Bank of America stands out among banking stocks

The opinion of the motley fools

Bank of America shares recently fell about 20% over the past year, due in large part to the banking crisis earlier this year and macroeconomic concerns. But the company remains financially healthy, has an attractive valuation at recent levels, and should be able to weather any storm.

Rising interest rates have been a double-edged sword for B of A. The big bank’s income from interest on loans has increased. However, high interest rates (combined with high inflation that precipitated rate increases) have slowed consumer borrowing and spending.

However, Bank of America stands out above most banking stocks, in part because of its diversified business. The company has four business segments (consumer banking, global investment and wealth management, global banking and global markets) that allow it to participate in all areas of the banking industry. It also has an exceptionally strong financial position.

The company also continues to out-innovate the rest of the industry. Their adoption of digital banking continues to grow and this technological advantage should translate into greater efficiency, higher profits and more customers in the long term. Bank of America has also often increased its dividend over the past 10 years and recently offered a juicy 3.4% yield. (Bank of America is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool owns shares in and has recommended Bank of America.)

ask the fool

From RY of Hackensack, NJ: What is the average price of homes sold in the United States? I know home values ​​have increased, but I’m not sure by how much.

The Fool answers: You are certainly right that home prices are going up! According to data from the Federal Reserve Bank of St. Louis, the median sales price of a home sold in the US was $513,400 in the third quarter of 2023.

That’s actually a little less than the previous year, 2022, when the average was a whopping $547,800. But overall, home prices have risen rapidly. In the third quarter of 2021 the average was $473,000, and in 2020 it was $397,800. A decade ago, in the third quarter of 2013, the average was $324,400.

However, remember that averages can be skewed by ultra-high or ultra-low numbers, so it’s often best to look at the median numbers. The median sales price of homes sold in the US (also according to the St. Louis Fed) is $431,000 for the third quarter of 2023. That means if you lined up all the homes sold in order of value, the middle one would have sold for $431,000. A decade earlier, the median was much lower, $264,800.

From BK, Eden Prairie, Minnesota: I bought some shares, but my brokerage did not send me paper stock certificates. That is normal?

The Fool answers: It is very normal and also a good thing. Today, brokerage firms routinely list the stocks that investors buy under the “street name,” that is, the name of the brokerage firm. But they keep track of the actions and know they are theirs. This makes it easy for you to sell whenever you want, without having to search for and hand over paper certificates that you have stored in a safe place.

The school of fools

It’s tempting: Suddenly you need a lot of money for something: maybe a new transmission, maybe a kitchen remodel. And you have plenty of money in a retirement account, like an IRA or 401(k). Why not cash out (or maybe just borrow) something?

There are multiple reasons not to do it. For starters, when we retire, most of us will need considerable savings. Relatively few people have pension income to look forward to, and the average monthly Social Security retirement benefit was just $1,841 in September, or only about $22,000 for the year. Therefore, any money withdrawn means smaller savings, less able to sustain you in the future.

The money taken out means you will miss out on your growth too. Imagine, for example, withdrawing $25,000 from an account when you are still 20 years away from retirement. If those dollars remained in the account and grew at an average annual rate of, say, 8%, they would become more than $116,000. (Money simply borrowed will also lose years of growth, and many borrowed dollars are also never repaid.)

Meanwhile, if you withdraw money from a 401(k) or traditional IRA before age 59½, you’ll likely face a 10% early withdrawal penalty. Oh. And there are taxes too. Your withdrawal will likely count as taxable income for federal taxes, and possibly for state and local taxes as well. (The rules are more lenient for Roth IRAs.)

With our $25,000 example, you could be fined $2,500 and owe $5,500 in federal taxes, for a total of $8,000, leaving you with just $17,000 (before state or local taxes).

Many people simply withdraw money from their 401(k) accounts as they move from job to job, often finding that the sums involved are not that significant. But small sums can become very large if left to grow for a long time.

It can be difficult to avoid the temptation to dip into your retirement accounts, but it’s much better to leave your money where it is.

My dumbest investment

From TC: My most regrettable investment decision was holding onto Nvidia stock for too long. I thought it would reverse a downward trend and rise again. Instead, I let $13,000 in profits slip through my fingers.

The Fool answers: We hope you didn’t dump those shares, because you found out in this story in December 2022, and shares of the semiconductor specialist are up more than 200% since then!

His experience illustrates how powerful it can be to stay with companies whose future you believe in, for many years. Almost every stock, whether tied to a strong or unstable company, will rise and fall day after day and even month after month. Long-term investors need to accept that volatility and focus on, well, the long term. In several years, do you think a given company will be bigger and stronger? If so, consider holding on.

Still, there are times when it would be wise to sell. For example, many market favorite stocks sometimes soar far beyond a reasonable valuation. If you own such a stock and think it has a good chance of moving back to a more reasonable valuation, you could sell some or all of your shares. But if you plan to stick it out for five, 10 or more years, it may be okay to just stick it out.

Who I am?

My roots date back to 1963, when three people started an investment advice newsletter that eventually reached 3,000 subscribers. I became one of the first discount brokerages in 1975 and soon invested in an automated trading and record-keeping system. I acquired TD Ameritrade in 2020. Today, with a recent market value close to $100 billion, I am a leading investment services company with nearly 36,000 employees. I recently boasted of having 34.5 million brokerage accounts, 4.8 million average daily transactions, 1.8 million bank accounts, $890 billion in proprietary mutual funds and ETFs, and $7.8 trillion in total client assets. Who I am?

Don’t remember last week’s trivia question? Find it here.

The answer to last week’s trivia.: aldi

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