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financial services to commercial and retail customers

Why Invest in the Financial Sector?

Economists often tie the overall health of the economy with the health of the financial sector. If financial companies are weak, this is a detriment to the average consumer. Financial companies provide loans for businesses, mortgages to homeowners, and insurance to consumers. If these activities are restricted, it stunts growth in both small business and real estate.

Financial stocks are very popular investments to own within a portfolio. Most companies within the sector issue dividends and are judged on the overall strength of their financial health. During the financial crisis of 2007-2008, the financial sector was one of the hardest hit with companies like Lehman Brothers filing for bankruptcy. After an influx of government regulation and restructuring, the financial sector is considerably stronger.

Financial ETFs can provide investors with broad exposure to the sector.

As of the close of trading on Mar. 11, 2019, the financial sector had a combined market capitalization of $6.97 trillion. The sector has underperformed the S&P 500 index in the last 12 months, where the index returned -0.12% compared to the sector, which returned -11.66%. The five-year return for the sector, though, was 45.51%, while the index returned 48.64%. The sector’s return on equity was 16.97%.