Macy’s Latest Tumble Is a Good Reminder of the Risks of Sector Investing

"Retail stocks should be just one small slice of a broadly diversified global portfolio."

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Old-school department stores like Sears and JCPenney, along with a lot of other retailers, have been making headlines for all the wrong reasons: bankruptcies, store closings and job cuts, to name a few. And their stocks are taking a beating over the stream of bad news.

This week’s star loser? Macy’s. On June 6, chief financial officer Karen Hoguet announced that they expect gross margins (a measure of profitability) for 2017 to be lower than originally anticipated. And the stock came tumbling down. After starting the day at $23.90—already well below its 52-week high of $45.41—it fell 8.4 percent to close $2 lower.

The news even affected other retailers: Dillard’s declined 2.6 percent, JCPenney dropped 3.3 percent and Kohl’s fell 5.2 percent. Shares of Sears Holdings managed to shed just 3 cents on that day, but it’s currently down to about $7 from its 52-week high of $18.18.

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What’s the problem in the retail world right now?

In a word? Amazon. The online giant (whose stock is at more than $1,000 a share) disrupted the industry years ago and has continued to eat into the market share of all those traditional retailers.

Sure, analysts might also cite shoppers’ changing tastes and tightened budgets as contributing factors, but the go-to explanation is that consumers are increasingly shopping online—and the big, classic shopping destinations have been slow to adapt.

So, avoid retail stocks?

Not entirely. “Retail stocks should be just one small slice of a broadly diversified global portfolio,” says Certified Financial Planner Taylor Schulte, founder of Define Financial. (Tip: Investing in exchange-traded funds (ETFs) that track an index, rather than individual stocks or sectors, is a simple and low-cost way to achieve this.)

That advice applies for all sectors, really—including the once white-hot tech sector, which took a dive this month after Apple shares were downgraded by one analyst and fell nearly 7 percent. While it may be tempting to pile your portfolio into whatever the strongest performing category of stocks is today, investing is about more than just today. Your portfolio should be prepared for the long haul.

What sectors should I invest in?

Ideally, when it comes to which sectors you’re investing in, you’ll have a nice mix of both defensive and cyclical stocks—meaning companies that should hold up well in all kinds of markets (like utilities) and others that can be expected to perform particularly well in certain economic environments (like hotels and restaurants, which benefit when the economy is booming).

But sectors are also just one consideration in a well-diversified portfolio, which can have a mix of domestic, foreign, small-, mid- and large-sized company stocks as well as investment-grade corporate and government bonds.

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