How to invest in Australia’s financial stocks

Global and Australian financial stocks have come under pressure in the last week following the collapse of two US banks, Silicon Valley Bank (SVB) and Signature Bank. Fears of a banking crisis grew after global investment bank Credit Suisse lost funding from its main shareholder just days later, sending its share price falling by more than 30%.

The turmoil has since spread to other financial sector stocks, weighing on the industry across multiple markets. While some may see the lower prices as a buying opportunity, it pays to be aware that the heightened volatility could lead to losses.

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 in Australia:

1. Choose a brokerage. Explore brokerage platforms in Australia 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?

• Commonwealth Bank Of Australia (CBA.AU)

  Company summary

  Commonwealth Bank of Australia provides financial services in Australia, New Zealand, and internationally. It operates through Retail Banking Services, Business Banking, Institutional Banking and Markets, and New Zealand segments. The company offers transaction, savings, and foreign currency accounts; term deposits; personal and business loans; overdrafts; equipment finance; credit cards; international payment and trade; and private banking services, as well as home and car loans. It also provides retail, premium, business, offshore, and institutional banking services; and funds management, superannuation, and share broking products and services, as well as car, health, life, income protection, and travel insurance. In addition, the company offers advisory services for high-net-worth individuals; equities trading and margin lending services; debt capital, transaction banking, working capital, and risk management services; and international and foreign exchange services. Commonwealth Bank of Australia was founded in 1911 and is based in Sydney, Australia.

  Historical performance

  Get more detailed information and learn how to buy CBA.AU stock

• National Australia Bank (NAB.AU)

  Company summary

  National Australia Bank Limited provides financial services to individuals and businesses in Australia, New Zealand, and internationally. The company operates through Business and Private Banking; Personal Banking; Corporate and Institutional Banking; New Zealand Banking; and Corporate Functions and Other segments. It accepts transaction accounts, savings accounts, debit cards, and term deposits; and specialized accounts, such as foreign currency, business interest, cash maximiser, farm management, community free saver, statutory trust, and project bank accounts, as well as farm management deposits. In addition, the company provides home loans, personal loans, and business loans; vehicle and equipment finance; and trade and invoice finance, as well as business overdrafts and bank guarantees. Further, it offers insurance products consisting of home and content, landlord, travel, car, caravan and trailer, life, and business insurance products; and pension, self-managed super funds, cash management, and financial planning and advisory services. Additionally, the company provides investment products; credit, debit, and business cards; payments and merchant services; online and internet banking services; small business services; international and foreign exchange solutions; and industry specific banking services. The company was founded in 1834 and is based in Melbourne, Australia.

  Historical performance

  Get more detailed information and learn how to buy NAB.AU stock

• Westpac Banking (WBC.AU)

  Company summary

  Westpac Banking Corporation provides various banking and financial services in Australia, New Zealand, and internationally. The company operates through Consumer, Business, Consumer and Business Banking, Westpac Institutional Bank, Specialist Businesses, and Westpac New Zealand segments. It offers savings, term deposit, business transaction, not-for-profit transaction, foreign currency, farm management deposit, project and retention trust, and statutory trust accounts; home, personal, business, and commercial loans; car and equipment finance; business overdrafts and bank guarantees; debit and credit cards; international and travel services; share trading services; investment products; and home, car, travel, life, caravan and trailer, credit card and loan repayment, boat, and business insurance products. In addition, the company provides corporate and institutional, transaction banking, financial market, corporate and structured finance, trade and supply chain financing, and industry specific banking and treasury services, as well as online banking services. It serves individuals; small, and medium enterprises; commercial and agribusiness; and private wealth clients; and corporate, institutional, and government customers. The company was formerly known as Bank of New South Wales and changed its name to Westpac Banking Corporation in October 1982. Westpac Banking Corporation was founded in 1817 and is based in Sydney, Australia.

