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CHAPTER 7: The Financial Sector > Investing in the Financial Sector

Investing in the Financial Sector

The financial sector should be the smallest exposure of any sector, from a 2.5 to 5% segment in your overall portfolio. The sector provides an excellent low cross-correlation with other sectors despite the lowest overall return. Selection within financials should cover the broad range of sub-sectors previously listed. Three to six stocks should be chosen from this list. In choosing an individual stock from the financials list, consider the following:

  • Broadly diversify among the various sub-sectors. Any concentration should be on the largest and best-capitalized banks.
  • Select companies of a large size (5 billion market cap >).
  • Seek out firms with low volatility or beta to further reduce the risk component of the sector.

  

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