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Investors have many reasons to seek out the best financial stocks.
You see, every year, untold trillions of dollars flow through the financial sector – banks, insurers, payment processors, brokers and other financial services providers. These firms act as the arteries of the global economy, and they play a part in the everyday lives of billions of people.
Today we’re going to take a closer look at the monetary industry, adding how it is defined, why investors seek exposure to it, and how we locate the most productive monetary stocks to buy.
Be a smarter, better informed investor.
Broadly speaking, monetary stocks constitute corporations whose primary business is to offer a monetary range such as banking, brokerage, and insurance.
For a more complete answer, we’ll look to the Global Industry Classification Standard – a framework used by major index providers to help classify public companies.
According to GICS, the monetary sector “contains corporations engaged in banking, money services, customer financing, capital markets, and insurance. It also includes currency exchanges and knowledge REITs and lending. “(The latter sector is loan-lending real estate investment trusts, which primarily hold loans and/or loan-backed securities. )
I am the Editor-in-Chief of WealthUp, a financial literacy site. I have spent over a decade in financial media, including my previous role as senior investing editor for Kiplinger.com. Over this time, I have covered a wide variety of investing topics, including analyzing equities, bonds and exchange-traded funds (ETFs) such as those picked for this list of the best financial stocks.
Financial stocks are something of an oddball in that they provide services that most people need – savings, checking, credit card processing, auto and mortgage lending – which feels consumer staples-esque in nature.
But the truth is so much more complicated.
In reality, many financial stocks are quite cyclical, waxing and waning with the broader economy. Recessions tend to reduce economic activity, and the typically concurrent rise in unemployment tends to set many consumers back in repayments, sometimes to the point of default.
Financial stocks can also be strongly affected by adjustments in interest rates; Rising rates allow banks to rate credit products more, for example, but it can also reduce demand for auto loans, mortgages and other products.
It sounds complicated. So. . . Why buy finances?
“Financials make up a significant portion of overall GDP and are extremely important in ensuring the economy functions efficiently,” writes Edward Jones. “Playing such an integral role in the lives of consumers, businesses and institutions, we believe financial services companies should be a key component to an investor’s portfolio.”
But investors could use a variety of monetary inventories, given the difference in business models, and even inventory pricing propositions, between monetary sectors.
For instance, mega-banks are well capitalized and have a diverse line of revenue streams, providing some level of safety (and often decent dividends). Financial technology companies are a source of growth as younger generations eschew traditional banking models for online banks, payment apps, and the like. Insurance stocks provide relative stability and income and are one of the most direct ways to leverage rising interest rates.
Given the variety of reasons you might invest in the sector, we’re not going to assume we know exactly what you want out of a financial stock. But we can help you start your search for the best stocks to buy with a basic quality screen.
In the following list of monetary stocks, we are looking for companies:
Kyle Woodley is the editor-in-chief of WealthUp, a site committed to personal finance and financial education for people of all ages. He also writes the weekly newsletter The Weekend Tea, covering news and research on spending, saving, investing, the economy and more.
Kyle was previously the Senior Investing Editor for Kiplinger.com, and the Managing Editor for InvestorPlace.com before that. His work has appeared in several outlets, including Yahoo! Finance, MSN Money, Barchart, The Globe & Mail and the Nasdaq. He also has appeared as a guest on Fox Business Network and Money Radio, among other shows and podcasts, and he has been quoted in several outlets, including MarketWatch, Vice and Univision. He is a proud graduate of The Ohio State University, where he earned a BA in journalism.
You can check out his thoughts on the markets (and more) at @KyleWoodley.