By Cleo Washington, Intern
The stock market is composed of eleven market sectors: information technology, financials, healthcare, communication services, consumer discretionary, consumer staples, industrials, real estate, materials, utilities, and energy. Each of these sectors has unique strengths and weaknesses that can materialize under shifting economic conditions. Index funds are investments that track the performance of a broad group of companies (an index), while ETFs track both indexes and specific sectors.
Stocks are equities (company ownership), one of many investment types that should be featured in a diversified portfolio. Fixed income includes U.S. Treasury securities, offering 2-year, 10-year notes, and 30-year bonds. When you purchase a bond, you lend the government money, and in turn receive yearly interest payments until its maturity date, when the full amount you initially lent is repaid. Another asset class, real estate, allows you to earn money through real estate investment trusts (REITs), corporations (trusts) formed to invest your money into income-producing properties.
Balanced portfolios also consist of international assets. Foreign securities may earn gains while domestic assets are simultaneously producing losses. However, global investments come with higher political and economic risks, so you should conduct initial research on a country’s status.
Diversification is the simplest step you can take to reduce risk in your portfolio and reach your financial goals. Just as you allocate your time to studying for multiple classes, allocate your money across numerous investment options.
Author: cleowash
