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What Is Earnings Per Share & How to Calculate It

Knowing a stock’s earnings per share can be a valuable portfolio benchmarking tool. Think of EPS as GPS for where a public company is on the value map, based on how profitable it has been.

What is earnings per share? It’s a ratio arrived at by taking a company’s quarterly or annual net income and dividing it by the number of its outstanding shares of stock.

Knowing an investment’s EPS gives investors—and portfolio managers—a good indicator of a stock’s performance over a specific period of time and its potential share price performance in the near future.

What is Earnings Per Share?

The starting point for any conversation about the EPS ratio is the earnings report companies issue to regulators, shareholders, and potential investors.

Publicly traded companies must, by law, report their earnings quarterly and annually. Earnings represent the net income a company generates (after taxes and after expenses are deducted), along with an estimate of what profits or losses can be expected going forward.

Typically, investment analysts, money managers and investors look at earnings as a major component of a company’s profit potential, with earnings per share a particularly useful measurement tool when gauging a company’s financial prospects.

While a company’s earnings call represents a publicly traded company’s revenues, minus operating expenses, earnings per share is different.

EPS indicates a firm’s earnings for investors, divided by the company’s number of remaining shares. Earnings per share is perhaps most optimal when comparing EPS rates of publicly traded firms operating in the same industry.

evaluate a company’s stock price going forward.

Even a moderate increase in EPS may indicate that a company’s profit potential is on the upside, and investors may take that as a sign to buy the company’s stock.

Conversely, a small decrease in a company’s EPS from quarter to quarter may trigger a red flag among investors, who could view a downward EPS trend as a larger profit issue and shy away from buying the company’s stock.

Basically, the higher the EPS, the more attractive that company’s stock is to investors. But the higher a stock’s EPS, the more expensive it’s likely to be.

Once investors have an accurate EPS figure, they can decide if a stock is priced fairly and make an appropriate investment decision.

Earnings Per Share Ratio Considerations

Investors should prepare to dig deeper and examine what factors influence EPS figures. These factors are at the top of that list:

•  EPS numbers can rise or fall significantly based on earnings’ rise or fall, or as the number of company shares rises or falls.
•  A company’s earnings may rise because sales are surging faster than expenses, or if company managers succeed in curbing operations costs. Additionally, investors may get a “false read” on EPS if too many company expenses are shed from the EPS calculation.
•  A company’s number of outstanding shares may fall if a company engages in significant stock share buybacks. Correspondingly, shares outstanding may jump when a firm issues new stock shares.
•  A company’s profit margins are also a big influencer on EPS. A company that is losing money usually has a negative EPS number. (Then again, that may send a wrong signal to investors. The company could be on the path to profits, and that trend may not show up in an EPS calculation.)
•  A price to earnings ratio is another highly useful metric to evaluate a stock’s share growth potential. Investors can find a P/E ratio through a proper calculation of EPS (“P” is the price per share; “E” refers to EPS), though it’s easy to look up a P/E ratio on any site that aggregates stock information.

EPS can be reported for each quarter or fiscal year, or it can be projected into the future with a forward EPS.

How to Calculate Earnings Per Share

The most common way to accurately gauge an EPS figure is through an end-of-period calculation. Here’s a snapshot of how it works.

With Preferred Dividends

Investors can calculate EPS by subtracting a stock’s total preferred dividends from the company’s net income. Then divide that number by the end-of-period stock shares that are outstanding.

Basic EPS = (net income – preferred dividends) / weighted average number of common shares outstanding

For example, ABC Co. generates a net income of $2 million in a quarter. Simultaneously, the company rolls out $275,000 in preferred dividends and has 12 million outstanding shares of stock. In that calculation, knowing that shares of common stock are equal in value, the company’s earnings per share is $0.14.

(2,000,000 – 275,000) ÷ 12,000,000＝ 0.14

Without Preferred Dividends

For smaller publicly traded companies with no preferred dividends, the EPS calculation is more straightforward.

Basic EPS = net income / weighted average number of common shares outstanding

Let’s say DEF Corp. has generated a net income of $50,000 for the year. As the company has no preferred shares outstanding and has 5,000 weighted average shares on an annual basis, its earnings per share is $10.

50,000 ÷ 5,000＝ 10

In any EPS calculation, preferred dividends must be pared off from net income. That’s because earnings per share is primarily designed to calculate the net income for holders of common stock.

Additionally, in most EPS end-of-period calculations, a company is mostly likely to calculate EPS for end-of-year financial statements. That’s because companies may issue new stock or buy back existing shares of company stock.

In those instances, a weighted average of common stock shares is required for an accurate EPS assessment. (A weighted average of a company’s outstanding shares can provide more clarity because a fixed number at any given time may provide a false EPS outcome, as share prices can be volatile and change quickly on a day-to-day basis.)

The most commonly used EPS share model calculation is the “trailing 12 months” formula, which tracks a company’s earnings per share by totaling its EPS for the previous four quarters.

The Takeaway

Earnings trends, up or down, make earnings per share one of the most valuable metrics for assessing investments. Four or five years of positive EPS activity is considered an indicator that a company’s long-term financial prospects are robust and that its share growth should continue to rise.

A careful EPS calculation can help clarify a short- or long-term view of a company’s financial and share price potential, allowing an investor to make choices based on data and not assumptions.

