Where Should I Invest my Money in 2021?

Dale Gillham, Chief Analyst and Head Trainer of Wealth Within

By Dale Gillham |

The secret to knowing where you should invest your money in the stock market can be easily achieved if you understand where the money is flowing, which you can do by undertaking sector analysis. 

Using sector analysis to invest your money in the stock market

For example, since 1 January 2020, the Technology sector has been the top performer up around 40 per cent, while Energy has been the worst performer down nearly 40 per cent. By following each sector, you can narrow down the potential opportunities in the stock market, so you only invest in those sectors that are performing. Alternatively, you can take the contrarian view and find opportunities in sectors that are underperforming and likely to turn around, such as Energy.

It is also important to understand that certain sectors will have a significant impact on the performance of the market while others will have a much lesser impact. For example, in reviewing the performance of the All Ordinaries Index this year, the Financial sector is down over 14 per cent, while the Material sector is up 2 percent and, as a result, the All Ordinaries Index is down around 4 per cent.

However, this represents opportunity, because if the Financial and Material sectors are falling or going sideways, other sectors in the market are potentially moving up, as we have seen with Technology stocks this year.

That said, as I previously mentioned, it is more important to focus your attention on where the money is flowing rather than where it has been. Right now, I believe Technology has had its run and will slow in 2021, and, as such, opportunities in this sector will be limited.

Whereas the sectors likely to see the money flow in 2021 are Energy, Materials and Financials, which is why I recommend investors look at these sectors, as they may present some very good opportunities in the coming year.

What were the best and worst performing sectors last week?

Despite last week being very bullish not all sectors performed well. The best performers included Energy up 14.16 per cent, Communication Services up 8.85 per cent, Industrials up 6.78 per cent, while the Financial sector was up 5.25 per cent. The worst performers included Utilities down 1.49 per cent followed by Consumer Staples down 0.79 per cent, while Information Technology was just in the green up 0.68 per cent.

Looking at the ASX/S&P500 top 100 shares, some of the worst performers this year really picked up last week. The best performers included Virgin Money up 32.40 per cent, Unibail-Rodamco-Westfield up 31.18 per cent followed by Oil Search up 30.25 per cent and Santos up 18.03 per cent. The worst performers included Northern Star Resources down 8.76 per cent, Domino’ Pizza down 6.34 per cent with JB HiFi not far behind down 6.03 per cent

What do we expect in the market moving forward?

The positive news last week about a COVID-19 vaccine resulted in world markets rising strongly with the Australian stock market rising 3.35 per cent. In the nine trading days since the US Presidential election the market has risen on eight of those days and is up 7.5 per cent. This is a very strong move and confirms the market has now broken out of the sideways move it has been in since June. 

Given this, I expect the All Ordinaries Index will continue to move up into Christmas and into the first quarter of 2021. That said, don’t be surprised if we experience some short-term weakness in the next week.

The sectors I like for 2021 are Energy, Materials and Financials with many stocks in these sectors starting to look good. Given the volatility in the market of late, I recommend that anyone looking to invest do their research and only buy quality blue chip stocks rather than focusing on what might seem cheap.

For now good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.

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