What to Know before Investing in Blue ChipBank Stocks

January 6, 2018

The stock market has always been a risky venture. That is not about to change. Actually, the volatility might only increase. However, that does not make ASX stocks unprofitable. People still make money, even in the ‘worst’ markets. In the past few months, many people have been asking what is happening to the big four banks in ASX listings. The gains are not as steady as anyone might have expected. Should that mean investing in such blue chip companies is not advisable? That will be a rush decision to make at this point.

It might not have been a great season for National Australia Bank Limited and other banks. The imposing of a $1.5 billion levy on the banks by the Federal Budget hasn’t made things any easier. At the end of the day, the banks will offload the imposed levies on the shareholders by reducing the dividends. It is also true that the levies might be passed down to mortgage clients. This only seeks to further complicate the aspect of investing in blue chip banks.

The market will always be volatile

If you are looking for a stable stock without many fluctuations, then bank shares might not be for you. If you see institutional investors sinking money in National Australia Bank, it is not because the company is undervalued (not suggesting in any way that this is not the case) but due to associated dividends. Bank stocks guarantee satisfactory dividends, at least most of them. So, you might as well stop looking at the daily gains and losses and stay put.

Either way, nothing can sink down in a straight line for eternity, at least not in the ASX market. People will overreact when certain changes regarding regulations and interest rates happen. That does not mean things will not settle down. In the case of the recent levy, you can wait for the bank to quantify its effects to the shareholders.

Steady income cores

NAB share price might not go down overnight. That is the good news about such bank stocks. Instead, they adapt to changes and are back on track after occasional market shocks. Big banks will always remain key income stocks. Regarding the new levy, they will simply adjust and lower the growth prospects if necessary. In subsequent months, they might even prove less volatile than what most people think.

Diversify always

Even if the bank stocks you are investing in are at their best, simply owning one stock is a risky idea. Things will iron out in due course but winter will come again, even if it takes time. Diversification helps to keep you in the game however ugly things seem. Options such as low-cost exchange traded index funds enable you to track the entire banking sector in just one stock.

The big bank stocks often offer good dividends. That explains why many investors opt for them. That alone should not drive you, however. Be ready to consider other factors to ascertain that a bank stock is right for you!

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