Solid long-term performance. Over the past 30 years, profits in the financial sector have grown much faster than the economy as a whole, allowing financial companies to pay above-average dividends to their shareholders and creating strong price-earnings ratios. Although past performance does not guarantee future success, it can be helpful to look back to assess investment opportunities.
More regulated after the Great Recession. The 2008 financial crisis revealed problems in the financial sector that governments around the world have been struggling to address through regulation. Today, financial companies are required to take more steps to avoid problems, such as maintaining higher minimum capital levels to protect against losses. This reduces their risk compared to the sector in the past.
Chance for government support in recessions. The health of the financial sector has a direct impact on the health of the global economy. Therefore, financial companies can count on special support in times of recession or financial crisis. When banks ran into financial difficulties during the Great Recession, for example, governments bailed out many of them.
Take advantage of rising interest rates. Today, interest rates are close to all-time lows. When they rise, however, banks, credit card companies and other lenders could increase their income by charging higher rates. Insurance companies may also get more out of their fixed income investments as bond interest rates rise.
Innovation from fintech. Financial sector stocks have benefited from innovations such as blockchain, mobile payment apps and robo-advisors, laying the groundwork for further growth in the sector.
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