Sector weightings explained.
Before you buy into a mutual fund, you should find out where the mutual fund is putting most of its money. You can do this by looking up the sector weightings. Sector weightings will show you the amount of money that this fund has put into each of the different sectors of the economy. You should never buy into a mutual fund before you know and understand what the sector weightings of the mutual fund you’re looking at mean.
Once you find out what the different sectors are, you’ll be able to determine whether or not you think that the mutual fund is likely to make more money in the future. For instance, if you think that the telecommunications sector is going to see a decrease in capital in the future, then you should not buy into a mutual fund that is heavily weighted toward the telecommunications sector.
Some of the other sectors that can be included in a mutual fund include the consumer sectors: consumer goods and services as well as media, hardware, software, health, and industrial materials. There are other sectors, as well, but it is not important for a mutual fund to invest in all of the different sectors.
You should make sure that the mutual fund you are looking at invests in several different sectors. That way, if one of the sectors begins to have hard times, then the other sectors will be able to keep the mutual fund afloat.
This can also help you if the mutual fund is not the only part of your investment portfolio. If you already own stocks in a few companies, or you already have money in a particular mutual fund, then you can use a new mutual fund to further diversify your portfolio. Therefore, you should make sure that you know how much of each sector you have in your portfolio to begin with – and then choose a mutual fund that will compliment that.
By using sector weightings, you can make sure that you have a diverse investment portfolio. This is especially important if you are doing any long-term investment – staying aware of what sectors you own stock in (even if it is through a mutual fund) is important for keeping your retirement intact.