Ready to put those stock-picking skills to use? Get started with SoFi Invest® today.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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5 IRA Mistakes You May Be Making

This article provides information and education for investors. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks or securities.

For some investors, IRAs may be long-term, hands-off investment vehicles. That doesn’t mean you should ignore them completely. This year, give a little love to your IRA and make sure you’re not making these common mistakes.

1. Not taking enough risk

We often talk about risk as a bad thing, but it isn’t always a four-letter word, financial advisors say. A young investor who isn’t planning to touch their IRA for 20 or 30 years should have enough time to weather near-term market swings, meaning they could take on more risk in exchange for potentially higher long-term returns. Advisors say such a portfolio could comprise mostly stocks — or even all stocks — instead of splitting the allocation between stocks and bonds. (Learn more about how to choose investments for your IRA.)

“When it comes to investing, the most powerful commodity is time. However, time is only useful if you know what to do with it,” says Dejan Ilijevski, an investment advisor at Sabela Capital Markets in Munster, Indiana. “Investing in an asset allocation that’s not right for you can be detrimental for your investment success over the long term.”

Simply put, too conservative of a portfolio now could potentially limit returns down the road, making it more difficult to hit your retirement goals. However, it’s equally important to rebalance your portfolio away from those riskier assets as you get closer to retirement.

2. Failing to fully fund your IRA every year

We get it. Long-term IRA investing isn’t as exciting as trading in a taxable brokerage account. But if you’re investing more in a taxable account without first maxing out your tax-advantaged IRA, experts might want a word with you.

By not fully funding your IRA first (that means contributing $6,000 in 2021 if you’re under 50 years old), you’re forgoing enormous tax advantages and the potential opportunity for that money to compound tax-free, says Robert Johnson, a chartered financial analyst and CEO at Economic Index Associates in Omaha, Nebraska.

“Too often people fail to realize the huge advantages of a tax-deferred account, instead investing in a taxable account,” Johnson says. “These advantages are greatest for those with the longest time horizons to retirement.”

Speaking of taxes, it’s also important to know the differences between traditional and Roth IRAs. In short, traditional IRA contributions are tax-deductible, while withdrawals are taxable. Roth IRA contributions are not tax-deductible, but withdrawals in retirement are tax-free.

3. Contributing slowly instead of all at once

In many cases, making regular contributions to your investment account — a strategy known as dollar-cost averaging — is sound advice. However, if you’ve got the cash, maxing out your IRA as early in the year as possible may be the way to go.

Any time a large amount of cash is involved, investing it incrementally over time may feel like the responsible thing to do. However, according to John Pilkington, a chartered financial analyst and senior financial advisor with Vanguard Personal Advisor Services in Charlotte, North Carolina, those positive feelings are generally the only benefit.

“Dollar-cost-averaging equates to taking risk later. While you may mitigate short-term regret, you’re more likely reducing long-term returns,” says Pilkington. “A better exercise may be reevaluating your asset allocation target relative to your risk tolerance.”

In other words, dollar-cost averaging could help you avoid the stress that comes from stock market volatility, but more often than not, it leads to lower long-term returns than lump-sum investing, Pilkington says. And if you’re still uneasy about investing all $6,000 upfront, consider a less-risky asset allocation — such as investing more in bonds — instead of spreading out contributions, he says.

4. Failing to explore your investment options

If you started an IRA by rolling over a workplace 401(k), you probably noticed you were no longer confined to the investments offered through your 401(k). This is a pretty big deal, and the influx of options shouldn’t go unnoticed.

“A lot of the IRAs I see are invested in a default investment option,” says James DesRocher, a financial advisor with Park Avenue Securities in Middleton, Massachusetts. “An advantage of an IRA is the flexibility you have of what to invest in. You can really dial in on a specific investment strategy that is tailored to you, and most people do not take advantage of this.”

5. Maintaining multiple retirement accounts

There’s no rule that says you can have only one IRA. As long as your annual contributions don’t exceed the limit, you’re free to disperse those contributions across any traditional or Roth IRAs you’ve opened. But that’s probably not a wise strategy, DesRocher says.

“Keeping multiple IRA accounts rather than consolidating into one very often leads to overlap,” DesRocher says, referring to investing in the same assets in different accounts. “It also takes away from the positive effect of rebalancing, which can reduce your overall risks.”

This goes for hanging on to old 401(k)s instead of rolling them over to an IRA, too. Not only will you avoid overlap and find more investment options with IRAs, but it’s also possible you’ll pay less in fees. (Learn more about how investment fees work.)

Source: nerdwallet.com

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5 Tips to Hedge Against Inflation

To achieve financial freedom and grow wealth over long periods of time, it’s vital to understand the concept of inflation.

Inflation refers to the ever-increasing price of goods and services as measured against a particular currency. The purchasing power of a currency depreciates as a result of rising prices. Put differently, a rising rate of inflation equates to a decreasing value of a currency.

Inflation is most commonly measured by the Consumer Price Index (CPI) , which averages the national cost of many consumer items such as food, housing, healthcare, and more.

The opposite of inflation is deflation, which happens when prices fall. During deflation, cash becomes the most valuable asset because it can buy more. During inflation, other assets become more valuable than cash because it takes more currency to purchase them.

The key question to examine is: What assets perform the best during inflationary times?

Federal Reserve try to control inflation through monetary policy. Sometimes their policies can create inflation in financial assets, like quantitative easing has been said to do.