  Historical performance

  Get more detailed information and learn how to buy WBC.AU stock

• Australia and New Zealand Banking Group (ANZ.AU)

  Company summary

  ANZ Group Holdings Limited provides various banking and financial products and services to individuals and business customers in Australia and internationally. It offers home and personal loans, deposits, and credit cards through the branch network, home loan specialists, contact centers, self-service channels, and third-party brokers. The company also provides asset financing for small business owners, medium and large commercial customers, high net worth individuals, and family groups. In addition, it offers working capital and liquidity solutions, including documentary trade, supply chain and commodity financing, cash management solutions, deposits, payments, and clearing services; loan products, loan syndication, loan structuring and execution, project and export finance, debt structuring and acquisition finance, and corporate advisory services; and risk management services. Further, the company provides banking and wealth management services to consumers, and private banking and small business banking customers through its internet and app-based digital solutions, network of branches, mortgage specialists, relationship managers, and contact centers; and traditional relationship banking and financial solutions for small, medium, and large enterprises, agricultural business segments, and government and government-related entities. ANZ Group Holdings Limited was founded in 1835 and is based in Melbourne, Australia.

  Historical performance

  Get more detailed information and learn how to buy ANZ.AU stock

• Macquarie Group (MQG.AU)

  Company summary

  Macquarie Group Limited provides diversified financial services in Australia, the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company operates through four segments: Macquarie Asset Management (MAM), Banking and Financial Services (BFS), Commodities and Global Markets (CGM), and Macquarie Capital. The MAM segment provides investment solutions to clients across various capabilities in private markets and public investments, including infrastructure, green investments, agriculture and natural assets, real estate, private credit, asset finance, equities, fixed income, and multi-asset solutions. The BFS segment offers personal banking products comprising home loans, car loans, transaction and savings accounts, and credit cards; and wrap platform and cash management, financial advisory, and private banking services, as well as investment and superannuation products. It also provides deposit, lending, and payment solutions and services to business clients. The CGM segment provides risk management, lending and financing, capital solutions, market access, and physical execution and logistics to corporate and institutional clients; and specialist finance and asset management solutions. The Macquarie Capital segment provides advisory and capital raising services. It is also involved in development and investment in infrastructure and energy projects and companies; and brokerage business, including equity research, sales, execution capabilities, and corporate access. Macquarie Group Limited was founded in 1969 and is headquartered in Sydney, Australia.

  Historical performance

  Get more detailed information and learn how to buy MQG.AU stock

• Suncorp Group (SUN.AU)

  Company summary

  Suncorp Group Limited provides insurance and banking products and services to retail, corporate, and commercial customers in Australia and New Zealand. The company operates through Insurance (Australia), Suncorp Bank, and Suncorp New Zealand segments. The Insurance (Australia) segment provides general insurance products and services, including home and contents, motor, marine, travel, commercial property, industrial special risk, public liability and professional indemnity, workers' compensation, and compulsory third-party products, as well as distributes life insurance products. The Suncorp Bank segment offers banking services, such as commercial, agribusiness, small business, and home loans; savings and transaction accounts; foreign exchange services; and treasury products and services. The Suncorp New Zealand segment provides general and life insurance products comprising home and contents, motor, commercial property, public liability and professional indemnity, life, trauma, total and permanent disablement, and income protection. The company was formerly known as Suncorp-Metway Limited and changed its name to Suncorp Group Limited in December 2010. The company was founded in 1902 and is headquartered in Brisbane, Australia.

  Historical performance

  Stock information

  • Market capitalization: $17783677996
  • P/E ratio: 15.4
  • PEG ratio: 0
  • Dividend yield: 0.0384%

  Get more detailed information and learn how to buy SUN.AU stock

• Qbe Insurance Group (QBE.AU)

  Company summary

  QBE Insurance Group Limited underwrites general insurance and reinsurance risks. The company offers range of commercial, personal, and specialty products, such as commercial and domestic property, motor and motor casualty, agriculture, public/product liability, professional indemnity, workers' compensation, marine, energy and aviation, accident and health, financial and credit, and other insurance products, as well as risk management solutions. It also manages Lloyd's syndicates, as well as provides investment management services. The company operates in Australia, North America, Asia, the Pacific, the United Kingdom, rest of Europe, and internationally. QBE Insurance Group Limited was founded in 1886 and is headquartered in Sydney, Australia.

