## The Complete Guide to Financial Stock Allocation: From Classification to Practical Strategies—How Small Investors Can Profit from Bank Stock Price Fluctuations and Dividends?

The Taiwan stock market has been oscillating around 28,000 points. After a strong rally in electronics and technology stocks, savvy funds are quietly shifting into defensive sectors. Instead of placing money in fixed deposits earning 2% annually, many investors find that investing in **financial stocks** can reliably yield a 5-7% cash dividend yield and ride the wave of stock price recovery. But with a wide variety of financial stocks and differing volatility characteristics, how should one choose? This article thoroughly analyzes the investment map of financial stocks.

## Why Are Financial Stocks Worth Investing in Now? Three Core Logic Points

**Valuation Bargain and Rotation Mechanism**

Technology stocks have surged fiercely, with P/E ratios exceeding 30, yet their profit growth is hard to sustain. In contrast, large Taiwanese bank stocks generally maintain P/E ratios between 10-12, making their valuations relatively attractive. As expectations of a soft landing in the economy take hold, institutional funds are accelerating their shift from high-valuation growth stocks to stable, dividend-paying value stocks.

**Hidden Benefits of the Interest Rate Environment**

Although the Federal Reserve has entered a rate-cut cycle, Taiwanese financial holdings have already accumulated profits exceeding NT$560 billion by November, setting new records. Analysts predict that even if interest rates remain low until 2026, as long as the economy avoids a hard landing, the overall dividend capacity of financial holdings will be even stronger than this year, naturally providing room for stock price appreciation.

**Economic Defensive Characteristics**

Fund rotation trends are clear. Defensive stocks like Fubon Financial and Cathay Financial perform remarkably well. In a mild recession, financial holdings with excellent loan quality and high capital adequacy ratios tend to decline the least. The 2022 bear market serves as a vivid lesson—while the weighted index fell over 20%, the financial index only dropped less than 15%. Compared to technology stocks that can fall 10% with a single pullback, most financial stocks only fluctuate 3-5%, making the psychological burden much lighter.

## How Are Financial Stocks Classified? Five Main Types at a Glance

There are about 49 listed financial stocks in Taiwan. Investors can filter by the following categories:

**Financial Holding Companies: The Most Popular Choice**

Financial holding companies operate across multiple industries, including banking, life insurance, securities, and asset management. They have broad services, large asset scales, stable shareholder structures, and diversified profit sources, making them especially popular among beginners. Examples include Fubon Financial, Cathay Financial, and CTBC Financial.

**Bank Stocks: Stable and Low Volatility**

Pure bank stocks (e.g., Chang Hwa Bank, Taichung Bank) mainly rely on deposit and loan businesses. Their operations are relatively simple but stable, with lower volatility than financial holdings. They usually have the lowest P/E ratios, suitable for conservative investors seeking stability.

**Insurance Stocks: Cyclical Characteristics**

Driven mainly by premium income and investment returns, insurance stocks are riskier than banks and financial holdings. Their stock prices tend to fluctuate more significantly with interest rate changes, making them more suitable for market turning points and swing trading.

**Securities Stocks: Sensitive to Trading Volume**

Revenue mainly comes from brokerage services. When the market is booming, profits are substantial; during sluggish periods, profits decline sharply. When trading volume suddenly surges and market sentiment heats up, securities stocks are often the first to rise.

**FinTech Stocks: Emerging Sector**

Focusing on digital payments and innovative finance, companies like PayPal and Mastercard have high growth potential but also higher volatility.

Small investors often start with financial holdings or diversify through financial ETFs (such as 0055 Yuanta Financial ETF, 006288U Financial ETF) with lower entry barriers.

## Top Picks in Taiwan Financial Stocks: In-Depth Analysis of Five Stocks

Based on the latest 2025 forecasts and business drivers, the following five stocks cover different investment needs:

**Fubon Financial (2881): Leading Position with Strong Growth Momentum**

Stable contributions from insurance subsidiaries, rapid growth in wealth management and digital banking. 2025 EPS is estimated at NT$4.5-5, with a P/E ratio around 12. Active in sports sponsorships and branding, with long-term brand value potential. Estimated dividend yield of 6.5%, rising from NT$65 at the start of the year to over NT$85 by year-end, an increase of over 30%.

*Risk:* Overseas expansion may be affected by geopolitical fluctuations, potentially impacting profits.

