How many stock market sectors are there and what are they?

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The US stock market includes thousands of companies, and it’s easy to get analysis paralysis deciding which one to invest in. To help simplify things a bit for investors, the stock market is divided into several different sectors that include companies with different characteristics.

The different stock market sectors have several advantages, including helping individuals build well-diversified investment portfolios and understand market behavior.

Wondering how different stock market sectors affect your portfolio? The answer is to choose a total market fund that can help you integrate all 11 sectors into your portfolio. “For the vast majority of investors, the most prudent strategy is to diversify broadly across all sectors of the stock market,” said Robert Johnson, professor of finance at Creighton University’s Heider College of Business.

Pro tip

An S&P 500 index or total market fund can help you add all 11 market sectors to your portfolio in a single investment. You don’t have to worry about guessing which industry will perform best.

Keep reading to find out what stock sectors are and why you want to include some of them in your investment portfolio.

What are stock sectors and how many are there?

A stock industry is a group of public companies that share similar business activities, products and services or characteristics. There are 11 sectors of the US stock market.

Stock sectors are created by the Global Industry Classification Standard (GISC), which was developed by S&P Dow Jones Indices and MSCI in 1999. The structure is used globally and forms the basis of many mutual funds and funds exchange-traded (ETF) .

The framework created by the Global Industry Classification Standard (GICS) has four levels that divide companies into 11 sectors, 24 industry groups, 69 industries and 158 sub-industries.

How can I include sectors in my investment portfolio?

The 11 stock market sectors play an important role in the US stock market. And today, it’s easier than ever for investors to gain exposure to an entire portfolio without investing in individual companies.

Sector mutual funds and ETFs allow investors to buy shares in hundreds of companies in a sector with a single investment. For example, if you want to get into the materials sector, a popular ETF is iShares Global Materials ETF (MXI). And a popular sector ETF for financials would be the Financial Select Sector SPDR Fund (XLF).

“If one wanted broad exposure to the US information technology sector, one could choose the iShares US Technology (IYW) ETF,” Johnson said. “The largest holding in this ETF is Apple, which represents 19.2% of the portfolio, followed by Microsoft and Google at 16.3% and 11.8%, respectively.”

Not only are sector breakdowns a convenient way to categorize companies in the market, but they also help investors ensure that they have a well-diversified portfolio. Portfolio diversification is important because it ensures that you have exposure to all parts of the stock market. Not all sectors are correlated, which means that while some sectors are doing well, others may be underperforming.

“While some investors are able to predict which sector will outperform another, it’s difficult to do so,” Campos said.

Rather than trying to guess which sectors will win at any given time, financial experts recommend building a portfolio that includes all of the different sectors, often through a total stock index or S&P 500 index fund. A total market index fund is a great way to maintain diversification in your portfolio, while gaining a share of the top 500 companies in the US stock market.

“For virtually any investor, I would recommend the Total US Equity Fund as the only US equity investment you need,” Campos said.

The 11 stock market sectors

Knowing the different stock market sectors can give you a better understanding of not only your own investment portfolio, but also the stock market as a whole. Below is a description of each of the 11 stock market sectors, along with the largest companies within them.

Energy sector

The energy sector is made up of companies that work in energy sources, equipment and services. Companies in this sector offer a wide range of products and services, including drilling, exploration and energy production, storage and transportation, marketing, refining, etc. The energy sector does not include most renewable energy companies. Instead, it is mostly dominated by oil and gas, along with coal and other consumable fuels.

Some of the biggest companies in the energy sector are ExxonMobil and Chevron.

Materials sector

The materials sector is made up of companies that manufacture and market goods used in manufacturing. The materials sector includes companies that produce chemicals, building materials, containers and packaging, metals, paper and forest products.

Some of the biggest companies in the materials sector are Sherwin-Williams and DuPont.

Industrial sector

The industrial sector includes businesses across a wide range of different goods and services. The industrial sector includes aerospace and defense, construction, engineering, electrical equipment, machinery, business supplies, transportation, infrastructure, and some professional services.

Some of the biggest companies in the industrial sector are Honeywell, Boeing and Union Pacific.

Consumer discretionary sector

The consumer discretionary sector is made up of companies that produce goods that consumers want but do not necessarily need. These companies tend to be cyclical since they do well when the economy is booming, but not when it is down.

“Consumer discretionary goods are luxury items that consumers buy that are not necessary for their survival,” said Mychal Campos, chief investment officer at Betterment. “I’m talking about things like cars, jewelry, sporting goods and electronics.”

Some of the biggest companies in the consumer discretionary space are Amazon, Tesla, and Home Depot.

Consumer Staples Sector

Unlike consumer discretionary products, the consumer staples category is made up of those products that people view as needs and which sell regardless of how the economy is doing. The consumer staples sector includes food, beverages, tobacco, household products and personal care products.

Some of the biggest companies in the consumer staples sector are Procter & Gamble, Walmart, and Coca-Cola.

Health sector

The healthcare sector has two main categories of companies: healthcare equipment and services companies and pharmaceutical and biotechnology companies. The sector covers everything from healthcare equipment, supplies, distributions, services, facilities, technology, research, development, and more.

“Healthcare can include pharmaceutical companies and other medical supply companies,” Campos said. “Cannabis companies are also part of healthcare.”

Some of the biggest companies in the healthcare industry are Johnson & Johnson, UnitedHealth Group, and Pfizer.

Financial sector

The financial sector includes businesses in the fields of finance. Some of the most common industries in this sector include banking, mortgages, financial services, consumer finance, asset management, capital markets, financial exchanges, REITs, insurance, etc.

Some of the biggest companies in the financial industry are Berkshire Hathaway, Visa, and JPMorgan Chase.

Information technology sector

The information technology sector includes a wide range of companies involved in the manufacture, distribution, market, and more, of hardware and software. Some of the most common components of this industry include computer services, software, communication equipment, hardware, electrical equipment, etc.

Some of the biggest companies in the technology sector are Apple and Microsoft.

Communication Services Sector

The communications services industry includes many companies in two broad communications categories: telecommunications services and media and entertainment. On the telecommunications services side, you’ll find wireless, fiber optic, cable, and Internet service providers. On the media and entertainment side, there are media and broadcast companies, as well as entertainment companies, streaming services, social media, and more.

Some of the biggest companies in the consumer services industry are Facebook and Alphabet (Google’s parent company).

Utilities sector

We have already talked about the energy sector, which includes companies that explore, produce and store energy sources. The utilities sector is made up of companies that provide energy sources to consumers. It includes electric and gas utilities, water utilities, and many renewable energy companies.

Some of the biggest companies in the utility industry are Duke Energy, NextEra Energy, and The Southern Company.

Real estate sector

The real estate sector is made up of companies involved in the development and management of real estate. Much of this sector is made up of real estate investment trusts (REITs), but it also includes other real estate rental, management and development companies.

Some of the biggest companies in the real estate industry are American Tower Corp. and Simon Property Group.

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