What Are the Capital Gains Tax Rates for 2021 vs. 2022?

The federal income tax rate that applies to gains from the sale of stocks, mutual funds or other capital assets depends on how long you held the asset and your taxable income. Gains from the sale of capital assets that you held for at least one year, which are considered long-term capital gains, are taxed at either a 0%, 15% or 20% rate.

However, which one of those long-term capital gains rates – 0%, 15% or 20% – applies to you depends on your taxable income. The higher your income, the higher the rate. If you’re working on your 2021 tax return, here are the capital gains taxable income thresholds for the 2021 tax year:

2021 Longer-Term Capital Gains Tax Rate Income Thresholds

Capital Gains
Tax Rate

Taxable Income
(Single)

Taxable Income
(Married Filing Separate)

Taxable Income
(Head of Household)

Taxable Income
(Married Filing Jointly)

0%

Up to $40,400

Up to $40,400

Up to $54,100

Up to $80,800

15%

$40,401 to $445,850

$40,401 to $250,800

$54,101 to $473,750

$80,801 to $501,600

20%

Over $445,850

Over $250,800

Over $473,750

Over $501,600

The income thresholds for the capital gains tax rates are adjusted each year for inflation. To see how the thresholds will change from 2021 to 2022, here are the figures for the 2022 tax year:

2022 Capital Gains Tax Rate Thresholds

Capital Gains
Tax Rate

Taxable Income
(Single)

Taxable Income
(Married Filing Separate)

Taxable Income
(Head of Household)

Taxable Income
(Married Filing Jointly)

0%

Up to $41,675

Up to $41,675

Up to $55,800

Up to $83,350

15%

$41,675 to $459,750

$41,675 to $258,600

$55,800 to $488,500

$83,350 to $517,200

20%

Over $459,750

Over $258,600

Over $488,500

Over $517,200

The tax rate on short-term capitals gains (i.e., from the sale of assets held for less than one year) is the same as the rate you pay on wages and other “ordinary” income. Those rates currently range from 10% to 37%, depending on your taxable income. To see what rate you’ll pay, see What Are the Income Tax Brackets for 2021 vs. 2022?

Surtax on Net Investment Income

There’s an additional 3.8% surtax on net investment income (NII) that you might have to pay on top of the capital gains tax. (NII includes, among other things, taxable interest, dividends, gains, passive rents, annuities, and royalties.) You must pay the surtax if you’re a single or head-of-household taxpayer with modified adjusted gross income (AGI) over $200,000, a married couple filing a joint return with modified AGI over $250,000, or a married person filing a separate return with modified AGI over $125,000. Use Form 8960 to calculate the surtax.

Under the current version of the Build Back Better Act, which is being considered by Congress, the surtax would be expanded to cover NII derived in the ordinary course of a trade or business for joint filers with modified AGI over $500,000, single or head-of-household filers with modified AGI over $400,000, and married people filing a separate return with a modified AGI over $250,000. The proposed legislation would also clarify that the surtax doesn’t apply to wages on which Social Security and Medicare payroll taxes (i.e., FICA taxes) are already imposed. The Build Back Better Act was passed by the House in December, but it has stalled in the Senate.

Source: kiplinger.com

What is Altcoin Season? Why Does It Happen?

2021 has been a heady time for cryptocurrency. Led by Bitcoin, the whole sector has seen huge rises in prices and tremendous volatility along the way. There’s been a massive development of decentralized finance (DeFi) technology applications and cryptocurrency ecosystems that allow people to trade and lend their tokens without the support of a traditional financial institution.

With all this activity and volatility, some have wondered what it will mean for the cryptocurrency ecosystem. Will Bitcoin continue to dominate and soar? Will other coins rise up to take the top spot in the field? Insiders have already coined a phrase for the possibility of Bitcoin stalling out and other cryptocurrency products and token rising in value. It’s known as “altcoin season.”

Altcoins: What Are They?

Basically, altcoins are cryptocurrencies that aren’t Bitcoin or Ethereum. In fact, Bitcoin is so dominant in the field that even Ethereum is sometimes referred to as an altcoin.

Bitcoin is the big kahuna of cryptocurrency, the one that started it all, the one that’s traded the most every day, the one that’s gotten the most backing from mainstream financial institutions, and, of course, the one that’s worth the most ($885,497,080,149 as of December 17, 2021). Ethereum is similar: a long track record, a variety of projects and systems built on top of it, substantial trading volume, and a high overall value (worth $459,827,737,310 as of December 17, 2021).

Altcoins are just about everything else. Sometimes they’re tokens built on top of Ethereum for DeFi projects, sometimes they’re offered in an “initial coin offering” for use with a specific product, sometimes they’re spun up by developers because they think there’s something wrong or missing in the current crypto ecosystem. This could be variants or forks of mainstream coins (like Litecoin (LTC) or Bitcoin Cash), or a whole new type of coin with a specific usage (stablecoins like Tether or USDC), or tokens for use in a specific ecosystem, like XRP for use in Ripple.

When Does “Altcoin Season” Happen?

Altcoin season happens when there’s steady outperformance of tokens and coins that aren’t Bitcoin.

There’s no promise or guarantee that every runup in Bitcoin will turn into a downturn later or that altcoins will start outperforming the original crypto. In fact, it’s not uncommon for all cryptos to rise together, as excitement about the sector grows and new money goes into all sorts of coins looking for profits.

There are a number of theories for why altcoin season could potentially happen. One popular one is that Bitcoin investors will pocket their gains from a surging Bitcoin, maybe by selling some of it, and then move those gains into other cryptocurrencies.

They might do this for one of two reasons:

1.    To realize gains. This might happen if the value of Bitcoin owned by an investor has gone up relative to the dollar or other fiat currencies or cryptocurrencies, and they want to spend some of those gains on things that can’t be bought with crypto itself.

2.    Expectations of future growth change. After a large runup of Bitcoin, an investor’s projected future growth or value of an asset might change compared to the price of investing. So, with inflated Bitcoin values, it’s possible that altcoins could be a better investment going forward. And if enough investors and traders make that decision, they will be.

How Do You Know If It’s Altcoin Season?

You can’t determine altcoin season just by looking at the price of altcoins or Bitcoin or any other cryptocurrency in isolation.

Looking at their “market cap”, or the total value of all the circulating tokens, can be a better indicator of what’s going on with investor valuation of cryptocurrencies. This is because price isn’t just determined by investor interest or disinterest, but also by the number of outstanding coins.

