Mutual funds come in a variety of colors to facilitate investing by folks like us. Of these, sector fund investing offers us the ability to purchase shares in a particular area of the stock market - whether it be real-estate, precious metals, pharmaceutical industry or the retail sector or any other industry one cares about. These funds charge a higher expense ratio because they are limited to a smaller universe of companies, and also because they have to manage your money responsibly even if that sector enters into a recession. But when should you, as a serious wealth builder, invest in a sector fund? What sectors should you buy? When is it a better bet than buying the whole market?

One of the best methods of investing that exists for the retail public is to enter into a bull market that is just forming, and to ride the market to its inevitable top. Serious wealth builders and stock market followers know that a bull market in the general stock market has its leaders, and investing in those leaders tends to pay off many times over that of the general index. Top notch publications such as Investor's Business Daily and Barrons will help you identify these leaders. Unsurprisingly, you will notice that most of the leading companies will tend to belong to one, two or three sectors at best. This implies that a bull run is underway in those sectors.

At this stage, you have one of two choices - either ferret out and invest in individual stocks that are leading the market, or turn to a sector fund in that space. For example, when the gold bull market of 2001 got underway, investing in Midas Funds would have given you easy access to most of the sector leaders, chosen by its management. If you trust the management to pick market leaders and to keep your expenses low, you can get an easy ride through the ensuing bull market.

Of course, you must not lose your discipline of evaluating the funds and should check its returns during past sector-specific bull and bear markets. You must evaluate the investing strategy of the fund manager as well. As usual, do not chase past performance or the latest hot fund in that sector. In a particularly strong bull market, many new sector specific funds will be created to pull in new money from the public. Avoid most of these funds unless you have no access to alternate sector funds - the latter will happen if there is a roaring bull market in a sector that has long been dormant.

Having chosen to invest in a given sector, add additional money as the bull market pauses for a breather (often called a correction or consolidation). At this point, your main task is to detect when the bull market is approaching its top. Some of the common indicators may be - excessive optimism amongst general public, newspaper headlines projecting a great future for the companies in the sector, company CEOs in that sector being treated with great deference and so forth. Technical analysis could provide some clues as well - if the markets are going up too fast or vertically up - they may be headed towards a spike-top. Having held your investment through the bulk of the bull market, it is time to start unloading even as general optimism towards the sector grows. You can request your sector fund to sell some of your shares either when you are satisfied with your profits, or as you begin sensing that the sector is excessively in the limelight. Continue this process, while keeping a few shares to participate in the final blow-off phase. While the final meteoric rise is underway, move entirely out of the sector, and begin planning on the next sector that may be getting ready to start its bull market.

Note that the above pattern of sector leadership holds true for most bull markets - however in bear markets, most of the leadership may belong to precious metals or to select commodities. It is not unwise to stay out of the markets during bear markets - which may sometimes last a decade or so - and to re-enter when a general bull market is born.

Overall, sector fund investing can deliver you to serious wealth significantly faster than general market index investing if you can identify the right sectors to invest in, hold during all the corrections, and start selling as the market approaches its final top.