It is always important to focus on sectors when investing. The number of stocks available is overwhelming. Add to those the Exchange Traded Funds (ETFs), mutual funds, and other investment vehicles and you can see that picking an investment or investments from such a dizzying number of options is impossible even for experienced traders.
There is a wide range of types of stocks within any sector, including small, medium, and small caps. There are high risk and lower risk investments. There are investments that return dividends and those that do not.
By looking at market sectors, a much smaller list of possible investments, you have narrowed the field down considerably. You may still be looking at hundreds or thousands of stocks and other investments, but it is possible to narrow these down as long as you have selected a sector with a good chance of giving you a reasonable return.
Which Sectors For Bad Times?
Some investors assume that when the stock market is down and/or extremely volatile you should not invest at all. It’s much too risky. But people actually made money during the depression because they had the foresight to short certain stocks. They bought stocks at very low prices with a strong sense of which investments were likely to turn around in a reasonable time frame.
In our own hard financial times, there are sectors that will weather the financial storms better than others. Some sectors will actually thrive during recessions or even depressions.
In general I would stay away from technology stocks. Yes, we still have new technology coming out all the time, new computers, notebooks, phones, etc. But there is less and less disposable income with which to buy these products, things that in many cases are not necessities.
One sector that is booming right now and seems likely to continue to boom for the foreseeable future is military support companies. This includes not just weapons manufacturers, suppliers of ships, planes, tanks, troop carriers, etc. It also includes logistical support, food, clothing, and especially energy.
A number of different types of companies make big profits during our military adventures. It’s a good investment partly because there is more fraud, waste, and outright theft in the military than in any other sector.
Over a trillion dollars has simply gone missing in Iraq. Companies like Halliburton and their subsidiaries have been busted for committing fraud, charging for meals that were never delivered and worse. Of course we still do business with these crooked companies.
Some would say that pharmaceutical companies are a good investment. Drugs are definitely a growth industry. Americans are taking more and more drugs every day. Drug companies are continually trying to come up with new and expensive drugs for every problem you can think of and some they haven’t thought of yet.
Drug companies represent a certain high risk. A drug that starts killing people can put a dent in drug company profits. Fines for drugs not properly tested or which do not perform as promised can cause stocks to drop.
One company, Genzyme, had problems with contamination and had to shut down an entire operation. Later, the same company found particles of stuff in one of their drugs and had to fix that problem.
The “Safest” Sector for Our Time
I must put “safest” in quotes because there are no safe or foolproof stocks, ETFs, mutual funds, or other investments. Some are simply a safer bet than others for now. The commodities sector is where I would look for the best investments in the U.S. right now. Why is that?
Commodities cover a lot of territory. The sector includes food, energy, building materials, metals, and other related products. It is obvious that regardless of how the economy is doing we still need food and we still need energy. When I say food, I’m talking about anything agricultural, from actually growing food to the equipment and products (chemicals) required for that endeavor. It includes the retail and food service end of things as well. It includes agricultural land, which is probably one of the few real estate investments likely to turn a profit right now.
Energy covers every possible source of energy from oil and gas to alternative energy resources. If we don’t continue to find or create the energy to run our transportation and our businesses (as well as our homes), life will come to a grinding halt. Knowing which energy companies have a rosy future requires some research but every portfolio should probably have at least some energy exposure.
My own bias is for investing in metals. This includes what are called base metals such as tin, lead, copper, aluminum, as well as more exotic metals. These are used in building and in many other industrial applications. While building has slowed down in this country, it is still moving ahead in China, India, and other emerging nations. These metals are also volatile but have done well over the past decade.
Precious metals are a different sort of fish altogether. While some precious metals also have numerous industrial applications, such as platinum, palladium, and silver, these three plus gold also represent an alternative to a falling dollar.
Gold and silver are referred to by some as “real” money. That’s because they hold their value regardless of what is happening in the economy. As the economy has suffered, gold has gone up in value for the past nine years. Silver is right behind.
Anyone who believes that the economy is not going to be in good shape for a long time would be wise to look into investments in precious metals for part of their diversified portfolio.
This would include buying physical coins or bullion as well as investing in precious metals ETFs, mining companies, mining company ETFs and mutual funds. As the dollar continues to plummet, gold and silver will shine.