There is a reason why most investment professionals recommend that you but an ETF or Mutual fund. First, It is difficult to diversify your portfolio as a stock investor. Look at all these sectors that are listed and you will see why this is a challenge. Next, it is hard to diversify within a sector. There are is the risk that the one company in your portfolio within the sector won’t do well but the overall sector will.
There is a reason why we spent time making the macroeconomics section on this site. It is to help you understand when you should invest in a sector or avoid it at all costs. Notice that most of these sectors are sensitive to the business cycle. On the other hand, there are some defensive sectors that you could invest in and hold forever.
List of Business Sectors
This is a sector that is responsible for turning raw materials into usable materials. In the commodities section, we talk about raw materials know as commodities. One of the problems with this sector is that they are so close to the beginning of the supply chain which makes changes in the business cycle interrupt them making the basic materials sector more volatile. In operations management, this is known as the bullwhip theory.
This is the most unique sector on this page. This sector is large enterprises comprised of many different operating companies. In accounting, this is known as a parent/subsidiary relationship. One distinction is that the subsidiaries might have complexity different operations than the parent. One example is Pepsi co. They are a major soft-drink producer yet they own other large unrelated brands. For Example Pepsi also owns the subsidiaries, Gatorade, Aquafina, and Quaker.
The consumer goods business sector is one that most people are familiar with. This is the market sector that produces the finished products that we consume. Some examples are food, clothing and other goods. Some examples of consumer goods are Heineken, Coke, and Johnson & Johnson. Most of these companies actually produce more than one cunsumer product with the parrent/subsidiary relationship that I was reffering to. This means that they are offten comglomerants.
These are banking, investment and real estate related companies. Some of the companies participate in all the Finical sector activities like Zions Bank and Wells Fargo. This sector used to be more diverse when the Glass–Steagall act was in place and that was overturned in 1999 allowing banks to grow into the enormous size we see today.
These group of equities is everything in healthcare. This sector includes hospital management, home healthcare, and biotech. The one thing that sets the health-care sector apart from others is that they are literally life and death which makes them a defensive stock.
These are goods that are produced for the construction and manufacturing sector. The demand for these products depends on the business cycle. In times of growth there is consumer buying and construction. This makes this sector great unless the economy enters a downturn.
An economy that is more advanced than the regular agricultural producing countries. In the United States, there is a large portion of the economy that is part of this sector. The service sector is any specialized job such as hospitality, Accounting, or Entertainment. These don’t have a tangible value like some of the other sectors.
The broad definition of this sector is technology goods and services. Some of these services could be intangible like the service sector. Others are more like the consumer goods sector because the produce electronics for individuals.
This sector is gas, electricity and water companies. These are also a necessary part of the economy so they are more defensive than the other types of equity sectors that I have mentioned. The utilities sector can be hurt by the fluctuations in interest rates. so I would like to point out that these particular companies are more likely to issue preferred stock which might be the ways for you to get into this sector and avoid some of the risks.