. The consumer discretionary sector includes businesses that sell non-essential products and services that most consumers consider luxuries or upgrades.
3. Healthcare
The healthcare sector is third, with an average return of 13.4%. The healthcare sector includes businesses engaged in direct medical services, production of medical devices, formulation of medications, medical insurance, or healthcare delivery.
Top performers include Thermo Fisher Scientific Inc., UnitedHealth Group Incorporated, and Johnson & Johnson.
4. Industrials
In fourth place, the industrials sector reported 13.2% average returns. The industrials sector includes companies focused on producing capital goods utilized in manufacturing, resource extraction, and construction activities.
5. Financials
The financial sector is fifth on the shortlist, with an average return of 12.3%, which includes firms and institutions that provide financial services to commercial and retail customers, with an average return of 12.3%. The financial sector includes banks, investment companies, insurance companies, and real estate firms.
6. Real estate
The real estate sector landed in the sixth spot, with a 12.2% average return on investment, -26.1% minimum return on investment, and 48.2% maximum return on investment over ten years. The real estate sector includes companies selling and developing residential, commercial, and industrial properties.
7. Consumer staples
The consumer staple sector placed seventh on the shortlist, with an average return of 11.9%, a minimal return of -8.4%, and a maximum return of 27.6% over the past decade. The consumer staples sector includes companies that produce goods and services most consumers consider essential for living, such as food, clothing, and household goods.
8. Utilities
The utilities sector holds the eighth position, with an average return of 11.0%, a minimal return of -4.8%, and a maximum return of 29.0% over ten years. The utilities sector includes companies that provide water, natural gas, electricity, and other essential energy sources to residential and commercial consumers.
9. Materials
The materials sector is in the ninth spot, with an average return of 10.6%, a minimal return of -14.7%, and a maximum return of 27.3% recorded in the last decade. The materials sector includes companies specializing in all aspects of raw industrial materials, from mining to processing to delivery.
10. Energy
The energy sector is in the final position on the shortlist, with an average return of only 10.2% but a maximum return of 65.7% for 2022, the highest on the list. While consumer demand for the energy sector’s products remains consistently high, the market’s overall volatility has a noticeable effect on its year-to-year performance.
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Pros and cons of sector investing
Creating and growing any investment portfolio eventually hinges on one word: diversification.
One of the biggest pros for sector investing is the ability to put funds into an array of companies without having any specialized knowledge of the sector as a whole. For example, an investment in the energy sector can still yield a higher-than-average ROI even if individual companies suffer short-term losses. Sector investing provides overall risk abatement since investors can take advantage of sudden market changes.
A major con of sector investing, however, is market volatility. Instead of a rising tide lifting all boats, a sudden reversal of fortune for one company in the sector can pull down other companies by association. The potential for an exceptional ROI through sector investing may not be worth the loss exposure if any of the ingredients in that sector suffer from one bad headline or global crisis.
Filippo Ucchino, CEO of InvestinGoal.com, commented on the findings: “Based on this data, investing in the IT sector has proven to be highly rewarding, with strong average returns in the long run. This dynamic sector thrives on innovation and technological advancements, such as software development, cloud computing, and artificial intelligence, offering tremendous growth opportunities for investors.”
“The enhancement of artificial intelligence in particular, poses a starting point for a new era of development in the stock market. In fact, AI-driven systems can analyze vast amounts of data, identify patterns, and make predictive models, ultimately influencing market trends and investment strategies.”
