Stash is an app for both Android and iOS that was born out of the simple question: Why don’t more people invest their money? This seemingly simple question can have a myriad of answers depending on who you ask.
Stash tries to overcome these obstacles with a well-designed app that provides easily understood solutions without breaking the bank.
For many, the barrier for entry for investing in stocks can be incredibly high. Whether it’s high minimum investments or hefty fees, many people find that investing is not affordable. Moreover, it can also be incredibly confusing.
There’s a lot of jargon out there, and many people don’t know the difference between a stock and a bond, let alone how to read a stock ticker. The Stash app aims to solve both of these issues by making investing both affordable and accessible.
Intrigued? Keep reading to learn more.
Why is investing important?
Before we talk about why to invest with Stash, let’s briefly talk about why you should invest at all. Whether you know it or not, if you have a job, you are already likely investing a portion of your money.
Thanks to President Franklin D. Roosevelt, who signed the Social Security Act in 1935 following the Great Depression, a portion of our payroll tax is allocated towards securing retirement benefits. Both employees and employers contribute to this system, with each paying a percentage of an employee’s paycheck into Social Security to ensure future retirement benefits.
Social Security is designed as a safety net for the elderly and the disabled. It is relied upon by millions of Americans as a portion of income once reaching retirement age.
According to a study by the Economic Policy Institute, almost half of Americans have no retirement savings other than Social Security. Predictably, low-income families are disproportionately affected by this trend.
Due to an inability to afford to save money and a lack of understanding of investment options, a large portion of our population is unprepared for their future. But it doesn’t have to be this way, and Stash is on its way to bridging the investment gap in America.
What Stash Does Differently
While Stash Invest is not the only low fee, easy to use investment app on the market, they educate their customers and show them how to invest and save money. This app is not designed for the seasoned investor.
The premise is for Stash to provide you with access to exchange-traded funds (ETFs), which are investment funds that allow you to buy a portion of stocks through a portfolio.
Signing up for Stash is not as easy as just signing in with Facebook. One of the main complaints about the app in Google Play is the invasive information they request. This includes banking information, your address, and even your Social Security number.
While it’s not usually recommended to hand out this type of information to an app on your phone, Stash is bound by federal law, including the Patriot Act, to collect this information.
It is a necessary evil, unfortunately, but one mitigated by the fact that they use 256-bit encryption and your securities are protected up to $500,000. Additional security features include a PIN of your choosing that you must enter every time you open the app.
This is beneficial whether your phone is stolen or your toddler is button mashing your phone while playing angel investor.
Stash’s Key Features
Minimum investment: $5
Fees: As little as $1 per month if you choose the beginner plan
Accounts offered: Traditional IRAs, Roth IRAs, checking account
Other benefits: The mobile app is available on iOS and Android phones
Promotions: You can get $5 for free for signing up with Stash
Understanding Pricing
Stash offers three different pricing models, depending on where you’re at in your investing journey. Here is a brief overview of each:
PLAN
BEGINNER
GROWTH
STASH+
Cost
$1 per month
$3 per month
$9 per month
Personal Investment Account
x
x
x
Debit Card
x
x
x
Rewards program
x
x
x
Online Resources
x
x
x
Tax Benefits
x
x
Investment Account for Two Children
x
Exclusive Metal Debit Card with Cashback Rewards
x
Monthly Market Insights
x
How Stash Works
When you first sign up for Stash, you’ll be asked about your investing style. You can choose from conservative, moderate, or aggressive. This helps tailor your portfolio options based on the amount of risk, and potential return, that is acceptable to you.
Determining your risk tolerance is only one way Stash helps you choose your investment strategy. Next, they’ll ask you how much and how often you’d like to invest. You can choose to invest as little as $5 at a time on a weekly, bi-weekly, or monthly schedule.
Knowledge is Power
While we know that you didn’t install Stash just for the articles, there is a wealth of knowledge to be found here. Under the “Learn” section of the drop-down menu are dozens of well-written articles designed to teach you how to invest. Stash is designed for the beginner, and these articles can show you the ins and outs of an investment strategy.
From “What’s a Capital Gain?” to “How to Invest Like an Activist,” Stash spends a great deal of time into turning you into an investment professional. Many people choose apps like Stash because of their simple-to-use nature, and set-it and leave-it design.
This is great for those dipping their toes in for the first time, but Stash realizes that you may want to be more than just a casual investor. Think of it as a bootcamp for the uninitiated.
Whether you want to learn what interest rate hikes mean to you or better understand certain investment portfolios, Stash allows you to invest your time to learn as well as your money to earn.
Stash Retire
While Stash has some heavy hitters behind it, it’s still only two years old and a bit of a one-trick pony.
However, Stash is now in the process of launching Stash Retire, which will add Roth IRAs into the mix. A Roth IRA is an individual retirement account that, as long as you meet certain criteria, is not taxed when you start to make withdrawals.
This option from Stash is still in development and while they appear to be reaching certain milestones, it is not yet available.
Still, it’s an indication that Stash is growing. Couple that with Stash’s latest funding round, which saw investment from PayPal co-founder Peter Thiel, it’s easy to assume that Stash is here to stay.
Stash Custodial
You can open a custodial investment account for kids under 18 years old. Stash Custodial can be used by the child once they reach adulthood, which can be anywhere between 18 and 25, depending on the state in which they live.
There’s no limit to your annual contributions, and it doesn’t have to be used for education. The money can be invested in stocks, bonds, mutual funds, and ETFs.
Who should invest with Stash?
Overall, Stash Invest is designed to help the would-be investor. If you have money sitting in a savings account or if you’re just starting to think about your future, Stash is a great place to start investing. They make it easy to put money into portfolios that are of interest to you. They are also adept at making the confusing world of finance and investing easy to understand.
With the inclusion of a plethora of articles designed to teach you about investing, it’s also a great place to learn. Use it not just to easily invest your money, but as a resource that allows you to grow your knowledge with your money.
Stash’s simplified fee structure can be a low gateway into the world of investing. Your first two months are free, and they only charge $1 per month up to $5,000 and .025% above that number.
This is pricey if you are just starting out. If you’re investing $5 per month, that’s 20% of your investment in the beginning. Stash can be a great option if you can get your balance higher before they start charging you fees.
Bottom Line
All in all, Stash is a great app for the beginning investor. There are certainly better options out there for people already familiar with investing, but with over half of Americans having no investment at all, it could be a great start for you.
Stash is also growing and beginning to offer more investment options such as Stash Retire, so they may grow with you. If not, use Stash as a learning tool and springboard into the heady world of investment finance.
Investing is more than just saving for the future. It’s about creating a wealth-building strategy to truly make your nest egg grow. That’s because investing typically earns you a higher interest rate than if you put all of your money in a traditional savings account.
While historically low rates are great for when you need to borrow money, they’re pretty dismal when you’re ready to start saving. Investing does come with a higher risk, but you can generally mitigate it with diversified holdings and long-term positions. Plus, it’s easier than ever.
You’re not limited to working with an expensive brokerage or saving a huge amount to reach a minimum investment threshold. Now you can even invest by using an app on your smartphone with the leftover change from your checking account.
Ready to learn how to invest? We’ve got you covered with everything you need to know.
What is investing, and why is it important?
Investing is the act of putting money into financial instruments, such as stocks, bonds, or mutual funds, with the expectation of earning a profit. It allows individuals to save and grow their wealth over time, and can provide a financial cushion for the future, such as during retirement.
The Benefits of Investing
The reason money grows so aggressively through investing is that it’s powered by compound returns. Investments are typically meant for a long-term strategy, rather than taking out money every few months.
When you leave your money untouched in an investment vehicle that offers greater returns than a savings account, your gains continue to compound.
No matter what age you are, it’s a good time to start investing. If you’re younger, you can create a strong foundation to truly accumulate wealth over the coming years.
Even if you’re older, you may be able to catch up faster because of those higher returns. Don’t worry about getting started — even if you can only contribute a small amount each month, you’ll set up the infrastructure and challenge yourself to contribute more as you begin to earn more.
How to Reduce Your Risks in Investing
When investing long-term, you can’t think about your everyday gains and losses; instead, think about how your allocations are performing in the long run. You do want to review your investment choices as you reach different stages in your life; in particular, becoming less aggressive as you get older.
In fact, most investors don’t partake in volatile day trading. They spread their money over diversified investment types to help reduce risk and maximize returns over time.
There will always be economic cycles with highs and lows. But even downturns can be mitigated in your investment portfolio by spacing out your money over different product categories as well as different economic sectors. This can go a long way in protecting your money over time.
If you do want to try out some riskier investments, make sure you view that money as discretionary risk capital, meaning your livelihood and well-being won’t be impacted if you lose it all.
How to Invest Your Money
Diversification is essential, as is setting reminders to review the performance of your picks, such as a quarterly review. It also helps you adjust your asset allocation based on your own financial goals. Are you trying to retire earlier than you initially planned? Are you able to contribute more each month?
With these strategies in mind, here is a comprehensive review of different investment vehicles you can take advantage of to accumulate wealth over time.
Retirement Accounts
Retirement accounts are probably the most common and accessible types of investment accounts. You may be able to open a retirement account through your employer or open one on your own. Each type comes with a different tax treatment, so review the details carefully.
Traditional IRA
A traditional IRA is a tax-advantaged account that allows you to deduct your contributions each year. Once you start making retirement withdrawals, you’ll pay the IRS based on the tax bracket you’re in at that time.
They do have annual contribution limits. For 2024, it’s $7,000 unless you’re 50 years or older, in which case you can contribute up to $8,000.
