Recently, I noticed an interesting phenomenon: funds are quietly flowing from overhyped tech stocks into financial stocks. Think about it—putting money into a one-year bank term deposit yields only 2%, but investing in financial stocks can reliably bring in a cash dividend yield of 5–7%, with the additional possibility of waiting for the stock price to catch up. The difference is really significant.

My own trading strategy is like this: choose underlying assets with high dividend yields (at least 5%), a low price-to-earnings (P/E) ratio, and stable earnings. For example, in Taiwan: Fubon Financial, Cathay Financial, and E.SUN Financial; in the U.S.: JPMorgan Chase and Bank of America. These are regulars on my watchlist. I typically enter when the overall market is choppy at high levels and electronics stocks have surged and then pulled back, or when an individual stock’s dividend yield stands above 6–7%, at which point I buy in batches. After buying, I hold primarily for dividends. My target prices will adjust according to the company’s fundamentals—not rigid, fixed numbers. When the dividend yield falls to below 4%, it means the stock price has already risen too much, and then I consider trimming and rotating into the next undervalued candidate.

Why is it worth investing in financial stocks right now? Mainly for a few reasons. First, valuations are relatively reasonable: large bank stocks’ P/E ratios are mostly around 10–12x, compared with tech stocks’ P/E ratios that are generally above 25–30x, so financial stocks are clearly much cheaper. Second, although the Federal Reserve is entering a rate-cutting cycle, Taiwan’s financial holding companies have already earned over 5600 billion in the first 11 months of this year, setting a new record high. As long as the economy does not experience a hard landing, their dividend-paying capacity in 2026 is very likely to be even stronger than this year. On top of that, funds are shifting from electronics stocks to defensive sectors, and Fubon Financial and Cathay Financial have both shown solid recent performance.

Financial stocks also have the characteristic of being able to go on the offensive while still having a strong fallback. During the 2022 bear market, the weighted index fell by more than 20%, but the financial index fell by less than 15%. When tech stocks retrace, they often drop 10%, while financial stocks often just swing around 3–5%, which creates a much lighter psychological burden.

For Taiwanese financial stocks: Fubon Financial’s insurance subsidiaries contribute steadily, and its wealth management and digital banking businesses are growing quickly. With a P/E ratio of about 12x, it is still priced relatively low. Cathay Financial has shown clear growth in its Southeast Asia insurance business, and its wealth management fee revenue has grown 15% year over year. CTBC Financial leads in digital transformation, and its mobile banking user base is growing fast. E.SUN Financial is mainly focused on loans to small and medium-sized enterprises, with a prudent and stable operating style. Chang Hwa Bank is a pure-play bank with a high capital adequacy ratio, making it the lowest-valuation option.

In the U.S. market: Buffett’s holding company is extremely large. It owns hundreds of companies, including insurance, railroads, energy, and more—many people call it the most stable defensive stock in the U.S. market. JPMorgan Chase is the largest bank in the United States, with business coverage spanning retail banking, investment banking, and wealth management. If the capital markets remain hot into 2026, it has strong potential for profit growth. Bank of America is the second-largest bank in the U.S., with more than 68 million customers. Goldman Sachs is the best-known investment bank on Wall Street; if you believe the capital markets will stay hot in 2026, this one has the strongest upside potential—but it also comes with higher volatility. American Express focuses on high-end clients, whose customers have strong spending power, and its volatility is lower than that of traditional banks.

Of course, investing in financial stocks also requires understanding the risks. Financial stocks are highly sensitive to market volatility, and in bear markets their declines tend to be deeper. Interest rates moving up or down will directly affect earnings, and it is difficult for investors to predict these changes accurately. There is also the risk of loan defaults: if the companies you invest in cannot repay their debts, banks face the risk of non-performing loans and bad debt write-offs. During the 2015 China stock crash, the Yuanta Financial Index fell as much as 36%. After the Russia-Ukraine war in 2022, the share price of a certain Russian bank fell by 50% within just a few days.

Financial stocks are cyclical and strongly affected by the economic cycle, so they are more suitable for swing investing. If your investment time horizon spans five years or more, adding financial stocks to your portfolio could be a good choice. Whether in Taiwan or the U.S., financial stocks have the long-term potential to outperform the market. If you have a smaller amount of capital, you can start with financial ETFs—low entry barriers and built-in diversification. It’s recommended to build a well-balanced portfolio rather than going all-in at once. Over the course of a number of years, most of the returns typically come from dividends and the stock price catching up, so you don’t need to watch the market every day.