With interest rates expected to rise in 2022, should we invest in Financial Stocks? I have 27% of my portfolio currently in financial stocks with all the investments done before this year started. Will I buy more?
If you want to speculate and bet directly on higher interest rates, you can certainly make use of derivatives. What if you want to bet on stocks? You can trade bank stocks that are not doing well at all, for example, Deutsche Bank $DB . But I would not recommend this.
What about investing in banks (for example JPMorgan Chase $JPM ), expecting them to profit from higher interest rates. While higher interest rates mean more profits, as long as the Federal Reserve System Balance Sheet is that big, banks' profitability will be limited.
Insurance Stocks will also do well with higher interest rates but the effects will take some time to be noticeable. They will profit from higher interest rates as they roll over the bonds in their portfolio for higher-yielding ones.
As far as fintech stocks are concerned (for example, Square $SQ ), the market sees them as growth stocks and they are unlikely going to do well with higher interest rates.
Overall, we should not invest because of interest but rather because of fundamentals.
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