Investing in financial stocks

Financial stocks encompass more than only Wall Street. This sector touches many aspects of a consumer’s economic life, from credit cards to mortgages, including the insurance on your new home. A strong financial sector is indicative of a healthy economy. But these stocks come with unique risks.

What are financial stocks?

The financial sector is one of 11 stock market sectors and plays a crucial role in a healthy economy. This sector includes companies that provide financial goods and services, like mortgage loans and insurance policies, to commercial and retail customers.

What subcategories does it include?

Financial stocks can be classified by the following subcategories:

• Banking. Diversified and regional banks that hold financial assets for customers and lend to small and medium corporations.
• Capital markets. Companies that trade securities, like stocks and bonds.
• Consumer finance. Providers of consumer financing and other services, including credit cards, personal loans and car leases.
• Diversified financial services. Those that offer a range of products and services, such as banking, insurance and student loans.
• Insurance. This industry encompasses insurance policies, from life and health insurance to property and car protection.
• Thrifts and mortgage finance. Financial institutions that primarily offer savings accounts and originate residential mortgages.

How to invest in the financial sector

Invest in the financial sector by buying individual stocks or exchange-traded funds (ETFs). When you purchase a stock, you get shares of that company. Stocks have fewer fees but are riskier than ETFs. If you take the ETF path, you’ll get a basket of financial stocks. You’ll probably see higher fees, but it’ll lower your exposure risk.

Here’s an overview of how to start investing:

1. Choose a brokerage. Explore brokerage platforms to pick a firm that best fits your financial goals.
2. Open an account. Most brokerage firms let you open an account online. Some may require a deposit to get started, while others allow you to add money when you’re ready to begin investing.
3. Research securities. Use your firm’s research tools to browse different stocks and ETFs.
4. Place an order. When you’re ready to start investing, place an order to buy your security.
5. Monitor your portfolio. Log into your account to track your securities.

What stocks are in the financial sector?

• JPMorgan Chase-and-Co (JPM.US)

  Company summary

  JPMorgan Chase & Co. operates as a financial services company worldwide. It operates through four segments: Consumer & Community Banking (CCB), Corporate & Investment Bank (CIB), Commercial Banking (CB), and Asset & Wealth Management (AWM). The CCB segment offers s deposit, investment and lending products, payments, and services to consumers; lending, deposit, and cash management and payment solutions to small businesses; mortgage origination and servicing activities; residential mortgages and home equity loans; and credit card, auto loan, and leasing services. The CIB segment provides investment banking products and services, including corporate strategy and structure advisory, and equity and debt markets capital-raising services, as well as loan origination and syndication; payments and cross-border financing; and cash and derivative instruments, risk management solutions, prime brokerage, and research. This segment also offers securities services, including custody, fund accounting and administration, and securities lending products for asset managers, insurance companies, and public and private investment funds. The CB segment provides financial solutions, including lending, payments, investment banking, and asset management to small business, large and midsized companies, local governments, and nonprofit clients; and commercial real estate banking services to investors, developers, and owners of multifamily, office, retail, industrial, and affordable housing properties. The AWM segment offers multi-asset investment management solutions in equities, fixed income, alternatives, and money market funds to institutional clients and retail investors; and retirement products and services, brokerage, custody, trusts and estates, loans, mortgages, deposits, and investment management products. The company also provides ATM, online and mobile, and telephone banking services. JPMorgan Chase & Co. was founded in 1799 and is headquartered in New York, New York.

