My thoughts on Banks

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Are banks helping?

Banks of all kinds are absolutely necessary in todays world.  Even people without a chequing account need to cash their pay checks somewhere.  The only people who can really get away from banks only deal in cash and are taking the risk of someone straight up just taking all their money from wherever it’s stored away.  The point being, most people deal with a bank for one thing or another.  Taking this into consideration its no surprise that the wealthiest industry in Canada is our fantastic banking system.  Mostly public companies, the banks keep our money safe and help us save for retirement…right?  Consider this for a second: banks are a business.  Nothing more and nothing less.  Banks aren’t the trusted safe havens they once may have been (likely corrupted from day one).  Banks now largely sell debt products.  Yes, a mortgage is a product that was sold to you for a fee.  The same goes for credit cards, lines of credit, vehicle loans etc.  If you have any form of debt than you have been sold a debt product and are paying at least interest for their trouble.

Alright so I got out there that I think banks are bad.  But is it all bad? Depends who you ask.  For investors who own shares in these banks, we are getting quarterly dividends from our investments.  We aren’t paying interest on loans from the bank, we instead are getting paid ourselves from the bank.  The banks profits come from those debt products I mentioned.  So anyone who has debt is getting bank shareholders rich.  Does that make anyone a “bad guy” in this story?  No.  It’s called capitalism and every dollar you choose to spend or not spend is a vote.  If you take on a loan and start paying the bank then you are voting for that bank to succeed because your paying part of their salaries to keep them going.

Don’t pay the banks, OWN the banks

Here’s a thought now and its not an original one by any means: Instead of buying stuff you can’t afford on credit, instead buy the banks who give credit.  Credit is big business and I’m not the first person to stumble upon it. Banks are the largest companies in Canada.  This idea is exactly what you think it is, it’s attempting to get rich off the backs of everyday hard working people in debt but thats not my problem, nor is it yours.  That problem goes to the government who created the rules that lead to everyone being in so much debt in the first place.  I believe there is opportunity for stable, steady growth over time by continuing to buy Canadian bank stocks.  Their earnings are all good, great dividends and they aren’t going anywhere.

Okay, so which ones?

RBC
TD
BNS
BMO
CM

They call these the “big five” here in Canada and they all have fantastic track records even during times of crisis they still pay dividends.  Also theses crisis’ don’t occur very often and when they do, the market always recovers.  For as long as stock markets have existed here they’ve only moved in one direction and thats up.  Therefore, I’m dollar cost averaging continuing to buy banks and holding strong collecting those dividends.  Once upon a time the banks got rich off me, now the tables have turned.