Money Monday: Financial Sectors

Sector of Portfolio in Trouble
Three nest eggs with silver and gold doing well in nest and third, red nest egg on the rocks and out of the nest signifying a sector of the investment portfolio in need of attention
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Two Rules of Thumb for investing by sector.

#faithfulfinance

Your retirement or investment portfolio is sometimes held in what can be referred to as a Sector. A Sector represents a group of businesses in a similar or related industry, practice, or area within the economy. For example, some of your investments may be in the real estate or materials sector to name a few. But why are sectors important and how should you determine which sectors are best for your portfolio?

Investor Perspective

If when you examine your retirement or other portfolios, and especially if you’re considering making changes, consult a financial advisor (I an not one). Choosing a sector is like people asking me why practice tax law. My response has been, there are few things more certain in this life than death and taxes. Taxation–in some form–have existed at least from the days of the Babylonian Empire and Nebuchadnezzar through all of the other empires up to today. The Internal Revenue Service (IRS) will probably be with us until the end of the world. Similarly, when choosing sectors, it would seem prudent to start with the question: what areas, sectors, or industries will be around for a very long time?

Sector Insights:

The Global Industry Classification Standard has grouped stocks into these 11 major sectors:

  • Real Estate
  • Materials
  • Information Technology
  • Industrials
  • Health Care
  • Energy
  • Financials
  • Consumer Staples
  • Consumer Discretionary
  • Communication Services
  • Utilities

It is very important to understand each sector in order to make informed decisions as to where you invest for your  401(k), 403(b), or other funds. You may learn that too much of your investment is in a sector that is not producing a return on your investment. That sector may be bringing down the rest of your portfolio investment.

Furthermore, your funds may be invested in a sector that is contrary to your environmental, moral, or religious beliefs. The challenge then is, how will you reconcile a conflict with your morals and beliefs? This may be especially difficult if a sector produces well, even above market return on your investment.
A stock market sector is a group of stocks that have a lot in co
Sector Type

While your investment may be in a particular sector, even sectors are further divided into sub-groups. Let’s consider two sectors.

The Consumer Staples Sector is divided into sub-sections such as food, beverages, food products, household products, personal products, and tobacco. Goods and companies that are engaged in this sector are considered consumer essentials. In this sector, you will find the drugstore companies such as CVS, Rite Aid, and Walgreens. Additionally, you may find General Mills, whose brand of goods includes cereals, cookies, canned goods, and many other products. If you were to use my tax analogy, as long as people exist, there will always be a need for food. The point is, food growers, distributors, suppliers, and farm companies operating in this space will be around for a long time.

The healthcare sector consists of businesses that provide medical services, medical insurance, drugs, and medical equipment or that which is needed to facilitate healthcare for patients. Here you can find companies that make medical equipment such as bandages, gloves, scalpels, MRI machines, and related products. You will also find companies in this sector that are responsible for the managed care section of health. These would include Aetna Inc, Unitedhealth Group Inc, and others that provide health insurance policies.

Finally, while some sectors may be around forever, there are some that are trendy and may provide higher returns on your investment in the short term. Sectors can also be used to balance the risk in your portfolio and for diversification purposes. The bottom line in choosing a sector is whether it will help you reach your investment goals. Therefore, knowing when to get in, get out, and how long to stay, is your lifelong assignment!

WHAT’S UP!

Let’s discuss the SECURE Act 2.0. This new bill passed last December through Congress includes some savings incentives for employees.  Starting in 2024, one such incentive allows employers to offer employees a Roth-like emergency saving account up to $2,500 which would include contributions. Basically, your employer can contribute matching funds to your emergency saving fund up to $2,500. This seems fantastic!

A significant amount of the population does not have an emergency fund or, even $1,000 in their savings for emergencies. These plans can change the lives of many. But you don’t have to wait for another six months to get started. Start building your own emergency saving account today. And that’s what’s up!

Ruthven R. Phillip, Esq., is a tax attorney, Stewardship and Philanthropy Ministry Assistant, and CEO of Give2Getrich, LLC. Give2Get Rich, LLC 2023. All Rights Reserved. Any distribution or reproduction of part or all of the contents in any form is prohibited.

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