Sector Investing: Visualized
“Sector investing” is the investment strategy of buying equities throughout an interconnected portion of a market, rather than a specific company or industry. A sector is a collection of industries—with each industry comprised of dozens of individual companies. A sector’s industries are usually affected by similar factors and are likely to move at the same time. Sector investing is appealing to many people because it looks for the most generic trends in the market. It is not a zero-sum contest between a selected company and a competitor, rather it is an investment that a portion of the economy will receive increased attention overall. Though definitions vary, most industry professionals recognize 10 to 15 sectors to make up the majority of the total market.
Breaking it Down
This graph shows a very simplified breakdown of an example sector. A car manufacturer is a company with its own stock. The success of a company contributes to the overall health of its industry. Similarly, an industry’s growth represents a single piece of the broader sector.
Ways to Invest
In order to capture their general movements, individuals need to invest in scores of different companies spread across different industries.
To do this, investors can purchase shares in sector mutual funds or sector exchange-traded funds (ETFs). These funds divide an individual’s investment among different companies in the same sector, and aim to reflect that sector’s overall growth.
Fingerlakes Wealth Management, Inc. is a Registered Investment Adviser. This article is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Fingerlakes Wealth Management, Inc. and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Fingerlakes Wealth Management, Inc. unless a client service agreement is in place.
This article was written by Advicent Solutions, an entity unrelated to Fingerlakes Wealth Management. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Fingerlakes Wealth Management does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2016 Advicent Solutions. All rights reserved.