In the stock market, you have many different options where to invest. There are thousands of stocks spread across different company sizes, regions, and sectors. In this post I am going to discuss the different sectors and their characteristics.
The consumer discretionary is made up of different industries such as automobiles, hotels, leisure, and apparel. These types of industries perform better when the economy is doing better. With the economy in good shape, people have more disposable income to spend on wants like clothes or a vacation.
The consumer staples sector is made up of beverages, good, household products, and tobacco. These industries are fairly steady in numbers because people buy these things no matter how the economy is doing.
The energy sector is pretty simple, made up of companies that produce oil and natural gas, as well as companies that provide equipment and services for those industries. The performance of this sector is closely tied to the performance of the overall stock market.
The financial sector is made up of banks, insurance companies, and other financial services companies. Similar to the consumer discretionary sector, financials do well when the economy does well.
The health care sector includes biotechnology, health care equipment and services, health care providers, and pharmaceuticals. This sector does better when the economy is doing well, but can still hold up if it doesn’t. With all the baby boomers retiring, this sector should stay strong for the near future.
The industrials sector is made up of many different industries, including but not limited to defense, building products, electrical equipment, machinery, and airlines. This sector will move a little less than the overall stock market because most of the industries within this sector are necessary for us to continue to live our normal lives.
The information technology sector has been the most innovative and fastest growing sector since the dot com era. The industries included in this sector are communications equipment, IT services, software, and semiconductors. By market cap, four of the top five companies in the world are in this sector.
The materials sector includes industries like chemicals, construction materials, metals and mining, and paper and forest products. This sector will increase or decrease more than the market because as the market does better, there is more money to buy these products.
The real estate sector, aside from the housing crisis in 2008, is usually a steady performer. From now until the end of time people are going to have to live in some sort of real estate, whether that’s buying a house or renting an apartment.
The telecommunication sector is similar to the consumer staples sector. Though not an exact necessity, communicating via telephone or cellular phone is essential for businesses and most households.
The utilities sector contains companies that provide gas, electric, and water utilities to homes and businesses so they may have running water, electricity and light, and heating and air conditioning for comfortable living.
This sector along with telecommunications and consumer staples are known for paying dividends to their investors. This is attractive for retired folks looking for income or people looking to diversify into less risky assets.
There are many different sectors that you can invest in. Each behave differently, and each has a different set of advantages and disadvantages. Next post will discuss the difference between ETFs and mutual funds.
None of the items listed above such as dividends or performance relative to the overall stock market should be taken as advice or a guarantee. An investment in a specific market sector is subject to the risks inherent to the sector. The investment's performance will depend, at least in part, on the condition of the overall sector. All investments involve the risk of potential investment losses. Every investment comes with a degree of risk and should be researched and/or consulted with a financial professional.