I am back with another podcast in my ongoing “Intro to Investing” series. In the previous episodes of the investing series, we discussed Investing Like A Professional, Asset Types, Asset Allocation, Risk Management, and ETFs and Mutual Funds Explained. Today, we continue the series talking with Wendy and Eric of DIY Fund about Sector Investing. We intend to clear up what sector investing is and why it matters.
I typically tell most of my clients that you should keep your investing practices as simple as possible; however, there are all sorts of ways to get analytical or creative with your investing and sector investing is one of those. Before the rise of ETFs, I think it was more difficult to take a strategic approach to investing specifically around sectors; however, there are many ETFs structured with this investment philosophy in mind.
- Sectors are basically slicing and dicing the market into categories and saying you want to invest in those categories.
- There are 10 sectors in the stock market:
- Information & Technology
- Consumer Discretionary
- Consumer Staples
- You’ll often hear about sector investing from people who have personal opinions on a specific sector.
- Sectors are described in two ways; either:
- Sensitive; which means sectors tend to be more volatile
- Defensive; which means no matter how bad things are consumers still need these types sectors.
- Rebalancing is an important discussion when you are talking about sectors.
- Every single year it is a different sector that outperforms the other sectors.
- Sector-based ETFs are a great way to give you exposure to several different companies as well as more safety than buying stock in only one company.
- There are several different ways to break up the stock market, and sectors is just one way.
- It’s important to note that you can have your own views and create your own way to divide the stock market!