DEFINITION of Sectors
Sectors represent divisions within an economy or market. Hence, it is useful for analyzing performance or comparing companies with similar outputs and characteristics.
WHAT IT IS IN ESSENCE
Economies are split into four sectors:
Agriculture and mining
Retail, entertainment, and financial services
According to the three-sector theory, all economic activities can be classified into one of three sectors. They can be the primary sector, the secondary, and the tertiary. In addition to this, in recent years many economists have argued that the theory should be extended to include a quaternary sector.
The primary sector describes all industries that are engaged in the extraction of natural resources or the production of raw materials.
The secondary sector includes all industries that are concerned with the manufacturing of usable products or finished goods.
The tertiary sector describes all industries that provide services to other businesses or final consumers.
And last but not least, the quaternary sector includes all industries that are concerned with the creation and distribution of knowledge.
A primitive economy will primarily be based on the primary sector. With most people employed in agriculture and the production of food.
HOW TO USE
The stock market allows small businesses the chance to see how their individual industry performs.
A variety of businesses, large and small, have listings on the stock market. Categorizing these companies into sectors, groups of companies that perform similar business operations makes it easier to follow specific parts of the market.
Following the market in sectors gives the small business owner the opportunity to see how his sector compares with and performs against other sectors.
Many investors believe that it is risky to focus investment on a single sector. The strategy of investing in several different areas of an economy is called diversification.
Companies also get categorized by sectors, such as oil and gas, technology, utilities, or healthcare. It is possible to invest in a sector with exchange-traded funds ( ETFs).