How Are Altcoins Doing Relative to Bitcoin?

To tell if we are in altcoin season, we have to look at two things. The first is Bitcoin’s “dominance” vis a vis the rest of the crypto market as well as the performance of altcoins relative to Bitcoin.

At the time of writing in December 2021, according to CoinMarketCap, Bitcoin’s dominance is 41% of the total market. Near the beginning of this year, it stood at 70%. Bitcoin’s highest dominance was 96% in late 2013, Bitcoin’s lowest dominance was early 2018, when it stood at around 33%. Its lowest this year is around 40%, which it hit in May of this year.

Bitcoin has fallen in value by almost 40%, giving a chance for altcoins to gain value in comparison. But we can also compare Bitcoin market value to that of altcoins:

•   Bitcoin’s market value has grown from $176 billion to $885 billion.

•   XRP, the cryptocurrency associated with Ripple, has had its market cap grow from $9 billion to just under $38 billion.

•   Cardano (ADA), whose token is called ADA, has grown from about $3 billion to $41 billion.

•   Litecoin, a Bitcoin alternative founded in 2011 and thus one of the oldest altcoins, has grown from around $3 billion to $10 billion.

•   Ethereum (ETH), the least alt of the altcoins, the most well established of all non-Bitcoin tokens, has grown from $29 billion to $459 billion.

Whether altcoin season is happening at all — and if so, whether it will continue — still remains to be seen.

The Takeaway

Altcoin season describes a time period when altcoins steadily outperform Bitcoin. There are a few ways to try to determine altcoin season, but it remains impossible to predict. Basically, you’ll know it when you’re in it.

Interested in crypto? With SoFi Invest®, you can trade cryptocurrency online from a selection of more than two dozen coins – from Bitcoin and Ethereum to altcoins like Chainlink, Dogecoin, Solana, Litecoin, Cardano, and Enjin Coin.

Find out how to get started with SoFi Invest.

Photo credit: iStock/Prostock-Studio


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

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

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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 Lending Corp and/or its affiliates.
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.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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Source: sofi.com

What is Delta in Options Trading?

In options trading, Delta is an important assessment tool used to measure risk sensitivity. Delta is a risk metric that compares changes in a derivative’s underlying asset price to the change in the price of the derivative itself.

Essentially it measures the sensitivity of a derivative’s price to a change in the underlying asset. Using Delta as part of an options assessment can help investors make better trades.

Delta is one of “the Greeks,” a set of options trading tools denoted by Greek letters. Some traders might refer to the Greeks as risk sensitivities, risk measures,or hedge parameters. The Delta metric is the most commonly used Greek.

Recommended: A Beginner’s Guide to Options Trading

Option Delta Formula

Analysts calculate Delta using the following formula with theoretical pricing models:

Δ = ∂V / ∂S

Where:

•   ∂ = the first derivative

•   V = the option’s price (theoretical value)

•   S = the underlying asset’s price

Some analysts may calculate Delta with the much more complex Black-Sholes model that incorporates additional factors. But traders generally don’t calculate the formula themselves, as trading software and exchanges do it automatically. Traders analyze these calculations to look for investment opportunities.

Option Delta Example

For each $1 that an underlying stock moves, an the equity derivative’s price changes by the Delta amount. Investors express the Delta sensitivity metric in basis points. For example, let’s say there is a long call option with a delta of 0.40. Investors would refer to this as “40 delta.” If the option’s underlying asset increased in price by $1.00, the option price would increase by $0.40.

However, the Delta amount is always changing, so the option price won’t always move by the same amount in relation to the underlying asset price. Various factors impact Delta, including asset volatility, asset price, and time until expiration.

If the price of the underlying asset increases, the Delta gets closer to 1.0 and a call option increases in value. Conversely, a put option becomes more valuable if the asset price goes lower than the strike price, and in this case Delta is negative.

How to Interpret Delta

Delta is a ratio that compares changes in the price of derivatives and their underlying assets. It uses theoretical price movements to track what will happen with changes in asset and option price. The direction of price movements will determine whether the ratio is positive or negative.

Bullish options strategies have a positive Delta, and bearish strategies have a negative Delta. It’s important to remember that unlike stocks, options buying and selling options does not indicate a bullish or bearish strategy. Sometimes buying a put option is a bearish strategy, and vice versa.

Recommended: Differences Between Options and Stocks

Traders use the Delta to gain an understanding of whether an option will expire in the money or not. The more an option is in the money, the further the Delta value will deviate from 0, towards either 1 or -1.

The more an option goes out of the money, the closer the Delta value gets to 0. Higher Delta means higher sensitivity. An option with a 0.9 Delta, for example, will change more if the underlying asset price changes than an option with a 0.10 Delta. If an option is at the money, the underlying asset price is the same as the strike price, so there is a 50% chance that the option will expire in the money or out of the money.

Call Options

For call options, delta is positive if the derivative’s underlying asset increases in price. Delta’s value in points ranges from 0 to 1. When a call option is at the money the Delta is near 0.50, meaning it has an equal likelihood of increasing or decreasing before the expiration date.

Put Options

For put options, if the underlying asset increases in price then delta is negative. Delta’s value in points ranges from 0 to -1. When a put option is at the money the Delta is near -0.50.

How Traders Use Delta

In addition to assessing option sensitivity, traders look to Delta as a probability that an option will end up in or out of the money. The more likely an option is to generate a profit, the less risky it is as an investment.

Every investor has their own risk tolerance, so some might be more willing to take on a risky investment if it has a greater potential reward. When considering Delta, traders recognize that the closer it is to 1 or -1 to greater exposure they have to the underlying asset.

If a long call has a Delta of 0.40, it essentially has a 40% chance of expiring in the money. So if a long call option has a strike price of $30, the owner has the right to buy the stock for $30 before the expiration date. There is a 40% chance that the stock’s price will increase to at least $30 before the option contract expires.

Traders also use Delta to put together options spread strategies.

Delta Neutral

Traders also use Delta to hedge against risk. One common options trading strategy, known as neutral Delta, is to hold several options with a collective Delta near 0.

The strategy reduces the risk of the overall portfolio of options. If the underlying asset price moves, it will have a smaller impact on the total portfolio of options than if a trader only held one or two options.

One example of this is a calendar spread strategy, in which traders use options with various expiration dates in order to get to Delta neutral.