**Cathay Financial (2882): Southeast Asia Insurance Growth Engine**

Significant growth in insurance businesses in Vietnam, Thailand, and other markets. Wealth management fees are projected to grow 15% annually in 2025. EPS is estimated at NT$4, with a P/E of 11, making valuation attractive. Estimated dividend yield of 6-7%, rising from NT$50 at the start of the year to over NT$68 by year-end, an increase of over 36%. If interest rates stabilize in 2026, insurance profits could further improve.

*Risk:* Insurance stocks are sensitive to interest rate changes; rapid rate cuts could pressure investment returns.

**CTBC Financial (2891): Leader in Digital Transformation**

Mobile banking users are expected to grow 20% in 2025, with exposure to the Chinese market (less than other holdings but with growth potential). EPS is estimated at NT$2.8, with a P/E of 13, offering growth space. Estimated dividend yield of 5.5%, rising from NT$28 at the start of the year to NT$36 by year-end, an increase of over 28%. If China’s economy recovers, stock prices may surprise.

*Risk:* Uncertainty in Chinese policies could drag on some business segments.

**E.SUN Financial (2884): Stable Provider of SME Loans**

Focuses on SME loans and retail banking. Net interest income is projected to grow 10% annually in 2025. Its conservative management style attracts cautious investors. EPS is estimated at NT$2.5, with a P/E of 12, suitable for long-term holding. Estimated dividend yield of 6%, rising from NT$25 at the start of the year to NT$32 by year-end, a 28% increase.

*Risk:* Business concentrated in Taiwan; economic slowdown could limit growth.

**Chang Hwa Bank (2801): Pure Bank, Low Valuation Defensive Stock**

High capital adequacy ratio, stable loan quality. Wealth management business growth of 12% in 2025. EPS is estimated at NT$1.5, with a P/E of 10, making it one of the lowest valuation options. Estimated dividend yield of 5%, rising from NT$16 at the start of the year to NT$20 by year-end, a 25% increase. Pure banking business is simpler but highly defensive.

*Risk:* Less diversified, growth potential lower than multi-industry financial holdings.

## Are US Financial Stocks Worth Allocating? Five Key Stocks

US financial stocks have reasonable valuations and stable dividends. Taiwanese investors can access them via cross-trading or US ETF investments. The following five stocks are favored by institutions for 2026:

**Berkshire Hathaway (BRK.B): The Most Stable Defensive Stock Globally**

The world’s most renowned investment holding company, owning over a hundred subsidiaries in insurance, railroads, energy, manufacturing, and more. Also holds large positions in Apple and American Express. Gains of 25-30% in 2025. Essentially, a massive investment fund using insurance cash flows to buy quality companies and earn compound returns. Market calls it “the most stable defensive stock in US stocks.”

**JPMorgan Chase (JPM): The All-Round Financial Giant**

The largest US bank, covering retail banking, investment banking, wealth management, and credit cards. Over 300,000 employees worldwide, market cap exceeding US$800 billion. Estimated 2025 gains of 30-35%. With continued strength in capital markets, profit growth potential is huge, and valuation remains reasonable. Leading in investment banking, with a revival in M&A activity boosting performance.

**Bank of America (BAC): Retail Banking Leader**

The second-largest US bank, focusing on personal accounts, mortgages, credit cards, and wealth management. Over 68 million customers, the largest deposit base in the US. Expected gains over 35% in 2025. Stable retail deposit base, fast-growing wealth management, supported by stock buybacks and high dividends.

**Goldman Sachs (GS): Investment Banking Elite**

Top-tier Wall Street investment bank, serving corporate executives and institutional investors. Specializes in M&A, IPOs, equity and debt trading—less accessible to the general public but highly profitable. Estimated 25-30% gains in 2025, driven by a rebound in M&A and IPO markets, with strong trading performance. If expecting continued hot capital markets in 2026, this stock has explosive potential but also higher volatility. Recommended to keep within 20% of the portfolio.

**American Express (AXP): Premium Credit Card for High Net Worth**

Globally renowned credit card company targeting high-net-worth individuals. Revenue mainly from card transaction fees rather than interest. Customers have strong spending power and are less affected by economic fluctuations, with less volatility than traditional banks. Estimated 20-25% gains in 2025. Wealthy consumers are resilient, and fee income remains stable.

## Fixed Deposit Strategy for Financial Stocks: How to Collect Dividends and Capture Upside?

**Swing Fixed Deposit Strategy**

Many buy financial stocks and rely on annual dividends as interest income. While feasible, financial stocks are not perfect substitutes for bank fixed deposits—they earn more but also carry volatility and risks.

