Once you commit to the idea of putting your money to work for you, you’re faced with a vast array of investment options. You might consider becoming a passive investor and turning your funds into a money market type of account, crossing your fingers and hoping it grows. As a proactive investor, you’re more involved with the specific places your money will go. This might require a bit more homework on your part, but you will probably feel stronger about your final decision.
One investment option you might want to consider is with a sector. These are considered long-term investment opportunities with a lower risk than investing in a particular company. As you might have guessed, there are plenty of sectors to choose from. Before you invest, it will help to understand the basics of what it means to invest in a sector. Here are some of the questions you should discuss with your broker about sector investing.
What Is the Sector Investment Process?
Because of the popularity of sector investments, you’ll find that the vast majority of money management institutions have set up their own types of sector portfolios. These exchange-traded funds or ETFs will include a range of sector stocks that make up the general fund. For instance, a tech ETF might include stocks from Apple, Microsoft and Google.
As with any type of broker generated business, you’ll have to pay a nominal fee based on the size of your investment.
Can I Invest On My Own?
You can certainly make your own sector investment. If you’ve set up an account with a brokerage firm (you still need to go through them) that offers free trades, then you can dive right in. This puts you firmly in the driver’s seat. However, it also means you need to stay on top of those investments with daily monitoring. That same broker’s fee might be worth it when you can depend on the experience offered by those analysts.
Is a Sector Investment Risk Free?
There is no such thing as 100% risk free investments. Even the most reliable of stocks can run into the occasional mass sell-off that brings everyone down. Consider the oil and gas sector investment. In the past couple of months, there has been a major upheaval in the oil industry as the market is being flooded with cheap barrels of oil. That might be good news for consumers, but it has proven to be shaky for investors. This is why you should spread your investment dollars across several sectors. That way, you can ride out the storm when one industry takes a hit.
How Can I Find Out More About a Sector Beyond the News?
The moment you invest in the markets, you’ll want to expand your knowledge base. In other words, it might be time to start reading the finance section of the newspaper. Beyond that, you could also talk to anyone you know who works in a particular sector. A friend who is a nurse can provide insight about how the new healthcare laws are impacting the hospital. A real estate agent can provide a snapshot of the housing market. Any way you can supplement your understanding of a sector, you’ll be ahead of the game.
As mentioned above, investment in a sector — no matter how stable it might be — will include some level of risk. No matter how much you research a sector, the unforeseen is always lurking. The recommended course of action is not to panic. Most sectors have a way of evening out. Remember, this is a long-term type of investment.