As a sadhu, you realize how important it is to become financially independent quickly to free your time for more sadhana.
If this is your goal, and we think it is, then you will appreciate this amazing reference guide on the basics of the Stock Market Sectors and Industries.
Swamiji has poured out a wealth of Market Sector knowledge and laid it at our fingertips.
In addition, he shares the four things an investor can do to outperform the market!
But, before we jump in, let’s first cherish Swamiji’s Divine message:
The hope and prayer is that by the time you reach your retirement, and we will not speculate as to when that will be, you will have sufficient resources to do your sadhana full time, and monitor your investments part time.
This is our blessing, and to that objective we want to share our experience.
Vital Insights – Recap from Previous Articles
We have previously discussed the need for budgeting our savings and the enormous benefits of starting this as early as possible.
To understand the significant benefits of starting early on the savings habit, let’s review the concept of compounding. Consider this classic example:
If you invest $400 a month for 30 years, and continually reinvest the dividends, at the end of 30 years you would have invested $144,118, and earned $456,118, for a total accumulation of $600,118.
Whereas, if you invest $400 a month for 40 years, and continually reinvest the dividends, at the end of 40 years, you would have invested $192,000, and earned $1,213,712, for a total of $1,405,712.
For the additional $47,882 invested over ten years, $4,788 per year, you would receive an additional $805,594, which equates to an additional 57% return on your money!
Both investments assume exactly the same hypothetical annual rate of return of 8%, compounded monthly, and do not take into consideration inflation, expenses or taxes.
This certainly demonstrates the principle of compounding, and why it is necessary to start as early as possible, and to make that a habit for life.
We have also discussed allocating our assets, the importance of making a Plan for asset allocation, and diversifying our investments among various types of asset classes.
We understand the enourmous benefits of diversification and how it reduces the risk of our overall investments.
Now that we have set our goals, have a budget, and understand the fundamentals of the investment process, it is time to take a deeper dive into the sectors and their related industries and companies.
The world economy is divided into ten sectors and each sector in turn is divided into a number of industries. Further, each industry consists of a number of companies producing and selling goods and services.
While apportioning our savings across different asset classes reduces risk to a certain extent, additional diversification is possible. In particular, within each asset class, we can spread our savings over different sectors and industries.
Markets will fluctuate and there is no way to completely isolate ourselves from the market volatility. What we can do though is attempt to minimize our volatility by diversifying our risks.
We diversify risk by investing in many different asset classes, and within each asset class across all the sectors of the economy, in many industries within each sector, and in solid companies within those industries.
Risk aside, by identifying sectors and industries that generate superior performance, we will enhance the return from our investments.
The sectors and the number of industries within each sector are as follows:
|Valuable Overview of Each Sector – Next Section!|
The S&P 500 is a stock market index that consists of 500 large US companies. It is considered to be one of the best representations of the entire US stock market. This is how the ten sectors are represented on the S&P 500:
Secure Life-Long Revenue Through Portfolio Management: Generally, we will want to invest in a portfolio of assets with sector weights in accordance with the S&P Allocation. This portfolio can be termed as the “Core Portfolio.”
Our Core Portfolio is the basic part of our investment holdings, which will have very little change over time. Warren Buffet, widely known as the most successful American investor, compares the Core Portfolio to owning a farm.
The farm will want to stay in the family for generations. It is a productive asset, and you probably would not sell it, even if it had a bad crop one year. It is part of the family legacy.
Similarly our Core Portfolio should contain holdings in companies that we believe will continue to be profitable over time, and that we really have no intention of selling or trading for short-term gains.
Put simply, our Core Portfolio should consist of farm-like companies (strong, legacy companies) that we would not want to sell, because we know that over time they will continue to operate with efficiency, and we can pass them down to our heirs as part of our legacy.
We should plan to hold the Core Portfolio through the ups and downs of the market, no matter what the trends may be, because we know from history that the market has consistently moved higher.
Even when faced with recession or even depression, the market has always rebounded.
In addition to the Core Portfolio, Charles Schwab, a great American businessman, investor, and founder of Charles Schwab Corporation, talks about the strategy of holding an Explore Portfolio.
While the Core Portfolio serves as the “nucleus” of our holdings, the Explore portfolio contains growth opportunities which have the opportunity to dramatically increase our returns.
An Explore Portfolio contains investments that are more speculative in nature, companies to which you have little attachment.
In this portfolio, we will experiment, and as we gain experience, we will try to determine the trend, and with an educated and disciplined process, we will try to time the markets to produce above average profits.
Because this portfolio is more risky, we naturally try to diversify our risk through holding a variety of opportunities.
Four Things You Can Do to Outperform the Market:
We’re all familiar with the old saying “knowledge is power.” Indeed, when it comes to outperforming the market and increasing our returns, knowledge of the markets, sectors, and industries, can leverage us into a better position. But we also need to take action, so taking action is also power.
How do we confidently take action and implement our investment strategy? There are logical steps which, if followed with discipline, will focus your knowledge and build your confidence to take action at the right time. Check it out:
If investors can do these four things, their capability to outperform the market and their personal benchmarks will increase by leaps and bounds!
But, how do we hone-in on the “right time” to take action in a world of uncertainty? First, take the time to understand the economic cycle (business cycles) as it will impact both the Core and Explore parts of our portfolio.
Armed with this understanding, you can make appropriate adjustments to certain aspects of your portfolio. In addition, good investors understand their own emotional reactions to these cycles in an effort to minimize irrational trades made in a state of panic and fear.
For example, we all begin investing with some sense of Optimism.
We feel the Excitement and Thrill as our profits increase.
We feel a sense of Euphoria as profits approach their maximum gains.
Then, Anxiety sets in when the gains begin to erode away.
There is Denial that I am going to lose the profits, and a Fear as I approach becoming almost even.
When the stock valuation goes below the original Purchase Price, there is Desperation and then Panic.
Capitulation comes when I even consider throwing out the baby with the bath water.
Despondency as I can hardly hold on any longer, Depression while the stock price languishes,
Hope when the value begins to rise again, Relief as it approaches the original Purchase Price, and then once again we become Optimistic.
These business cycles and the associated emotions are quite normal and we can never isolate ourselves completely. But we can minimize the impacts of these swings by diversifying our holdings into several asset classes, sectors, industries and companies.
Get ready to build your nest egg by diversifying your assets into sectors, industries and companies. This is a valuable reference guide to the ten sectors. It includes a description of the sector and its unique performance tendencies at certain times in the economic cycle. These lists are illustrative, and by no means are they the only ones:
Namaste! You are now empowered to put these great strategies to work. We hope you continue to expand your knowledge, boost your income, and achieve your goals efficiently!
Jai Maa! Jai Swamiji!