For the novice investor, it can sometimes seem intimidating and difficult to identify growth and find spaces in the economy which are still growing and show promise for investment.
Concepts like angel investors, unicorn companies and start-ups also add excitement, confusion and a bit of chaos to the investing world. Many investors are now dead set on finding the diamond in the rough and want to identify growth prospects early.
However, chasing after unicorns can lead a lot of investors into forests of bad investments. It is actually a much better use of your time to perform research and learn as much as you can about the functioning of a sector and diversify your investments.
Doing your research
It is impossible to identify growth in sectors — or sectors that are about to grow — if you do not know anything about the economy. Investors who are interested in really learning to understand the economy and to discover niches that look set to explode need to be able to do their research.
This involves more than just listening to the odd investment podcast or following social media traders. Instead, serious investors should try to stay up on current affairs, changes to commercial legislation in key markets, consumer preference surveys and media reports of specific markets.
The quality of research really is key when it comes to smart investing. If you read the Financial Times, listen to podcasts from the Economist and follow reliable news sources to learn about current affairs, you will likely be surprised by how much you can learn in just a few short weeks.
Test case: The online gambling sector
It is worth taking the time to look at a test case — the online gambling sector. Gambling and betting have obviously been around for millennia and it should have been obvious to investors looking at the space that once mobile infrastructure and technology advanced to a certain point, online casinos would take off in a big way. As it is, many people did not put two and two together and failed to recognise just how promising the industry was.
The good news is that the industry is still growing at an incredible rate. There are now hundreds of different online casinos offering slot games in UK along with every kind of casino game imaginable, and the industry shows no signs of slowing down.
Interested investors looking at the online gambling sector will know that it remains extremely promising if they have done their research. The industry is continuing to grow in the UK and elsewhere.
In the United States, an increasing number of states are starting to take another look at their regulations concerning online and in-person gambling. This is a sign that change is on the horizon and there will soon be an explosion in online gaming in America.
Investing for the long term
For investors who prefer a safer, more conservative approach, there is also always the option to invest in sectors which will grow in the long term. One of the best investments is in the health care sector, as an ageing population requires more and more personal support and health care. On top of this, the health care industry is incredibly innovative and medical device and pharmaceutical development is ramping up ever more quickly.
Another sector that is worth considering for long-term investments is the consumer discretionary sector. The consumer discretionary sector includes all companies which offer products that are viewed as luxury or pleasure products. Contrary to what you might think, spending on these products can actually increase during a recession or slight economic downtown. Example companies in the consumer discretionary sector would include Starbucks [SBUX], Apple [AAPL] and Disney [DIS].
The bottom line
At the end of the day, the returns which arrived last year may not arrive from the same investments this year — a future return is never guaranteed. Before you make any investment, no matter how conservative, you should keep in mind that it is not a good idea to invest too heavily in one sector but instead to diversify your investment portfolio. That way, if a specific sector does falter, your investments are less likely to suffer overall.
One good way to ensure your portfolio is safely diversified with sector funds is to add the sector funds as satellite investments to already diversified core holdings that you have. By doing this, you will not be putting all of your eggs in one, potentially risky, basket and instead, put your eggs in many different baskets.