Welcome to Get Smart about Investing. Industry risk is very important to understand when investing. Industry risk is the risk that something will only affect companies within a specific industry. For example, what if the government wants to impose tougher regulations on drug companies? This would not affect your investments in the financial or industrial fields, but it would affect your investments in drug companies. Another example of industry risk would be a severe weather condition that affected the American agricultural industry. Again. it wouldn’t affect a giant software company or big bank, but it would have a direct impact on food and agriculture companies. Industry risk can be managed by investing in different industries. For example, by dividing some of your investments between industries like technology, financial services and transportation, you can protect yourself from the risk of concentrating all of your money in one industry. Look at what happened to so many people in 2001 and 2002, because they were completely invested in the technology industry. Industry risk is a main reason for the significant losses they suffered. Take a look at your portfolio today to make sure that you have no more than 20% of your portfolio invested in any one industry.
I’m Greg McGraime and Now You Know!