  Historical performance

  Stock information

  • Market capitalization: $320060686336
  • P/E ratio: 8.7522
  • PEG ratio: 1.1661
  • Dividend yield: 0.0367%

  Get more detailed information and learn how to buy JPM.US stock

• Goldman Sachs Group (GS.US)

  Company summary

  The Goldman Sachs Group, Inc., a financial institution, provides a range of financial services for corporations, financial institutions, governments, and individuals worldwide. It operates through four segments: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management. The company's Investment Banking segment provides financial advisory services, including strategic advisory assignments related to mergers and acquisitions, divestitures, corporate defense activities, restructurings, and spin-offs; and middle-market lending, relationship lending, and acquisition financing, as well as transaction banking services. This segment also offers underwriting services, such as equity underwriting for common and preferred stock and convertible and exchangeable securities; and debt underwriting for various types of debt instruments, including investment-grade and high-yield debt, bank and bridge loans, and emerging-and growth-market debt, as well as originates structured securities. Its Global Markets segment is involved in client execution activities for cash and derivative instruments; credit and interest rate products; and provision of equity intermediation and equity financing, clearing, settlement, and custody services, as well as mortgages, currencies, commodities, and equities related products. The company's Asset Management segment manages assets across various classes, including equity, fixed income, hedge funds, credit funds, private equity, real estate, currencies, and commodities; and provides customized investment advisory solutions, as well as invests in corporate, real estate, and infrastructure entities. Its Consumer & Wealth Management segment offers wealth advisory and banking services, including financial planning, investment management, deposit taking, and lending; private banking; and unsecured loans, as well as accepts saving and time deposits. The company was founded in 1869 and is headquartered in New York, New York.

  Historical performance

  Stock information

  • Market capitalization: $112190062592
  • P/E ratio: 7.4223
  • PEG ratio: 1.2531
  • Dividend yield: 0.0307%

  Get more detailed information and learn how to buy GS.US stock

• Bank of America (BAC.US)

  Company summary

  Bank of America Corporation, through its subsidiaries, provides banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, large corporations, and governments worldwide. Its Consumer Banking segment offers traditional and money market savings accounts, certificates of deposit and IRAs, noninterest-and interest-bearing checking accounts, and investment accounts and products; and credit and debit cards, residential mortgages, and home equity loans, as well as direct and indirect loans, such as automotive, recreational vehicle, and consumer personal loans. The company's Global Wealth & Investment Management segment offers investment management, brokerage, banking, and trust and retirement products and services; and wealth management solutions, as well as customized solutions, including specialty asset management services. Its Global Banking segment provides lending products and services, including commercial loans, leases, commitment facilities, trade finance, and commercial real estate and asset-based lending; treasury solutions, such as treasury management, foreign exchange, and short-term investing options and merchant services; working capital management solutions; and debt and equity underwriting and distribution, and merger-related and other advisory services. The company's Global Markets segment offers market-making, financing, securities clearing, settlement, and custody services, as well as risk management products using interest rate, equity, credit, currency and commodity derivatives, foreign exchange, fixed-income, and mortgage-related products. As of December 31, 2021, it served approximately 67 million consumer and small business clients with approximately 4,200 retail financial centers; approximately 16,000 ATMs; and digital banking platforms with approximately 41 million active users. The company was founded in 1784 and is based in Charlotte, North Carolina.

  Historical performance

  Stock information

  • Market capitalization: $249333497856
  • P/E ratio: 9.6969
  • PEG ratio: 84.7037
  • Dividend yield: 0.0277%

  Get more detailed information and learn how to buy BAC.US stock

• Citigroup (C.US)

  Company summary

  Citigroup Inc., a diversified financial services holding company, provides various financial products and services to consumers, corporations, governments, and institutions in North America, Latin America, Asia, Europe, the Middle East, and Africa. The company operates in two segments, Global Consumer Banking (GCB) and Institutional Clients Group (ICG). The GCB segment offers traditional banking services to retail customers through retail banking, Citi-branded cards, and Citi retail services. It also provides various banking, credit card, lending, and investment services through a network of local branches, offices, and electronic delivery systems. The ICG segment offers wholesale banking products and services, including fixed income and equity sales and trading, foreign exchange, prime brokerage, derivative, equity and fixed income research, corporate lending, investment banking and advisory, private banking, cash management, trade finance, and securities services to corporate, institutional, public sector, and high-net-worth clients. As of December 31, 2020, it operated 2,303 branches primarily in the United States, Mexico, and Asia. Citigroup Inc. was founded in 1812 and is headquartered in New York, New York.