Delta Spread

With a Delta spread strategy, traders buy and sell various options to create a portfolio that offsets so the overall Delta is near zero. With this strategy the trader hopes to make a small profit off of some of the options in the portfolio.

Using Delta Along With the other Greeks

Delta measures an option’s directional exposure. It is just one of the Greek measurement tools that traders use to assess options. There are five Greeks that work together to give traders a comprehensive understanding of an option. The Greeks are:

•   Delta (Δ): Measures the sensitivity between an option price and the price of the underlying security.

•   Gamma (Γ): Measures the rate at which Delta is changing.

•   Theta (θ): Measures the time decay of an option. Options become less valuable as the expiration date gets closer.

•   Vega (υ): Measures how much implied volatility affects an option’s value. The more volatility there is the higher an option premium becomes.

•   Rho (ρ): Measures an option’s sensitivity to changing interest rates.

The Takeaway

Delta is a useful metric for traders evaluating options and can help investors determine their options strategy. Traders often combine it with other tools and ratios during technical analysis. However, you don’t need to trade options in order to get started investing.

A great way to begin investing is by opening an investment account on the SoFi Invest® app. While SoFi does not offer options trading, it does allow you to research, track, buy and sell stocks, ETFs, and crypto right from your phone.

Photo credit: iStock/PeopleImages


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

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

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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 Lending Corp and/or its affiliates.
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Source: sofi.com

What Is Fibonacci Retracement in Crypto Trading?

A retracement level is the price at which a stock or cryptocurrency tends to see a reversal in its trend. Fibonacci retracement is a popular tool in technical analysis that helps determine support and resistance levels on a price chart.

What Are Fibonacci Retracement Levels?

Fibonacci numbers are a series where each number equals the sum of the two previous numbers. The most basic series is: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377 etc.

When it comes to technical analysis, investors use Fibonacci Replacement Levels, expressed as percentages, to analyze how much of a previous move a price has retraced. The most important Fibonacci Retracement levels are: 23.6% 38.2%, 50% and 61.8%.

Some analysts refer to 61.8% as “the golden ratio,” since it equals the division of one number in the series by the number that follows it. For example: 8/13 = 0.6153, and 55/89 = 0.6179.

The other Retracement levels reflect other calculations: Dividing one number by the number three places to its right equals 23.6%. For example: 8/34 = 0.2352. Bitcoin traders often use 78.6%, which is the square root of 0.618,

Some prefer the 0.618 and 0.382 levels because these are the retracement levels analysts believe are most likely to generate a trend reversal. These levels are considered inflection points where fear and greed can alter price action. When an asset is trending upward but loses momentum, it’s possible that a pullback to the 0.618 price level could result in a bounce upward, for example.

How Does Fibonacci Retracement Work and What Does it Do?

There are several theories as to why the fibonacci retracement works. Some of these include:

•   Fibonacci price levels reflect the effects of extreme fear and greed in the market. To use this to their advantage, traders might buy when people are panicking and sell when others are getting greedy.

•   Fibonacci patterns are often observed in nature as well as in mathematics. For example: fruits and vegetables. If one would look at the center of a sunflower, spiral patterns could appear to curve left and right. Counting these spirals, the total often is a Fibonacci number. If one could divide the spirals into those pointed left and right, then two consecutive Fibonacci numbers could be obtained. Therefore, it’s thought that these patterns may be important in financial markets as well.

•   The law of numbers: If a greater percentage of people practice Fibonacci crypto trading, then the likelihood of its accuracy increases.

At its core, a Fibonacci retracement is a mathematical measurement of a particular pattern. When it comes to Fibonacci in crypto, traders try to apply these patterns to price action to predict future price movements.

Who Created Fibonacci Retracements?

While traders commonly use Fibonacci in crypto today, the number sequences pre-date the invention of cryptocurrency by many centuries. Fibonacci numbers are based on the key numbers studied by mathematician Leonardo Fibonacci (or Leonardo of Pisa) in the 13th century, although Indian mathematicians had identified them previously. He was a medieval Italian mathematician famous for his “Book of the Abacus”, the first European work on Indian and Arabian mathematics, which introduced Hindu-Arabic numerals to Europe.

Formula

In an uptrend or bullish market, the formulas for calculating Fibonacci retracement and extension levels are:

UR = High price – ((High price – Low price) * percentage) in an uptrend market; where UR is uptrend retracement.

UE = High price + ((High price – Low price) * percentage) in an uptrend market; where UE is an uptrend extension.

For example: A stock price range of $10 – $20, could depict a swing low to swing high.

Uptrend Retracement (UR) = $20 – (($20 – $10) * 0.618)) = $13.82 (utilizing 0.618 retracement)

Uptrend Extension (UE) = $20 + (($20 – $10) * 0.618)) = $26.18 (utilizing 0.618 retracement)

If a stock pulls back $13.82 could be a level that the stock bounces back to reach higher levels than its swing high price, e.g. $20. In an uptrend, the general idea is to take profits on a long trade at a Fibonacci price extension Level ~ $26.18.

What Does a Fibonacci Retracement do?

Markets don’t go straight up or down. There are pauses and corrections along the way. To buy stocks in an uptrend, one would look to get the best price possible.

Some traders use Fibonacci Retracement to determine how much a stock could pull back before continuing higher. Traders can use these retracement levels to find optimal prices at which to enter a trade.

A swing high happens when a security’s price reaches a peak before a decline. A swing high forms when the highest price reached is greater than a given number of highs around it.

Swing low is the opposite of swing high. It refers to the lowest price within a timeframe, usually fewer than 20 trading periods. A swing low occurs when a lowest price is lower than any other surrounding prices in a given period of time.

Support and Resistance

Support is the price level that acts as a floor, preventing the price from being pushed lower, while resistance is the high level that the price reaches over time. Analysts often illustrate these as horizontal lines on a graph.

A support or resistance level can also represent a pivot point, or point from which prices have a tendency to reverse if they bounce (in the case of support) or retreat (in the case of resistance) from that level.

Learn more: Support and Resistance: What Is It? How To Use It for Trading

Limitations of Fibonacci Retracement

Fibonacci retracements in crypto or other markets may be slightly predictive. But over relying on them can be counterproductive for reasons such as:

•   Fibonacci retracements, like any other indicators, could be used effectively only if investors understand it completely. It could end up being risky if not used properly.

•   There are no guarantees that prices will end up at that point, and retrace as the theory indicates.

•   Fibonacci retracement sequences are often close to each other, therefore it may be tough to accurately predict future price movements.

