Sectors
Companies are grouped into sectors such as technology, health care, financials, energy, industrials, consumer staples and utilities. Companies in a sector often respond to the same forces at the same time.
This is why sector concentration is a real risk: owning ten companies in one sector is less diversified than it looks.
Indexes
An index is a measurement, not something you can buy. The S&P 500 tracks 500 large U.S. companies weighted by size; the Nasdaq-100 tracks 100 large non-financial Nasdaq companies; the Dow Jones Industrial Average tracks 30 companies weighted by share price.
You gain exposure to an index by buying a fund that tracks it.
Why index construction matters
A market-cap-weighted index, such as the S&P 500, gives its largest companies a disproportionate influence over the index's overall move. A handful of the biggest constituents can dominate the index's return in a given year, which is easy to miss when the index is treated as one simple number.
Why this matters
Indexes are the yardstick everything else gets compared against.
How this connects to Intelligent Accumulation
Understanding sector concentration is part of checking, before adding new money, whether a portfolio is actually diversified or only holds many tickers within the same exposure.
Read the full approachTerms used in this lesson
- Sector
- A grouping of companies in similar businesses, which often move together.
- Index
- A measurement of a group of investments, such as the S&P 500. An index cannot itself be bought.
- S&P 500
- An index of 500 large U.S. companies weighted by market capitalization.
Key takeaways
- Companies in the same sector often move together, which limits diversification
- An index measures a group of companies; it cannot be purchased directly
- Market-cap weighting means the largest constituents dominate an index's return
Related concepts
- Written by
- Suggested Investments Research Team
- Content type
- Educational article
- Published
- 2026-09-13
- Last reviewed
- 2026-09-13
Sources and methodology
- Official listed-symbol directory — Nasdaq TraderPrimary source
- Investor.gov investor education — U.S. Securities and Exchange CommissionPrimary source
Educational content only. This lesson is not investment, tax or legal advice and does not recommend buying or selling any specific investment. All investing involves the risk of loss.