Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Another Way Brokerages Can Make You Wealthier

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some financial stocks to your portfolio, take a look at brokers and related financial services company and consider the iShares Dow Jones US Broker-Dealers ETF (NYSEMKT: IAI  ) . It could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.47%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF has performed, well, poorly, partly due to the recent recession and lower trading volumes. It underperformed the world market over the past three and five years. It's the future that matters most, though, and as with most investments, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why brokerages?
It's good to have a diversified portfolio, and the financial sector is a huge part of our economy. Our massive stock market seems to be here to stay, so brokerages are likely to keep making money off its activities, especially in bullish periods.

More than a handful of brokerages and related companies had strong performances over the past year. E*TRADE Financial (NASDAQ: ETFC  ) , for example, rose 18%, as it works to improve its loan portfolio. My colleague Eric Volkman, though, warns that its picture may be less rosy than it seems. Its expansion into banking services hasn't paid off too well, and other brokerages have been diversifying more successfully.

Other companies didn't do as well last year, but could see their fortunes change in the coming years. Interactive Brokers Group (NASDAQ: IBKR  ) was roughly flat. The low-cost brokerage targets high-frequency traders (vs. less frequently trading, more Foolish, long-term buy-and-holders), many of whom have helped enrich the company by tapping margin loans. In general, though, low interest rates have put pressure on profit margins for the whole industry. Interactive Brokers has also been innovative, inviting customers to participate in and profit from securities lending.

BGC Partners (NASDAQ: BGCP  ) sank 28%, and has been diversifying its business by expanding into commercial real estate. It also offers a huge dividend, recently yielding 11.6%. Some worry about overall low trading volume, but others are encouraged by insider buying at the company and strong employee ownership.

Market-making firm Knight Capital (NYSE: KCG  ) plunged 72%, mostly over the summer, when a "technology breakdown" or "glitch" led to some market mayhem involving 148 companies' stock -- and then led to Knight quickly raising hundreds of millions of dollars in order to stay in business. (Several of my colleagues wrote a well-regarded series on this debacle.) Knight later agreed to merge with Getco. Its recent earnings report was lackluster, suggesting it may not yet be a bargain.

The big picture
Demand for financial services isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

For more security from your investments, seek solid, high-yielding stocks, The Motley Fool has compiled a special free report outlining nine top dependable dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost. Just click here to discover the winners we've picked.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2240936, ~/Articles/ArticleHandler.aspx, 10/28/2016 2:15:49 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,109.62 -60.06 -0.33%
S&P 500 2,121.96 -11.08 -0.52%
NASD 5,186.83 -29.14 -0.56%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/28/2016 2:00 PM
BGCP $8.61 Down -0.27 -2.99%
BGC Partners CAPS Rating: *****
ETFC $28.08 Down -0.44 -1.54%
E*TRADE Financial… CAPS Rating: ***
IAI $41.28 Down -0.40 -0.96%
iShares Dow Jones… CAPS Rating: *****
IBKR $33.21 Down -0.13 -0.39%
Interactive Broker… CAPS Rating: *****
KCG $13.14 Down -0.36 -2.67%
Knight Capital Gro… CAPS Rating: *****