Investment Basics

Knowing where to invest your money is never an easy thing to figure out. However, as most investors will tell you, some periods in the economic cycle are better for some sectors while not so good for others. In fact, during the latest recession period, investors saw how discount retailers like Wal Mart and TJ Maxx not only performed well and continued to pay dividends, but they actually saw same-store sales growth! Although not all retailers fared as well, these two in particular did. And while they are still popular among dividend-seeking investors or investors with low risk tolerance, those investors seeking growth are looking elsewhere for the next "thing" to invest in.

Another area that performs particularly well during periods of economic contraction and periods of recession are the Utilities, which normally experience steady growth and pay handsome dividends throughout every economic period. This is because the services and products that Utilities sell to the rest of us are necessary -- it is rare that someone will choose to not heat their house or to voluntarily cut off their electricity. But like those discount retailers, Utilities firms are not the "next thing," the type of security that is expected to reward investors with big growth during the recovery stages of the economy.

The two sectors that benefit most during periods of economic recovery will normally be the Financial Services and the Manufacturing sectors. However, since this recent recession was financially driven (e.g. credit crisis, mortgage melt down, etc.) the Financial Services will take a little longer to recover. And while the rest of the world waits for the Financials to regain health, they will order manufactured goods.

Now, it may seem that manufacturing is the last thing that will recover given how many people in the manufacturing business remain out of work. However, the fact is that a lot of heavy equipment upgrades, aging aircraft fleets and other durable goods need replacing on a regular basis. And since many companies, unsure about the depth and scope of the recession, delayed placing those orders, those orders are now coming in strong and heavy in many cases.

Companies like Boeing are seeing aggressive orders out of China and the rest of the world as aircraft fleets need to be replaced. This is further supported by the latest Institute for Supply Management (ISM) numbers that show aircraft orders nearly doubling, great news for companies like Boeing. But of course, the orders are not specific to a simple aircraft manufacturer - engine manufacturers like Rolls Royce and General Electric are also seeing demand increase for their products.

Outside of the airline industry, other durable goods manufacturers are also poised to benefit from a recovery in the economy. All it takes is an aging fleet, outdated equipment that impacts productivity and before long, these manufacturing companies will have no choice but to start taking orders.

For Manufacturing opportunities within your portfolio, be sure to speak with your financial planning partner.

--> See what Growth Funds hold Industrial Materials as their top sector holdings at MutualFundSite.org.

Chris has more than 17 years of financial services experience. He currently writes for the Mutual Fund Site, a website that looks at all types of mutual funds including American Funds, one of the largest fund companies in the world.