  Historical performance

  Stock information

  • Market capitalization: $22169703200
  • P/E ratio: 14.49
  • PEG ratio: 0
  • Dividend yield: 0.0296%

  Get more detailed information and learn how to buy QBE.AU stock

• Insurance Australia Group (IAG.AU)

  Company summary

  Insurance Australia Group Limited underwrites general insurance products and provides investment management services in Australia and New Zealand. It offers personal and commercial insurance products, including bicycle, comprehensive motor, commercial and motor fleet, commercial property and liability, construction and engineering, consumer credit, compulsory third party, directors and officers, extended warranty, farm, crop, livestock, home and contents, income protection, marine, veteran, vintage and classic car, boat, caravan, travel, life, professional indemnity, public and product liability, security, workers' compensation, motor vehicle, personal liability, business, and rural and horticultural, as well as reinsurance. The company sells its products through branches and agencies, call centers, online, brokers, agents, authorized representatives and partners, and financial institutions; and third parties under the NRMA Insurance, SGIO, SGIC, RACV, CGU, ROLLiN, WFI, Swann Insurance, NZI, State, AMI, Lumley, and Coles Insurance brands. The company was formerly known as NRMA Insurance Group Limited and changed its name to Insurance Australia Group Limited in 2002. Insurance Australia Group Limited was founded in 1920 and is based in Sydney, Australia.

  Historical performance

  Stock information

  • Market capitalization: $14401958120
  • P/E ratio: 17.51
  • PEG ratio: 0
  • Dividend yield: 0.0303%

  Get more detailed information and learn how to buy IAG.AU stock

• Australian Foundation Investment Company (AFI.AU)

  Company summary

  Australian Foundation Investment Company Limited is a publicly owned investment manager. The firm invests in the public equity markets of Australia and New Zealand. It invests in value stocks of companies. It benchmarks the performance of its portfolio against S&P/ASX 200 Accumulation Index. It invests in companies across diversified industries. The firm employs fundamental analysis with a focus on bottom-up research to make its investments. The firm conducts in-house research to make its investments. Australian Foundation Investment Company Limited was founded in 1928 and is based in Melbourne, Australia.

  Historical performance

  Stock information

  • Market capitalization: $8788173587
  • P/E ratio: 28.13
  • PEG ratio: 0
  • Dividend yield: 0.0355%

  Get more detailed information and learn how to buy AFI.AU stock

• Magellan Financial Group (MFG.AU)

  Company summary

  Magellan Financial Group Limited is a publicly owned investment manager. It invests in global equities and global listed infrastructure markets across the globe. Magellan Financial Group Limited founded in 2004 and is based in Sydney, Australia.

  Historical performance

  Stock information

  • Market capitalization: $1357758758
  • P/E ratio: 7.5
  • PEG ratio: 0
  • Dividend yield: 0.1061%

  Get more detailed information and learn how to buy MFG.AU stock

• Medibank Private (MPL.AU)

  Company summary

  Medibank Private Limited provides private health insurance and health services in Australia. The company operates in two segments, Health Insurance and Medibank Health. The Health Insurance segment provides private health insurance products, including hospital cover that offers members with health cover for hospital treatments; and ancillary cover, which provides members with health cover for healthcare services, such as dental, optical, and physiotherapy. This segment also offers health insurance products to overseas visitors and overseas students. The Medibank Health segment provides health management and in-home care services, as well as a range of telehealth services to government and corporate customers; and distributes travel, life, and pet insurance products. The company underwrites its health insurance products under the Medibank and ahm brands. Medibank Private Limited was founded in 1976 and is based in Docklands, Australia.

