How to Buy Stock in Insurance Companies

It’s always important to dive deep into the financial statements of any company you invest in. it’s also imperative to look at contrasting viewpoints to help ensure a holistic assessment.

Specifically for the insurance industry, keep an eye on the benchmark interest rate and the factors that can affect it. According to the National Association of Insurance Commissioners, a chronic low-interest rate environment imposes problems for the following reasons:

• Low yield: Insurance companies must generate income through low-risk investments, such as government bonds, since they eventually must pay out for a qualifying event. Low yields hurt returns on these types of investments.
• Unattractive products: Some insurance companies may offer products that are less attractive to clients if the interest rate is too low.
• Liquidity concerns: Not accruing enough funds during challenging times may present a liquidity crunch when insurers must pay for qualifying events.

Finally, compare the long-term performance of your target insurance stocks. This helps you narrow down your analysis to what you’re seeking for, such as higher growth or stability during economic headwinds.

Once you have a list of insurance companies you’re interested in, you should then tackle how many shares to purchase. Primarily, this comes down to your risk tolerance as well as your account size. 

However, the insurance industry typically doesn’t generate exhilarating annual returns. Even the best life insurance stocks, for instance, are slow movers. You may need to buy more shares if you want greater nominal returns.

Another approach is to consider buying shares of multiple insurance companies. For example, you could mix it up, levering your portfolio to life, health and property casualty insurers. Of course, the downside is that you must actively manage your exposure, particularly if sub sector- or company-specific challenges require protective action.

In the early days of online brokerages, companies typically earned your business through lower commissions than competing organizations. But in recent years, mobile trading apps pushed to the forefront, armed with distinct business models and conveniences for the retail investor. Today incentivizes such as commission-free trading are commonplace as online brokers adapted to keep pace.

Your job in choosing a broker is much simpler. Instead of focusing on fees and commissions, your choice platform should align with your lifestyle and schedule. If you’re constantly on-the-go, a mobile app may be the most appropriate. On the other hand, if you anticipate growing in your investment journey, you should choose a full-service platform.

At this point, you might be tempted to start trading your target insurance companies. But before you do, you may want to practice with virtual money where you receive no penalty for your mistakes.

For one thing, insurance companies tend to be slow movers so chances are, your investments aren’t going anywhere fast while you practice. Through virtual money, you can learn about the nuances of trading that you can’t get from a textbook. Concepts like the bid-ask spread come alive when you are actually placing trades.

Best of all, this is an education that will stick with you for life and is applicable to other stocks should you change your industry focus.

Like the manager of a sports team, you don’t just keep the same roster on the field. It’s the same with your portfolio.

For insurance companies or any category, you should have written expectations of your stocks, particularly their returns over a given frame. If certain stocks continue to underperform, it’s time to swap them out for decisive winners.

Portfolio optimization helps you get into the proper mindset for investing. Mainly, you should never fall in love with your stocks. Instead, you’ve got to be cold and brutal, only allowing companies to be in your portfolio if they meet your performance expectations.