Best Sectors To Invest In for the Long Term

Investing in the tech, health care, and consumer discretionary sectors

Woman sits at a table with a coffee cup looking at a laptop

nomadnes / Getty Images

There's no real way to guarantee returns that beat the stock market average, but you can look to invest in sectors that have historically performed well. The best sector funds for long-term investing may be those that invest in the technology, health care, and consumer discretionary industries.

If you're looking to make changes to your portfolio, consider sector funds like mutual funds and exchange-traded funds (ETFs) that have historically beaten the market in the past. There's no guarantee, especially with a volatile market, but if you're willing to take a chance, it could pay off.

Key Takeaways

  • The best sector funds have historically focused on industries like technology, health care, and consumer discretionary goods and services.
  • There's no way to time the market or guarantee that you will beat its average returns in the long run, so always invest with caution.
  • Look for mutual funds and ETFs with low fees and expense ratios to maximize your earnings and remember that investing for the long term is often a good strategy.

Investing in Sector Funds

You may hear about investors, traders, or fund managers trying to "beat the market." This phrase means that they are searching for returns that beat a broad market index, such as the S&P 500. As an investor, you want to get the highest returns possible with the least amount of risk. To do that, you'll want returns that are higher than the S&P 500 or Dow Jones Industrial Average. One way is to invest in market sectors that have historically performed higher than the indexes. Sector funds are often some of the best funds to invest in areas with higher returns.

No one knows which stocks or sectors will beat the indexes—and there is no guarantee. The best you can do is to look at past returns and make a few guesses about the future. Some market sectors you can look into include technology, health care, financials, consumer staples, consumer discretionary, industrial, energy, and utilities.

Choosing the best sector funds to buy for future returns doesn't take luck or a large amount of research. All it takes is a brief study of trends and a bit of research on past performance. To do that, look over each sector, and choose three that have performed higher than the S&P 500 over the past 10 years. Then look for an ETF or other fund that can give you good exposure to the sector.

Health Care Sector

An aging population and rapid advances in biotech make the health care industry a tempting option. This space is among the top three sectors in growth between 2012 and 2022, and there's a good chance that health care will only continue to evolve in the future.


The health care sector is considered a "defensive sector," or one that isn't affected as much by recessions.

The health care sector is quite broad. Its businesses include hospital conglomerates and institutional services. Other firms in the industry are insurance companies, drug manufacturers, biomedical companies, and medical instrument makers.

Many sectors may be impacted by economic conditions. The health care industry tends to perform well even during economic downturns because people still need to see their doctor and get medicine, regardless of the state of the economy.

Technology Sector

The tech sector is at the tip of the innovation spear. It is also the driver for the information and data explosion that we've seen since the start of the 21st century.

Tech has shaped the economy for decades and while it's seen slower growth in 2022, the sector has still performed well over the 10-year period between 2012 and 2022. During that time, it's seen over 366% growth. There's no guarantee that performance will continue, but technology is always changing, so there's a chance it could continue to see positive returns in the long run.


New technology is always coming about. There once was a day when there was no iPhone, no Facebook or Instagram, and no smartwatch. And there will come a day when we can't remember the days before a new tech gadget, too.

The tech sector is a group of stocks that contains computer hardware manufacturers and many other companies that make software and various electronics. They also provide services and support for their products. Most tech companies also offer information products and/or business data processing.

Some examples of tech companies are Apple (AAPL), Microsoft (MSFT), Google (GOOG, GOOGL), and Meta (FB), formerly Facebook.

Consumer Discretionary Sector

The consumer discretionary sector includes firms that provide products and services that are more for luxury or pleasure. Also called "consumer cyclical stocks," they are seen as cyclical because demand for products and services in this sector tends to be higher during certain times in the business cycle, such as the growth phase.

Consumers tend to demand products and services when they have more money and feel hopeful about their jobs and finances. When the economy shrinks, the demand for these stocks also declines.


Examples of consumer discretionary stocks include Apple (AAPL), Disney (DIS), and Starbucks (SBUX).

In the 10 years between 2012 and 2022, the consumer discretionary sector 169% growth, and was in the top three sectors to see positive returns over that long-term period.

The Bottom Line

The returns of the past do not guarantee future results. If you wanted to look at sectors that have performed well in more recent history, such as between 2019 and 2022, you may choose to invest in sectors like energy, utilities, or consumer staples.

But looking at longer history may also prove fruitful when choosing investments. There's no guarantee that the health or tech sectors will see the same type of growth and performance, but people will always need health care and technology is constantly changing.

Before buying sector funds, you should keep in mind that putting too much capital into one sector can increase the risk to your portfolio. You also should not try to time the market in the short term. It's smart to diversify your investments and portfolio and consider a variety of sectors, stocks, and funds.

Frequently Asked Questions (FAQs)

When is the best time to invest in defensive industries if you're using sector rotation?

Defensive industries are meant to prevent steep losses during economic downturns, so the best time to invest in the sector is when the business cycle is at its peak. In reality, it's extremely difficult to recognize a peak as it's happening, but if you can manage to pivot to defensive sectors just before or at the peak of the business cycle, then you may be able to protect yourself from some losses.

How many sectors are there in the stock market?

The Global Industry Classification Standard recognizes 11 sectors. They are energy, materials, industrials, consumer discretionary, consumer staples, health care, financials, information technology, communication services, utilities, and real estate.

How do you identify top-performing sectors?

Identifying top-performing sectors is similar to identifying top-performing stocks. Charting and technical analysis can help you identify which sectors are in an uptrend. One of the easiest ways to analyze sector performance is to look at the charts for corresponding ETFs. For example, XLV tracks the health care sector, and technical analysis on XLV's price action may give you insight into the health care sector as a whole.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.

Was this page helpful?
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Fidelity. "Sectors & Industries - Performance."

  2. MSCI. "The Global Industry Classification Standard (GICS)."

Related Articles