Get the app
Get the app

Join millions of investors on Stash

Investing, simplified

Start today with as little as $5
Get the app

The Stash Way: Learn to Diversify by Sector

October 23, 2018

  • Diversification is a strategy for spreading out the risk in your portfolio
  • You can diversify your portfolio by sector
  • There are 11 different sectors reflected on the U.S. stock market
2 min read

Investing can be scary. It always involves some risk, and knowing where to put your money can be confusing to figure out on your own.

That’s why we’ve boiled down our investing philosophy into three basic principles that we hope can guide you as you make your first investing decisions. We call our approach the Stash Way. Here are its three pillars:

What is diversification?

Diversification is a big word but it’s actually a pretty easy concept to understand.

If you know the old saying about not “putting all your eggs in one basket,” then you’ve already got a basic understanding.

Essentially it’s a strategy for spreading out the risk in your portfolio by buying a broad range of stocks, bonds, and funds. Beyond that, though, you can (and should) diversify your stock holdings and your bond holdings; you can also diversify your holdings by region. And you can diversify by sector.

What’s a sector?

A sector is a building block of the economy that’s made up of multiple industries. (An industry is a specific group of companies that produce the same types of products or services.)

Think of the factories that manufacture the cars you drive, or stores that sell the retail products you buy every week, or the businesses that make the medical equipment that’s used for your health care. Each one belongs to an industry and a sector.

The key point is that the sectors don’t always perform the same way at different periods of an economic cycle. Tech companies could be racing ahead when the economy is expanding while companies selling consumer staples might be growing more slowly.

Here are the 11 different sectors reflected in the U.S. stock market:

Diversifying your portfolio by sector

Since companies make up the industries and sectors, you can invest in sectors by purchasing stock issued by these companies.

For instance, the Consumer Staples sector contains companies such as cigarette manufacturer Altria, packaged food company Hormel, as well as drugstore chain Walgreens and the retailer Walmart.

The Communication Services sector comprises companies such as Google and Facebook, but also AT&T, Disney, and Verizon.

Important note: While diversification could help you spread out your risk, it is not a fool-proof strategy. During economic recessions and other serious periods of market volatility, it’s possible that all sectors (i.e., the broad stock market) could lose value. After all, investing in the stock market always entails risk.

You can also purchase ETFs that include the stocks of the various sectors. These funds, which are baskets of stocks, can focus on real estate, utilities, healthcare, and materials, among others.

Want to learn more? You can purchase ETFs that include the stocks of the various sectors. These funds, which are baskets of stocks can focus on real estate, utilities, healthcare, and materials, among others.

Investing, simplified.

Start today with as little as $5.

Get the App

By Stash Team

Next for you
The Stash Way: Diversify Your Portfolio By Going Global

Investment Profile

Bonds Worldwide

An International Bond ETF on Stash

Learn more
Explore more articlesChoose a topic to learn more about
love and money pop culture politics Careers Retirement

This material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. Stash assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.

Furthermore, the information presented does not take into consideration commissions, tax implications, or other transactional costs, which may significantly affect the economic consequences of a given strategy or investment decision. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented. Before investing, please carefully consider your willingness to take on risk and your financial ability to afford investment losses when deciding how much individual security exposure to have in your investment portfolio.

Past performance does not guarantee future results. There is a potential for loss as well as gain in investing. Stash does not represent in any manner that the circumstances described herein will result in any particular outcome. While the data and analysis Stash uses from third party sources is believed to be reliable, Stash does not guarantee the accuracy of such information. Nothing in this article should be considered as a solicitation or offer, or recommendation, to buy or sell any particular security or investment product or to engage in any investment strategy. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Stash does not provide personalized financial planning to investors, such as estate, tax, or retirement planning. Investment advisory services are only provided to investors who become Stash Clients pursuant to a written Advisory Agreement. For more information please visit