•   Using technical analysis tools like Fibonacci retracements can give investors tunnel vision, where they only see price action through this one indicator. Assuming that any single indicator is always correct can be problematic.

A Fibonacci retracement in crypto trading could wind up being even less predictive than in other financial markets due to the extreme volatility that cryptocurrencies often experience.

Fibonacci Retracements and Bitcoin

Fibonacci retracements can also be used for trading cryptos such as Bitcoin (BTC), similarly to how they’re used in stocks. In this case, one would use the levels 23.6%, 38.2%, 50%, 61.8% and 78.6% to determine where the cryptocurrency price would reverse.

Crypto prices are very volatile, and leverage trading is common. Leverage is the use of borrowed funds to increase the trading position, beyond what would be available from the cash balance alone. Therefore, it can be important to have some reference as to when the price could reverse, to not incur major losses.

Using the Fibonacci Retracement Tool to Trade Cryptocurrencies

In order to get started with a Fibonacci Retracement Tool, a trader could find a completed trend for a crypto, say, Bitcoin, which could either be an uptrend or downtrend.

Below are some steps on how to use Fibonacci retracement tool:

1.    Determine the direction of the market. Is it an uptrend or downtrend?

2.    For an uptrend, determine the two most extreme points (bottom and top) on the Bitcoin price chart. Attach the Fibonacci retracement tool on the bottom and drag it to the right, all the way to the top.

3.    For a downtrend, the extreme points are top and bottom and the retracement tool could be dragged from the top to the bottom.

4.    For an uptrend or downtrend, one could monitor the potential support levels: 0.236, 0.382, 0.5 and 0.618.

Recommended: Crypto Technical Analysis: What It Is & How to Do One

Fibonacci Retracement Example for Bitcoin

In December 2017, Bitcoin fell from $13,112 to around $10,800, within a short timeframe. After that, it rallied up to $12k twice, but did not break above that level until 2021. That indicates a bearish pattern, as it couldn’t break above its previous high. In technical analysis it is called a double top.

On the Fibonacci tool, the $12k resistance point coincided with the 50% level of retracement. When the price could not reach this level, it started to fall again. In this scenario, traders using Fibonacci Retracement might consider this a good time to exit a long position or establish a short position. A short trade is based on the speculation that the price of Bitcoin is going to fall.

By February, 2018, the trade materialized as Bitcoin continued its downtrend falling all the way to $9,270. The short trade would have worked and traders could have realized a profit from using the crypto Fibonacci Retracement tool, although those who managed to HODL for years after that would have made even more.

FAQ

Does Fibonacci retracement work with crypto?

While the Fibonacci retracement tool is traditionally used for analyzing stocks or trading currencies in the forex market, some analysts believe it is also helpful in determining a crypto trading strategy.

How accurate is fibonacci retracement?

In crypto, Fibonacci retracement levels are often fairly accurate, although no indicator is perfect and they are best used in combination with other research. The accuracy levels increase with longer timeframes. For example, a 50% retracement on a weekly chart is a more important technical level than a 50% retracement on a five-minute chart.

What are the advantages of using fibonacci retracement?

Here are some benefits of using Fibonacci Retracement.

•   Trend prediction. With the correct setting and levels, it can often predict the price reversals of bitcoin at early levels, with a high probability.

•   Flexibility. Fibonacci Retracement works for assets of any market and any timeframe. One must note that longer time frames could result in a more accurate signal.

•   Fair assessment of market psychology. Fibonacci levels are built on both a mathematical algorithm and the psychology of the majority, which is a fair assessment of market sentiment.

The Takeaway

The Fibonacci Retracement tool can help identify hidden levels of support and resistance so that analysts can better time their trades. Analysts believe this tool is more effective when utilized with types of cryptocurrency that have higher market-capitalization, like Bitcoin and Ethereum, because they have more established trends over extended time frames.They consider it less effective on cryptocurrencies with a smaller market capitalization.

Whether you use Fibonacci Retracement or other methods to create your cryptocurrency trading strategy, a great way to get started is by opening a brokerage account on the SoFi Invest investment app. You can use it to trade more than a dozen different coins, including Bitcoin, Ethereum, Litecoin, Cardano, and Dogecoin.

Photo credit: iStock/HAKINMHAN


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

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

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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 Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
SOIN1221533

Source: sofi.com

The Problem with Today’s Hot Real Estate Investment Market

Jessica Schmidt (not her real name) is a qualified intermediary for a large national firm specializing in 1031 exchanges for investment real estate. Lately, she has been working 10-hour days, six days a week.

Some days she takes up to 50 calls a day from real estate investors seeking to cash in on a hot real estate market without paying large sums of tax on their highly appreciated real estate investment.

It’s a seller’s market, and most real estate investors can garner a quick sale on amounts they had previously only dreamed of.

Everything’s great, right? Not so fast.

A Seller’s Market Isn’t Exactly a Dream

Jessica usually spends 10-15 minutes with a caller explaining the rules and regulations of a 1031 exchange. She often refers callers to her website for educational videos on the 45-Day Rule, the 3 Property Rule, and the 180 Day Rule. These are all essential and specific requirements for an investor to take advantage of our tax code’s ability to defer taxes upon a property sale.

She explains that the seller must open an exchange “ticket” BEFORE the sale of their investment property closes. Then the seller has up to 45 days to identify a qualified replacement property.

And that’s where the situation gets sticky.

Problems Finding Replacement Properties

“The problem with the inventory in the marketplace is that there isn’t any,” the chief economist for a large national title company was quoted as saying at a recent economic forum.

Today, more often than not, hopeful 1031 exchange investors find themselves in quite the conundrum. According to Jessica, the high-ticket sale and the tax deferral via the 1031 exchange may be the easy part, but finding a suitable replacement property seems to be the biggest obstacle and a common dilemma.

A Potential Solution – DST, or Delaware Statutory Trust

With that in mind, Jessica has been increasingly offering her clients a different option to consider instead of a 1031 exchange: a DST, or Delaware Statutory Trust.

DSTs are passive real estate investments that qualify as replacement property for 1031 exchanges. DSTs invest in multifamily apartments, medical buildings, self-storage facilities, Amazon distribution centers, industrial warehouses, hotels and other vital real estate asset classes. The investments are passive in nature and generate regular monthly income to investors and the potential and opportunity for growth.

