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Sector Diversification

In the Fall of 2014, I made a big mistake … I put too much of my portfolio into the energy sector, i.e., oil stocks. When the price of oil per barrel dropped 50% in the Spring of 2015, my portfolio took a hit! Instead of selling, I held onto the oil stocks because they all pay good dividends. For instance, Chevron pays a healthy 4% dividend! Fortunately, oil prices are beginning to recover. WTI crude oil is now in the high $60s. I really don’t like taking losses, so I calculated the dividends paid on each share to see if I am close to breaking even. I was able to sell Royal Dutch Shell and British Petroleum and Royal Dutch Shell without taking too much of a loss. Fortunately, I have learned a valuable lesson about investing. I have learned that it’s wise to spread risk among all 10 sectors. What are sectors? The 10 sectors of the economy are:

  1. Financial
  2. Industrial
  3. Energy
  4. Technology
  5. Materials
  6. Health Care
  7. Defense Aerospace
  8. Consumer Products
  9. Real Estate
  10. Consumer Discretionary

In the past, when buying individual stocks, I never paid any attention to what sector of the market I was buying into … I was more concerned about the stock price, earnings or P/E ratio, dividends, and potential growth. However, I recently learned that the big hedge funds rotate into and out of sectors on a daily basis. If you have allocated your stock holdings among all 10 sectors, you have spread out your risk. A word of caution — before making any decisions, do your research on investing, and learn from your financial advisors.


The opinions expressed herein are solely those of the Author/WebMaster. Before taking any action, please consult your real estate, financial, and legal advisors.

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