All investments involve some degree of risk, especially investments in the stock market. That’s why diversification is a bedrock principle of investing.
Diversification simply means spreading out risk by owning several different stocks that might perform independently from each other. Diversification can be accomplished by buying companies that sell different products and services or buying stocks that operate in different geographic regions of the world. Another effective method of diversifying a portfolio is investing in one or more stocks from every commercial sector.
What Is a Sector?
Wall Street organizes stocks into sectors based on their industries and the customers they serve. Sectors are broad categories or groups organized around a general industry or segment of the economy. The information technology sector, for instance, will include companies that make computer hardware as well as firms that produce software or offer computer or information technology services. The health care sector, as another example, encompasses pharmaceutical companies, medical device makers and other related firms.
Sectors are important to investors because each economic and industrial sector can react differently to the market and economic fluctuations. A sector’s performance is a reflection of its own unique set of conditions. Diversifying a portfolio by including stocks from several sectors can be an effective risk mitigation strategy.
What Are the 11 Investment Sectors?
To keep things…
