Understanding Consumer Staples and Why You May See Them in Your Portfolio

3 years ago

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The stock market is made up of many different “sectors” in which stocks fall based on the goods or services they provide. The S&P 500 Index, which tracks the biggest five hundred stocks in the U.S. Stock Market, and which is used as one of the most recurrent benchmarks for comparing investments, is made of ten different sectors. Most experienced investors (and often unexperienced investors) are familiar with the Consumer Staples Sector. For those that are not, or are learning the basics of investing, below is what you should know.

The Consumer Staples Sector is made of stocks from companies that sell products we use in our every-day lives. These products include household items, food and beverages, tobacco and personal products. They are considered non-cyclical stocks. This means that no matter where we are in the economic cycle, no matter what the financial landscape looks like, we are equally as likely to buy these products. How does this affect company stock? Consumer staple stock prices have less volatility than those stocks found in other sectors, which are more correlated to market performance. Consumer staples stocks are also well known for paying constant dividends. Because of this, they are considered “defensive.”

Given their defensive nature, many portfolio managers use consumer staples stocks to hedge or protect their investments against market downturns to some degree. Why? Because it is very likely that we will keep buying toilet paper, toothpaste, tobacco and food no matter what our financial situation may be.

If you have questions we encourage you to reach out to our team for assistance.

-Santiago Munoz, Financial Advisor

Sources:

www.investopedia.com
www.sectorspdr.com

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The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of Cabana or its affiliates. Any content provided by our bloggers or authors are of their opinion, and are not intended to malign any religion, ethnic group, club, organization, company, individual or anyone or anything.

Information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a financial advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation.

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