What is a sector?
When related to the economy, a sector is an industry group in which the businesses offer the same goods or services. In investing, sector is a term investors apply to categorize investments in a particular area of stocks, such as health care and technology.
Deeper definition
Economies are generally made up of four major sectors, which in turn are made up of smaller sectors. The four major sectors include:
- Primary sector, which is made up of companies that extract and harvest natural products from the planet.
- Secondary sector, which includes manufacturing, processing and construction companies.
- Tertiary sector, consisting of companies that offer retail sales, entertainment and financial services.
- Quaternary sector, which includes companies that focus on intellectual pursuits and education-related businesses.
In investing, sectors have their own characteristics and risk profiles that may make them attractive to investors. Analysts often specialize in research in particular sectors. Based on their specialization, they may invest in one kind of sector, like technology or health care. Alternatively, they may specialize in an economic sector such as oil and gas.
Sector example
Growing up, several of Nathan’s family members worked in coal mining. Because coal mining has decreased over the years, Nathan decided not to go into this line of work.
Instead, Nathan went to work for a wind-power company. While Nathan works in a different industry than his relatives, he still works in the same economic sector, which produces natural products.
Christine and Steven work for the same brokerage firm as stock analysts but specialize in different sectors.
Christine specializes in biotech companies that conduct research and develop leading-edge drugs. She stays on top of trends within the sector, tracks major biotech companies’ finance, and invests in the biotech companies that she believes will make the most money for her clients.
Steven specializes in technology companies. Like Christine, he stays on top of trends for his sector, tracks the profitability of tech companies and invests in those companies he believes will be most profitable for his clients.
