Sunday, January 11, 2009

Invest in Banks !!

Invest the smart way by diversifying your investment dollars in great companies from different market sectors. The Financial Sector is one area you should be investing in as you build your portfolio.

Right now is a Great Time to invest in Banks. Bank stock prices are much lower than they were earlier in 2008. Citibank, for example, was at $20.60 in June of 2008 and as of December 5th 2008 it is at $7.71. That is $12.89 lower !! That is almost a 63% reduction in about six months!! Bank of America was $30.50 in June and in early December it was $15.24.

The reasons why you should invest in banks now are numerous.

All the banks have varying amounts of trouble with the sub-prime mortgage crisis, but the major players will not be allowed to get into irreversible trouble. The Treasury Dept. and the Federal Reserve will put together plans and use policy to ensure it.

Many banks have been taking advantage of the depressed financial sector to increase market share and broaden the services they provide by buying other distressed banks. Bank of America bought US Trust, Countrywide Financial Services (the largest US mortgage lender), and Merrill Lynch (Investing & Wealth Services). Citibank bought JP Morgan Chase (JP Morgan had recently bought Wamu, Bear Stearns, and Washington Mutual). Wells Fargo bought Wachovia.

This consolidation will result in increased value (read: “increased stock price and dividends”) for investors as time goes on. The banks will eliminate duplicate services and reduce costs through economies of scale to make this happen.

Future lending and the increased deposit base will become huge profit areas for these banks. The Banks’ investment strategies will move away from riskier investments toward safer havens to help them increase profit and weather the current downturn.

The predicted lower mortgage rates (4.5% or less !) that can be enabled by the Treasury buying Mortgage backed Securities from Fannie Mae and Freddie Mac would jump start the loan businesses for these banks. There would be the added benefits of allowing homeowners to refinance, allowing potential homeowners (with great credit) to buy, and stopping the fall of home prices (and maybe even partially reversing it) through increased demand.

The three large banks written about above can be invested in directly: Bank of America and Citibank through Computershare , and Wells Fargo through Wells Fargo Investment Plan .

Invest wisely by investing over time so you can benefit from any short-term low stock prices. Invest now so you do not miss out on this opportunity to create more wealth.