Howdy Wall St. Willy! When we talked about investing in stocks, you talked about diversifying among large cap, mid cap and small cap stocks.
But, is there any other way of diversifying while investing in stocks?
That’s a great question, Sooper Cooper! Another great way to diversify is to invest in different sectors.
Sectors?? I have never ever kever heard about sectors. What are they anyway?
A sector is an individual segment of the economy or in other words a large group of similar businesses. For e.g., retail, healthcare and financial services are all sectors.
Well, I’ve also heard about the term industry. Is it the same as a sector?
Although they are often used interchangeably, sector is a broader classification compared to industry. Usually multiple industries make up a sector.
For e.g., banking, insurance and brokerage are some of the industries that make up the financial services sector.
How can I achieve diversification by investing in different sectors?
Government policies, changes in interest rates, inflation etc., affect different sectors differently. That’s why stocks across sectors never ALL go up or down at the same time.
So, when you diversify across sectors, the losses you make in a sector that goes down can be offset by the gains in a sector that goes up.
Thank you very much for telling me about sectors, Wall St. Willy.
You are welcome, Sooper Cooper. Remember, Finance is Your Friend!
Podcast: What are Sectors
Fun, informative and concise episodes by a 10-year old, breaking down complex financial concepts in a way that kids and beginners can understand. Episodes cover personal finance topics like saving, investing, banking, credit cards, insurance, real estate, mortgage, retirement planning, 401k, stocks, bonds, income tax, and more, and are in the form of a conversation between a cowboy (a finance novice) and his friend, a stock broker. Making finance your friend, only at Easy Peasy Finance.
A little bit about me: I have been fascinated with the world of personal finance since I was 6! I love to read personal finance books, and keep myself updated on the latest by reading various personal finance magazines. My friends often ask me questions about finance because they find it complex and intimidating. That’s what inspired me to start my YouTube channel called Easy Peasy Finance when I was 8, and this podcast 2 years later.
All you need to know when it comes to stock market investment and sectors: What are Sectors, Other than diversifying among large cap, mid cap and small cap stocks is there any other way of diversifying while investing in stocks, Is industry the same as a sector (industry vs sector), How can you achieve diversification by investing in different sectors, and more.
Show notes and transcript at: https://www.easypeasyfinance.com/what-are-sectors-industry-vs-sector-for-diversification/