Momentum Investing Strategy Skip Stocks Go For Sectors

A recent article on CNN Money is suggesting this Momentum Investing Strategy. With a little bit of moderation you can take advantage of this Momentum Investing Strategy by investing in the last year’s best performing sectors. Research has shown that entire asset classes that perform well in one year have an above average chance of performing well in the next year too. Once the momentum develops it continues until and unless it is stopped by an opposing force of equal or greater magnitude. The idea is to invest in sectors instead of individual stocks that have a much higher chance of gyrating. Over the past 40 years, an investment portfolio comprising of last year’s top asset class beat S&P 500 index consistently by 3 percentage points. However on the downside the portfolio was also 2/3 choppier. Fisher suggests that you think about leaning slightly toward what’s hot — say, by moving up to 10% of your portfolio to a momentum-driven approach — rather than committing huge chunks of your capital. “Our view is that investors are well served by tilting toward momentum,” Fisher says. “But they’re even better served by doing so in the context of a well-diversified portfolio.” Momentum investors usually have a lot more fluctuations in return. Just keep this in mind that you should take advantage of momentum wisely. Always take advantage of momentum in moderation. This is the key to success!

 

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