If you want to take a distribution before you reach the age of 59 ½, you’ll have to pay a 10% penalty on top of your taxes. There are a few exceptions to the penalty, such as when you use the funds for a down payment on a house or qualified college expenses.
Another plus is that there is no income limit for qualifying, unlike other IRA options.
Roth IRA
A Roth IRA is another tax-advantaged retirement account. However, it comes with a few key differences compared to a traditional IRA. You don’t get a tax deduction when you make your contributions, but you do get to deduct your withdrawals once you reach retirement age.
If you think you’ll be in a higher tax bracket once you hit retirement, this could be a useful tool to save on your taxes later in life. For Roth IRAs, the contribution limit is between $7,000 and $8,000, depending on your age.
However, there’s another qualification you’ll have to meet: the income limit.
The more you earn, the less you’re able to contribute. Your contribution limit is reduced when you earn more than $230,000 for those married filing jointly and more than $146,000 for those filing single or as head of household.
Rollover IRA
A rollover IRA is one way to transfer an existing 401(k) from your employer once you decide to leave the company. Sometimes an employer lets you leave it there or transfer your funds to a retirement plan at your new place of work. Whether those two scenarios don’t apply to you or you prefer the flexibility of an IRA, a rollover may be a suitable option for you.
Both traditional and Roth IRAs generally allow you to bring in transfer retirement accounts. Just be sure to check your eligibility for either type, as well as any relevant fees you may incur during the transfer process.
SEP IRA
This type of IRA is designed specifically for self-employed individuals. While traditional and Roth IRAs are often used to supplement retirement savings accrued through employer plans, a SEP IRA allows for higher contribution limits when you work for yourself. The contribution is the lesser of either 25% of your income or $69,000.
Its tax treatment is the same as traditional IRAs. If you have employees, however, you must provide each one with their own SEP IRA and contribute the same salary percentage as you contribute to your own. Still, this can be a strong option to speed up your retirement investments, particularly if you don’t have employees or only have a few.
Stocks
Investing in stocks is typically best for active investors, and ideally, someone who already has experience in the stock market. If you’re just getting started, consider your stock investments as play money rather than something you need to rely on to meet your future financial goals. Because individual stocks are riskier, be sure to diversify the ones you choose to invest in.
Buying and selling stocks can result in hefty commission fees. Consider a buy-and-hold approach to avoid accumulating too many expenses, especially when you’re first getting started.
While you no longer need an established broker to execute trades, you can instead create a brokerage account with one of the larger brokerage firms. Your best bet is to compare fees as well as available research to help you make informed trading decisions.
Mutual Funds
Mutual funds combine your money with other investors to purchase securities for the entire group. The portfolio is professionally overseen by a manager, who then selects different types of stocks, bonds, and other securities on your behalf.
You can gauge the performance of a particular mutual fund by comparing it to its chosen benchmark, such as the S&P 500. If it regularly performs better over the course of a three to five-year period, then it could be a good investment choice.
Mutual funds are a popular choice because you generally don’t need a lot of money to get started. You can often choose one within your retirement account to get around any minimum requirements, or even set up a recurring investment amount.
Plus, mutual funds are extremely diversified, often holding as much as 100 securities in each one. This helps to minimize your risk as well as the amount of time you spend managing your portfolio.
Index Fund
An index fund is a popular type of mutual fund that follows a predetermined investment methodology rather than having a portfolio manager pick the included securities.
For example, you could choose a Dow Jones Industrial Average index fund, which includes 30 powerhouse companies in the U.S. Whiles that’s a large-scale example, different investment firms create their own index funds for investors to conveniently choose from.
Another benefit of investing in an index fund is that transaction costs are often lower, as are their mutual fund expense ratios. Many index funds are also geared toward investors with lower balances. While some firms have high minimum opening balances of $100,000 or more, you can get started with much less when you pick an index fund.
Exchange-Traded Funds (ETFs)
An exchange-traded fund, or ETF, trades the same way a stock does while tracking a certain basket of assets. There are countless types of ETFs to choose from based on your investment goals.
Common options include market, bond, commodity, foreign market, and alternative investment ETFs. They’re bought and sold like stocks throughout the day, but a major difference is that ETFs can issue and redeem their shares at any point.
There are many benefits that go along with an ETF. For starters, you have more control over when you pay your capital gains tax. There are also lower fees, although you’ll still pay brokerage commissions. Finally, while mutual funds can only be settled after the stock market closes for the day, an ETF allows you to trade at any time.
Bonds
Bonds are a good tool to have in your investment portfolio because they are a low-risk option. Different types of bonds include corporate, municipal, and Treasury bonds. Bonds are fixed-income investments, so you know exactly what to expect when those payout dates come throughout the year. Such predictability does come with a few downsides, though.
First, bonds come with a fixed investment period. If you invest in a longer-term bond, then you’re stuck with it until it matures — unless you decide to sell. But there’s a bit of risk involved there, involving the interest.
Bond rates aren’t locked in, so yours could be devalued if the same issuer bumps up the interest rate at a later time. So if new investors get a better interest rate than you did, you’re still locked into your lower rate. In general, bonds generally come with lower growth than other investments, but that’s considered the trade-off for a lower-risk vehicle.
Real Estate
People always need a place to live, so real estate investing can be an attractive option for investors. There are several ways to do this that account for your desired risk tolerance as well as your desired level of involvement.
Investment Properties
If you feel the drive to own property, an investment property is one way to make a real estate investment. Depending on how you choose to manage your property, this can amount to a steady stream of passive income.
Over time, you could also benefit from market appreciation, although that’s not necessarily guaranteed. There are risks involved with investment properties. Unlike investing in a stock or fund, a physical property involves expenses, such as upkeep, marketing, and a management firm if you want a hands-off experience.
You’ll also need some cash to get started, since most investment property loans require at least a 25% down payment. Moreover, the mortgage is considered part of your debt-to-income ratio, which could affect your future financing opportunities.
If you ever want to cash out on your investment, you’ll be subject to the market value of that moment. Plus, it’s a cumbersome, illiquid way to invest money. Still, the returns can be much greater than traditional investments, making investment properties an attractive option to some people.
REITs
If you would like to invest in real estate without the hassle of acting as a landlord, consider a real estate investment trust, or REIT. These are traded on the stock exchange and can also be offered in the form of a mutual fund or ETF.
Returns can increase as property values rise and generally focus on a portfolio of commercial properties. Shareholders also benefit because REITs don’t pay corporate tax, which helps boost returns as well.
You can pick what sector you want to invest in, such as healthcare, residential, hotel, or industrial REITs. Each comes with separate risks that should be weighed thoughtfully. REIT shares can be purchased through a broker, and each one will have its own fee structure to review as well.
Crowdfunding
Real estate crowdfunding is a type of peer-to-peer lending that is growing traction among investors of all levels. New fintech companies are popping up to compete with REITs, claiming better returns. So, what’s the difference between REITs and real estate crowdfunding sites?
The most significant difference is that instead of choosing a portfolio of properties within a certain asset class, you can choose specific commercial properties in which to invest. While individual investors traditionally wouldn’t be able to invest directly in projects like these, crowdfunding lets you enter these markets with a much smaller amount of cash.
One of the benefits is that you can do much more specialized research to determine what property to invest in. The process is much less passive than REITs. On the downside, however, the risk potential could be higher since your money is riding on one single building rather than a diversified portfolio.
See also: How to Build Generational Wealth
Platforms for Investing Your Money
There are many ways to start investing your money. A financial advisor, though charging extra fees, may provide you with much-needed guidance and education, especially if you’re a beginner. But if you prefer a little less hand-holding, you can consider two other options as well.
Online Brokers
Online brokerages give you the convenience of investing online with the added benefit of controlling what you invest in. So, it’s definitely a more hands-on process than the robo-advisor. Like robo-advisors, however, most online brokers don’t have a minimum balance requirement, so they’re still quite accessible to all types of investors.
Instead of paying a percentage of your funds, online brokers usually charge transaction fees for trades, as well as one-off fees. On the plus side, you’re not limited to your choosing certain funds, as you are with a robo-advisor. If you’d like, you can even select individual stocks. Online brokers and robo-advisors cater to two different types of investors, so the best choice depends on your specific goals.
Robo-Advisors
Enlisting the help of a robo-advisor can be helpful for beginning investors or anyone who wishes to utilize a “set it and forget it” mentality for their portfolio.
Robo-advisors don’t use human financial advisors; instead, they rely on computer algorithms to determine your portfolio allocations. Many of them also use tax harvesting strategies to decrease your tax burden at the end of the year.
Service fees are low and generally charged as a percentage of your invested funds. The transparency is excellent for new investors, and you can also benefit from the low minimum balances. Different robo-advisors offer different investment vehicles you can choose from. You can also pick one based on their investing strategy; most, for instance, pick from ETFs and index funds.
Bottom Line
There are a slew of intricacies for building your investment strategy and making your money work for you. Start with a plan that makes sense for your risk tolerance while still leaving room for growth.
You can access countless resources, from free online tutorials to paid financial advisors, to ensure you have a robust investment plan that will generate a passive income strategy to meet your goals.
How to Invest FAQs
What are the different types of investments?
There are many types of investments. The most popular investments include stocks, bonds, mutual funds, exchange-traded funds (ETFs), and real estate. Each type of investment carries its own level of risk and potential return.
What are the risks of investing?
Investing involves risk, including the potential for loss of principal. The value of investments can fluctuate and may be affected by market conditions, economic events, and other factors.
It’s essential to understand the risks associated with any investment and to consider your risk tolerance before making any investment decisions.
How do I choose the best investments for me?
