For new investors, it's understandable you might look towards blue-chip companies like the big 4 banks as your first investment.
The big four banks are:
- Commonwealth Bank of Australia (ASX: CBA)
- National Australia Bank Ltd (ASX: NAB)
- ANZ Group Holdings Ltd (ASX: ANZ)
- Westpac Banking Corp (ASX: WBC)
According to InfoChoice, they represent around 70% of the total market share in the country's financial sector.
There could be many reasons a new investor might look towards these options.
Chances are you recognise the name, understand what products and services they offer and maybe even bank with them yourself.
But it might be difficult to decide which one should be your first investment. Let's compare four.
Performance
Over the last 12 months, CBA has brought investors the biggest returns, rising 44% over that span.
Westpac has risen roughly 22%, ANZ has risen 5.5% and NAB has risen 4.4%.
It's important to note that past performance doesn't mean it will continue on that trajectory.
Bank Size
Between the four, Commonwealth Bank is the largest in terms of market capitalisation.
Market cap can help investors understand how big a company is (compared to others) and its risk level. Generally, but not always, bigger companies are more stable compared to start-ups.
Market cap:
- CBA: $283.92 billion.
- Westpac: $114.51 billion.
- NAB: $109.79 billion
- ANZ: $89.32 billion.
When we look outside the share market, data from APRA shows the total assets (in billions) of the big four are:
- CBA: $1,122.379
- Westpac: $1,071.240
- NAB: $902.381
- ANZ: $757.860
This reflects assets such as loans, deposits, and other financial holdings.
Dividends
Companies pay dividends to shareholders from the profit they make.
Some investors may choose to focus on investing in high-dividend paying companies as a way to generate income, rather than focussing on projecting if a stock price may rise.
Or, you could use dividends as a way to differentiate between two companies you feel similarly about.
If you had $5,000 invested in each of the big 4 banks shares you might receive:
CBA has a yield of 2.8% so you'd receive approximately $70 every six months.
Westpac has a yield of 4.51% so you'd receive around $112.75 every six months.
NAB's yield is 4.63% which means you'd likely receive about $115.75 every six months.
ANZ's yield is 5.47% so you'd likely receive about $136.75 every six months.
How to buy all the big 4 banks shares at once
If you want to have exposure to all of the big 4 bank, or can't decide which one to purchase, another option to consider is an Exchange Traded Fund (ETF).
Rather than individual shares, an ETF is a collection or "basket" of securities. This means with one trade you can gain exposure to hundreds or even thousands of companies.
You can buy and sell units in an ETF the same way you purchase shares through a stockbroker or via an online share trading platform.
Because the big 4 banks make up a large portion of the Australian economy, there are several ETFs that include all four:
BetaShares S&P/ASX 200 Financials Sector ETF (ASX: QFN) tracks the performance of the largest ASX-listed companies in the financial sector. The big four banks make up almost 70% of the portfolio.
iShares Core S&P/ASX 200 ETF (ASX: IOZ) tracks the performance of the largest 200 companies on the ASX. The big 4 banks make up more than 24% of the portfolio.
Vanguard Australian Shares Index ETF (ASX: VAS) tracks the return of the 300 largest companies on the ASX. The big 4 banks make up more than 20% of the portfolio.
