Invest Daily Pro
  • Economy
  • Investing
No Result
View All Result
  • Economy
  • Investing
No Result
View All Result
Invest Daily Pro
No Result
View All Result
Home Stocks

The Ultimate Guide to Building a Sector-Diversified Stock Portfolio

by Invest Daily Pro
March 21, 2025
in Stocks
0
The Ultimate Guide to Building a Sector-Diversified Stock Portfolio
0
SHARES
1
VIEWS
Share on FacebookShare on Twitter

You already know about diversification. You’ve set your investment goals, picked a benchmark, and decided on the weighting of your allocations. Now, it’s come down to selecting the assets—stocks or ETFs—to build your portfolio.

As a long-term investor with moderate risk tolerance, how might you build a portfolio to withstand market drawdowns and weather the business cycle?

There are many ways to do this. Here are a few ideas to consider.

S&P Sectors: How Are They Performing and Where Are They Going?

FIGURE 1. RRG CHARTS OF S&P SECTOR ETFS RELATIVE TO THE S&P 500. This image shows you the one-year progression of each sector, indicating the stage of leadership they might be headed.

If you’re looking to diversify by sector, it helps to know where each one has been, performance-wise, and toward what state of leadership they might be entering. Which stocks are Improving, Leading, Weakening, and Lagging?

This is where RRG Charts (specifically RRG S&P 500 Sector ETFs) come in handy. By giving you a dynamic view of sector movement over time, RRGs can help you time your entries to match your strategy—whether you want to buy strength or take a more contrarian approach and buy weakness.

You might also want to view sectors in terms of relative performance. PerfCharts are a useful way to see how each sector is performing against other sectors.

FIGURE 2. PERFCHARTS OF 11 S&P SECTORS. Sectors are sorted from outperforming (left) to underperforming (right).

PerfCharts show that over the past year, Utilities, Financials, and Communications Services have led the market, while Materials, Technology, and Health Care have lagged. If you were looking to shift your portfolio toward greater sector diversification, this chart would prompt a few questions:

  • Should you be overweight, underweight, or equal weight in your exposure to certain sectors?
  • Do you think the outperforming sectors will retain their leadership levels over the coming quarters, or are they overvalued?
  • Are the laggards undervalued, or might there be further downside in the long-term?

Combining RRG and PerfCharts can provide plenty of context for evaluating whether to enter, exit, or rebalance your positions.

From Sector to Industry to Individual Stocks

One question that’ll likely be on your mind is whether you should invest in individual stocks within a given sector or in a sector index ETF.

If you click the sector names in the Sector Summary tool, you can zoom in on the industries. Select the industry and you’ll get a list of all the stocks within that industry. The charts above tell you how the sectors are performing relative to one another.

If you decide to buy stocks for your sector allocation instead of sector ETFs, then you might want to know how a given stock is performing relative to its a) sector, b) industry, and c) a broader market benchmark like the S&P 500.

Here’s an example. Suppose you decide you want to invest in a stock in the Consumer Staples sector. You decide on Sprouts Farmers Market (SFM) which has a high StockChartsTechnicalRank (SCTR) score. Take a look at this daily chart.

FIGURE 3. DAILY CHART OF SFM. You want to see how SFM is performing against its sector, industry, along with the broader market.

Here are a few key points to note. Based on a one-year view…

  • The Consumer Staples sector (XLP) is underperforming its peers and the S&P 500 by around 4% (as shown in the PerfCharts example above).
  • However, SFM is outperforming its sector (XLP) by over 118%, its industry Food Retailers & Wholesalers ($DJUSFD) by over 104%, and the S&P 500 ($SPX) by over 107%.

If you’re seeking Consumer Staples exposure, should you invest in XLP for a potential turnaround or in SFM, a sector leader with strong momentum?

This is an example of only one way to employ a diversification strategy. You can diversify among stocks vs. bonds, growth vs. value stocks, or emerging vs. developed markets, and many more.

What About Rebalancing?

Market shifts can misalign your portfolio with your strategy, making periodic rebalancing essential for maintaining diversification.

Remember that diversification isn’t about managing and not eliminating risk. You might consider hedging strategies like options or alternative asset exposure like gold, commodities, or crypto during longer downturns. How often should you rebalance? It depends—some do it on a set schedule (every six months or a year), others adjust when allocations drift too far, or after major market events shake things up.

At the Close

Building a diversified portfolio takes a lot of planning, but it doesn’t have to be overly complicated. StockCharts gives you several tools to analyze, select, and build your portfolio. Use the tools to your advantage, and remember to stay flexible, as market conditions perpetually change, prompting you to rebalance from time to time.


Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

ShareTweetPin

Related Posts

Chart Mania – 23 ATR Move in QQQ – Metals Lead 2025 – XLV Oversold – XLU Breakout – ITB Moment of Truth
Stocks

Chart Mania – 23 ATR Move in QQQ – Metals Lead 2025 – XLV Oversold – XLU Breakout – ITB Moment of Truth

July 26, 2025
Momentum Leaders Are Rotating — Here’s How to Find Them
Stocks

Momentum Leaders Are Rotating — Here’s How to Find Them

July 25, 2025
S&P 500 Breaking Out Again: What This Means for Your Portfolio
Stocks

S&P 500 Breaking Out Again: What This Means for Your Portfolio

July 25, 2025
A Wild Ride For the History Books: 2025 Mid-Year Recap
Stocks

A Wild Ride For the History Books: 2025 Mid-Year Recap

July 24, 2025
Is META Breaking Out or Breaking Down?
Stocks

Is META Breaking Out or Breaking Down?

July 24, 2025
Tech Taps the Brakes, Homebuilders Hit the Gas: See the Rotation on StockCharts Today
Stocks

Tech Taps the Brakes, Homebuilders Hit the Gas: See the Rotation on StockCharts Today

July 23, 2025
Next Post
Stock Market News UK Update: FTSE 100 & 250 Rise

Stock Market News UK Update: FTSE 100 & 250 Rise

Recommended

Bestfriend Goodies partners with gov’t agencies to fight malnutrition

Bestfriend Goodies partners with gov’t agencies to fight malnutrition

December 3, 2024
Six firms eye Meralco’s 400-MW contract

Six firms eye Meralco’s 400-MW contract

August 29, 2024
Peso surges to three-month high

Peso surges to three-month high

August 8, 2024
Evri doubles profits after record year for parcel deliveries

Evri doubles profits after record year for parcel deliveries

November 18, 2024
The Best High RTP Slots: Maximize Your Winning Potential

The Best High RTP Slots: Maximize Your Winning Potential

December 6, 2024
Nomura sees slower PHL growth

Nomura sees slower PHL growth

December 4, 2024

    Stay updated with the latest news, exclusive offers, and special promotions. Sign up now and be the first to know! As a member, you'll receive curated content, insider tips, and invitations to exclusive events. Don't miss out on being part of something special.


    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    • About us
    • Contact us
    • Privacy Policy
    • Terms & Conditions

    Copyright © 2025 InvestDailyPro. All Rights Reserved.

    Disclaimer: InvestDailyPro.com, its managers, its employees, and assigns (collectively InvestDailyPro ) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice.
    The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    No Result
    View All Result
    • About us
    • Contact us
    • Home
    • Privacy Policy
    • Suspicious engagement
    • Terms & Conditions
    • Thank you

    Copyright © 2025 investdailypro.com | All Rights Reserved