If you want to venture outside of a vanilla index fund, you should know the risks.

Investors are bombarded with strategies to build up their investment portfolios. From market timing, to fundamental stock picking, to the plain vanilla market-matching index fund portfolio, there are plenty of investing opinions. Personally, after decades of investing in individual stocks, bonds, exchange-traded funds and master limited partnerships in almost every variety, I normally suggest sticking with a market-matching index fund approach.

But even with that type of investing plan, there’s still room to venture off the straight and narrow. If you would like to try your hand at stock picking, market timing, sector-investing or another more speculative approach, it’s a good idea to limit your riskier investing to 10 percent or less of your total investable assets.

That said, not all “sector funds” are risky.

What is a sector fund? A sector fund is a type of mutual or exchange-traded fund which invests in a slice of the total investment market. The sector fund may be limited by geography, such as a stock fund comprised of Chinese stocks or by a type of company, such as health care stocks. Sector funds may be broad, such as a technology sector fund or they may be more narrowly focused. A popular type of sector fund is the real estate investment trust, or REIT, which invests in real estate-related stocks.

A narrowly focused REIT might only invest in shopping malls on the West Coast of the U.S. Sector funds can also focus on a specific investing style. Dividend stock funds include stocks that pay out a large percent of their net income to investors in the form of dividends. Junk bond sector mutual funds focus on investing in low-rated bonds.

Why would you invest in a sector fund? First, a caveat: In general, it’s advisable for investors to hold a broadly diversified portfolio as the heart of their investments. That said, there’s room for targeted sector funds as well.

You might invest in a sector fund if you thought a particular sector was expected to outperform. For example, there is a belief that as the baby boomers (those born between 1944 and 1964) begin to retire, the need for health care services would expand. In order to capitalize on this potential trend, an investor may choose to invest in a health sector fund, or even a REIT that purchased nursing homes. If you think stocks in Europe and the Far East are undervalued, you might invest in an EAFE (Europe, Asia, Far East) sector stock mutual or ETF.

Sector funds are a way to invest in particular segments of investment markets you think may outperform the overall market in the future. Additionally, speculators may choose to short (borrow a fund and sell it now, in order to buy it back in the future) a sector fund which they think will decline in value in the future. Even riskier than that are day traders who may buy and sell particular sector ETFs throughout the day, hoping to profit from smaller price changes.

Advantages and disadvantages of investing in a sector fund. Investing in sector funds gives the investor an opportunity to profit from trends. If the investor chooses correctly, and the sector he or she chooses subsequently increases in value, then a profit is made.

Another advantage of investing in a sector fund versus individual stocks is the added diversification in the fund. For example, if you think the technology sector is undervalued, you may consider investing in Intel and Apple stocks, both members of the technology sector. By choosing a technology sector fund over an individual technology stock, you’re protected from firm-specific risk, or the risk that one company will perform poorly. The technology sector could advance, while Intel has a poor quarter and declines in value.

The disadvantage of investing in a sector is the possibility that you choose wrong. If you think the oil and gas exploration sector is going to be profitable and advance in price in the upcoming year, you may buy a sector fund of companies from that part of the market. If you’re wrong and the sector tanks instead of increases, you lose.

In general, sector funds are more volatile than a broadly based stock fund. In short, with most sector funds, you’ll see greater advances as well as deeper declines in value. For that type of investing, you need a strong stomach .

Let’s take a look at Vanguard Precious Metals And Mining Fund for the last five years. Maybe you bought shares in the fund at the end of 2012, when the sector fund was trading at about $17 per share. You noticed the slight increase over the prior few months and expected the sector to continue to improve. You would have been wrong, only to witness your $17 price per share fall to under $10 per share at the beginning of 2014. That’s the disadvantage of committing too much money to a sector fund.

Summary. If you have a hunch about the direction of certain market sectors, or you want to diversify into particular areas, then you might consider a sector fund. But, when you invest, be sure to consider the possibility that the sector may not increase, and be prepared for a bumpy ride.

Barbara Friedberg, MBA, MS , is a former portfolio manager, university investment instructor, website CEO and author of “How to Get Rich; Without Winning the Lottery.” Her newest book, “Invest and Beat the Pros-Create and manage a Successful Investment Portfolio” launches this month. Learn more about money and pick up her free investing ebook at Barbara Friedberg Personal Finance.com .