The best investments for you will depend on your financial goals, how much risk you can tolerate, and other personal factors. It can be helpful to consult an investment advisor or do your own research to determine which investments are suitable for you.
It’s also wise to diversify your portfolio, or invest in various assets, to spread risk and potentially maximize returns.
How much money do I need to start investing?
There is no minimum amount required to start investing. In fact, you can get started investing with $500 or less. However, you should first have a sufficient emergency fund in place before investing. Some investments may have minimum investment requirements, such as mutual funds or certain types of brokerage accounts.
What is a brokerage account?
A brokerage account is a type of investment account that allows you to buy and sell assets such as stocks, mutual funds, ETFs, and bonds. When you open a brokerage account, you typically do so with a financial institution, such as a bank, a credit union, or an online brokerage firm.
To open a brokerage account, you will generally need to provide some personal information, such as your name, address, and Social Security number. You will also typically need to make a deposit of money into the account, which you can use to buy investments.
Once you have a brokerage account, you can place orders to buy or sell investments online, over the phone, or through a broker. The brokerage firm will execute the trades on your behalf and will typically charge a commission or fee for the service.
Brokerage accounts offer a convenient way to manage your investments and to buy and sell assets easily and quickly. They also provide a range of tools and resources to help you make informed investment decisions, such as market research, news and analysis, and educational materials.
Can I invest in stocks with just $100?
Yes, it is possible to invest in stocks with a relatively small amount of money, such as $100. Many brokerage firms have no minimum initial deposit requirement and allow you to start investing with whatever amount of money you have available.
How do I diversify my investment portfolio?
Diversification is the process of investing in various assets to spread risk and potentially maximize returns. This can be achieved by investing in different types of assets, such as stocks, bonds, and real estate, or by investing in different sectors or industries within a particular asset class. To maintain a diversified portfolio, review and adjust it periodically.
What is a financial advisor and do I need one?
A financial advisor is a professional who provides advice on financial matters, such as investing and saving for retirement. Whether you need a financial advisor will depend on your financial goals, risk tolerance, and investment experience. Some people may prefer to handle their own investments, while others may benefit from the guidance of an investment advisor.
How do I determine my risk tolerance?
Risk tolerance is an individual’s willingness to accept financial risk in pursuit of potential returns. Factors that may affect how much risk you’re willing to take include age, financial goals, and personal comfort level with risk.
Can I lose money by investing?
Investing always carries some level of risk, as the value of your investments can fluctuate and be impacted by various market conditions and economic events. It’s crucial to understand the risks associated with any investment and to consider your risk tolerance and investment objectives before making any investment decisions.
Diversifying your portfolio and not investing more money than you can afford to lose can help mitigate potential losses. Always be sure to do your research and consider seeking investment advice from a financial advisor before making any decisions.
Savings bonds are a cornerstone of conservative investing, offering a secure and reliable means to grow one’s wealth over time. Yet, many people remain unclear about the intricacies of this financial instrument.
In this article, we aim to demystify this valuable financial tool by delving into its core characteristics, advantages, and practical applications. Whether you’re an individual seeking to diversify your investment portfolio or a professional aiming to optimize your financial strategies, understanding the ins and outs of savings bonds can be a game-changer.
What is a savings bond?
Savings bonds are a low-risk, U.S. government-backed investment that you can buy to help raise funds over time. When you purchase one, you are loaning money to the government. In return, the government promises to repay the amount you invested with interest.
Electronic savings bonds are simple to buy, safe to invest in, and affordable. You receive interest payments, and the bonds purchased can go to many purposes later, such as qualified education expenses. The purchase amounts range from a minimum investment of $25 – $10,000. However, there are maximum purchase limits per calendar year depending on the type of bond you purchase.
How do savings bonds work?
Think of a savings bond as a loan to the government. While there are a few rules, the main idea is that the government promises to pay back your loan through interest payments.
The government sets the interest rate for the loan, which doesn’t change for the bond’s duration. You buy these bonds at face value.
Savings bonds offer fixed terms, meaning they mature at a specific date. Once they reach that state, you can redeem them for their total value – plus interest.
The type of bond you purchase determines the maturity date. Some can take up to 30 years, while others take much less time.
Different Types of Savings Bonds
There are two main types of savings bonds in the US today, both a fixed rate, while paper bonds are slowly being phased out.
The U.S. Government issues two main types at face value: Series I Bonds and Series EE Bonds. Below is an overview of what each entails.
Series I Bonds
A Series I U.S. Savings Bond is a type of bond that offers a fixed interest rate that adjusts for inflation. The bonds are sold at face value, meaning that the price you purchase savings bonds for is what it is worth once the bond reaches maturity. With I Bonds, you can protect your investment from the variable inflation rate.
The government sets the I Bond inflation rate twice annually, once for each upcoming six-month period.
The current interest rate is 5.27% for I Bonds issued between November 1, 2023 to April 30, 2024.
I Bonds can earn interest for up to 30 years, unless you decide to cash them out beforehand. You can buy them from the U.S. Treasury using a TreasuryDirect account, or purchase paper bonds using your IRS tax refund.
Series EE Bonds
Series EE Savings Bonds are savings bonds that earn interest regularly for up to 30 years. The government guarantees that the Series EE Bond doubles in value in 20 years, even if it needs to add money at 20 years to reach that number.
Series EE bonds differ from I bonds in multiple ways. Primarily, they are not inflation adjustable. The second is that new EE bonds are only available for electronic purchase.
The government applies the bond’s interest rate to a new principal every six months. A principal is the sum of the previous principal and the fixed rate of interest in the past six months.
As of 2005, new EE Bonds earn a fixed interest rate set on the day you buy a bond. After 20 years pass, the government may adjust the interest on it.
When should I consider a savings bond?
You can buy a savings bond anytime, depending on your finances and long-term investment goals. There are multiple reasons why buying bonds is a good idea for later, however, such as:
Their low-risk nature
They generate a stable and low-risk investment
The interest earned on them is exempt from state and local taxes
Any investor with $25 and above can buy them
Bonds pay back, helping you plan for the future
Enjoying the stability of a fixed rate of interest announced twice annually
Are savings bonds worth it?
Savings bonds are worth the investment if you are looking for a stable way to increase your money at a reliable, fixed rate. If you want faster and higher returns, saving bonds may not be your best option. Remember that you do have to pay federal taxes as the bonds accrue interest, but not state or local taxes.
Ultimately, the selling point for purchasing a savings bond is a stable and safe return on your investment. Not all investments you make come with a guarantee as solid as the one you can get from the government.
The TreasuryDirect website also lets you send an announcement to someone to let them know you purchased a savings bond for them as a gift.
How do I redeem my savings bonds?
Redeeming a savings bond is usually an uncomplicated and seamless process. If you purchased your bonds electronically, such as the Series EE or Series I bonds, you could cash them in through your online TreasuryDirect account. Once you do so, you will receive your money in a checking or savings account of your choice in a few business days.
If you purchased older paper savings bonds, you could redeem them at financial institutions where you have an account. The option to cash in a bond at a bank or credit union depends on how long you had an account with them.
For older series of savings bonds, like HH bonds, you can’t redeem them through banks or credit unions. The FAQ section will cover HH bonds, as the government no longer issues them.
For HH Bonds, you must complete a specific form called the FS Form 1522. Once completed, you must mail the bond with a certified signature and direct deposit information to the Treasury Retail Securities Services.
Early Withdrawal Penalty
Sometimes, a circumstance may force you to withdraw your savings bond early. Although not advisable as savings bonds are long-term investments, you still have options when something unexpected happens.
Series EE and Series I savings bonds have an early withdrawal penalty if you redeem them less than five years after their issue date.
So, if you cash in the bond before the five-year mark, you receive the principal amount plus the interest earned up to that point minus the interest accrued in the past three months.
After the five-year mark, there are no penalties for redeeming your savings bond. You can receive the total value of the principal and interest earned.
Savings Bonds vs. Savings Accounts vs. Certificates of Deposit (CDs)
A savings account and a CD are financial products that banks and credit unions offer. With a savings account, you can deposit money and earn interest on electronic bonds over time. A CD is when you keep a specific amount of money with the bank for a timeframe in exchange for fixed interest rates.
Although savings accounts and CDs are low-risk investment options, they are not backed by the government like savings bonds. And unlike savings bonds, you must pay federal, state, and local income taxes for CDs and savings accounts.
Benefits and Drawbacks of Investing in Savings Bonds
In terms of benefits, an electronic bond comes with low-risk, guaranteed returns backed by the government. You can use them as a future nest egg, for retirement, or to fund a child or grandchild’s education. Moreover, they come with tax benefits. The federal government allows exemptions on state and local taxes and are simple to buy and later redeem. Keep in mind that you do have to pay federal income tax on them in some cases.
One drawback to electronic bonds is the time it takes to make a solid amount of interest like a money market account. Additionally, they do not offer the potential for capital gains, only from the interest accrued over time. Finally, if you do not have a Series I bond, you do not have sufficient protection against inflation.
Bottom Line
Bottom line: Savings bonds are an excellent investment option if you are looking for guaranteed returns by the United States government. Although it takes time to get their full benefit, they are a reliable way to save money, helping you plan for the future or pay tuition for college. You don’t have to worry about a variable interest rate, and the interest payment is always stable.
Frequently Asked Questions
Where can I purchase savings bonds?
You can purchase savings bonds online from the U.S. Department of the Treasury through their online platform, www.treasurydirect.gov. Buying from the treasury guarantees safety and security. Paper bonds can only be purchased for Series I U.S. savings bonds. Additionally, you can only pay for a paper bond using a tax return.
What is an HH savings bond?
