The economy
Sector
A grouping of companies doing broadly similar business, used to organise markets.
How it works
Standard classification schemes divide listed markets into around eleven sectors — technology, healthcare, financials, energy and so on — each with sub-industries beneath.
Sector membership is the fastest check on whether a portfolio is genuinely diversified, because companies in one sector share the forces that move them.
Where it misleads people
Classification lags business reality. Companies that have transformed themselves often remain in their historic sector for years, which distorts sector-level analysis.
Related terms
- DiversificationSpreading money across things that do not move together, so no single failure can decide your outcome.
- Concentration riskThe risk that too much of your outcome depends on one holding, sector, country or currency.
- Business cycleThe recurring pattern of expansion, peak, contraction and recovery in an economy.
- IndexA rules-based list of securities used to represent a market or segment of one.
More in The economy
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.