Many DSTs are syndicated with some debt, usually about 50% loan-to-value. However, the debt to investors is considered non-recourse, which means that an investor has no personal guarantee or personal liability for such debt. This could be very helpful, Jessica explains to her clients, because they all want to receive a full tax deferral, and the rules stipulate that in an exchange, the investor must reinvest the sale proceeds AND replace any debt.

DSTs have been around since 2004 when the IRS issued Ruling 2004-86, which made DSTs qualify for replacement in a 1031 exchange.

Must Be an Accredited Investor

DSTs are for “accredited” investors only, which means that an investor must have a net worth of at least $1 million apart from their primary residence or have an income of $200,000 for a single person or $300,000 for a married couple. And DSTs are offered as SEC-registered securities and therefore are obtained from broker-dealers or registered investment advisers. The advisers perform extensive due diligence on the real estate syndications and each specific DST-sponsored property.

Jessica concludes that DSTs could be a perfect solution for many of her clients and investors, especially those getting closer to retirement and maybe not wanting to actively manage real estate assets any longer. Between the tax savings, the passive nature of the investments, and the high-quality assets that are generally part of DSTs, many of her clients’ problems could be effectively solved using this important passive investment strategy.

Although DSTs are attracting billions of dollars of investment funds, most CPAs and real estate investors are still unaware of this important and viable solution that could potentially solve so many problems for so many real estate investors.

After explaining all this so many times in calls from clients the past several months, Jessica decided to come up with the following “Letterman” style Top 5 Benefits of DSTs for her clients:

5 Top Benefits of DSTs in a 1031 Exchange

1. Potential Better Overall Returns and Cash Flows

It depends upon the investor. Still, some investors find DSTs could offer a better risk-return profile than a property they might manage themselves.

2. Tax Planning and Preserved Step-Up in Basis

DSTs offer the same tax advantages of real estate that an investor would own and manage themselves. Depreciation and amortization are passed along to DST investors by their proportionate share. DSTs can be exchanged again in the future into another DST via a 1031 exchange.

3. Freedom

Passive investing allows older real estate owners the time and freedom to travel, pursue other endeavors, spend more time with family, and/or move to a location removed from their current real estate assets.

4.  As a Backup Strategy

In a competitive market, an investor may not be able to find a suitable replacement property for their 1031 exchange. DSTs might be a good backup option and could be named/identified in an exchange if only for that reason.

5. Capture Equity in a Hot Market

When markets are at all-time highs, investors may want to take their gains off the table and reinvest using the leverage inside a DST offering.

DST investments come with a risk common to real estate investing and are offered to accredited investors only and by private placement memorandum only. Therefore, a prudent investor would be best served by evaluating all details of each specific offering and the track record of the sponsor firm before investing in a DST offering.

Chief Investment Strategist, Provident Wealth Advisors

Daniel Goodwin is the Chief Investment Strategist and founder of Provident Wealth Advisors, Goodwin Financial Group and Provident1031.com, a division of Provident Wealth. Daniel holds a series 65 Securities license as well as a Texas Insurance license. Daniel is an Investment Advisor Representative and a fiduciary for the firms’ clients. Daniel has served families and small-business owners in his community for over 25 years.

Source: kiplinger.com

5 Mortgage REITs for Yield-Hungry Investors

In the search for rich dividend yields, mortgage REITs (mREITs) are in a class all their own. 

These are companies are structured as real estate investment trusts (REITs), but they own interest-bearing assets like mortgages and mortgage-backed securities rather than physical real estate.

One of the biggest reasons to own mortgage REITs is their exceptional yields, currently averaging around 8% to 9%, according to Nareit – the leading global producer on REIT investment research – more than four times the yield available on the S&P 500. These outsized yields are enticing, but investors should approach these stocks with caution and hold them only as one part of a larger, more diversified portfolio. 

One reason for this is their sensitivity to changes in interest rates. When interest rates rise, mortgage REIT earnings generally decline. The Federal Reserve is signaling plans for multiple rate hikes in 2022 that could create headwinds for these stocks.   

And increasing interest rates hurt mREITs because these businesses borrow money to fund their operations. Their borrowing costs rise with interest rates, but the interest payments they collect from mortgages remain the same, causing profit margins to compress. Some of this risk can be managed with hedging tools, but mortgage REITs can’t eliminate interest-rate risk altogether.  

Another caveat is that mortgage REITs frequently cut dividends when times are tough. During the height of the COVID-19 pandemic in 2020, 30 of this sector’s 40 companies either cut or suspended dividends. On the flip side, dividends were quickly restored in 2021, with 20 mREITs raising dividends.

We searched the mortgage REIT universe for stocks whose dividends appear safe this year.

Read on as we explore five of the best mREITs for 2022. A few of these REITs are reducing interest-rate risk via acquisitions or an unusual lending focus, while others have strong balance sheets or outstanding track records for raising dividends. And all of them offer exceptional yields for investors.

Data is as of Jan. 12. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Stocks are listed in order of lowest to highest dividend yield.

1 of 5

Hannon Armstrong Sustainable Infrastructure Capital

green investing conceptgreen investing concept
  • Market value: $4.1 billion
  • Dividend yield: 2.9%

Hannon Armstrong Sustainable Infrastructure Capital (HASI, $48.56) is a bit of an oddball for a mortgage REIT in that it specializes in clean energy and infrastructure rather than pure real estate. Specifically, the real estate investment trust invests in wind, solar, storage, energy efficiency and environmental remediation projects – making it not only one of the best mREITs, but also one of the best green energy stocks to own.

Its loan portfolio encompasses 260 projects and is valued at $3.2 billion. In addition to its own loans, Hannon Armstrong manages roughly $8 billion of other assets, mainly for public sector clients.   

This mREIT boasts a $3 billion pipeline and is ideally positioned to capture some portion of the spending from the $1.2 trillion infrastructure bill that was passed by Congress in late 2021.  

Over the last three years, Hannon Armstrong has generated 7% annual earnings per share (EPS) gains and 1% yearly dividend growth. Over the next three years, HASI is targeting accelerated gains of 7% to 10% yearly earnings per share growth and 3% to 5% in dividend hikes. Future earnings growth should be enhanced by the firm’s prudent 1.6 times debt-to-equity ratio.

Hannon Armstrong produced exceptional September-quarter results, showing 45% year-over-year loan portfolio growth and a 14% increase in distributable earnings per share. 

Analysts expect earnings of $1.83 per share this year and $1.91 per share next year – more than enough to cover the REIT’s $1.40 per share annual dividend.