HH savings bonds offer semi-annual interest directly to the bondholder. They were only available as a paper bond by exchanging Series EE or Series E bonds. The government discontinued them in 2004, and they are no longer available for sale. However, some HH bonds are still redeemable depending on their year of purchase.
When can I redeem my savings bonds?
Savings bonds can be redeemed after a minimum holding period, which is typically one year. However, if you redeem the bond before it is five years old, you will lose the last three months of interest as a penalty. Bonds reach their full face value at maturity, which is usually 20 to 30 years from the issue date.
You’re likely familiar with the story of Robinhood, the outlaw who stole money from the rich and gave it to the poor. Well, you’ll find a similar principle behind the investing app, Robinhood.
The founders of Robinhood aren’t stealing anything, but they do believe that the current financial system doesn’t benefit every American. For that reason, they make it easy for non-traditional investors to get started.
When you sign up for Robinhood, you get access to commission-free trades, a cash management account, and a lot more. Keep reading to learn more about the pros and cons of signing up for Robinhood, as well as whom the app is best for.
Introduction to Robinhood
Robinhood is a popular investing app that allows users to trade stocks, options, exchange-traded funds (ETFs), and even cryptocurrencies without paying any commission fees. It was founded in 2013 and has since grown to over 22 million users, disrupting the financial industry.
The app is designed to cater to non-traditional investors and make the financial system more accessible to everyone. In this Robinhood review, we’ll explore its features, pros and cons, and determine who it’s best suited for.
How does Robinhood work?
When you sign up for a Robinhood account, you’ll get your first stock for free, even if you don’t deposit any funds. Signing up for an account is easy. All you have to do is enter your name, email address, and create a password.
From there, you’ll be prompted to enter more personal information, like your address and Social Security Number. Robinhood is required by federal law to request this information.
After you’ve set up your brokerage account, you’ll outline your investing experience thus far. And to go forward, you will need to fund your account at this point. However, there’s no minimum deposit required to fund the account, so you can always start small and invest more later.
You can connect your bank account to the Robinhood app to make funding your account easier. And there are no fees for transferring money in and out of your account.
Get started with Robinhood
on Robinhood’s secure website
Robinhood’s User Interface and Ease of Use
User-friendly interface: One of the key selling points of Robinhood is its simple, user-friendly interface. Both the web and mobile versions of the app have been designed to make it easy for users to navigate and trade. The intuitive design allows users to quickly understand their account, monitor their investments, and execute trades with minimal hassle.
Account setup and verification: Setting up an account with Robinhood is a straightforward process. Users can sign up with just their name, email address, and a password. Further personal information, such as address and Social Security number, is required due to federal law. Once the account is set up, users can outline their investing experience and link their bank account for easy funding.
Diving Deeper into Robinhood’s Features
Robinhood offers several features that make it stand out from other investing apps:
Zero commissions: As mentioned earlier, Robinhood has been a pioneer in offering commission-free trading on stocks, options, ETFs, and cryptocurrencies. This feature has helped democratize investing and lower the barriers to entry for non-traditional investors.
Cryptocurrency trading: Robinhood is among the few investing apps that support cryptocurrency trading. Users can trade popular cryptocurrencies like Bitcoin, Ethereum, Litecoin, and Dogecoin. This added functionality allows users to diversify their investments within a single platform.
Mobile app: Robinhood’s mobile app is highly regarded for its ease of use and clean design. Users can quickly view their portfolio, monitor market news, and execute trades on the go.
Account notifications: Users can customize their notification settings to receive alerts about their account performance, significant price movements, and other relevant information.
Daily market updates: Robinhood’s news feed provides users with daily updates on market trends, economic news, and other developments that can impact their investments. This helps users stay informed and make better investment decisions.
Exploring Additional Robinhood Features and Aspects
In addition to the features already discussed, Robinhood offers various other aspects that make it an attractive choice for investors. Let’s dive into some of these additional features and see how they can benefit users.
Extended-hours trading
Robinhood allows users to participate in extended-hours trading, which includes pre-market and after-hours trading sessions. This feature gives investors the opportunity to act on news and events that happen outside of standard market hours, potentially capitalizing on price movements before the broader market reacts.
Options trading
Robinhood offers options trading, which involves buying and selling contracts that give investors the right, but not the obligation, to buy or sell a stock at a specific price within a specified period. This feature enables users to implement more sophisticated trading strategies and potentially profit from market volatility, while also providing the flexibility to manage risk according to their preferences.
Dividend Reinvestment Program (DRIP)
Robinhood supports a Dividend Reinvestment Program, allowing users to automatically reinvest their dividends back into the underlying stocks or ETFs. This feature can help investors grow their portfolios more efficiently over time by harnessing the power of compounding returns, allowing them to maximize their potential earnings.
Fractional share dividend reinvestment
In addition to allowing fractional share purchases, Robinhood also enables users to reinvest dividends as fractional shares. This functionality ensures that users can continue to grow their investments, even if they don’t have enough dividends to purchase a full share, making it a valuable tool for long-term wealth accumulation.
Instant deposits
Robinhood offers instant deposits for its users, allowing them to access their transferred funds more quickly (up to $1,000). This feature ensures that users can take advantage of investment opportunities without waiting for their funds to settle, providing a more seamless investing experience.
Security and account protection
Robinhood prioritizes the security of its users’ accounts and personal information. The platform uses industry-standard encryption and security measures to protect user data. Additionally, Robinhood accounts are insured by the Securities Investor Protection Corporation (SIPC) for up to $500,000, including a $250,000 limit for cash. This protection offers users peace of mind as they navigate the world of investing.
Educational resources
Robinhood offers various educational resources, including articles and guides, to help users improve their investment knowledge and make more informed decisions. These resources can be especially beneficial for new investors looking to learn more about the world of investing, equipping them with the knowledge needed to navigate the markets confidently.
Social aspect and community
Robinhood’s platform has a social component, allowing users to follow friends, family members, or other investors and view their portfolios. This feature can create a sense of community and motivate users to learn from one another’s investment strategies, fostering collaboration and the sharing of ideas.
Benefits of Robinhood
There are several advantages to using Robinhood as your investing app of choice:
No account minimum: Robinhood requires no minimum deposit to start trading, making it accessible to users with limited funds.
Free trading: Commission-free trades on stocks, options, ETFs, and cryptocurrencies helps users save on trading costs.
Cash management account: Robinhood offers a cash management account with a 1.50% APY on uninvested cash, no hidden fees, and a debit card issued by Sutton Bank.
Fractional shares: Users can invest in fractional shares of thousands of stocks, allowing them to build a diversified portfolio with minimal investment.
Drawbacks of Robinhood
Despite its numerous benefits, there are a few drawbacks to using Robinhood:
Limited account types: Robinhood only supports individual taxable accounts, so users looking to open other types of brokerage accounts will need to explore other platforms.
Limited trading tools: Robinhood’s research and trading tools are relatively basic compared to those offered by other online brokers.
Minimal customer support: Customer support is primarily available through a chatbot and FAQ page, which may not be sufficient for users with more complex queries.
Get started with Robinhood
on Robinhood’s secure website
Robinhood Gold: Premium Features for Advanced Investors
Robinhood Gold is a subscription-based premium service that offers a suite of advanced features designed for more experienced investors. By upgrading to Robinhood Gold, users can access the following benefits:
Bigger Instant Deposits
While standard Robinhood users can access instant deposits of up to $1,000, Robinhood Gold subscribers receive instant deposits depending on their account balance. This feature allows users to invest larger amounts immediately, without waiting for their funds to settle.
Level II Market Data
Gain access to Level II market data provided by Nasdaq TotalView, which shows real-time bids and asks for stocks. This advanced market data can help users make more informed trading decisions by providing greater transparency into market activity.
Margin Trading
Robinhood Gold allows users to trade on margin, providing them with access to additional buying power by borrowing funds from Robinhood. With margin trading, users can potentially amplify their gains, but should be aware that it also increases the risk of losses. It’s essential to carefully consider the potential risks and rewards before engaging in margin trading.
Research Reports
Subscribers receive access to research reports from Morningstar, a leading provider of independent investment research. These reports can help users make more informed decisions by offering in-depth analyses of individual stocks and industries.
Access to Investing in IPOs
Robinhood Gold users have the opportunity to invest in initial public offerings (IPOs) before the stocks are listed on public exchanges. This feature allows users to potentially profit from the early stages of a company’s growth, as well as gain exposure to new and innovative industries.
The cost of Robinhood Gold is $5 per month, which includes access to all the premium features mentioned above. It’s important to note that margin trading also comes with additional fees based on the amount borrowed, so users should carefully consider the costs before utilizing this feature.
Robinhood: Ideal for New and Casual Investors
Robinhood is best suited for new investors who want an easy-to-use platform to start trading with minimal barriers to entry. It’s also an excellent choice for casual investors who prefer a more hands-off approach, as the app’s features and design make it easy to monitor investments and stay informed on market trends.
For those interested in margin trading, Robinhood Gold is an option worth considering. This premium service costs $5 per month and provides access to additional margin, ranging from $5,000 to $50,000, depending on the user’s deposit amount.
However, Robinhood may not be the best fit for individuals focused on long-term retirement savings, as it doesn’t offer retirement accounts or investment options like bonds and mutual funds. Additionally, more experienced investors seeking advanced research tools and a wider range of account types may find Robinhood’s offerings somewhat limited.
Other Considerations and Alternatives to Robinhood
While Robinhood is a popular choice for many investors, it’s essential to consider other factors and alternatives before deciding on an investing platform.
