The materials sector is a section of the stock market containing companies that discover, process and sell basic raw materials. Good examples of these materials are steel, minerals and wood, which play a vital role in many industries outside of the sector. Also, because so many different industries rely on the materials sector to produce their products and provide their services, there is a close relationship between the sector and the overall health of the economy.

Investing in the materials sector takes foresight as well as understanding, since the value of its stocks tends to move up and down with the business cycle. However, because it supplies such a diverse set of industries, it’s a safe and rewarding arena for investment. Before placing your funds in the materials sector, consider the following points:

1. The materials sector fluctuates in response to changes in many industries, including construction, manufacturing and packaging.

2. Materials sector stocks are traded on major stock exchanges like the NYSE.

3. Equity indices like the S&P 500 allow investors to keep a close watch on changes in the materials sector.

Action Steps
The best contacts and resources to help you get it done

Understand the position of the materials sector in the economy

Many of the goods traded in the materials sector are extremely sensitive to changes in the overall economy. Steel and wood, for example, primarily find use in construction. When the economy slumps, the rate of new construction slows down, lowering the demand for these materials and causing a loss of value in the sector. The sector is also sensitive to the effect of supply and demand, which primarily drives the price of materials like gold, silver and precious stones.

I recommend: Find materials sector information and research the division of the equity markets at Investopedia. Also, become familiar with how the Global Industry Classification Standard (GICS) (developed by Standard & Poor’s and MSCI Barra) and the Industrial Classification Benchmark (ICB) (developed by Dow Jones Indexes and FTSE Group) break the stock market down into sectors. These are the two major methods of sector classification, and contain a wealth of information on the materials sector and its relationship to the market in general.

Trade materials sector stocks on the major stock markets

Many companies in the materials sector are publicly traded, meaning you can buy and sell their stocks on major stock markets like the NYSE, NASDAQ and AMEX exchanges. Conducting basic equity trading is the easiest way to invest in the materials sector, but advanced investors and brokers may also choose to invest in derivatives like options and futures.

I recommend: To find out whether a specific materials company is publicly traded, consult the directory of listings on the New York Stock Exchange. Once you've found a company you'd like to invest in, talk with your broker about purchasing shares or buy them yourself using an online tool like TD Ameritrade or E*TRADE. Beginning investors may also find materials sector training tools like the Investopedia Stock Simulator to be helpful in learning to buy and sell shares.

Track changes in the materials sector through equity indices

Whether you've invested directly in the materials sector or in its related industries, staying abreast of its companies' performance is vital to growing your assets. Equity indices are created by certain agencies and financial groups to provide a clear picture of the stock market's performance and are regarded as the best first stop for information on market sectors. They are updated daily.

I recommend: The S&P 500 is a good source for information about the materials sector, including its daily performance. It tracks many more large-cap companies than the Dow Jones Industrial Average, and provides clear data from the materials sector. Google Finance also has a helpful market tracker for the materials sector that provides financial information on its individual companies and compares their performance to that of the S&P 500.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  For help with materials sector investments or for materials sector advice, consider hiring a specialized firm or group to manage your investments. A materials sector consultant may also have intimate knowledge of certain areas of the sector that you don't have time to research or monitor.