5 Tips for Hedging Against Inflation

The concept of inflation seems simple enough. But what might be some of the best ways investors can protect themselves?

There are a number of different strategies investors use to hedge against inflation. The common denominators tend to be hard assets with a limited supply and financial assets that tend to see large capital inflows during times of currency devaluation and rising prices.

Here are five tips that may help investors hedge against inflation.

1. Real Estate Investment Trusts (REITs)

A Real Estate Investment Trust (REIT) is a company that deals in real estate, either through owning, financing, or operating a group of properties. Through buying shares of a REIT, investors can gain exposure to the assets that the company owns or manages.

REITs are income-producing assets, like dividend-yielding stocks. They pay a dividend to investors who hold shares. In fact, REITs are required by law to distribute 90% of their income to investors.

Holding REITs in a portfolio might make sense for some investors as a potential inflation hedge because they are tied to a hard asset—real estate. During times of high inflation, hard assets tend to rise in value against their local currencies because their supply is limited. There will be an ever-increasing number of dollars (or euros, or yen, etc.) chasing a fixed number of hard assets, so the price of those things will tend to go up.

Owning physical real estate—like a home, commercial complex, or rental property—also works as an inflation hedge. But most investors can’t afford to purchase or don’t care to manage such properties. Holding shares of a REIT provides a much easier way to get exposure to real estate.

2. Bonds and Equities

The recurring theme regarding inflation hedges is that the price of everything goes up. What investors are generally concerned with is choosing the assets that go up in price the fastest, with the greatest possible return.

In some cases, it might be that stocks and bonds very quickly rise very high in price. But in an economy that sees hyperinflation, those holding cash won’t see their investment, i.e., cash, have the purchasing power it may have once had.

In such a scenario, the specific securities aren’t as important as making sure that capital gets allocated to stocks or bonds in some amount, instead of holding all capital in cash.

3. Exchange-Traded Funds

An exchange-traded fund (ETF) that tracks a particular stock index or group of investment types is another way to get exposure to assets that are likely to increase in value during times of inflation and can also be a strategy to maximize diversification in an investor’s portfolio. ETFs are generally passive investments, which may make them a good fit for those who are new to investing or want to take a more hands-off approach to investing. Since they are considered a diversified investment, they may be a good hedge against inflation.

4. Gold and Gold Mining Stocks

For thousands of years, humans have used gold as a store of value. Although the price of gold can be somewhat volatile in the short term, few assets have maintained their purchasing power as well as gold in the long term. Like real estate, gold is a hard asset with limited supply.

Still, the question of “is gold a hedge against inflation?” has different answers depending on whom you ask. Some critics claim that because there are other variables involved and the price of gold doesn’t always track inflation exactly, that it is not a good inflation hedge. And there might be some circumstances under which this holds true.

During short periods of rapid inflation, however, there’s no question that the price of gold rises sharply. Consider the following:

•  During the time between 1970 and 1974, for example, the price of gold against the US dollar surged from $240 to more than $900 for a gain of 73%.
•  During and after the recession of 2007 to 2009, the price of gold doubled from less than $1,000 in November 2008, to $2,000 in August 2011.
•  In 2019 and 2020, gold has hit all-time record highs against many different fiat currencies.

Investors seeking to add gold to their portfolio have a variety of options. Physical gold coins and bars might be the most obvious example, although these are difficult to obtain and store safely.

5. Better Understanding Inflation in the Market

Ultimately, no assets are 100% protected from inflation, but some investments might be better than others for some investors. Understanding how inflation affects investments is the beginning of growing wealth over time and achieving financial goals. Still have questions about hedging investments against inflation? SoFi credentialed financial planners are available to answer questions about investments at no additional cost to members.

Downloading and using the stock trading app can be a helpful tool for investors who want to stay up to date with how their investments are doing or keeping an eye on the market in general.

Learn more about how the SoFi app can be a useful tool to reach your investment goals.


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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments.

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Guide to Zcash Cryptocurrency

Zcash is a potentially private cryptocurrency that offers unique “shielded” features. The set-up allows for addresses and amounts in a Zcash transaction to be encrypted on the blockchain. Here’s a guide to its privacy features, price performance, technology and history.

What Is Zcash?

Zcash crypto falls under the category of cryptocurrencies known as “privacy coins,” or different types of cryptocurrency that make it hard for outside observers to detect details of the coins’ movements.

Zcash is basically a bitcoin clone with one key difference – the ability for shielded transactions, as mentioned. Zcash relies on a technology known as zk-SNARKS to hide the particulars of Zcash wallet activity.

Zcash transactions are not private by default. For users seeking privacy, the “shielded” feature must be turned on to prevent the transaction from appearing on the public Zcash blockchain.

Zcash Price and Performance

Zcash has soared more than 400% since the end of 2019 to $146.38 in mid-February. Its market cap is $1.62 billion, making it the 47th biggest cryptocurrency market, according to data from CoinMarketCap. Zcash has the third-largest market cap of any privacy coin (with Monero being #1 and DASH being #2).

Zcash Privacy

Zcash was created in response to Bitcoin‘s lack of anonymity. Activity on the Bitcoin blockchain and most other blockchains is transparent. Anyone can see everything that has ever happened on a public blockchain. The details of each transaction, including the parties sending and receiving coins, the time of the exchange, and the amount of value exchanged, are all public knowledge.