Tax implications: Investing through Robinhood’s individual taxable account means that any capital gains or dividends received will be subject to taxation. Users should be aware of the tax implications of their investments and consider seeking professional tax advice.
Risk management: Investing always carries a degree of risk, and Robinhood is no exception. It’s crucial for users to assess their risk tolerance, diversify their investments, and develop a long-term investment strategy to minimize potential losses.
Alternatives to Robinhood: There are several other investing apps and platforms available that cater to different types of investors. Some popular alternatives include:
Fidelity: A full-service brokerage offering a wide range of account types, investment options, and advanced research tools. Fidelity is ideal for more experienced investors or those looking for a more comprehensive investment platform.
M1 Finance: A robo-advisor and brokerage platform that allows users to create custom portfolios or choose from expert-curated portfolios. M1 Finance is suitable for investors who prefer a more automated approach to investing.
Acorns: A micro-investing app that rounds up users’ everyday purchases and invests the spare change into a diversified portfolio. Acorns is perfect for beginners who want to dip their toes into investing with minimal commitment.
Bottom Line
Final Thoughts on Robinhood
Robinhood is a solid option for new investors looking to explore the world of trading without paying commission fees. The user-friendly interface, zero-commission trades, and various features make it an attractive choice for casual investors or those just starting. However, more experienced investors or those with specific account needs may need to consider other brokerage platforms.
By weighing the pros and cons, potential users can decide if Robinhood is the right fit for their investment goals and preferences. With no commitment required and a free stock upon sign-up, there’s little risk in giving Robinhood a try and determining if it meets your investing needs.
I want to share a fantastic Q&A from this past week. A reader, “Vince,” wrote in and said:
Hi Jesse. I just reread your best of 2023 post about Compounding. Well, I’m late 50s. No debt. Have stayed the course, and am retiring with 4.2m dollars and 5.5m net worth. I’m the poster child for DCA, yearly rebalancing and living below your means but enjoying life. My wife and I know we’re very fortunate.
Here’s the irony. Bernstein said ‘when you win the game, stop playing ‘ To me, that means going to a 55/45 (or even a 50/50) portfolio in perpetuity because a 3% withdrawal rate is likely all we need to keep us happy. Yet, I’m giving up some return that comes with 60/40.
Thoughts? I can afford to be more aggressive, maybe much more so, but is it worth it? Or should I just chill, rebalance annually or every 18 months, and watch the portfolio grow but a bit more slowly.
Thanks!
Vince is in an awesome situation. To add some context to his message:
I wrote back to Vince and said:
Hey Vince. Thanks for reading and for writing in. It’s fun to chat with folks like you.
First off…wow. You find yourself in a terrific position! I love those details…dca, rebalance, live below your means. Do you mind if I ask…looking back, what was your rough average career household salary? And where did that salary max out? I’m just curious.
[And now I’m coming back up here after having written the entire email…this would be a wonderful blog post Q&A, with your permission. Happy to anonymize you entirely. Let me know your thoughts?]
Yes – great Bernstein quote. I have a thought experiment that might put you at ease…
Take your current household spending needs…let’s say, $150,000 per year.
Social Security will cover some…let’s say $50,000 per year (assuming you’re US? your country might have a different social safety net)
Therefore, your portfolio needs to cover $100,000 every year.
And I’m going to assume (?) the $4.2M you mention is fully investable.
If you went 50/50 in your portfolio – roughly $2.1M in stocks, $2.1M in bonds – you’d have 21 years of annual spending in bonds. Ideally, high-grade Treasury bonds. In theory, you have 21 years of buffer before you “need” to tap into your stocks.
Do we have faith that your stocks will outpace bonds over a 21-year period? That’s now the critical question. Based on the stuff I talk about on The Best Interest, my answer is: yes, 21 years is a sufficient period for stocks to do their thing.
Next question: can/should we pull that period closer to the present? 15 years? 10 years?
60/40 –> $2.5M stocks, $1.7M bonds –> 17 years
70/30 –> $2.95M stocks, $1.25M bonds –> 12.5 years
I think you can feel good about 60/40. 17 years of bonds is a great buffer.
But should you? You’re right that, technically speaking, you’re adding more risk to your portfolio. And for what reason? To die with a larger pile of money?
It all comes back to Bernstein’s quote: what game are you playing, Vince? Have you “won?” If not, that’s fine. But ask yourself: when will that answer change? What is “winning” to you?
For example, if you have big goals for your “Excess Money,” that’s a different story. Do you want to donate $1M to the dog shelter when you die? In that case, we should separate that portion of your money from the rest of your money, and invest it differently.
But if you’re main/most important goal is, “Live comfortably forever,” and the 55/45 gets you there…great! You’ve done it.
…now I’m curious, how much return are you actually giving up in the long run by shifting down from 60/40 to 55/45?
Assume 7% annualized inflation-adjusted returns for stocks and 2% inflation-adjusted for bonds
60/40 –> 5.00% per year, or 165% inflation-adjusted growth over 20 years.
55/45 –> 4.75% per year, or 153% inflation-adjusted growth over 20 years.
Definitely a difference. But not a huge one, IMO, especially when you (specifically you) won’t define success or failure based on that ~0.25% per year annualized difference.
Alright – that’s a lot. But I hope it helps.
If Vince’s portfolio is $4.2M and his annual needs are $100,000, he’ll be entering retirement following (essentially) a “2.38% Rule.” That’s way more conservative than the classic 4% Rule.
He doesn’t need to expose himself to undo risk. 60% stocks, 55% stocks, 50% stocks…Vince will be successful in any of these portfolios. Since he has “won the game” of career financial success, he can “stop playing the game” by taking some of his chips off the table a.k.a. reducing his exposure to risk assets (stocks).
Stocks outperform bonds over long periods of time, and Vince will be able to leave his stocks untouched for decades (if he wants to).
Now, Vince did get back to me and shared some of his personal story. I want to share some of those details with you.
On his salary and investing: “I started at 35k in 1994 and ended at about 560k this year. One outlier year was about 600k. I’d bet my average was around 200k but there were so many big jumps it’s really hard to say. (I never moved jobs for a bigger salary. In fact sometimes I took less to be happier. Eventually , the money came). Also, I got married and we both worked so I’d guess 275k average over 30 years, but this may be off. As I mentioned, dca, rebalance, live below our means. Also, 95% indexing with 4 funds and occasionally buying a stock or two and holding it.
Vince’s top-end salary ($500 – $600K) is top 1% territory. His average salary ($275K) is top ~4%. Vince earned great money. But his starting salary is relatively low. Salary growth was essential for Vince’s success. The lesson: you can – and should – look for ways to increase your income over your career. It might take decades. But it makes a huge difference.
And Vince’s investing technique is…boring! Index funds, dollar-cost averaging, buy-and-hold, annual rebalance. Sound familiar?! The boring stuff, while BORING, really does work.
I’m not pulling your leg here with my articles and podcasts about boring, long-term investing. I’m serious. It works. Just look at Vince. Moving on…
On his lifestyle: “We drive old cars and jeans and t shirts are our preferred outfits. We researched our area before buying and our house that cost 350k is now worth about 1.2m. Actually, not the best 25-year return, but we’re very happy here.We want to keep living simply but comfortably. We’ve put 2 kids through college and have no debt. We love traveling but can do it rather inexpensively. In fact, we just spent a month in Portugal for a small amount. So 55/45 it is. THANK YOU!!!!!
(FYI, the housing return Vince mentioned is about 5.5% nominal / 2.7% real annual return. )
The important takeaway is Vince’s choice to drive cheaper cars and wear cheaper clothes than he otherwise could. By my math, you could buy a Corvette on a $500,000 salary. You could fly first class. You could eat caviar. But Vince is an example that wealth is what you don’t see.
“Wealth is created by a slow, steady drip of investment deposits, just like decades of waves carving a shoreline rock. Wealth is compound interest that grows slowly at first, then rapidly in the end. Wealth is what you choose not to spend money on. Wealth is quiet.”
It sounds like Vince still doing what he loves. He’s cutting costs where he can (or where he simply doesn’t care), but then spending where he wants to. That’s bimodal spending. Vince is enjoying the journey.
Vince is a success story. He’s won the game. And now, like a smart investor, he’s opting to “stop playing” by taking some of his investment risk off the table.
Thanks, Vince, for sharing your example with us.
Thank you for reading! If you enjoyed this article, join 7500+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.
-Jesse
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You’ve probably come across the term “asset” many times in your life — long before you began saving and investing.
What is an asset? Generally, the word may be used to refer to anything of value — from a great work ethic to a great group of friends. But when you’re talking about finances, the term asset is typically used to refer to things that have economic value to a person, a company, and/or a government.
Exploring the Definition of an Asset
For individuals, an asset can mean pretty much everything they own — from the cash in their wallet to the car in their garage to necklaces, rings, and earrings in a jewelry box. But usually, when people talk about their personal assets, they’re referring to something worth money.
Broad Categories of Assets
Assets typically include such things as:
• Cash and cash equivalents, including checking and savings accounts, money market accounts, certificates of deposit (CDs), and U.S. government Treasury bills.
• Personal property, including cars and boats, art and jewelry, collections, furniture, and things like computers, cameras, phones, and TVs.
• Real estate, residential or commercial, including land and/or structures on the land.
• Investments, such as stocks and bonds, annuities, mutual funds and exchange-traded funds (ETFs), and so on.
Those who freelance or own a company also may have business assets that could include a bank account, an inventory of goods to sell, accounts receivable (money they’re owed by their customers), business vehicles, office furniture and machinery, and the building and land where they conduct their business. 💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.
Delving Into Different Types of Assets
Generally speaking, there are four different types of assets: current or short-term assets, fixed assets, financial investments, and intangible assets.