HASI is well-liked by Wall Street analysts, with five of the six that are tracking the stock calling it a Buy or Strong Buy. 

2 of 5

Starwood Property Trust

little red house surrounded by little white houseslittle red house surrounded by little white houses
  • Market value: $7.7 billion
  • Dividend yield: 7.6%

Starwood Property Trust (STWD, $25.44) has a $21 billion loan portfolio, making it the largest mortgage REIT in the U.S. The company is affiliated with Starwood Capital Group, one of the world’s biggest private investment firms. 

STWD is considered a mortgage real estate investment trust, but it operates more like a hybrid by owning physical properties as well as mortgages and real estate securities. Its portfolio comprises 61% commercial loans, but the REIT also has sizable footholds in residential loans (11%), properties (12%) and infrastructure lending (9%), a relatively new focus for the company.

The mREIT benefits from access to the databases of Starwood Capital Group, which makes over $100 billion in real estate transactions annually and has a portfolio consisting of 96% floating-rate debt. This high percentage of floating-rate debt and unusually short loan durations – averaging just 3.3 years – minimizes Starwood’s risk from rising interest rates. 

STWD is also one of the nation’s largest servicers of commercial mortgage-backed securities (CMBS) loans; sizable, reliable loan servicing fees help mitigate risk if loan credit quality deteriorates.

Starwood Property Trust closed $3.8 billion of new loans during the September quarter and generated distributable earnings of 52 cents per share – up sequentially from June and slightly above analysts’ consensus estimate. After the September quarter closed, the mREIT booked a huge $1.1 billion gain on the sale of a 20% stake in an affordable housing real estate portfolio.   

The company has made 12 consecutive years of quarterly dividend payments, and unlike many other mortgage REITs, held its ground in 2020 by maintaining an unchanged dividend.

Of the seven Wall Street pros following STWD, one says it’s a Strong Buy, five call it a Buy and just one says Hold. Adding fuel to the bullish fire, CNBC analyst Jon Najarian recently tapped Starwood as one of his top stocks to watch, given its impressive 7.6% dividend yield.

3 of 5

Arbor Realty Trust

mortgage-backed securities conceptmortgage-backed securities concept
  • Market value: $2.8 billion
  • Dividend yield: 7.7%

Arbor Realty Trust (ABR, $18.70) stands out as one of the best mREITS given its six straight quarters of dividend hikes and a compound annual growth rate (CAGR) of nearly 18% for dividend growth over the past five years. 

What’s more, Arbor Realty Trust has delivered 10 straight years of dividend growth while maintaining the industry’s lowest dividend payout rate.

This mortgage REIT is able to steadily grow dividends thanks to the diversity of its operating platform, which generates income from agency and non-agency loans, physical real estate (including rentals) and servicing fees.

Agency loan originations and the servicing portfolio have grown at a 16% CAGR over five years. And during the first nine months of 2021, Arbor Realty Trust set a new record with balance sheet loan originations, coming in at $7.2 billion – 2.5 times its previous record. Loan volume rose 45% over its previous record to total $13.2 billion over the nine-month period.

While September EPS declined year-over-year due to a reduced contribution from equity affiliates, earnings for the first nine months of the year were up 164% from the year prior to $1.56 per share.

Arbor Realty Trust earns Buy ratings from two of the three Wall Street analysts following the stock, and Zacks Research recently named ABR one of its top income picks for 2022. 

Valued at only 10 times forward earnings – which is 15.4% below industry peers – ABR shares appear bargain-priced at the moment.   

4 of 5

MFA Financial

person looking for business loan on laptopperson looking for business loan on laptop
  • Market value: $2.1 billion
  • Dividend yield: 8.2%

MFA Financial (MFA, $4.68) just closed an impactful acquisition that reduces its exposure to interest-rate changes and accelerates loan growth. This REIT was already hedging its bets by investing in both agency and non-agency mortgage securities. 

Agency securities are guaranteed by the U.S. government and tend to be safer, lower-yielding and more sensitive to interest rates than non-agency securities. By combining these in one portfolio, MFA Financial generates nice returns while reducing the impact of changes in interest rates and prepayments on the portfolio. 

Through the July acquisition of Lima One, MFA Financial becomes a major player in business purpose lending (BPL), an attractive niche comprised of fix-and-flip, construction, multi-family and single-family rental loans. 

An aging U.S. housing stock is creating demand for real estate renovations and causing BPL to soar. BPL loans are good quality and high-yielding, but difficult to source in the marketplace. With the purchase of Lima One, MFA Financial gains a $1.1 billion BPL loan-servicing portfolio and an established national franchise for originating these types of loans. 

Lima One’s impact was apparent in MFA Financial’s September-quarter results. The REIT originated $2.0 billion of loans, the highest quarterly total on record, and grew its portfolio by $1.5 billion after runoff. 

Net interest income increased 15% on a sequential basis, and gains recorded on the Lima One purchase contributed 10 cents to the mREIT’s earnings of 28 cents per share. MFA Financial also took advantage of the strong housing market to sell 151 properties, booking a $7.3 million gain on the sale. MFA’s book value – the difference between the total value of a company’s assets and its outstanding liabilities – rose 4% sequentially to $4.82 per share, a modest 3% premium to its current share price.

Raymond James analyst Stephen Laws upgraded MFA to Outperform from Market Perform – the equivalents of Buy and Hold, respectively – in December. He thinks the Lima One acquisition will accelerate loan growth and reduce the mortgage REIT’s borrowing costs.

MFA Financial has a 22-year track record of paying dividends. While payments were reduced in 2020, the REIT recently signaled improving prospects with a 10% dividend hike in late 2021.

5 of 5

Broadmark Realty Capital

real estate contract with keys and penreal estate contract with keys and pen
  • Market value: $1.3 billion
  • Dividend yield: 8.6%

Broadmark Realty Capital (BRMK, $9.77) is unusual for its zero-debt balance sheet, robust loan origination volume and sizable monthly dividends. This mortgage REIT provides short to mid-term loans for commercial construction and real estate development that are less interest-rate sensitive. As such, BRMK is a solid play on America’s housing boom.  

Lending activities focus on states with favorable demographics and lending laws. Plus, 60% of its business comes from repeat customers, ensuring low loan acquisition costs.

Broadmark Realty Capital achieved record loan origination volume of $337 million during the September quarter, roughly twice prior-year levels and up 68% sequentially. The overall portfolio grew to $1.5 billion. Broadmark Realty Capital also originated its first loans in Nevada and Minnesota, with expansion into additional states planned during the December quarter. 

