Let's talk investing Q&A

Q. I’ve heard that holding a mix of investments from both cyclical and defensive industries may help my portfolio’s performance. Please explain.

You probably know that the economy’s ups and downs can affect stock market performance. But economic events don’t affect all stock investments in the same way. Companies in certain areas of the economy — called market sectors — typically are more vulnerable to economic highs and lows.

Cyclical stocks come from industries that tend to be sensitive to how the economy behaves. Demand for products and services in industries such as housing, transportation, financial and technology declines when the economy slows, so stock prices may stagnate or fall. However, cyclical stocks have the potential for significant gains when the economy is thriving.

On the other side are defensive stocks. They’re from industries where consumer demand tends to remain stable, even in a slow economy. They include utilities, food, oil and other staples. Since demand for these products stays relatively constant, defensive stock prices typically don’t rise dramatically when the economy is strong. Including a mix of cyclical and defensive stocks from a variety of market sectors can help diversify your portfolio.

Diversification does not ensure a profit or protect against loss in a declining market.

Q. What does my friend mean when she says she wants to invest in socially responsible companies?

Socially responsible investing (SRI), also known as sustainable, socially conscious, “green” or ethical investing, is a strategy that considers both financial return and social good. In addition to financial performance, investors may look at how companies incorporate environmental stewardship, corporate governance and social issues into their business strategies. ESG (Environmental, Social and Governance) criteria are typically used to screen investments.