Don't Bank on Bank Stocks

You can hunt for the few promising investments in this risky sector, but in general you should stay away from financial companies.

Should you get back into bank stocks? Although the broad U.S. market, as represented by Standard & Poor's 500-stock index, is down only 15% from its 2007 high, most financial stocks are still suffering.

Financial Select Sector SPDR (symbol XLF), an exchange-traded fund linked to an S&P index that holds the biggest banks, is off more than half from its 2007 high. So is iShares Dow Jones U.S. Regional Banks Index (IAT), another ETF. Shares of Bank of America (BAC), the largest U.S. bank by assets ($2.3 trillion at the end of 2010), are still down 74% from their peak. And Citigroup (C), the third-largest, still trades at 90% below its high (prices and other data are through April 8).

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James K. Glassman
Contributing Columnist, Kiplinger's Personal Finance
James K. Glassman is a visiting fellow at the American Enterprise Institute. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence.