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The Fine Art of Sector Investing

Ask any successful online trader and they will tell you the secret of their success is having a good investment strategy. Professional traders aren’t just lucky. They have spent years perfecting their methods and honing their techniques. Their goal is to preserve capital, whilst at the same time, generating an income.

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Bonds and CDs are a less aggressive form of investment. Your capital is reasonably safe, but if you want to make strong gains in a short time, your only option is to take more risks with your money. Forex trading is a popular choice for investors, but if you don’t have the stomach for forex trading, sector investing is an investment strategy worth considering.

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The Economic Cycle

Sector investing lets investors target specific sectors at certain points of the economic cycle. There are four distinct phases within an economic cycle:

  • Expansion
  • Peak
  • Recession
  • Recovery

The economy behaves in different ways according to where it is in the cycle. During the expansion phase, technology is growing, but once we reach the peak, financials, energy and materials are a growth industry. When an economy is in recession, stock prices fall and utilities, healthcare, and consumer staples come to the fore. When a recession is over, the economy moves into a recovery phase and the stock markets begin to gain momentum. Now is a good time to take a look at property, industrials, and materials. And so it continues.

How Sector Investment Works

The key to sector investing is to take advantage of each sector at the right time. Stock markets don’t always follow set patterns, so buying and selling stocks for short-term gain requires a greater understanding of the underlying macroeconomics. Awareness of the economic cycle helps you to make an informed decision. Look at which sectors performed well during specific parts of the economic cycle and use this knowledge to inform your future investment decisions.

Open an Online Trading Account

Success is not guaranteed and you will need to put more effort into your investment strategy, but the rewards are greater. Open an online investment account with a platform such as Oanda and look at which sectors are likely to perform well in the next economic phase. If you can accurately spot when the economy is about to slide into the next phase, you can capitalise on this and make the necessary adjustments to your investment portfolio.

Sector investing is a non-traditional approach, but if you want a higher return on your investments, it is worth trying.

About Lori Booth

Lori Booth

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