Zcash functions differently than Bitcoin in the sense that Zcash activity can be “shielded,” or hidden from the public, so users can transact privately. But if no one can see the details of a transaction, how can they be sure that it even happened? That’s where the privacy tech behind Zcash known as zk-SNARKS comes in.

Zcash is the first large-scale, real-world implementation of a privacy technology called zk-SNARKS. This tech allows for shielded Zcash transactions to be fully encrypted (private) while at the same time being validated under the network’s consensus rules (so everyone knows they really happened).

How “Shielding” Works

Zk-SNARK stands for “Zero-Knowledge Succinct Non-Interactive Argument of Knowledge.” This is a way of sharing data that allows one party to prove to another that they have specific information without revealing what that information is, and without requiring any interaction between the parties.

The exact details of how zk-SNARKs work and how they are applied to the Zcash blockchain are quite technical. Interested readers can reference the Zcash website for all of the intricate workings of this type of encryption technology.

While some people believe this tech offers the best, most comprehensive solution to the issue of private crypto transactions, others have criticized the security of a coin like Zcash.

The fact that the encryption technology used is so new and that the coin was launched using an unorthodox “ceremony” (more on this later) are key points of contention for some crypto observers. On top of that, most Zcash isn’t even private.

As mentioned earlier, transactions made on the Zcash blockchain are not private by default. For the currency to be used privately, a transaction must be “shielded.”

The vast majority of Zcash transactions are not shielded (as of April 2020, only 6% of the Zcash network had been using fully shielded transactions). This could be due to the fact that most wallets and exchanges use public Zcash addresses by default, something many users might not be aware of.

Types of Zcash Transactions

There are four different types of transactions that can be made on the Zcash blockchain. They are:

•  Private
•  Deshielding
•  Shielding
•  Public

Zcash addresses begin with either a Z or a T. Those beginning with a Z are private addresses, and those beginning with a T are transparent. Using different combinations of these two types of addresses allows for the four specific types of transactions.

In a private transaction (Z-to-Z) will be visible on the public blockchain. There’s proof that it occurred and the necessary network fees were paid. The specific details like the transaction amount and addresses involved, however, are encrypted and can’t be seen by the public.

A public transaction (T-to-T) works in the same way that a typical Bitcoin transaction works – everything can be seen on the public blockchain, including the sender, receiver, and amount transacted.

The Zcash website notes that most exchanges and wallets today use T-addresses by default, although more are allegedly moving to shielded addresses over time.

The other two types of transactions involve sending funds between T and Z addresses. In other words, either sending funds from a private address to a public one (Z-to-T, or Deshielding), or sending funds from a public address to a private one (T-to-Z, or Shielding).

Zcash History

Zcash cryptocurrency launched in 2016. The coin was forked from the original Bitcoin code, so both are minable proof-of-work cryptocurrencies that have a hard supply cap of 21 million. The block reward for Zcash also gets cut in half every four years or so to keep the currency deflationary by limiting supply, just like bitcoin.

Zcash has its roots in a 2013 publication called the Zerocoin white paper, which was written by professors Eli Ben-Sasson and Matthew Green. They saw the design of Bitcoin as being a threat to user privacy, and offered their own solutions in response.

But Zerocoin was designed for Bitcoin, meaning Bitcoin developers would have had to implement a lot of complex changes to the Bitcoin blockchain technology to make Zerocoin work. This led to the project being shelved for a time.

Then, in 2015, a cryptographer named Zooko Wilcox created a startup to discover ways that the Zerocoin concept might be successfully implemented in a new cryptocurrency. In 2016, Zcash was announced, and the coin launched in October of that year.

Launch of Zcash

The launch of Zcash is a focal point of many criticisms against the privacy coin. To make its new type of cryptography workable, the Zcash blockchain had to be created using something known as the “Zcash ceremony.”

This “ceremony” involved people from around the world collaborating to create what amounts to a master public key for the blockchain using pieces of a private key. Those involved were instructed to destroy the data they used so that it couldn’t be taken advantage of by someone else in the future, who could potentially use it to compromise Zcash.

Of course, no one has any way to verify that those involved actually destroyed the data they used in this ceremony, and no one can verify that Zcash was created in the way it claims to have been created.

Today, Zcash is operated by the Electric Coin Company with Zooko Wilcox as its CEO. The company employs a team of cryptographers to continue developing the Zcash blockchain. There is also a non-profit organization known as the Zcash Foundation that helps support this work. Both groups are funded in part by the issuance of new Zcash (ZEC) tokens.

Is Zcash a Good Investment?

Privacy coins in particular have a very uncertain future. Coins like Monero, Zcash, and DASH were delisted from the Bittrex exchange at the start of 2021. Because many people associate them with illicit activity, privacy coins could see their use restricted in various ways.

Exchanges could continue to delist coins with privacy features or regulatory authorities could seek to punish anyone who deals with them through new crypto regulations, perhaps claiming that people use privacy coins to avoid paying taxes on crypto, for example.

Many altcoins have gone to zero over the years, so that possibility also can’t be ruled out.

How to Buy Zcash

Some U.S. exchanges offer Zcash on their platform. Here’s a step-by-step guide on how to buy and trade it:

1. Sign up for an account with a cryptocurrency exchange that offers Zcash.
2. Verify your account. This may involve providing documents that confirm your identity and address.
3. Deposit fiat currency or digital money into your account.
4. Buy Zcash with the deposited funds.
5. Withdraw Zcash into your hot or cold wallet.