Despite rising revenues and distributable EPS, Broadmark Realty’s results came in slightly below analyst estimates and its share price declined in reaction. However, this price slip may present an opportunity to pick up one of the best mREITs at a discount. At present, BRMK shares trade at just 12.7 times forward earnings and 1.1 times book value – the latter of which is a 15% discount to industry peers.

The mortgage REIT cut its dividend in 2020, but continued to make monthly payments to shareholders. And in 2021, it raised its dividend 17% in early 2021. While dividend payout currently exceeds 100% of fiscal 2021 earnings, analysts are forecasting a 17% rise in fiscal 2022, which would comfortably cover the current 84 cents per share annual dividend.     

Source: kiplinger.com

Tax Loss Carryforward

A tax loss carryforward is a special tax rule that allows capital losses to be carried over from one year to another. In other words, capital losses realized in the current tax year can also be used to offset gains or profits in a future tax year.

Investors can use a capital loss carryforward to minimize their tax liability when reporting capital gains from investments. Business owners can also take advantage of loss carryforward rules when deducting losses each year.

Knowing how this tax provision works, and when it can be applied, is important from an investment tax-savings perspective.

What Is Tax Loss Carryforward?

Tax loss carryforward is the process of carrying forward capital losses into future tax years. A capital loss occurs when you sell an asset for less than your adjusted basis. Capital losses are the opposite of capital gains, which are realized when you sell an asset for more than your adjusted basis.

Adjusted basis simply means the cost of an asset, adjusted for various events (i.e. increases or decreases in value) through the course of ownership. Whether a capital gain or capital loss is short-term or long-term depends on how long you owned it before selling. Short-term capital losses and gains apply when an asset is held for one year or less, while long-term capital gains and losses are associated with assets held for longer than one year.

The Internal Revenue Service allows certain capital losses, including losses associated with personal or business investments, to be deducted from taxable income. There are limits on the amount that can be deducted each year, however, which depend on the type of losses that are being reported.

In order to allow taxpayers to claim the full capital loss deduction they’re entitled to, the IRS makes it possible to carry tax losses forward into future years.

Recommended: What to Know about Paying Taxes on Stocks

How Tax Loss Carryforwards Work

In general terms, a tax loss carryforward works by allowing you to report losses realized on assets in one tax year on a future year’s tax return. IRS loss carryforward rules apply to both personal and business assets. The main types of carryforwards allowed by the Internal Revenue Code are capital loss carryforwards and net operating loss carryforwards.

Capital Loss Carryforward

IRS rules allow investors to “harvest” tax losses, meaning they use capital losses to offset capital gains. An investor could sell an investment at a capital loss, then deduct that loss against capital gains from other investments, assuming they don’t violate the wash sale rule.

The wash sale rule prohibits investors from buying substantially identical investments within the 30 days before or 30 days after the sale of a security for the purposes of tax-loss harvesting.

If capital losses are equal to capital gains, they would offset one another on your tax return, so there’d be nothing to carry over. For example, a $5,000 capital gain would cancel out a $5,000 capital loss and vice versa.

If capital losses exceed capital gains, you can claim the lesser of $3,000 ($1,500 if married filing separately) or your total net loss shown on line 21 of Schedule D for Form 1040. Any capital losses in excess of $3,000 could be carried forward to future tax years. The IRS allows you to carry losses forward indefinitely.

Net Operating Loss Carryforward

A net operating loss (NOL) occurs when a business has more deductions than income. Rather than posting a profit for the year, the business operates at a loss. Business owners may be able to claim a NOL deduction on their personal income taxes. Net operating loss carryforward rules work similar to capital loss carryforward rules, in that businesses can carry forward losses from one year to the next.

For losses arising in tax years after December 31, 2020, the NOL deduction is limited to 80% of the excess of the business’s taxable income, according to the IRS. To calculate net operating loss deductions for your business, you first have to omit items that could limit your loss, including:

•   Capital losses that exceed capital gains

•   Nonbusiness deductions that exceed nonbusiness income

•   Qualified business income deductions

•   The net operating loss deduction itself

These losses can be carried forward indefinitely at the federal level.

Note, however, that the rules for NOL carryforwards at the state level vary widely. Some states follow the federal rules, but others do not.

How Long Can Losses Be Carried Forward?

According to the IRS, tax loss carryforward rules allowed losses to be carried forward indefinitely. That includes both capital losses associated with the sale of investments or other assets, as well as net operating losses for a business. Prior to the Tax Cuts and Jobs Act of 2017, business owners were limited to a 20-year window when carrying forward net operating losses.

It’s important to keep in mind that capital loss carryforward rules don’t allow you to simply roll over losses. IRS rules state that you must use capital losses to offset capital gains in the year that they occur. You can only carry capital losses forward if they exceed your capital gains for the year. The IRS also requires you to use an apples-to-apples approach when applying capital losses against capital gains.

For example, you’d need to use short-term capital losses to offset short-term capital gains. You couldn’t use a short-term capital loss to balance out a long-term capital gain or a long-term capital loss to offset a short-term capital gain. This rule applies because short- and long-term capital gains are subject to different tax rates.

Example of Tax Loss Carryforward

Assume that you purchase 100 shares of XYZ stock at $50 each. Thirteen months after purchasing the shares, their value has doubled to $100 each so you decide to sell, collecting a capital gain of $5,000. You also hold 100 shares of ABC stock, which have decreased in value from $70 per share to $10 per share over that same time period.

Your capital losses would total $6,000 (the difference between the $7,000 you paid for the shares and the $1,000 you sold them for). You could use $5,000 of that loss to offset the $5,000 gain associated with selling your shares in the first company. Per IRS rules, you could also apply the additional $1,000 loss to reduce your ordinary income for the year.

Now, say you also have another stock that you sold at a $5,000 loss. You could apply $2,000 of that loss to offset ordinary income, then carry the remaining $3,000 forward to a future tax year, per IRS rules. All of this, of course, assumes that you don’t violate the wash sale rule when timing the sale of losing stocks.

The Takeaway

If you’re investing in a taxable brokerage account, it’s important to include tax planning as part of your strategy. Selling stocks to realize capital gains could result in a larger tax bill if you’re not deducting capital losses at the same time. With tax-loss harvesting, assuming you don’t violate the wash sale rule, it’s possible to carry forward investment losses to help reduce the tax impact of gains over time. This applies to personal as well as business gains and losses. Thus, understanding the tax loss carryforward provision may help reduce your personal as well as investment taxes.