Practical strategy steps:

**Step 1: Select Stocks Based on Conditions**

- Dividend yield at least 5% (target 6-7% for Taiwanese financial holdings, 15-20% P/E for US stocks)
- P/E ratio below 15 (preferably 10-15 in Taiwan, 15-20 in US)
- Consistent profit growth, not relying solely on high dividend payout ratios

Typical stocks meeting these criteria include: Taiwan’s Fubon Financial, Cathay Financial, E.SUN; US’s JPMorgan, BAC.

**Step 2: Time Your Entry**

- When the market is high and volatile, especially after a tech rally, funds tend to rotate into financial stocks
- Or when individual stocks’ dividend yields exceed 6-7%, buy in batches, leaving room for additional purchases

**Step 3: Adjust Target Prices Dynamically**

Avoid rigid target prices. For example, if you set NT$50 as an exit point but the stock rises to NT$45 and fundamentals improve, raise the target to NT$60. “Time is a friend of good companies.” For mature industries like financial stocks, longer holding periods are more advantageous.

**Step 4: Exit When to Reduce Positions**

When stock prices reach your psychological target or dividend yield drops below 4% (indicating the stock has risen too much), consider trimming or selling entirely, and move to undervalued stocks. Over the years, returns mainly come from dividends and stock price recovery, so daily monitoring is unnecessary.

## Hidden Risks in Financial Stock Investment

**Market Risk: Black Swan Impacts Deepest**

During bear markets, financial stocks often fall more than the broader market. In the 2015 China A-share crash, Taiwan’s 50 Index (0050) fell 24.15%, but Yuanta MSCI Financial (0055) fell 36.34%. Systemic risks can severely impact financial sectors.

**Interest Rate Risk: Difficult to Predict**

Rising rates benefit bank loan spreads, but rapid rate cuts can suppress investment returns. Historically, low interest rate environments have significantly affected financial profits, and predicting rate trends precisely is challenging.

**Loan Default Risk: Exposed During Economic Slowdowns**

Recessions reduce borrowers’ repayment capacity, increasing non-performing loans and bad debts. The financial industry involves many sectors, and risks must be carefully managed.

**Long-term Performance May Not Outperform the Market**

Over the past decade, financial stocks have not consistently outperformed the broader market. While they offer low volatility and high dividends, their growth is less than that of technology stocks, with noticeable gaps during bull markets.

## Swing Trading: The Correct Approach for Financial Stocks

Financial stocks are classic cyclical stocks with strong seasonality. Compared to long-term holding, swing trading is more suitable.

Using technical analysis, swing trading seeks opportunities during bull market rallies and bear market declines, offering investors great flexibility. Common indicators include moving averages, support and resistance levels, RSI, etc.

Start swing trading financial stocks in 3 simple steps:
1. Choose a reliable trading platform and open an account
2. Support low minimum deposits (e.g., starting from $50), for quick onboarding
3. Use technical indicators to identify entry and exit points, capturing volatility opportunities flexibly

## The Long-term Investment Value of Financial Stocks: Why Do They Deserve a Place?

In the US S&P 500, financial stocks account for 13.12%, highlighting their importance. While lacking the explosive growth of tech stocks, financial stocks have unique advantages.

**Stable Long-term Performance and Outperformance of the Economy**

Over the past 30 years, financial sector earnings have grown faster than the overall economy, enabling financial companies to pay dividends above average, creating a stable P/E structure.

**Implicit Government Guarantees and Defensive Traits**

Financial industries are intertwined with the global economy. Governments are unlikely to let major banks fail (as seen after the 2008 financial crisis). This makes financial stocks relatively less risky and allows them to receive special policy support during downturns.

**Low Volatility for Investment Peace of Mind**

Banking and insurance are closely linked to the economy, with volatility generally much lower than tech stocks. During periods of high market uncertainty, financial stocks can provide psychological stability.

If you extend your investment horizon beyond 5 years and allocate quality financial stocks—especially those with reasonable valuations and stable dividends—you can effectively reduce overall risk and enhance absolute returns. If the US economy avoids a deep recession, bank stocks have bright prospects—benefiting from higher interest rates, wider loan spreads, and profit growth. Even if short-term rates fluctuate sharply, over time, banks’ balance sheets will adjust, preparing for stronger profit growth.