The Takeaway

Zcash is a privacy coin that allows for completely private or “shielded” transactions. It is the first practical implementation of the zk-SNARK encryption technology. The vast majority of transactions made on the Zcash blockchain are not private and function in the same way as Bitcoin transactions because Zcash was forked from the original Bitcoin code.

SoFi Invest gives investors the tools they need to trade cryptocurrency, stocks, and ETFs. Learn the basics of investing in crypto firsthand by opening an Invest account today.

Learn more about SoFi Invest today.


Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

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For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.
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Dear Penny: My Dad Says to Invest My Roth IRA in Silver, Marijuana

Dear Penny,

I’m a 24-year-old single male and recent college graduate. I have a job but no 401(k) match, so my dad suggested I start a Roth IRA. I don’t have any idea how to invest it.

My dad says that since I’m young, I need to take risks. He’s suggested some marijuana stocks and silver stocks that he’s made money on. But this seems like it might be too risky to me. My dad doesn’t work in investing, and I don’t think he knows a whole lot about it. I’m not making enough to hire a financial advisor. Is my dad giving me bad advice?

-New Investor

Dear Newby,

Your dad loves you and wants what’s best for you. But that doesn’t mean he knows anything about investing.

Your dad’s suggestion that you open a Roth IRA was a good one. By forgoing a tax break now, you’ll get tax-free income when you retire. But it sounds like your dad isn’t clear on the kind of investment risks beginning investors should take.

So you start out by investing mostly in stocks, which tend to be high-risk/high-reward, and then gradually shift more money into bonds, which are safer but offer little growth. When you have a few decades to go until retirement, your money has time to recover from a stock market crash.

But when you invest in just a couple of stocks, your risk of losing everything is substantial. Your investments may never recover if things go south. There may not be any money left to recover. You never want your life’s savings tied to the fate of a single company or two.

Both the silver and marijuana industries are especially volatile. The price of silver fluctuates wildly for a host of reasons. One is that more than half of silver is extracted as a byproduct while mining for other metals, like gold, copper or zinc. It’s basic supply and demand stuff: The supply of silver doesn’t move up and down with changes in demand, so the prices are turbulent. With marijuana, you’re doing a lot of political calculus about when and where marijuana will become legal, plus a lot of the companies are small with no proven track record.

That doesn’t mean you should never invest in silver or marijuana. But you should only do so if you already have a diversified portfolio and you’re starting with a relatively small amount. And never use your retirement funds for these kinds of speculative investments.

The best way to start investing is to spread your money across the stock market. You don’t need a financial adviser here. You can do this with a total stock market index fund, which invests you across the entire stock market, or an S&P 500 index fund, which invests you in 500 of the largest companies in the U.S. You could also take the guesswork out of it completely and use a robo-adviser. Your brokerage firm will use an algorithm to invest your money according to your age, goals and how much risk you’re willing to take.

If you opt to choose your own investments once you get your feet wet, it’s essential that you only do so after researching the investment on your own. Don’t make decisions based solely on what someone else says, whether that person is your dad or an advice columnist or a stranger on Reddit.

If, after doing your own research, you decide you wanted to invest in silver or marijuana, a safer way to do so would be to invest in a silver or marijuana exchange-traded fund, or ETF. Your money would be invested in a bunch of businesses throughout the industry instead of concentrated in a single company. But I’d only suggest this after you’ve gotten some investing experience — and only then if you’re limiting your investment to 5% to 10% of your portfolio.

You don’t say how old your father is or whether you know anything about his finances. To be honest, I’m more concerned about your dad’s retirement planning than I am about yours if he gravitates toward high-risk investments.

Since you’re already talking about your retirement, this could be a good opportunity to start the conversation about how prepared your dad is for his retirement. I’m not asking you to play financial adviser here. But even just asking your dad when he wants to retire and whether he feels ready is a good conversation to have.

As for your dad’s stock picks, I think you’re probably fine saying, “Thanks, I’ll check it out.” You’re an adult, and you don’t need to provide your dad with a copy of your brokerage statement.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected]

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Source: thepennyhoarder.com

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How to Calculate Rolling Returns

How to Calculate Rolling Returns – SmartAsset

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When comparing investments in your portfolio, you may be concerned primarily with the returns a particular security generates over time. Rolling returns measure average annualized returns over a specific time period and they can be helpful for gauging an investment’s historical performance. Knowing how to calculate rolling returns and interpret those calculations is important when using them to choose investments. A financial advisor can familiarize you with several other metrics to gauge your investments’ progress.

What Are Rolling Returns?

Rolling returns represent the average annualized return of an investment for a given time frame. Specifically, rolling return calculations measure how a stock, mutual fund or other security performs each day, week or month from the time frame’s beginning to ending dates.

Essentially, rolling returns breaks a security’s performance track record into blocks. Investors can determine what return data to focus on for a particular block of time. For example, you may use rolling returns to measure a stock’s monthly performance over a five-year period or its daily returns for a three-year period.

Rolling returns calculations can measure an investment’s return from dividends and price appreciation. Typically, it’s more common to use longer periods of time such as three, five or even 10 years, to measure rolling returns versus to get a sense of how an investment performs. That’s different from annual return, which simply measures the return a security generates within a given 12-month period. It’s also different from yield.

