Watching regional banks is like eating a dry piece of toast: It might fill you up, but it really doesn't satisfy you like a bagel with cream cheese or a big multinational bank would. We all know what eating too many fatty foods will do to your body, so supplementing the desirable with the practical in eating and investing will help strike a good balance.
Michigan-based Mercantile Bank
So, the question is, are big banks really more desirable than smaller banks? That question was recently raised by Selena Maranjian, and I wanted to expand on my dry-toast analogy. I tend to hold accounts at larger banks because they offer enhanced services (such as online banking) and don't charge me an arm and a leg if I can maintain a certain minimum balance. On the other hand, we have hit the age of corporate America where big-name chains rule and local proprietors must hustle just to stay in business.
However, all of this big-company dominance shouldn't point investors to focus exclusively on big banks such as Citigroup
I learned years ago that an effective portfolio is a diversified portfolio: Alternating a bagel smeared with cream cheese with some dry toast is probably a smart choice and will also make an effective mix. Blending big banks with smaller banks in your core holdings will help you strike a balance that will alleviate some of the inherent risks associated with rising interest rates.
Fool contributor Phil Wohl spent more than 12 years on Wall Street and now concentrates his writing on more fictional characters. He has no stake in any firm mentioned above.