Current Assets
Current assets are short-term resources with economic value, and are typically referred to in accounting. Current assets are things that can be used or consumed or converted to money within a year. They include things like cash, cash equivalents, inventory, and accounts receivable.
Fixed or Noncurrent Assets
Fixed assets are resources with a longer term, meaning more than a year. This includes property, like buildings and other real estate, and equipment.
Financial Assets
Financial assets refer to securities or assets such as stocks, bonds, certificates of deposit (CDs), and preferred equity.
Intangible Assets
Assets considered intangible are things of value that don’t have a physical presence. This includes intellectual property like patents, licenses, trademarks, and copyrights, and brand value and reputation.
Identifying and Classifying Assets
Assets are things with economic value. They may be owned by you, like a sofa or your computer, or owed to you, like the $50 you loaned a friend. The loan or borrowed money is considered an asset for you since your friend will repay it to you.
Personal vs Business Assets
There are both personal assets and business assets. Personal assets include such things as your home, artwork you might own, your checking account, and your investments. Business assets are things like equipment, cash, and accounts receivable.
Liquid Assets and Their Convertibility
Liquid assets are things of economic value that can be quickly and easily converted to money. Liquid personal assets might include certain stocks, and liquid business assets could include inventory.
Assets in Accounting and Business Operations
In business, assets are resources owned by a business that have economic value. They might refer to the building the business owns, inventory, accounts receivable, office furniture, and computers or other technology.
How Assets Reflect on Financial Statements
Business assets are listed on a company’s financial statements. Ideally, a company’s assets should be balanced between short-term assets and fixed and long-term assets. That indicates that the business has assets it can use right now, such as cash, and those that will be available down the road.
The Distinction Between Assets and Liabilities
Assets are resources an individual or business owns that have economic value. Assets are also things owed to a business or individual, such as payment for inventory. A liability is when a business or individual owes another party. It could include things like money or accounts payable.
Asset Valuation and Depreciation
Asset valuation is a way of determining the value of an asset. There are different methods for determining value, such as the cost method, which bases an asset’s value on its original price. But assets can depreciate over time. That’s when an accounting method known as depreciation is used to allocate the cost of an asset over time.
Real-World Examples of Assets
As noted, assets can run the gamut from the physical to the intangible. What they all have in common is that they have economic value.
Everyday Items That Count as Assets
Many items that you use or deal with in your daily life are considered assets. This includes:
• Cash
• Bank accounts
• Stocks
• Bonds
• Money market funds
• Mutual funds
• Furniture
• Jewelry
• Cars
• House
• Certificates of deposit (CDs)
• Retirement accounts, such as 401(k)s
High-Value Assets in Today’s Market
The larger assets you own tend to be more valuable, such as your house, a vacation home, or rental property. Your investments may also be considered high-value assets, depending on how much they are worth. 💡 Quick Tip: Automated investing can be a smart choice for those who want to invest but may not have the knowledge or time to do so. An automated investing platform can offer portfolio options that may suit your risk tolerance and goals (but investors have little or no say over the individual securities in the portfolio).
The Nuances of Non-Physical and Intangible Assets
Intangible assets, or those that have no physical presence, can be extremely important and quite valuable. So it’s wise to be aware of what they are.
Understanding Goodwill, Copyrights, and Patents
Intangible assets are such things as copyrights (on a book or piece of music, for instance) and patents (for an invention). A copyright protects the owner who produced it, and a patent protects the patent owner/inventor. What this means is that another party cannot legally use their work or invention without their permission.
Goodwill is another intangible asset, and it’s associated with the purchase of one company by another company. It is the portion of the purchase price that’s higher than the sum of the net fair value of all of the company’s assets bought and liabilities assumed.
For example, such things as brand value, reputation, and a company’s customer base are considered goodwill. These intangibles could be highly valued and the reason why a purchasing company might pay more for the company they are buying.
The Role of Digital Assets in the Modern Economy
Digital assets refer to such things as data, photos, videos, music, manuscripts, cryptocurrency, and more. Digital assets create value for the person or company that owns them.
Digital assets are becoming increasingly important as individuals, businesses, and governments use them more and more. With more of our every day resources online, and with data stored digitally, these types of assets are likely to be considered quite valuable.
Labor and Human Capital: Are Skills and Expertise Assets?
Labor is not considered an asset. Instead, it is work carried out by people that they are paid for.
Human capital refers to the value of an employee’s skills, experience, and expertise. These things are considered intangible assets. However, a company cannot list human capital on its balance sheet.
Navigating Asset Management
As an investor, you’re also likely to hear about the importance of “asset allocation” or “asset management” for your portfolio. Asset allocation is simply putting money to work in the best possible places to reach financial goals.
The idea is that by spreading money over different types of investments — stocks, bonds, cash, real estate, commodities, etc. — an investor can limit volatility and attempt to maximize the benefits of each asset class.
For example, stocks tend to offer the best opportunity for long-term growth, but can expose an investor to more risk. Bonds tend to have less risk and can provide an income stream, but their value can be affected by rising interest rates. Cash can be useful for emergencies and short-term goals, but it isn’t going to offer much growth, and it won’t necessarily keep up with inflation over the long term.
When it comes to volatility, each asset class may react differently to a piece of economic news or a national or global event, so by combining multiple assets in one portfolio, an investor may be able to help mitigate the risk overall.
Alternative investments such as real property, precious metals, and private equity ventures are examples of assets some investors also may choose to use to counter the price movements of a traditional investment portfolio.
An investor’s asset allocation typically has some mix of stocks, bonds, and cash — but the percentages of each can vary based on a person’s age, the goals for those investments, and/or a person’s tolerance for risk.
If for example, someone is saving for a wedding or another shorter-term financial goal, they may want to keep a percentage of that money in a safe, easy-to-access account, such as a high-yield online deposit account. An account like this would allow that money to grow with a competitive interest rate while it’s protected from the market’s unpredictable movements.
But for a longer-term goal, like saving for retirement, some might invest a percentage of money in the market and risk some volatility with stocks, mutual funds, and/or ETFs. This way the money may potentially grow over the long-term, and there may likely be time to recover from market fluctuations. As retirement nears, some people may wish to slowly shift their investments to an allocation that carries less risk.
The Role of Automated Asset Management Solutions
Businesses may want to consider using automated asset management systems to track and collect data on their assets. This may be easier than manually tracking assets, which could become complicated and overwhelming. There are a number of different software programs available that could help businesses with this.
Individual investors might want to think about automated investing programs to help manage their financial portfolio. These platforms may help those who want to invest for the long-term but don’t have the time or expertise to do it themselves.
However, It’s important to do your homework and consider the risks involved since automated platforms are not fully customized to each individual’s specific needs. You also need to be comfortable with the types of investments they may offer, such as ETFs, and make sure you understand the risks and possible costs involved.
Unpacking Asset Classifications Further
The assets you accumulate will likely change over time, as will your needs and your goals. So, it’s important to know the purpose of each asset you own — as well as which ones are working for you and which ones aren’t. Here are some questions you can ask yourself as you mindfully manage your assets:
1. Are you getting the maximum return on your investment, whether it’s a savings account or an investment in the market?
2. How does the asset make money (dividends, interest, appreciation)? What must happen for the investment to increase in value?
3. How does the asset match up with your personal and financial goals?
4. Is the asset short-term or long-term?
5. How liquid is the investment? How hard would it be to sell if you needed money right away?
6. What are the risks associated with the investment? What is the most you could lose? Can you handle the risk financially and emotionally?
If you aren’t sure of the answers to these questions, you may wish to get some help from a financial advisor who, among other things, can work with you to set priorities, suggest strategies for investing, assist you in coming up with the right asset allocation to suit your needs, and draw up a coordinated and comprehensive financial plan.
Short-term vs Long-term Assets
As a quick recap, short-term assets are those held for less than one year. They are also known as current assets. These assets are typically meant to be converted into cash within a year and are considered liquid. For individual investors they can include such things as money market accounts and CDs.
Long-term assets are those held for more than one year. Long-term assets can be such things as stock and bonds, as well as fixed assets such as property and real estate. Long-term assets also include intellectual property such as copyrights and patents. Long-term assets are not as liquid as short-term assets.
The Importance of Asset Liquidity
Liquid assets can be accessed quickly and converted to cash without losing much of their value. Cash is the ultimate liquid asset, but there are plenty of other examples.
If you can expect to find a number of interested buyers who will pay a fair price, and you can make the sale with some speed, your asset is probably liquid. Stock from a blue-chip company is generally an asset with liquidity. So, typically, is a high-quality mutual fund.
Some assets are non-liquid or illiquid. These assets have value, but they may not be as easy to convert into cash when it’s needed. Your car or home might be your biggest asset, for example, depending on how much of it you actually own. But It might take a while to get a fair price if you sold it — and you’ll likely need to replace it eventually.
While some investments have long-term objectives — including saving for a secure retirement — liquidity can be an important factor to consider when evaluating which assets belong in a portfolio.
Many unexpected events come with big price tags, so it can help to have some cash or cash equivalents on hand in case an urgent need comes up. General recommendations suggest having three to six months’ worth of living expenses stashed away in an emergency fund — using an account that’s available whenever you need it.
Some might also consider keeping a portion of money in investments that are reasonably liquid, such as stocks, bonds, mutual funds and exchange-traded funds (ETFs). This way, ideally, the assets can be liquidated in a relatively quick timeframe if they are needed. (Although, of course, there’s never any guarantee.)
