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How to diversify your investments: think sectors!

Investors can gain exposure to vast investment opportunities through stock market sectors.   The only question is what form their investment will take.  The options are purchasing of individual stocks or buying specialized sector funds, such as exchange-traded funds (ETFs) or mutual funds that primarily hold stocks within a single sector.  Investors interested in exposure to all sectors can consider a broad-based mutual fund or ETF like the S&P 500 Trust ETF (SPY).   Who makes sure it’s all up to spec?    There are 11 stock market sectors, according to the Global Industry Classification Standard, or GICS, which is an industry taxonomy developed in 1999 by MSCI and Standard & Poor's.  The 11 stock market sectors are then sub-divided into 24 industry groups, 69 industries and 158 sub-industries into which all major public companies fit.  Annual reviews are conducted by S&P Dow Jones Indices and MSCI to ensure that the structure remains f...

Exchange-traded funds: What is all the rage?

Exchange-traded funds (ETFs) have been steadily growing in popularity, getting a boost from the Covid pandemic. What made them so popular? For one, it is due to their ease of use. Next on the list of advantages is the diversity they provide, and finally it is their cost-effective approach to investing.   The U.S. domestic ETF market has grown to almost $3.9 trillion as of mid-2021 aided by the 2019 rule passed by the SEC. The streamlined regulatory environment in the US has driven ETFs through the roof.   Removing regulatory barriers   As of 2020, there were 7,602 ETFs globally. This is a considerable increase from just 276 in 2003 and 7,083 in 2019. In the next five years, ETFs are projected to surpass mutual fund assets in the United States. [1]   [1]  A new rule referred to as the “ETF Rule” has enabled stellar growth of ETFs. The rule was passed in September 2019 by the Securities and Exchange Commission (SEC) and removes the so-called "exemptive relief" reg...