Is the Banking Services Sector Still a Good Investment?

on Dec 9, 2015
Updated: Sep 17, 2019

Banking and lending services constitute one of the biggest market sectors around, but it’s often hard to tell if it’s a sector that makes sense to invest in. Slow growth is often a problem in the best of times. Lean years often bring rapid contraction. This makes investors often question whether securities in this sector are worth it in spite of the size of the segment.

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Size is the Key

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The fact that this market segment is so massive is the key to investing in it. While major trends ultimately influence all securities, they don’t influence them equally. It’s also possible to find some organization that hasn’t been influenced by major international news stories.

Investors expect to see this segment contract any time there is a housing or lending crisis. There are always some businesses, though, that can avert the crisis.

Perhaps more importantly these lean times could be an opportunity to go hunting for bargains. Smart investors can find securities that have been heavily beaten down as a result of recent market fluctuations. Securities that will eventually rebound from their low value position can make great investments for those who are ready to tolerate the risk.

Tolerating Bargain Risks

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Imagine there is a fairly large international wealth management fund that is important in the sector but not well known by regular retail investors. The fund is heavily invested in real estate and a housing market fluctuation causes shares that were once trading at $10 to now trade at $6.

One might purchase shares at the new price and wait for it to rebound a single dollar of its value. Shares often rebound in the banking services sector on the next trading day, but they seldom regain their full value. Knowing the right exit price is very important to planning an investment strategy that will help to limit the amount of risk investors experience when they look for these kinds of bargains.

Investing in a Single Region

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Buying wealth management and private banking securities in a single region often makes a lot of sense as well. Consider Fahad Al Rajaan, who runs the largest lender in Bahrain. By focusing on a single region he’s been able to learn what works and doesn’t in this particular market segment.

Too many retail investors end up spreading themselves thin when they first start out in the banking sector. They try to limit risks by purchasing numerous different types of securities off of different exchanges. As a result they end up with a number of investments they aren’t fully educated on. They may also have to pay regional transfer taxes they didn’t count on.

Putting money into a single region and educating yourself on it while still remaining diverse enough to weather market fluctuations is a generally good strategy.

Look for Professional Help

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No one has to go it alone, and no one should just take some information that they read about an issue on the Internet as the truth. Doing due diligence is always important when considering an investment. Speak to a professional financial advisor and always make sure to find out as much about any security before putting any money down. This more than anything else is the best way to mitigate risk.

Image Credit: therichest


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