When I began investing, bank stocks piqued my curiosity, but they definitely seemed too exotic and too arcane. So, for a long time, I stuck more with consumer-goods type companies, like Starbucks Corporation (NASDAQ:SBUX), Whole Foods Market, Inc. (NASDAQ:WFM), and Chipotle Mexican Grill, Inc. (NYSE:CMG).I’m still in those companies, and they’re performing as well as ever, but I’ve also made the leap into bank stocks, and my portfolio is all the better for it. Banks have actually become some of my best performers.
So as a salute to investable banks, and maybe with the hope of turning others on to the good investment direction I’ve found, here are 15 rapid-fire, easy-to-digest reasons to get some bank stocks into your portfolio right now (in no particular order).
2. “Too big to fail” still lives: Why is this a good reason to buy into a bank? The implicit guarantee of TBTF means that the federal government simply cannot let certain banks fail, so your investment is much safer than it would otherwise be.
For instance, no administration will ever be able to let JPMorgan Chase & Co. (NYSE:JPM) — the nation’s biggest bank — fail, no matter what crazy thing it might do to get itself into trouble.
3. Balance sheets are cleaner than ever: The housing boom and subsequent crash destroyed the balance sheets of many big banks, like Citi’s and B of A’s, but four-plus years on the banks have made great progress in dealing with their toxic mortgage debt.
4. The housing market is starting to recover: Banks can still make a lot of money the old-fashioned way: lending money and charging interest, and America remains at heart a home-ownership society, even after the most recent boom and bust.
5. The financials sector has serious momentum: In 2012, the financials sector was the best performing sector of the S&P 500. Investors are starting to realize what they’ve been missing, and are therefore driving up share prices.
6. Rising profits: In the fourth quarter, Goldman Sachs Group, Inc. (NYSE:GS) reported net-income growth of 185.5%. Wells Fargo & Co (NYSE:WFC) reported net-income growth of 23.9%. Those are big numbers.
7. Great stress-test results: For 2013, 17 of the 18 financial institutions the Federal Reserve ran through its simulated, severe economic downturn passed, demonstrating once again how far banks have come since the crash.
8. Dodd-Frank is in effect: The 2010 Wall Street Reform and Consumer Protection Act is some of the most far-reaching and comprehensive bank-reform legislation passed since the Great Depression. Well-regulated banks make for safe, stable banks, and therefore better investments.