What Are Financial Funds?
Also known as financial sector funds, financial funds invest primarily in stocks of companies that are in the business of providing financial products and services to consumers. Examples of businesses in the financial sector include banks, credit card companies, insurance companies, and brokerage firms. Examples of financial stocks include JPMorgan Chase (JPM), Bank of America (BAC) and Berkshire-Hathaway (BRK.A, BRK.B).
The Outlook for Financial Funds
Now may be a great time to invest in financial stocks. Interest rates are set to increase, which is good for lenders. Moreover, companies in the financial industry are finding new ways to increase profits, leveraging cutting-edge technologies to deliver an array of enhanced products and services to consumers at a low cost. All of this is bolstered by the aging baby boomer generation. Born between 1946 and 1964, baby boomers are either in retirement now or are nearing retirement age, which is dramatically increasing the demand for financial products and services. The heightened demand is not expected to wane. Over the next 25 years, it is estimated that the greatest transfer of wealth in history will occur, as the children of baby boomers, Generation X, inherit their parents’ assets.
Best Financial Funds To Buy for the Long Term
When choosing financial funds and other sector funds, investors generally have a choice between actively managed funds, index funds, and specialty funds. Also, the financial funds may be either mutual funds or exchange-traded funds (ETFs). Since sector funds may come in and out of favor, making it difficult to time the purchase of the funds, investors are wise to buy with the intention of holding for the long term (several years or more).
The Bottom Line
Investors are wise to maintain a long-term outlook for financial funds. In the short term, financial stocks may have already put in their best gains. However, the long-term outlook remains healthy for financial funds. Along with the technology and health sectors, the financial sector has a strong growth outlook. Macroeconomic factors, such as an aging population and advances in productivity from technology, will likely continue to support financial stocks.
