Sectors are divisions within an economy or market, useful for analysing performance or comparing companies with similar outputs and characteristics.
Economies tend to be split into four sectors, consisting of:
- Agriculture and mining
- Retail, entertainment and financial services
Sectors aren’t always country-wide; larger economic areas (like the European Union) or smaller ones (like a city) can also be split into sectors.
Many investors believe that it is risky to focus investment too heavily on a single sector. The strategy of investing in several different areas of an economy is called diversification.
Companies also get categorised by sectors, such as oil and gas, technology, utilities or healthcare. It is possible to invest in a sector with exchange traded funds (ETFs).