  Historical performance

  Stock information

  • Market capitalization: $85718786048
  • P/E ratio: 5.5394
  • PEG ratio: 0.7174
  • Dividend yield: 0.044%

  Get more detailed information and learn how to buy C.US stock

• Unum Group (UNM.US)

  Company summary

  Unum Group, together with its subsidiaries, provides financial protection benefit solutions primarily in the United States, the United Kingdom, and Poland. It operates through Unum US, Unum International, Colonial Life, and Closed Block segments. The company offers group long-term and short-term disability, group life, and accidental death and dismemberment products; supplemental and voluntary products, such as individual disability, voluntary benefits, and dental and vision products; and accident, sickness, disability, life, and cancer and critical illness products. It also provides group pension, individual life and corporate-owned life insurance, reinsurance pools and management operations, and other products. The company sells its products primarily to employers for the benefit of employees. Unum Group sells its products through field sales personnel, independent brokers, consultants, and independent contractor agency sales force. The company was founded in 1848 and is based in Chattanooga, Tennessee.

  Historical performance

  Stock information

  • Market capitalization: $7782000128
  • P/E ratio: 7.1394
  • PEG ratio: 2.5
  • Dividend yield: 0.0339%

  Get more detailed information and learn how to buy UNM.US stock

• MetLife (MET.US)

  Company summary

  MetLife, Inc., a financial services company, provides insurance, annuities, employee benefits, and asset management services worldwide. It operates through five segments: U.S.; Asia; Latin America; Europe, the Middle East and Africa; and MetLife Holdings. The company offers life, dental, group short-and long-term disability, individual disability, pet insurance, accidental death and dismemberment, vision, and accident and health coverages, as well as prepaid legal plans; administrative services-only arrangements to employers; and general and separate account, and synthetic guaranteed interest contracts, as well as private floating rate funding agreements. It also provides pension risk transfers, institutional income annuities, structured settlements, and capital markets investment products; and other products and services, such as life insurance products and funding agreements for funding postretirement benefits, as well as company, bank, or trust-owned life insurance used to finance nonqualified benefit programs for executives. In addition, it provides fixed, indexed-linked, and variable annuities; and pension products; regular savings products; whole and term life, endowments, universal and variable life, and group life products; longevity reinsurance solutions; credit insurance products; and protection against long-term health care services. MetLife, Inc. was founded in 1863 and is headquartered in New York, New York.

  Historical performance

  Stock information

  • Market capitalization: $49340403712
  • P/E ratio: 15.6608
  • PEG ratio: 4.6881
  • Dividend yield: 0.031%

  Get more detailed information and learn how to buy MET.US stock

• Synchrony Financial (SYF.US)

  Company summary

  Synchrony Financial, together with its subsidiaries, operates as a consumer financial services company in the United States. It provides credit products, such as credit cards, commercial credit products, and consumer installment loans. The company also offers private label credit cards, dual cards, co-brand and general purpose credit cards, short- and long-term installment loans, and consumer banking products; and deposit products, including certificates of deposit, individual retirement accounts, money market accounts, and savings accounts to retail and commercial customers, as well as accepts deposits through third-party securities brokerage firms. In addition, it provides debt cancellation products to its credit card customers through online, mobile, and direct mail; healthcare payments and financing solutions under the CareCredit, Pets Best, and Walgreens brands; payments and financing solutions in the apparel, specialty retail, outdoor, music, and luxury industries; and point-of-sale consumer financing for audiology products and dental services. The company offers its credit products through programs established with a group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations, and healthcare service providers; and deposit products through various channels, such as digital and print. It serves digital, health and wellness, retail, home, auto, powersports, jewelry, pets, and other industries. Synchrony Financial was founded in 1932 and is headquartered in Stamford, Connecticut.