How to Calculate Rolling Returns

If you’re interested in using rolling returns to evaluate different investments, there’s a step-by-step process you can follow to calculate them. The first step is choosing a start date and end date for which to measure returns. For example, say you want to measure rolling returns for a particular stock over a 10-year period. If you’re specifically interested in how well the stock performs in recessionary environments, you might set the tracking to extend from Jan. 1, 2006, to Jan. 1, 2016, which would include performance history for the Great Recession.

The next step is determining the return percentage generated for each year of the period you’re tracking. To do this, you’ll need to know the starting price and ending price for the stock or other security for the applicable years. Take the ending price and subtract the beginning price, then divide that amount by the beginning price to find that year’s return.

Next, you’ll use averaging to calculate rolling returns. Add up the return percentages you calculated for each year of the time period you’re tracking. Then divide the total by the number of years to get the average annualized return.

To find rolling returns, you’d simply adjust the time frame being measured. So, if you started with Jan. 1, 2006, for example, you could adjust your time frame to track the period from Feb. 1, 2006 to Feb. 1, 2016. Or you could look at rolling returns on a yearly basis, which means removing returns for 2006 and recalculating using returns for 2017.

This makes it fairly easy to customize rolling returns calculations when evaluating investments. You could use rolling returns calculations to mimic your typical holding period for a stock or mutual fund. For example, if you normally hold individual investments for five years then you might be interested in isolating rolling returns for that same time frame.

Rolling Returns vs. Trailing Returns

When comparing investments, you may also see trailing returns mentioned but they aren’t the same as rolling returns. Trailing returns represent returns generated over a given time period, e.g. one year, five years, 10 years, etc. For that reason, they’re often called point-to-point returns.

Trailing returns can be helpful if you’re interested in getting a snapshot look at an investment’s performance history. That’s useful if you want to know exactly how an investment performed at any given time. Trailing returns can be problematic, however, since it’s difficult to use them to gauge how an investment might perform in the future.

What Rolling Returns Tell Investors

Rolling returns can be useful for comparing investments because they can offer a comprehensive view of performance and returns. Specifically, examining rolling returns rather than focusing solely on annual returns allows you to pinpoint the periods when an investment had its best and worst performance. For example, you could use a five-year rolling return to determine the best five years or the worst five years a particular stock or fund offered to investors. This can help with deciding whether an investment is right for your portfolio, based on your goals, risk tolerance and time horizon for investing.

If you lean toward long-term buy-and-hold strategies versus shorter-term day-trading, for instance, then rolling returns can give you a better idea of how well an investment may pay off while you own it. Looking only at average annual returns may skew your perception of an investment’s performance history and what it’s likely to do in the future.

You may use rolling returns as part of an index investing strategy. Index investing focuses on matching the performance of a stock market benchmark, such as the S&P 500 or the Nasdaq Composite. It’s possible to calculate rolling returns for a stock index in its entirety, which can make it easier to see where the high and low points are for performance.

If you prefer actively managed funds in lieu of index funds, calculating rolling returns can also be helpful. In addition to assessing the fund’s performance over a specified time frame, rolling returns can also offer insight into the fund manager’s skill and expertise. If, for example, an actively managed fund outperforms expectations during an extended period of market volatility that can be a mark in favor of the fund manager’s strategy.

The Bottom Line

Rolling returns can make it easier to set your expectations for a particular investment, based on its best and worst historical performance. Calculating rolling returns isn’t difficult to do, and it’s something to consider if you’re focused on the long-term with your investment strategy.

Tips for Investing

  • An investment calculator can give you a quick estimate of how your investments will be doing in the years to come. Just put in the starting balance, yearly contribution, estimated rate of growth and time horizon.
  • Consider talking to your financial advisor about rolling returns and how to calculate them. If you don’t have a financial advisor yet, finding one doesn’t have to be difficult. SmartAsset’s financial advisor matching tool makes it easy to connect with professional advisors locally. If you’re ready, get started now.

Photo credit: ©iStock.com/guvendemir, ©iStock.com/MarsYu, ©iStock.com/Chainarong Prasertthai

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.

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How Much Money Should You Have Saved For Retirement By 40?

At some point or another, you’ve probably asked yourself, “how much money should I have saved by 40?”

It’s a valid question that can be daunting to think about. The good news is you’re probably already saving money for retirement. The bad news is, you might not be saving enough money to retire when you want.

There are different ways to save money for retirement. The sooner, the better—so that it can start adding up. And that’s exactly what an increasing number of people in their 20s and 30s have been doing.

A Bank of America report found that almost one in four millennials (ages 24-41) have $100,000 or more saved as of winter 2020—a nearly 17% increase compared to that same report in 2015. The rising numbers are promising, but are these savings even enough? We’ll dig deeper into the numbers.

How Much Should I Have Saved by 40?

A general rule of thumb is to have the equivalent of your annual salary saved by the time you’re 30. By your 40s, many financial advisors recommend having two to three times your annual salary saved in retirement money.

In your 50s, conventional wisdom holds that you should have six times your annual salary in your retirement savings by the end of the decade.

How Can I Get My Retirement Money On Track?

If you feel you don’t have enough money saved yet, it’s never too late to get back on track. As you reach your 40s, it’s likely that your income increases, but so do the obligations tied to your money.

