Start by comparing Australian brokerage platforms to find one that offers low fees and access to both local and global financial stocks.
Diversify your exposure by mixing individual finance stocks with sector ETFs to balance risk and potential returns.
Watch interest rate movements closely, as they can significantly influence the performance of financial sector investments.
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 counts as a financial stock?
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:
Choose a brokerage. Explore brokerage platforms in Australia to pick a firm that best fits your financial goals.
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.
Research securities. Use your firm’s research tools to browse different stocks and ETFs.
Place an order. When you’re ready to start investing, place an order to buy your security.
Monitor your portfolio. Log into your account to track your securities.
What are the best finance stocks in Australia?
This is a list of the 5 best-performing ASX finance stocks over the last 12 months1:
Zip Co Limited (ASX: ZIP) - 894.74%
Pinnacle Investment Management Group Limited (ASX: PNI) - 131.18%
Tower Limited (ASX: TWR) - 107.69%
Judo Capital Holdings (ASX: JDO) - 100.00%
HMC Capital Limited (ASX: HMC) - 96.74%
This data was last updated on 15 October 2024.
What ETFs track the financial sector?
Take a look at the following financial sector ETFs available in Australia:
VanEck Vectors Australian Bank ETF (MVB)
SPDR S&P/ASX 200 Financials ex A-REIT Fund (OZF)
BetaShares Australian Financials Sector ETF (QFN)
Betashares Global Banks ETF – Currency Hedged (BNKS)
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
In order to purchase stocks or ETFs, you'll need a brokerage account in Australia. Compare your options using the table below to find the best fit.
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.
Financial stocks are shares in companies that provide financial services, such as banks, insurance firms, investment managers and fintechs. They can include everything from large retail banks to smaller niche lenders and payment providers.
Financial stocks can offer stability, dividends and long-term growth, but their performance depends on economic conditions, interest rates and market confidence. Many investors include them for diversification, though like all investments, they carry risk.
Higher interest rates can boost bank profits through greater lending margins, but may also reduce borrowing demand. Lower rates encourage lending and consumer spending, yet often compress profit margins. The impact varies by company and market cycle.
Key risks include credit defaults, regulatory changes, economic downturns and market volatility. Fintech disruptors and global competition can also impact profitability. Reviewing company balance sheets and market conditions helps manage these risks.
The largest Australian-listed financial stocks include Commonwealth Bank (CBA), Westpac (WBC), NAB (NAB), ANZ (ANZ) and Macquarie Group (MQG). These are commonly referred to as the ‘Big Five’ financials on the ASX.
You can buy financial stocks through a share trading platform or broker. After setting up an account, search for the stock’s ticker symbol, decide how many shares you want and place your order.
Yes, many financial companies-especially the major banks and insurers-pay regular dividends. Dividend yields can be attractive compared to other sectors, though payouts depend on profits and market conditions.
Bank stocks come from established institutions offering traditional financial services. Fintech stocks belong to companies using technology to innovate in areas like payments, lending, or digital banking. Fintechs often show higher growth potential but carry more risk.
Yes, most Australian brokers and trading platforms offer access to international markets. You can invest in global financial institutions such as JPMorgan Chase or HSBC, though you’ll need to consider currency exchange and international trading fees.
Investors often review financial ratios, earnings reports, capital adequacy, dividend history and sector trends. Comparing performance against peers and assessing exposure to interest rate movements can also provide useful insights.
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.
Tom Stelzer is a journalist with 6 years of experience covering personal finance, specialising in investment and cryptocurrency. With a Master of Media Arts and Production and a Bachelor of Communications in Journalism from the University of Technology Sydney, Tom provides expert analysis on digital assets and market trends, helping readers navigate the fast-evolving world of finance.
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