  Historical performance

  Stock information

  • Market capitalization: $14101086208
  • P/E ratio: 4.2544
  • PEG ratio: 0.4611
  • Dividend yield: 0.0314%

  Get more detailed information and learn how to buy SYF.US stock

• Ameriprise Financial (AMP.US)

  Company summary

  Ameriprise Financial, Inc., through its subsidiaries, provides various financial products and services to individual and institutional clients in the United States and internationally. It operates through four segments: Advice & Wealth Management, Asset Management, Retirement & Protection Solutions, and Corporate & Other. The Advice & Wealth Management segment provides financial planning and advice; brokerage products and services for retail and institutional clients; discretionary and non-discretionary investment advisory accounts; mutual funds; insurance and annuities products; cash management and banking products; and face-amount certificates. The Asset Management segment offers investment management and advice, and investment products to retail, high net worth, and institutional clients through unaffiliated third-party financial institutions and institutional sales force. This segment products also include U.S. mutual funds and their non-U.S. equivalents, exchange-traded funds, variable product funds underlying insurance, and annuity separate accounts; and institutional asset management products, such as traditional asset classes, separately managed accounts, individually managed accounts, collateralized loan obligations, hedge funds, collective funds, and property and infrastructure funds. The Retirement & Protection Solutions segment provides variable annuity products to individual clients, as well as life and DI insurance products to retail clients. The company was formerly known as American Express Financial Corporation and changed its name to Ameriprise Financial, Inc. in September 2005. Ameriprise Financial, Inc. was founded in 1894 and is headquartered in Minneapolis, Minnesota.

  Historical performance

  Stock information

  • Market capitalization: $27837599744
  • P/E ratio: 9.2876
  • PEG ratio: 1.0861
  • Dividend yield: 0.0194%

  Get more detailed information and learn how to buy AMP.US stock

• American International Group (AIG.US)

  Company summary

  American International Group, Inc. offers insurance products for commercial, institutional, and individual customers in North America and internationally. The company's General Insurance segment provides general liability, environmental, commercial automobile liability, workers' compensation, casualty, and crisis management insurance products; commercial, industrial, and energy-related property insurance; and aerospace, political risk, trade credit, portfolio solutions, crop, and marine insurance. It also provides professional liability insurance products for a range of businesses and risks, including directors and officers, mergers and acquisitions, fidelity, employment practices, fiduciary liability, cyber risk, kidnap and ransom, and errors and omissions insurance. In addition, this segment offers personal auto and property insurance, such as auto, homeowners, umbrella, yacht, fine art, and collections; voluntary and sponsor-paid personal accident; supplemental health products; extended warranty insurance products; and travel insurance products. Its Life and Retirement segment offers variable annuities, index and fixed annuities, and retail mutual funds; and financial planning and advisory services; record-keeping, plan administrative, and compliance services; and term life and universal life insurance. It also provides stable value wrap products, and structured settlement and pension risk transfer annuities; and corporate- and bank-owned life insurance and guaranteed investment contracts. This segment sells its products through independent marketing organizations, independent insurance agents, financial advisors, direct marketing, banks, and broker-dealers. The company was founded in 1919 and is headquartered in New York, New York.

  Historical performance

  Stock information

  • Market capitalization: $41511108608
  • P/E ratio: 3.582
  • PEG ratio: 0.5489
  • Dividend yield: 0.0234%

  Get more detailed information and learn how to buy AIG.US stock

• MarketAxess (MKTX.US)

  Company summary

  MarketAxess Holdings Inc., together with its subsidiaries, operates an electronic trading platform for institutional investor and broker-dealer companies worldwide. It offers the access to liquidity in the U.S. investment-grade bonds, U.S. high-yield bonds, and U.S. Treasuries, as well as municipal bonds, emerging market debts, Eurobonds, and other fixed income securities. The company, through its Open Trading protocols, executes bond trades between and among institutional investor and broker-dealer clients in an all-to-all anonymous trading environment for corporate bonds. It also offers trading-related products and services, including composite+ pricing and other market data products to assist clients with trading decisions; auto-execution and other execution services for clients requiring specialized workflow solutions; connectivity solutions that facilitate straight-through processing; and technology services to optimize trading environments. In addition, the company provides various pre-and post-trade services, such as trade matching, trade publication, regulatory transaction reporting, and market and reference data across a range of fixed-income and other products. MarketAxess Holdings Inc. was incorporated in 2000 and is headquartered in New York, New York.