You might be saving money for your kids’ college; you probably have mortgage payments and existing debt; you may even be taking care of aging parents. It’s a lot of financial multi-tasking and you have to prioritize.

The key is to establish money goals and create a budget. Tracking your income and spending can help you figure out how much money you need to save for each goal and what kind of investments or savings make sense to achieve your goals.

This can be made much easier by using SoFi Relay to know where you stand with your money, what you spend, and how to hit your financial goals. With SoFi Relay you can track all of your money in one place, plus get credit score monitoring, spending breakdowns, financial insights, and more.

A key priority to think over is paying off any high-interest debt, including credit card debt. Be sure to make the payments on any existing loans to avoid any late fees or penalties for missed payments. It may be worth reviewing any loans you currently hold to see if you could potentially refinance to a lower interest rate.

If you don’t have an emergency money fund yet, consider putting that at the top of your priority list. You could plan to have three to six months’ worth of expenses saved.

Once you have high-interest debt paid off and an emergency money saved, you can allot a larger portion of your funds to save for retirement and other money goals. If you’re playing catch-up with your retirement money, try contributing any financial windfalls toward your retirement savings.

Saving and Investing Money by 40

If you already have a 401(k), there are a number of strategies to max out your 401(k) that are worth looking into. For example, it might make sense to contribute at least enough to qualify for any employer matching your company offers. Why lose out on the “free” money that your employer is willing to contribute to your retirement savings?

Try setting monthly or weekly savings targets to help you stay on track for retirement. You can even set up automatic transfers or deposits, so you don’t have to think about it.

As you’re rethinking how much money you need to save for retirement, it also makes sense to look at your lifestyle goals. That includes figuring out when you might want to retire, what kind of lifestyle you want in retirement, and how much money you might have coming in during retirement.

Where to Save Money for Retirement

Next, you’ll also need to figure out which retirement plan is right for you. There are many ways to save for retirement, even beyond the popular employer-sponsored 401(k). Other options include a traditional IRA or a Roth IRA (to see how much you can contribute to a Roth IRA, check out our Roth Contribution Calculator).

Some people choose to put their retirement savings in more than one type of account. This is useful if you want to set aside more than the yearly contribution limits on 401(k) plans—whether because you’re a high-income earner, or you started saving later in life, or you’re trying to achieve financial independence at a younger age. In that case, it might make sense to leverage a Traditional IRA, Roth IRA, or after-tax account to save beyond the 401(k) limits.

Investing in a Roth IRA now, with post-tax dollars, can also be useful if you want to withdraw money in retirement without paying taxes on the money. In contrast, 401(k) contributions are tax-deferred, meaning you will be taxed on funds you withdraw in retirement. That said, there are income limits on Roth IRAs, so this might not be an option depending on your salary.

After-tax accounts can be appealing to individuals who plan to achieve financial independence at a younger age and retire early. Unlike qualified plans, which place penalties on withdrawing funds before a certain age, an after-tax account is a pool of money that you can withdraw from without having to worry about penalties if you access the account before age 59 ½.

The Takeaway

While there are conventional rules of thumb as to how much money you should have saved by 40, the truth is everyone’s path to a comfortable retirement looks different. One piece of advice is universal, however: The sooner you start saving for retirement, the better your chances of being in a financially desirable position later in life.

Interested in boosting your retirement savings? You can open a Traditional IRA, Roth IRA, or after-tax account with SoFi Invest® to supplement your 401(k) or other qualified retirement plan savings.

Find out how SoFi Invest can help you start saving for your future.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Digital Assets—The Digital Assets platform is owned by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Source: sofi.com

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What is a 51% Attack?

A 51% attack is when a single cryptocurrency miner or group of miners gains control of more than 50% of a network’s blockchain. Such attacks are one of the most significant threats for people who use and buy cryptocurrencies.

The 51% attack scenario is rare, largely because of the logistics, hardware and costs required to carry one out. But a successful block attack could have far-reaching consequences for the cryptocurrency market and those who invest in it.

Cryptocurrency investing can be potentially lucrative but it involves a higher degree of risk compared with stock or bond investing. If an investor is considering adding digital currencies to their portfolio, it’s important to understand the implications of a 51% attack.

Background on 51% Attacks

A 51% attack is an attack on a blockchain, which is a type of digital database in ledger form. With blockchain technology, information is collected together in groups or blocks and linked together to create a chain of data. In cryptocurrency trading, blockchain is used to record approved transfers of digital currencies and the mining of crypto coins or tokens.

With Bitcoin for example, “miners” can attempt to add blocks to the chain by solving mathematical problems through the use of a mining machine. These machines are essentially a network of computers. If miners succeed in adding a block to the chain, they receive Bitcoins in return.

The speed at which all the mining machines within the network operate is the Bitcoin hashrate. A good hashrate can help gauge the health of the network.

A 51% attack occurs when one or more miners takes control of more than 50% of a network’s mining power, computing power or hashrate. If a 51 percent attack is successful, the miners responsible essentially control the network and certain transactions that occur within it.

How a 51% Attack Works

When a cryptocurrency transaction takes place, whether it involves Bitcoin or another digital currency, newly mined blocks must be validated by a consensus of nodes or computers attached to the network. Once this validation occurs, the block can be added to the chain.

The blockchain contains a record of all transactions that anyone can view at any time. This system of record keeping is decentralized, meaning no single person or entity has control over it. Different nodes or computer systems work together to mine so the hashrate for a particular network is also decentralized.

