What is the diversification of the sector?

Diversification

SECTOR is a term used to invest to describe the purchase of shares in a carefully selected number of companies in defined main industrial groups, unlike using the entire source to purchase shares in only one. The main reason for practicing the diversification of the sector is to alleviate all the risks that one of the industries has experienced a decline. The classification of the main industries includes, among other things, areas such as healthcare, consumer products, finance and industry.

The active sector diversification offers the investor advantage due to the performance of caution. This means that such an investor realizes that there is no good investment practice to buy shares in only one industry as an investment. Although the investor is lucky and the industry is experiencing a period of huge or constant growth, in the future, something that would cause a gap or accident in this particular sector. The absence could be an offshoot of the general decline in the economy or bY could be the result of other trends that can affect this industry in particular. Whatever the situation, the fact remains that the diversification of the sector serves as a type of security network for an investor who does not want to be caught by any negative trend that could affect his investment.

For example, if an investor who has $ 100,000 USD (USD) decides to use all the money to buy shares in airlines, any factor that causes depreciation in travel samples, will significantly affect the investor. Assuming that there are a number of terrorist threats that cause passengers to remain in a flock from flying, the value of shares in airlines will decrease in the air. If a specific airline in which the investor has bought shares decides to close as a result of long -term or lasting losses, the investor will lose money.

on the other side could inVESTOR Invest $ 35,000 in the airline, $ 35,000 in purchasing shares in a pharmaceutical company and the remaining $ 30,000 when purchasing shares at a steel mining plant. In this case, the portfolio of investors suffers loss only to the extent that $ 35,000 is influenced by the airline invested. As such, the investor has shares in two other industries that help absorb the impact of loss. Sector diversification only helps investors to spread the risk of investment in diversification of their portfolio.