Finance stocks are specific types of companies that are listed on the stock market. There are always plenty of opportunities to capitalize from investing in this sector. We are going to outline what factors influence this sector, what risks are involved and how to look for the types companies that offer the best return or lowest risk.
Simply put, a market sector is used to describe a part of the economy. It encompasses similar companies under one banner. For instance a hospital and an aged care home would be considered under the “Health Care” sector.
The Financial sector refers to all Financial companies that sell financial goods and services. The Financial index is under the ticker SPSY which is the measurement tool commonly used to track the performance of the Financial sector.
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Economic Slowdown – It seems that no matter where you turn you’ll see examples of economic stagnation where governments are struggling to incentivize consumer spending and economies overall seem to be suffering. Financial institutions can take steps towards mitigating some of these impacts but as the economy continues to deteriorate we will see the affect become more apparent.
Regulatory Changes – Following the 2008/09 economic disaster many new regulations and laws have been passed to protect those using any financial service. Those laws also impact the revenue of those same companies and as more regulations are passed the more financial risk those organizations take. However it is important to note that these changes are for the greater good and are likely to lead to a much better financial system i the long term. The adjustment period van be problematic to some of these companies. Particuklary if they are slow to adapt.
Failure to Innovate – The Finance sector is often seen as an old sector made up from a cohort of large companies that have existed for a long time. As a result of these companies being so large and having processes in place for decades, change within the organization take a very long time. And therefore when new innovation is introduced to the market these companies are amongst the slowest to respond. The industry is in a crisis of innovation where they have been boxed in by their size, age and regulations which make it difficult to adapt. For many this will lead to insolvency like it has for many before.
Disruptive Technologies – The new digital landscape allows new and innovative companies to enter into the market and cause seismic industry shifts. Shifts that the larger organizations cannot keep up with and it has become such a large problem for these larger companies that these new companies are taking away their market share and lowering their bottom line.
Commodity Price Risk – Changing prices of commodities such has gold, oil and silver are a major areas of risk for any financial organization that trades them or has vested interests in their value changing over time. For many of these companies they control large reserves of these commodities for instance JP Morgan has over 50% of the worlds silver. These days we so often focus on the digital landscape but forget about the physical any negative change to the value of silver would decimate JP Morgan and many other companies similar to them holding similar commodities.
Emerging Markets – One of the biggest potential growth areas for the finance industry is to tap into the emerging markets with more than 1 billion of people in those areas not having any sort of bank. Companies who are currently capitalizing on this gap are positioning themselves up for a strong future. And those who are not are squandering a great opportunity.
Digitalization – Digitiliatio npresents a grat opportunity for the finance sector to be much more available to people than it has in the past. All of a sudden we can send money across the world on our phone buy stocks and even manage our personal finances. Companies that are specializing in this digitization such as Square, Paypal and the likes are thriving and are important companies to watch and learn from
Stability – The finance sector has its hands in many pockets and as a result they’ve managed to hedge a lot of their market risks. Often seen as a more stable industry a lot of the “blue-chip” stocks are banks because financial institutions have been engrained in the way our world operates.
High Growth Rate – Tech sector stock are very susceptible to changes. We see this every other week with the likes of Tesla. Where when they announce something even remotely good the price skyrockets, often unreasonably high. This is due to 2 reasons. 1 the announcement is something that investors think will benefit the long term revenue of the company and 2 there is so much market speculation on tech stocks that when a stock rises its rise is amplified because every investor wants to buy a piece of it. On top of this investment firms know that market speculation will drive a huge chunk of the price rise and therefore create algorithms that take s notice of it (without you even knowing)
Data Driven Decisions – More and more decisions are made through data, machine learning and intuitive AI. Financial organization are using these tools to understand their market and optimize processes. Some newer and more innovative firms are using machine learning algorithms to automatically trade on the stock market based on relevant indicators. These trades happen nearly instantly and are much more sophistcicated, quicker and knowledgable than a normal trader.
ABOUT – The traditional service of the finance industry, providing loans and financial services to many around the world. It is also one of the areas within finance that can still expand with more than a billion people in emerging markets not having a bank. Traditional banking however is being sidelined for favor of more easily accessible and digital products and transaction services. Where small loans are no longer needed and instead consumers can use the likes of Afterpay. Even when transferring money PayPal offers a great service and one that is mostly better than a lot of the banks out there.
ABOUT – Fintech Companies deal in the financial space in a new way differentiated from the old finance sector. These companies usually provides services for very low costs that are available in a large area. Unlike traditional banks or institutions that are often extremely localized. Companies in this space include Square, Robinhood and Etoro who all pride themselves on delivery fast, affordable and reiable products.
ABOUT – A subsection of the finance industry but still and important aspect. The Insurance industry thrives on market uncertainty where consumers are scared of losing their assets. If that sounds familiar its because it’s how we’re living today with market crashes and bubble bursts becoming more common its becoming a necessity to insure every aspect of our lives. The insurance industry does have some pitfalls namely around the lack of innovation, tight competition and restrictive regulation it doesn’t allow much room for this area to grow. A new subsection of Insurance is emerging “Insuratech” which promises to innovate on a very old industry.
ABOUT – Investment funds, hedge funds and holding companies are some of the most powerful organizations on the planet. Controlling trillions of dollars of wealth many people rely on these companies to successfully manage and grow their money over time. Famous examples include Warren Buffet’s Berkshire Hathaway and Blackrock. These companies often pick companies that they see value in however it is now more common to try and follow an index which is a large group of companies in order to spread their money and risk across multiple different industries and sections. This is known as passive investing and is the antithesis of the old active investing approach which aimed to “beat” the market.