When a majority of the hashrate is controlled by one or more miners in a 51% attack, however, the cryptocurrency network is disrupted. Those responsible for a 51% attack would then be able to:

•  Exclude new transactions from being recorded
•  Modify the ordering of transactions
•  Prevent transactions from being validated or confirmed
•  Block other miners from mining coins or tokens within the network
•  Reverse transactions to double-spend coins

All of these side effects of a block attack can be problematic for cryptocurrency investors and those who accept digital currencies as a form of payment.

For example, a double-spend scenario would allow someone to pay for something using cryptocurrency, then reverse the transaction after the fact. They’d effectively be able to keep whatever they purchased along with the cryptocurrency used in the transaction, bilking the seller.

What a 51% Attack Means for Cryptocurrency Investors

A 51% attack isn’t a common occurrence but it’s not something that can be brushed off. For cryptocurrency investors, the biggest risk associated with a 51% attack may be the devaluation of a particular digital currency.

If a cryptocurrency is subject to frequent block attacks, that could cause investors to lose confidence in the market. Such an event could cause the price of the cryptocurrency to collapse.

The good news is that there are limitations to what a miner who stages a 51% attack can do. For example, someone carrying out a block attack wouldn’t be able to:

•  Reverse transactions made by other people
•  Alter the number of coins or tokens generated by a block
•  Create new coins or tokens from nothing
•  Transact with coins or tokens that don’t belong to them

Investors may be able to insulate themselves against the possibility of a 51% percent attack by investing in larger, more established cryptocurrency networks versus smaller ones. The larger a blockchain grows, the more difficult it becomes for a rogue miners to carry out an attack on it. Smaller networks, on the other hand, may be more vulnerable to a block attack.

Is Cryptocurrency Investing a Good Idea?

Cryptocurrencies can help boost portfolio diversification, but there are certain risks to be aware of. Current cryptocurrency rules and regulations offer some protections to investors, but on the whole, the market is far less regulated than stocks, mutual funds and other securities. Here are some potential upsides and downsides of investing in digital currencies.

Pros of Cryptocurrency Investing

•  Bigger rewards. Compared with stocks and other securities, cryptocurrency investing could yield much higher returns. In 2020, for example, Bitcoin surged 159% higher.
•  Liquidity. Liquidity measures how easily an asset can be converted to cash or its equivalent. Popular cryptocurrencies like bitcoin are more liquid assets, which may appeal to investors focused on short-term trading strategies.
•  Transparency. Blockchain networks offer virtually complete transparency to investors, as new transactions are on record for everyone to see. That can make cryptocurrency a much more straightforward investment compared with more opaque investments like a hedge fund or a real estate investment trust (REIT).

Cons of Cryptocurrency Investing

•  Volatility. Cryptocurrencies can be extremely volatile, with wide fluctuations in price movements. That volatility could put an investor at greater risk of losing money on digital currency investments.
•  Difficult to understand. Learning the ins and outs of cryptocurrency trading, blockchain technology, and digital coin mining can be more complicated than learning how a stock, ETF or index fund works. That could lessen its appeal for a newer investor who’s just learning the market.
•  Not hands-off. If an investor is leaning towards a passive investment strategy, cryptocurrency may not be the best fit. Trading cryptocurrencies generally focuses on the short-term, making it more suited for active traders.

If an investor is still on the fence, they can consider taking SoFi’s crypto quiz to determine how much they already know about this market.

The Takeaway

Cryptocurrency investing may appeal to an investor if they’re comfortable taking more risk to pursue higher returns. If an investor is new to cryptocurrency trading, the prospect of a 51% attack might seem intimidating. Understanding how they work and the likelihood of one occurring can help them feel more confident.

If an investor is ready to start trading Bitcoin, Ethereum, and Litecoin, SoFi Invest can help. Members can trade cryptocurrencies 24/7, starting with as little as $10. The SoFi app allows users to manage their account from anywhere.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Digital Assets—The Digital Assets platform is owned by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
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Source: sofi.com

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Investors are bulk buying inner city condos on the cheap

While the suburbs are making a comeback with homebuyers as seek out more space for themselves during the pandmic, investors are playing a longer-term game, betting on condos and a return to the city when the pandemic subsides.

The Wall Street Journal says that investors in Manhattan are being lured by reduced prices and are now scrambling to buy up inner city condominiums in bulk. Many investors are particularly interested in opportunities to buy up individual apartments wholesale, prompting the Journal to label them “Costco shoppers for condos.”

Those buying up large numbers of condos include fund managers and real estate firms. The Journal says they’re buying anything from 3 or 4 condos to more than 100 at once at steep discount prices. For the time being they intend to try and rent out those condos to eke out some profits, but in the longer term they intend to sell them on once the housing market gets back to normal. Developers might be enticed at the prospect of a bulk sale since many new projects in big cities are lingering for a lot longer than they bargained for, the Journal said.

Even so, most developers would prefer to keep these deals quiet, as individual buyers may be upset to learn about the significant savings that can be had by purchasing condos in bulk, as opposed to buying just a single unit.

Douglas Elliman Real Estate broker AnneMarie Alexander told the Journal that she’s working with a number of investor groups that have been making offers to buy dozens of newly built condos in bulk, and those offers are typically 25% to 35% lower than the regular asking price.

Source: realtybiznews.com