  Historical performance

  Stock information

  • Market capitalization: $8483679744
  • P/E ratio: 35.2723
  • PEG ratio: 2.2344
  • Dividend yield: 0.0123%

  Get more detailed information and learn how to buy MKTX.US stock

• MSCI (MSCI.US)

  Company summary

  MSCI Inc., together with its subsidiaries, provides investment decision support tools for the clients to manage their investment processes worldwide. It operates through four segments: Index, Analytics, ESG and Climate, and All Other " Private Assets. The Index segment provides indexes for use in various areas of the investment process, including indexed product creation, such as ETFs, mutual funds, annuities, futures, options, structured products, over-the-counter derivatives; performance benchmarking; portfolio construction and rebalancing; and asset allocation, as well as licenses GICS and GICS Direct. The Analytics segment offers risk management, performance attribution and portfolio management content, application, and service that provides an integrated view of risk and return, and an analysis of market, credit, liquidity, and counterparty risk across asset classes; managed services, including consolidation of client portfolio data from various sources, review and reconciliation of input data and results, and customized reporting; and HedgePlatform to measure, evaluate, and monitor the risk of hedge fund investments. The ESG and Climate segment provides products and services that help institutional investors understand how ESG factors impact the long-term risk and return of their portfolio and individual security-level investments; and data, ratings, research, and tools to help investors navigate increasing regulation. The All Other " Private Assets segment includes real estate market and transaction data, benchmarks, return-analytics, climate assessments and market insights for funds, investors, and managers; business intelligence to real estate owners, managers, developers, and brokers; and offers investment decision support tools for private capital. It serves asset owners and managers, financial intermediaries, wealth managers, real estate professionals, and corporates. MSCI Inc. was incorporated in 1998 and is headquartered in New York, New York.

  Historical performance

  Stock information

  • Market capitalization: $36046782464
  • P/E ratio: 46.0195
  • PEG ratio: 2.8562
  • Dividend yield: 0.0111%

  Get more detailed information and learn how to buy MSCI.US stock

• S-and-P Global (SPGI.US)

  Company summary

  S&P Global Inc., together with its subsidiaries, provides credit ratings, benchmarks, analytics, and workflow solutions in the global capital, commodity, and automotive markets. It operates in six divisions: S&P Global Ratings, S&P Dow Jones Indices, S&P Global Commodity Insights, S&P Global Market Intelligence, S&P Global Mobility, and S&P Global Engineering Solutions. The S&P Global Ratings division operates as an independent provider of credit ratings, research, and analytics, offering investors and other market participants information, ratings, and benchmarks. The S&P Dow Jones Indices division is an index provider that maintains various valuation and index benchmarks for investment advisors, wealth managers, and institutional investors. The S&P Global Commodity Insights division offers data and insights for global energy and commodity markets and enable its customers to make decisions. The S&P Global Market Intelligence division delivers data and technology solutions for customers to provide insights for making decisions. It offers data and services that bring end-to-end workflow solutions, including capital formation, data and distribution, ESG and sustainability, leveraged loans, private markets, sector coverage, supply chain, and issuer solutions, as well as credit, risk, and regulatory solutions. The S&P Global Mobility division provides insights derived from unmatched automotive data, enabling its customers to anticipate change and make decisions. The S&P Global Engineering Solutions division offers engineering expertise and solutions in industries, such as aerospace and defense, energy, architecture, construction, and transportation. Its solutions empower business and technical leaders to transform workflows and make decisions. S&P Global Inc. was founded in 1860 and is headquartered in New York, New York.