  Historical performance

  Stock information

  • Market capitalization: $9611471308
  • P/E ratio: 18.98
  • PEG ratio: 0
  • Dividend yield: 0.0418%

  Get more detailed information and learn how to buy MPL.AU stock

• Argo Investments (ARG.AU)

  Company summary

  Argo Investments Limited is a publicly owned investment manager. The firm manages separate client focused equity portfolios for its clients. It invests in public equity markets of Australia. The firm employs a qualitative analysis with bottom-up stock picking approach to create its portfolio. It conducts in-house analysis to make its investments. Argo Investments Limited was founded in 1946 and is based in Adelaide, Australia with an additional office in Sydney, Australia.

  Historical performance

  Stock information

  • Market capitalization: $6470511247
  • P/E ratio: 23.63
  • PEG ratio: 0
  • Dividend yield: 0.0422%

  Get more detailed information and learn how to buy ARG.AU stock

What ETFs track the financial sector?

Take a look at the following financial sector ETFs available in Australia:

How is the financial sector performing?

The graph below tracks the Financial Select Sector VanEck Vectors Australian Bank ETF (MVB). 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 Australian consumers and bigger profit margins for companies. As Australians 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 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.

Compare stock trading platforms

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Name	Product	Price per trade	Inactivity fee	Asset class	International
eToro Finder AwardExclusive		$0	US$10 per month if there’s been no log-in for 12 months	ASX shares, Global shares, US shares, ETFs	Yes	CFD service. Capital at risk. Finder exclusive: Get 12 months of investment tracking app Delta PRO for free when you fund your eToro account (T&Cs apply). Join the world’s biggest social trading network when you trade stocks, commodities and currencies from the one account.	Go to site More Info	Compare	loading Fetching your data...
CMC Invest Finder Award		$0	$0	ASX shares, Global shares, Options trading, US shares, mFunds, ETFs	Yes	$0 brokerage on global shares including US, UK and Japan markets. Trade up to 35,000 products, including shares, crypto, ETFs and managed funds, with access to 15 major global and Australian stock exchanges. Plus, buy Aussie shares for $0 brokerage up to $1,000. (Limited to one buy order per stock per trading day).	Go to site More Info	Compare	loading Fetching your data...
Moomoo Share Trading Exclusive		US$0.99	$0	ASX shares, Global shares, US shares, ETFs	Yes	Finder exclusive: Get an additional 30 days on top of the regular brokerage-free period for new accounts. T&Cs apply. Trade shares on the ASX, the US markets and buy ETFs with Moomoo. Plus join a community over 20 million investors.	Go to site More Info	Compare	loading Fetching your data...
Tiger Brokers Exclusive		US$2	$0	ASX shares, Global shares, US shares, ETFs	Yes	Finder exclusive: Get 10 brokerage-free trades for the US or ASX market for the first 180 days and US$50 fractional shares when you deposit at least US$500. Plus, all new customers get 1 free trade per month for the first 12 months (T&Cs apply). Get one brokerage-free trade per month for the first 12 months for US or ASX markets. T&Cs apply.	Go to site More Info	Compare	loading Fetching your data...
Webull		US$0.25	$0	ASX shares, Options trading, US shares, ETFs	Yes	Earn US$100 in cash vouchers when you fund your new account and maintain a minimum balance of US$2,000 by Dec 29 until March 31, 2024. Plus, earn up to 5.3% p.a. yield on your US cash account (T&Cs apply). Trade ASX and US stocks and US options, plus gain access to inbuilt news platforms and educational resources. You can also start trading for less with fractional shares.	Go to site More Info	Compare	loading Fetching your data...
IG Share Trading Finder Award		US$0	$0	ASX shares, Global shares, US shares, UK shares, ETFs	Yes	$0 brokerage for US and global shares plus get an active trader discount of $5 commission on Australian shares. Enjoy some of the lowest brokerage fees on the market when trading Australian and international shares, plus get access to 24-hour customer support.	Go to site More Info	Compare	loading Fetching your data...

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Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

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.