The best sectors to beat the market in the long term

If you want to outperform stock market averages over time, one way to do so is to invest in the best sectors of the market. Fortunately, there are mutual funds and exchange-traded funds (ETFs) that invest in sectors that are likely to grow faster than the economy as a whole. Learn more about these top-performing sectors and why they have great potential.

Beat the market with sector funds

When investors, traders or fund managers try to "beat the market," they are usually trying to beat the index of a broad market, such as the S&P 500. Simply put, if you want to beat the S&P 500, one way to do so is to invest in sectors that end up outperforming the index. Sector funds are an excellent way to gain targeted exposure to these areas of the market. Since no one knows for sure which stocks or sectors will beat the index, the best you can do is look at historical performance and make a few assumptions about the future. Some examples of market sectors include technology, health care, financial services, consumer staples, consumer discretionary, industrials, energy and utilities.

Best sectors for the long term

Choosing the best areas to buy for the future doesn't require an incredible opportunity or a lot of research. All it takes is a brief study of trends and a little research on historical performance. To set an example, we looked at three sectors and chose three that have outperformed the S&P 500 over the past 10 years. Here are some of the best sectors to buy now for the future :

Health Care Sector

With an aging population and rapid advances in biotechnology, the health industry has led all other industries over the past decade and will likely continue to do so in the future. The health sector is quite large. Companies in the health care industry include hospital conglomerates, institutional services, insurance companies, drug manufacturers, biomedical companies or medical device manufacturers.

Best Sectors: Technology

Also known as information technology, the technology sector is at the forefront of innovation and at the center of the information age, which has shaped the economy over the past 20 years and seeks to continue this trend for the foreseeable future. The technology sector is a category of securities that includes technology companies, such as manufacturers of computer hardware, computer software, or companies in the electronic and technology services industry, such as those that provide business information and data processing technologies.

Best Sectors: Consumer Discretionary

Also known as cyclical consumer discretionary stocks, the consumer discretionary sector includes companies that provide products and services considered more of a luxury than a necessity. These stocks are considered cyclical because demand for products and services in this sector tends to be higher during certain parts of the economic cycle, such as the growth phase.


While past performance is no guarantee of future results, an investor may choose to invest in sectors that have outperformed in recent history. For example, the health care and technology sectors have been the best performers over the past decade. It is possible that these sectors will continue to lead in the future. However, there is no guarantee of this. Before buying sector funds, investors should keep in mind that excessive exposure to a sector, particularly in the form of short-term market timing, can be detrimental to an investor's portfolio. A good portfolio strategy with sector funds is to add them as satellites to diversified core securities. This way, you don't put all your eggs in one basket, so to speak: you simply put a few more eggs in a few selected baskets.
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