  Historical performance

  Stock information

  • Market capitalization: $106006306816
  • P/E ratio: 23.9713
  • PEG ratio: 3.282
  • Dividend yield: 0.0107%

  Get more detailed information and learn how to buy SPGI.US stock

• American Express Company (AXP.US)

  Company summary

  American Express Company, together with its subsidiaries, provides charge and credit payment card products, and travel-related services worldwide. The company operates through three segments: Global Consumer Services Group, Global Commercial Services, and Global Merchant and Network Services. Its products and services include payment and financing products; network services; accounts payable expense management products and services; and travel and lifestyle services. The company's products and services also comprise merchant acquisition and processing, servicing and settlement, point-of-sale marketing, and information products and services for merchants; and fraud prevention services, as well as the design and operation of customer loyalty programs. It sells its products and services to consumers, small businesses, mid-sized companies, and large corporations through mobile and online applications, third-party vendors and business partners, direct mail, telephone, in-house sales teams, and direct response advertising. American Express Company was founded in 1850 and is headquartered in New York, New York.

  Historical performance

  Stock information

  • Market capitalization: $105159647232
  • P/E ratio: 14.3415
  • PEG ratio: 1.0236
  • Dividend yield: 0.0145%

  Get more detailed information and learn how to buy AXP.US stock

What ETFs track the financial sector?

Take a look at the following sector-tracking ETFs:

How is the financial sector performing?

The graph below tracks the Financial Select Sector SPDR ETF (XLF). Tracking ETF performance is one way to measure how a stock sector as a whole is doing.

Why invest in the financial sector?

The financial sector may be an attractive long-term investment because of its potential for higher returns to help you stay ahead of inflation. For example, the S&P 500 Financials Index’s returned 32.1% in 2019, compared to the Federal Reserve’s estimated inflation rate of 2%.

Long-term trends also support growth in the financial sector. When the sector is strong, the economy thrives, which can lead to higher incomes for consumers and bigger profit margins for companies. As people accumulate wealth, they need a way to manage their funds and plan for retirement.

Another attractive characteristic of financial stocks is their high dividend yield. The sector currently has a 4.19% dividend yield, compared to the S&P 500’s modest 1.96%.

What unique risks does the financial sector face?

The financial sector comes with considerable challenges and risks.

• Regulation. Government red tape and legislative compliance can be a burden on companies, decreasing profit.
• Drastic rise in interest rates. When rates rise, lenders generally make more money on the credit they issue to borrowers. But if the Federal Reserve and banks raise interest rates before the economy is ready to adjust to the higher cost of borrowing, demand could drop and potentially trigger a recession. A weak economy can be detrimental to financial stocks.
• Litigation. Businesses in the financial sector spend a lot on legal proceedings, which can impact profitability and share prices.
• Weakening economy. Financial stocks are extremely sensitive to changes in the economy.
• Debt liability. Many financial stocks come with some credit exposure risk. During an economic downturn, borrowers may default on their credit cards and loans, leaving some lenders with a mountain of debt.

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Bottom line

The financial sector may be a good choice as a long-term investment in a healthy economy because of its generous dividends and long-term growth potential. But keep in mind that it’s one of the most volatile sectors of the stock market and comes with inherent risks.

Compare online trading platforms to pick a brokerage firm for your investment account.

Frequently asked questions

• Where do real estate investment trusts (REITs) belong in the financial sector?

  REITs are not included in the financial sector. REITs left the category in 2016 to form its new, separate sector of the stock market.

• Are financial stocks cyclical or noncyclical?

  Financial stocks are cyclical — their performance is generally tied to the health of the economy, which makes them vulnerable to the ups and downs of the business cycle.

• How do interest rates affect the financial sector?

  Low-interest rates attract more borrowers, which can lead to more capital projects, investments and more economic growth. Higher interest rates translate to more banking profit but may discourage spending.