Expanding your investment portfolio entails risks. However, it is crucial in order to capitalize on long term gains. As an investor, you aim to grow your investment and make more profit as your investment matures. Bank stocks are considered as one of the stable and lucrative investment portfolio one can have.
To help you with your investment research, below are the top 3 reasons on why you should invest in bank stocks.
Banking is a stable industry
For one, banks are highly trusted not just by investors but also ordinary people. It remains as one of the top ways to grow and save money. Thus, this is a long term industry with a lot of potential for investment growth. Banking has been around for centuries, and most of them have endured the test of time, including financial crises. No matter how bad the economy looks, banks will always be around. Hardly any industry can rival banks in terms of longevity.
Bargain for long term investors
Banks receive cash through its depositors on a daily basis. To make a profit, they lend it to borrowers with strong credit history. This makes it earn a sizeable amount of profit, which is of great advantage to its investors. Its low cost capital is also attractive for investors, who can invest for it at a low-cost profit.
Stable Hybrid Model
Successful banks can make as much as 50 percent of profits from their portfolios. At the same time, this diversified portfolio allows them to create a reserve that shields them from expected losses. Credit card processing, mutual funds, insurance brokerage, overdraft and finance charges are some of the fees that banks profit from. It is expected that some of the loans they lend will go bad. But as mentioned previously, their stable hybrid model allows them to create a buffer on the balance sheet, so that these bad loans will hardly make an impact at all.
Before investing in bank stocks, consider these few tips before making your investment. The banking industry is always in consolidation mode. Big banks are most likely to eat up smaller ones, so better take note of that before making your own investment. Be sure to assess the risk and research the bank’s portfolio as well, to make sure that its assets are performing well. Generally, bank stocks provide security and profit at the same time, which is why Warren Buffet has considerably invested in this portfolio. Assess your own personal risks and investment profitability to make sure that investing in bank stocks is right for you.