Financial companies get a bad rap- often for good reason
The whole financial sector gets a bit of a bad rap from the press, investors as well as the general public and for good reason: ridiculous compensation packages/poor financial management/extreme risk-taking/government bailouts. However, it’s too big of a sector to overlook and the key is looking for the less-risky companies that have a proven record of good management.
Here are the financial stocks in my portfolio (for a total of around 10% of my holdings):
BMO (Bank of Montreal)
2.3% of my portfolio. This is a Canadian bank and is one of the “Big 4,” CIBC/BMO/TD/Royal Bank. All of these would be quite decent investment options, and compared to their American counterparts, they’re much “safer” because of more stringent government regulations and less leveraging/sub-prime mortgages, etc. During the financial crisis of 2008, they suffered but definitely not as much as the American financials.
BRK-B (Berkshire Hathaway)
3.7% of my portfolio. Everyone knows the genius that is Warren Buffet and this is the company he runs. Although it doesn’t pay a dividend, I bought this one purely for capital appreciation. He is the master of reinvesting capital, which in theory means that the stock price should keep going up and up. And actually, if you were only going to be buy a single stock for your portfolio (I would never recommend that of course), this is the one your should buy since there is already massive diversification within the company.
NLY (Annaly Capital Management)
1% of my portfolio. I used to hold significantly more of this company but with the recent turmoil/questionable management, I’ve reduced it significantly. Basically, they make their money by borrowing money at low rates and then lending it out at higher rates and they then pay out the difference in the form of dividends to shareholders. It’s risky, but if you’re desperate for yield, this is an option to consider and it’s not a bad idea to consider using leverage to buy a stock like this and do the same as they do: benefit from the spread. Of course, the potential for bad things to happen is high and it’s for sure not a beginner move.
San (Banco Santander)
3.4% of my portfolio. I bought this Spanish bank at the low point of the European financial crisis. Although Spain is not the most stable of countries, financially speaking, this bank appears to be quite solid. They are extremely well-diversified (Europe + Central/South America) and pay a nice dividend. It was simply a diversification play for me since most of my other stocks are North-American based companies.
Here is my complete dividend stock investing portfolio.
You can read about my detailed stock and ETF investing strategy in this book: The Wealthy English Teacher. Financial stocks and a whole lot more!