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AND THE ANSWER IS…

Does a 32% loss v’s an 18% gain seem daunting? The answer is to make sure you’re properly diversified. Have a look at ‘Share investing – choosing what to buy’.

MoneyTalk member Greg recently asked a very good question in response to our article about REITs. He wanted to know how they are performing this year relative to other shares. (Also, in our members survey so far, quite a few of you are asking for more market commentary, so we are happy to respond.)

It’s a particularly interesting question because a quick look at the market will tell you it’s gone no-where. The performance of the index of the top 200 Australian shares (the ASX 200) over the 12 months to 8th October 2015 is -0.59%. Basically zero.

But, as we often say, the devil is in the detail, because the difference between the best and worst performing sector is 50%.

In other words, if you had invested in only one sector, you could have lost around a third of your money, or you could have made nearly 20%. REITS with a 15% return would have done very nicely for you.

Here are the returns over the last 12 months of the major sectors of the ASX 200…

sharesectorperformance

aREITs have done well in line with Australia’s property market, though as we noted in our September eNewsletter, there are signs that the heat is coming out of Australian property prices.

Materials and energy are suffering because the combination of slow world growth and a slowing China have ended our resources boom and commodity prices are suffering heavily. Energy is worst off because of the double whammy of the low oil price (thanks also to US shale oil) and investors shifting out of fossil fuel investments.

Consumer staples are dominated by the big supermarket chains which are struggling to maintain margins especially with competitive pressure from new market entrants.

Industrials are benefiting from the lower Australian dollar (which is a result largely of the fall in commodity prices). Their prices have also bounced back a bit having underperformed for most of the previous half decade.

Australia’s major Health Care companies are sophisticated players on the world stage, developing new health technologies and managing hospitals. They benefit from the aging populations in wealthy countries, and more recently from the lower dollar. By nearly all measures they are now very expensive but remain well supported by investors.

These results send a clear message: you need to understand sector risk when you’re choosing what to buy.

What are your thoughts?

Do you own shares in REITS or companies? Is there more you’d like to know about investing? Join the conversation — leave a comment below and let us know what you’re thoughts are.

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