The job of forecasting which sectors will offer the best investment returns from one year to the next is simply impossible. Anyone that tells you otherwise is most likely lying. The image below is a wonderful illustration of this.

Best Investment Returns

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The reason for including the concept of diversification within an investment portfolio is explained in the chart above. Nobody knows which sector will perform the best and so it is necessary to include them all to a greater or lesser extent.

The art of investment management is then utilising these sectors in the right proportions so that they can provide you with the returns and volatility you need. Managing this over time and including rebalancing to capture returns is fundamental to this.

What we do know is that over a long period of time different sectors will identify themselves with certain return and volatility characteristics. So, although from year to year we cannot say what will happen, over the long term it becomes easier to predict. Having this knowledge is all powerful when creating the ideal portfolio.

Very rarely do investors want to simply make the best return possible. I read somewhere just yesterday that the pain of losing money is twice as strong as the joy of making a gain. So we know that managing the value of a portfolio is important too.

So the best investment returns are really a function of what you want from your portfolio.

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Blog by Jaskarn Pawar

Jaskarn Pawar is an experienced and award winning Chartered and Certified Financial Planner. He advises people all over the UK on financial planning and wealth management issues to help them reach solutions to fit their personal needs. You can contact Jaskarn on 01604 211234 or by e-mail on