Given this complex moment of doubt, fear or simple market speculation “small and medium investors” should be aware that historically the stock market crashes and phases of economic recession has been followed by periods of recovery and growth, theref…
Some investors will pick a couple of stocks which have 200% or 300% returns and then become overconfident that they are investment pros. Getting lucky isn’t the same thing as being good so don’t let a few isolated instances of good luck cloud your judgment.
Not Adjusting
One way to avoid emotional attachments, overconfidence and excessive greed is to adjust your investment portfolio annually. This not only has the benefit of realizing gains by selling investments which had good runs but it also minimizes losses by eliminating under performing financial assets.
A sector fund is a type of mutual fund which focuses on a specific market segment. Sector mutual funds often have increased volatility due to a decrease in portfolio diversification which comes with picking a wider range of underlying assets. When investing in a sector fund, such as technology or foreign stocks, there is an increased risk of capital depreciation over more standard mutual funds due to issues that relate to a particular sector. Generally speaking a sector fund specializes in the securities of a specific industry or group of industries or singular type of securities.
Whereas index funds such as the S&P 500 or Wilshire 5000 take a broad view approach by purchasing assets from most every company in a stock exchange, sector funds will focus on a segment of these larger indexes. Standard & Poor’s has eleven sectors as part of its composition which include health care, technology, utilities, financial, consumer cyclical, consumer staples, energy, transportation, communications, basic materials and capital goods. Different indexes and markets may have their own distinct categories or subsets to further allow investor specialization when choosing investments.
Following Others
It is never a good idea to follow the herd when making investment decisions. If everyone is jumping on the investment bandwagon then there is bound to be speculation which leads to bubbles. If you already own an investment which is having a tremendous run, sell before everyone realizes it is overpriced and the bottom falls out.
Going It Alone
Purchasing investments like Certificates of Deposit and money market funds can be done by most individuals. Higher-end investments like stocks, bonds, options and futures should only be considered for advanced investors and even then it can be beneficial to work with an investment professional. There will always be someone who knows more than you so instead of risking your financial future meet with certified professionals if you have questions or need guidance.
Sector funds really are a middle-of-the-road investment which are less risky than purchasing shares of stock in an individual company but more risky than a broadly diversified index fund or ETF. Many individual investors will conduct research and contemplate purchasing shares in companies they consider to be top performers but are not confident in their abilities. By selecting a sector fund, as with any mutual fund, individual investors benefit from professional portfolio management. If a sector fund invests in some of your top picks then that may be a mutual fund worth investing in as it reflects your investment strategy.