Choosing that original asset allocation is important — but maintenance and portfolio rebalancing is also key over time. As people attain some of their short- or mid-range goals (paying for that wedding, for instance, or getting the down payment on a house) they may wish to consider where the money will go next, and what kind of account it should be in.
As life changes, it is possible that the original balance of stocks vs. bonds vs. other investments is no longer appropriate for a person’s current and future needs. As a result, they may want to become more aggressive or more conservative, depending on the situation.
Rebalancing also may become necessary if the success — or failure — of a particular asset group alters a portfolio’s target allocation.
If, for example, after a big market rally or long bull run (both of which we’ve experienced in recent years) a 60% allocation to stocks becomes something closer to 75%, it may be time to sell some stock and get back to that original 60%. This way, an investor can protect some of the profits while buying other assets when they are down in price.
You can do your rebalancing manually or automatically. Some investors check in on their portfolio regularly (monthly, quarterly or annually) and adjust it if necessary. Others rebalance when a set allocation shifts noticeably.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
Invest with as little as $5 with a SoFi Active Investing account.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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.
SoFi Invest® SoFi Invest refers to the two 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 and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.
The Social Security Administration (SSA) estimates that it overpaid beneficiaries $6 billion in benefits in the 2021 fiscal year. If the SSA notifies you that it paid you too much, you have options for how to respond
.
What is a Social Security overpayment?
A Social Security overpayment occurs when the SSA pays a beneficiary too much. Overpayments happen for several reasons, such as a beneficiary neglecting to update their income, marital status or work situation, or the SSA miscalculating how much it should pay
.
Regardless of who is at fault, beneficiaries who receive overpayments from the Social Security Administration usually have to give back the money. Because taxpayer money funds Social Security benefits, the SSA is legally required to recover overpayments
.
How do I know if I received an overpayment?
The SSA mails an official notice to anyone who has received a Social Security overpayment. The notice will explain the reason the SSA believes you’ve been overpaid, how much you were overpaid, your options for repaying and your rights to appeal or request a waiver
.
How do I pay back a Social Security overpayment?
The type of Social Security benefit determines how you repay the money. Typically, you send the SSA a monthly payment or the agency withholds your future benefits until you’ve repaid the full amount.
If you are currently receiving…
…The collection begins
Collection method
30 days after notification of overpayment.
SSA automatically withholds full monthly payment.
No sooner than 60 days after notification of overpayment.
SSA automatically withholds 10% of maximum monthly benefit.
60 days after notification of overpayment.
SSA automatically withholds full monthly payment.
You don’t currently receive benefits.
No collection initiated.
None; you must make payments.
🤓Nerdy Tip
Did you know… The SSA publishes information about overpayments in Spanish.
What if I think the Social Security Administration is wrong?
If you disagree with the SSA’s estimate of how much you owe or that you were overpaid in the first place, you can appeal the notice.
If you believe the overpayment wasn’t your fault and paying back the funds would keep you from affording basic necessities, you can ask for a waiver.
If you’re unclear about the repayment requirements, you can contact the SSA to ask questions.
🤓Nerdy Tip
If you can’t afford to repay the SSA, you can have someone else pay on your behalf. An arrangement like that might create some discomfort if you need to borrow the money from someone, so be clear about the terms of the agreement.
How to appeal a Social Security overpayment
You can file an appeal if you think one of these applies to you:
You were not overpaid; you were entitled to all of the money you received.
You believe the SSA overpaid you by less than what the notice says.
Fill out Form SSA-561-U2 Request for Reconsideration and mail it or take it to your local SSA office (you can’t appeal online). When filling out the form, you’ll explain why you believe the SSA did not overpay you or why you disagree with the amount stated in the notice.
You must submit your appeal within 60 days of receiving the SSA’s overpayment notice.
How to request a waiver for a Social Security overpayment
Be prepared to provide personal information about your income and assets, your monthly expenses and an explanation of why you are requesting a waiver. You’ll also have an opportunity to explain why an overpayment occurred (if you are at fault).
What if I don’t give back a Social Security overpayment?
The SSA works to recover overpayments even if you don’t take action to pay the money back.
The agency can seize money you get from other government agencies, such as your tax refund.
The SSA can recover overpayments from benefits you haven’t collected yet, such as future Social Security retirement benefits.
The agency can garnish your wages if you are working. It usually will only go that far if you’re not currently receiving Social Security benefits and have made no effort to repay, or you set up a payment plan but didn’t make regular payments. The SSA can take 15% of your net paycheck (your pay after payroll deductions such as taxes and health insurance premiums). It might take less if taking 15% causes you to take home less than 30 times the federal minimum wage per week (in 2024, that comes out to $516 a week) or your paycheck is being garnished for other reasons. You’ll receive a garnishment notice 60 days before the SSA begins deducting the funds.
What the SSA can’t do to recover overpayments
The SSA can’t do the following to recover an overpayment:
Withhold your SSI benefits if you received an overpayment for Medicare benefits.
Seek full repayment from an eligible spouse or estate if an overpaid beneficiary dies before repaying all that they owe.
4 things to do if you received a Social Security overpayment notice
Pay attention to the requirements. The notice will tell you how much you owe and when you have to repay. If you wait too long or do not contact the SSA about your payment options, it may automatically withhold your monthly benefits, garnish your wages or seize other government payments you receive.
If you have questions that aren’t answered in the notice, call the SSA. Some information is on the SSA website, but call the SSA if you have specific questions about your case.
Keep your overpayment notice. You might need some information in the notice when you talk to the SSA or fill out an appeal or waiver application. Keep the notice somewhere that you can easily find it and ensure it won’t be damaged.
Learn about your rights. You have the right to appeal the notice if you believe you weren’t overpaid. You can also ask for a waiver to avoid repaying some or all of the overpayment in certain situations.
Tips for avoiding a Social Security overpayment
Report any changes to your living situation. Information such as your monthly income, marital status and available resources can affect the size of your benefits. Update the SSA when those things change. You can call the agency to update your information or access your my Social Security account online
.
Pay attention to how your payments are calculated. If you’re not clear about how your benefits are calculated, contact the SSA to learn why you receive the amount you do each month. This will help you understand when your payments should increase or decrease instead of trusting that the SSA will know your life changed.
Ask about changes you notice in your benefits. If your benefit increases and you don’t know why, contact the SSA. It might be tempting to stay quiet and keep the extra cash, if the SSA made a mistake, you’ll probably have to return the funds later, even if you’ve spent the money.
When an investor buys a security using a margin account, the initial margin or initial margin requirement is how much of the purchase price – represented as a percentage – that the investor must cover with either cash or the collateral in that account.
The Federal Reserve Board’s Regulation T sets the minimum initial margin at 50%, meaning investors trading on a margin account must have cash or collateral to cover at least half of the market value of the securities they buy on margin.
Using Initial Margin
Investors who want to open a margin account at a brokerage must first deposit the initial margin requirement. They can make that deposit in the form of cash, securities or other collateral, and the amount they deposit will vary depending on how much trading the investor plans to do on margin, and where the brokerage firm sets its initial margin.
Once the investor makes that initial margin deposit as collateral, they essentially have a line of credit with which they can begin margin trading. That line of credit allows the investor to buy securities with money borrowed from the brokerage.
As noted, Regulation T sets minimum initial margin levels. It’s important to note, however, that the Federal Reserve Board’s Regulation T only sets the minimum for margin accounts. Brokerage firms offering margin accounts can set their initial margin requirement higher than 50% based on the markets, their clients, and their own business considerations. But brokerages cannot set the initial margins for their clients any lower than 50%. The level that a brokerage sets for margin is known as the “house requirement.”
Risks of Margin Trading
Trading on margin brings its own unique set of opportunities and risks. It can lead to outsized profits if investors buy appreciating stocks on margin. But if investors buy sinking securities on margin, they can lose even more than if they’d purchased the securities outright.
In the unfortunate situation where the securities purchased on margin lose all value, the investor must deposit the full purchase price of the securities to cover the loss. Given these risks, you’re typically not able to trade on margin in retirement accounts such as an IRA or a 401(k).
Sometimes investors use margin to short a stock, or bet that it will lose value. In that instance, they’d borrow shares from the brokerage firm that holds a position in the stock and sell them to another investor. If the share price goes down, the investor can purchase them back at a lower price.
In general, investors looking for safer investments might want to avoid margin trading, due to their inherent risk. Investors with a high appetite for risk, however, might appreciate the ability to generate outsize returns. 💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.
How Do You Calculate Initial Margin?
An investor who wants to trade in a margin account, must first determine how much to deposit as an initial margin. While that will depend on how much the investor wants to trade, and how big a role margin will play in their strategy, there are some guidelines.
The New York Stock Exchange and some of the other securities exchanges require that investors have at least $2,000 in their accounts. For day traders, the minimum initial margin is $25,000. Each brokerage has its own set of requirements in terms of the amount clients need to keep as collateral, and the minimum size of the account necessary to trade on margin.
Increase your buying power with a margin loan from SoFi.
Borrow against your current investments at just 10%* and start margin trading.
Initial Margin Requirement Examples
It’s possible, for example, that a brokerage firm might require 65% initial margin. That’s the first number an investor needs to know. The next is how much they plan to invest. The initial margin calculation simply requires the investor to multiply the investment amount by the initial margin requirement percentage. For an investor who wants to buy $20,000 of a given security, they will take that purchase price, multiply it by the margin requirement is 65% or 0.65 – to arrive at an initial margin requirement of $13,000.
The advantage for the investor is that they get $20,000 of exposure to that stock for only $13,000. In a scenario where the investor is buying a stock at a 50% margin, that investor can buy twice as many shares as they could if they bought them outright. That can double their return if the stock goes up. But if the stock drops, that investor could lose twice as much money.
