Investment Broker Stocks: Two Poised For Success, Two To Avoid

With the Federal Reserve’s increase of interest rates looming on the horizon, many investors will be turning more of their attention to financial services stocks, as these types of stocks generally perform especially well in higher interest-leveled environments. One financial industry that provides current value and potential for success, and would benefit from the imminent interest rate hikes is the investment brokerage firm industry.

When interest rates are raised, investment brokerage firms stand to benefit greatly due to their business models. When an individual puts a sum of money into a brokerage account often times there is an amount of money that is uninvested, and the brokerage firm will invest it for that individual. This uninvested amount is referred to as “the float”. The brokerage firm makes money off of interest coming from the float, and this can be up to 50% of a brokerage firm’s revenue which means when interest rates are higher, brokerage firms stand to gain even more in interest from the float and see boosts in revenue.  This boost is revenue stands to improve the company’s stocks as well, meaning potential profits for investors.