If the price falls far enough, the investor could get a margin call from their broker. That means that they must deposit additional funds. Otherwise, the broker will sell the stock in their account to cover the borrowed money. 💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.
Initial Margin vs Maintenance Margin
For investors who buy securities on margin, the initial margin is an important number to know when starting out. But once the investor has opened a margin account at their brokerage, it’s important to know the maintenance margin as well.
The maintenance margin is the minimum amount of money that an investor has to keep in their margin account after they’ve purchased securities on margin. It is generally lower than the initial margin.
Currently, the minimum maintenance margin, as set by the Financial Industry Regulatory Authority (FINRA,) is 25% of the total value of the margin account. As with the initial margin requirements, however, 25% is only the minimum that the investor must have deposited in a margin account. The reality is that brokerage firms can – and often do – require that investors in margin accounts maintain a margin of between 30% to 40% of the total value of the account.
Some brokerage firms refer to the maintenance margin by other terms, including a minimum maintenance or a maintenance requirement. The initial margin on futures contracts may be significantly lower.
Maintenance Margin Example
As an example of a maintenance margin, an investor with $10,000 of securities in a margin account with a 25% maintenance margin must maintain at least $2,500 in the account. But if the value of their investment goes up to $15,000, the investor has to keep pace by raising the amount of money in their margin account to reach the maintenance margin, which rises to $3,750.
Maintenance Margin Calls
If the value of the investor’s margin account falls below the maintenance margin, then they can face a margin call, or else the brokerage will sell the securities in the account to cover the difference between what’s in their account and the maintenance margin.
With a maintenance margin, the investor could also face a margin call if the investment goes up in value. That’s because as the investment goes up, the percentage of margin in relation by comparison goes down.
The Takeaway
Initial margin requirements and maintenance margins are just two considerations for investors who are looking to trade on margin. They allow investors to understand how much cash they need to hand on hand in order to trade on margin — and when they might be susceptible to a margin call.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.
FAQ
What is an example of initial margin?
If initial margin is 65% and an investor wants to purchase $20,000 of a given security, they will take that purchase price, multiply it by the margin requirement is 65% or 0.65 – to arrive at an initial margin requirement of $13,000.
Is initial margin refundable?
Yes, initial margin is refundable, as it acts as a deposit put forward to enact a transaction or trade.
Why is initial margin important?
Initial margin is important because it acts as a form of collateral to cover a loss in the event loses money using borrowed funds. It helps the lender – or brokerage – recoup some of those losses.
Why is initial margin paid?
Initial margin is paid or put forth to act as a deposit or a form of collateral and establish good faith between a borrower and lender, typically an investor or trader and their brokerage.
Who sets the initial margin requirement?
Initial margin requirements are established by the Federal Reserve’s Regulation T. But there can also be other requirements put in place by an individual brokerage, and FINRA’s additional margin rules can further increase the amount.
Does initial margin have to be cash?
Generally, initial margin needs to be in the form of cash deposits, but it’s possible that some brokerages will allow it to take the form of other securities, such as government bonds.
Is initial margin a cost?
Initial margin is not a cost per se, but a form of collateral, and is money that is returned or refunded like a deposit. As such, it’s not spent or a typical “cost,” though it may be a financial barrier of sorts for some traders.
Photo credit: iStock/FG Trade
SoFi Invest® SoFi Invest refers to the two 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 and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.
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.
*Borrow at 10%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information. Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
A security is any financial instrument with a fungible value (meaning a value that’s essentially equal) that investors can trade. Common securities include stocks, bonds, and index and mutual funds, as well as options and other derivatives that derive their value from other assets. Most securities trade on financial exchanges, and all play a role in aiming to build wealth for individuals, companies, and other investors.
What are securities in finance and how do they work? Here’s a glimpse inside the world of securities in trading.
What is a Security?
A security is a tradable investment vehicle that traders can buy and sell on financial exchanges or other platforms. In general, investors earn money by buying securities at a low price and selling them at a higher one.
Securities in finance have some monetary value; buyers and sellers determine their value when trading them. Securities vary in nature – stocks, for example, represent ownership in a company, while bonds are essentially loan vehicles where borrowers pay lenders interest for their loan money.
Here are some common security categories.
Equity Securities
This type of securities in finance includes stocks and stock funds. Typically traded on exchanges, the price of equity securities rise or fall depending on the economy, the performance of the underlying company that offers the stock (or companies in the fund), and the sector that company or fund operates. Individual stocks may also pay dividends to investors who own them. 💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.
Debt Securities
This group includes bonds and other fixed-income vehicles where lenders borrow money from investors and pay an interest rate (i.e., the price for borrowing) on the investment principal. Bond issuers may include states, local and municipal governments, companies, and banks and other financial institutions. Typically, debt securities pay investors a specific interest rate paid usually twice per year until a maturity date, when the bond expires.
Some common debt securities include:
• Treasury bills. Issued by the U.S. government, T-Bills are considered among the safest securities.
• Corporate bonds. These are bonds issued by companies to raise money without going to the equity markets.
• Bond funds. These allow investors to get exposure to the bond market without buying individual bonds.
Derivatives
This group of securities includes higher-risk investments like options trading and futures which offer investors a higher rate of return but at a higher level of risk.
Derivatives are based on underlying assets, and it’s the performance of those assets that drive derivative security investment returns. For example, an investor can buy a call option based on 100 shares of ABC stock, at a specific price and at a specific time before the option contract expires. If ABC stock declines during that contract period, the call option buyer has the right to buy the stock at a reduced rate, thus locking in gains when the stock price rises again.
Derivatives allow investors to place higher-risk bets on stocks, bonds, and commodities like oil or gold, and currencies. Typically, institutional investors, such as pension funds or hedge funds, are more active in the derivative market than individual investors.
Hybrid Securities
A hybrid security combines two or more distinct investment securities into one security. For example, a convertible bond is a debt security, due to its fixed income component, but also has characteristics of a stock, since it’s convertible.
Hybrid securities sometimes act like debt securities, as when they provide investors with a floating or fixed rate of return, as bonds normally do. Hybrid securities, however, may also pay dividends like stocks and offer unique tax advantages of both stocks and bonds. 💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.
How Security Trading Works
Securities often trade in open financial exchanges where investors can buy or sell securities with the goal of making a financial profit.
Stocks, for example, are listed on global stock exchanges and investors can purchase them during market trading hours. Exchanges are highly regulated and expected to comply with strict fair-trading mandates. For example, U.S.-based stock exchanges like the New York Stock Exchange or Nasdaq must adhere to the rules and regulations laid out by Congress and enforced by the U.S. Securities and Exchange Commission (SEC).
Each country has their own rules and regulations for fair and compliant securities trading, including oversight of stocks, bonds, derivatives, and other investment vehicles. Debt instruments, like bonds, usually trade on secondary markets while stocks and derivatives are traded on stock exchanges.
There are many ways for investors to engage in security trading. A few of the most common ones include:
Brokerage Accounts
Once an investor opens a brokerage account with a credentialed investment firm, they can start trading securities.
All a stock or bond investor has to do is fill out the required forms and deposit money to fund their investments. Investors looking to invest in higher-risk derivatives like options, futures, or currencies may have to fill out additional documentation proving their credentials as educated, experienced investors. They may also have to make larger cash deposits, as trading in derivatives is more complex and has more potential for risk.
Some investors with brokerage accounts can engage in margin trading, meaning that they trade securities using money borrowed from the broker.
Retirement Accounts
By opening a retirement account, through work or a bank or brokerage account, investors can invest in a range of securities, including stocks, mutual and index funds, bonds and bond funds, and annuities.
The type of securities you have access to will depend on the type of retirement account that you have. Workplace plans such as 401(k)s typically have fewer investment choices (but higher limits for tax-advantaged contributions) than Individual Retirement Accounts.
The Takeaway
There are many different types of securities that investors may purchase as part of their portfolio. Choosing which securities to invest in will depend on several factors, including your financial goals, current financial picture, and risk tolerance.
A great way to start building a portfolio of securities is by opening a brokerage account on the SoFi Invest® investment platform. Securities on the platform include stocks and exchange-traded funds.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
Invest with as little as $5 with a SoFi Active Investing account.
FAQ
What are the four types of securities?
The four types of securities are: equity securities (such as stocks), debt securities (such as bonds), derivatives (such as higher-risk investments like options trading), and hybrid securities (such as convertible bonds).
What is a securities investment?
A securities investment is an investment in a security such as stocks, bonds, or derivatives. A security is a tradable type of investment that traders can buy and sell.
What’s the difference between securities and shares?
Stocks, also known as equity shares, are a type of security. The term “securities” refers to a range of different investments, one of which is stocks, or shares.
Photo credit: iStock/paulaphoto
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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.
SoFi Invest® SoFi Invest refers to the two 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 and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.
Whether you’re a novice investor or you’ve been day trading for years, you’ve probably noticed that when it comes to investing there is always more to learn.
From IRAs to exchange-traded funds to derivatives, becoming a savvy investor means staying on top of the basics — and being open to new concepts.
To find out where you stand, take our super-quick (yet revealing) investment quiz to learn more about your strengths — and maybe some areas for improvement.
Investing Demystified at SoFi
Our goal is to clarify what investing means and the multiple ways that people can potentially make money through their investments. There are never any guarantees, but we can help you to choose an asset allocation mix based on your preferences, with advisors available to provide complimentary, personalized advice.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
Invest with as little as $5 with a SoFi Active Investing account.
Photo credit: iStock/nortonrsx
SoFi Invest® SoFi Invest refers to the two 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 and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.
Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes. Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.
New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures. Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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.