In order to understand the true impact of gains and losses, it may help to open an investment account with SoFi Invest®. Here you can trade stocks as well as ETFs and even cryptocurrency. Even better, as a SoFi Member you have access to financial professionals who can offer complimentary guidance and answer your most pressing investing questions.

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Source: sofi.com

Average Directional Index (ADX) Explained

The Average Directional Movement Index, or ADX, is an indicator used in technical analysis to help determine the strength of a pricing trend. The indicator was developed by Welles Wilder as part of his Directional Movement System for commodity trading. Since then it has been used for other tradeable investments such as stocks, exchange-traded funds (ETFs), and foreign currency.

The ADX can help investors understand when to buy and sell positions. Here’s a closer look at what ADX is, how to calculate it, and the role it plays in making investment decisions.

What is ADX?

ADX shows an average of price range values that indicate expansion or contraction of prices over time — typically a period of 14 days, but, in some cases it may be calculated for shorter or longer periods as well. Shorter periods may respond quicker to pricing movements but may also have more false signals. Longer periods tend to generate fewer false signals but may cause the indicator to lag the market.

The Average Directional Index is part of Wilder’s Directional Movement System, which attempts to measure the strength of pricing trends in both the positive and negative directions, by using DMI+ and DMI- indicators. The DMI+ indicates positive directional movement, and the DMI- indicates negative directional movement. ADX is calculated as the sum of the differences between DMI+ and DMI- over time. These three indicators are often charted together.

ADX Formula

Calculating the Average Directional Index on your own is a bit complex; it requires a series of calculations to be carried out in a specific order. Luckily, you probably won’t ever have to do it yourself — instead take a look at advanced chart settings for publicly available stock charts on websites like the Wall Street Journal . There is often an option to add an ADX or DMI overlay to the chart.

For those who are curious, here’s a look at the formulas required to calculate ADX:

+DI = (Smoothed +DM/ATR) X 100

-DI = (Smoothed -DM/ATR) X 100

DX= (|+DI – -DI|/|+DI + -DI|) X 100

ADX = ((Prior ADX X 13) + Current ADX))/14

Assumptions:

DM = Direction Movement

ATR = Average True Range

+DM = Current High – Previous High

-DM = Previous Low – Current Low

Smoothed +/- DM = ∑14 t=1DM – ((∑14 t=1DM)/14) + CDM

CDM = Current DM

How to Interpret ADX Results

It’s possible that prices within a given market could be moving up or down within a given range without ever developing into a trend. The ADX is used first and foremost to determine whether or not an up or down trend exists in a market at all.

According to Wilder’s calculations, when ADX is above 25, it indicates a strong trend; when ADX is below 20, that indicates there is no trend.

Generally, analysts conclude that between 20 and 25 represents a bit of a gray area in which some say that a developing trend is possible. It’s also possible that prices are simply ranging back and forth rather than trending.

For those who follow ADX, an ADX between 25 and 50 may represent a moderate strength trend. A result of 50 to 100 indicates trends that are increasingly strong.

How to Read an ADX Chart

Identifying the direction of trends is relatively easy when looking at an ADX chart. A line that’s moving in the upward direction indicates a strengthening trend, while a line moving in the downward direction indicates weakening. The steeper the slope of the line, the stronger the trend.

When ADX turns down, it may be an indicator that a trend is ending, which could be an opportunity for investors to consider whether they want to continue holding a position. If ADX has been low for a period of time and begins to rise by four or five points, it may be a bullish indicator that investors should consider buying to take advantage of a potentially burgeoning trend.

Using ADX, +DMI, and -DMI in tandem can generate crossover signals that can help signal opportunities to buy or sell. For example, the +DMI line crossing above the -DMI line is a potential signal to buy when ADX is above 20.

Investors tend to use ADX in conjunction with other technical analysis indicators such as moving averages to help them analyze price movements.

ADX can be used as a momentum indicator that can signal potential reversals in trends. For example, if ADX and market price are moving in an upward trajectory together, that can indicate that prices are strongly trending higher. However, if ADX declines but prices continue to rise, it may be an indicator that the market is losing momentum and prices will turn down soon.

ADX Comparisons

ADX is related to some other indicators. Here’s a breakdown of similarities and differences.

ADX vs DMI

Like ADX, DMI can be used as an indicator to help determine if the price of a security is trending and how strong that trend is. DMI does not take the direction of the trend into account.

DMI can be positive or negative. Positive DMI, or +DMI, is the difference between a stock’s high price today and its high yesterday. Values from the previous 14 days are then added up.

Negative DMI, of -DMI is the difference between a stock’s low from today and its low price from yesterday. A sum is then taken for these values for the previous 14 days.

ADX is calculated as the sum of the difference between positive and negative DMI over time.

ADX vs the Aroon Indicator

The Aroon Indicator is made up of two indicators, the Aroon-Up and the Aroon-Down. Aroon-up reflects the number of days since the last 25-day high, while Aroon-Down represents the number of days since the 25-day low.

The Aroon Indicator is similar in many ways to ADX. It’s used to identify the beginning of a trend or changes to trends, and determine whether a trend exists or if prices are just fluctuating within a range. It can also help investors determine the strength of a trend.

Higher Aroon values indicate a trend, while low values represent a weakening or nonexistent trend.

Pros and Cons of Using ADX

Like any indicator, the ADX has benefits and limitations. Here’s a look at some of the pros and cons:

Pros Cons
Helps identify whether a trend exists or if prices are simply fluctuating within a given range. False trading signals can occur, for example when crossovers are happening too frequently, which can result in confusion as trades quickly shift direction.
Can indicate shifts in trends to help investors make buy and sell decisions.
When used in conjunction with +DMI and -DMI, investors can examine crossover signals to make buy and sell decisions.

The Takeaway

When using technical analysis to decide when to buy and sell investments, individuals may make use of a wide range of research and analytic tools, such as ADX, DMI, the Aroon Indicator, and other trend indicators.

For investors who prefer this type of hand-on approach, a SoFi Invest® brokerage account offers active investing. For others, who may prefer a more hands-off approach, SoFi Invest offers automated investing accounts — an automatically managed portfolio based on their risk tolerance and goals.

Find out how to get started with SoFi Invest.

Photo credit: iStock/Pekic


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Source: sofi.com

How Risky is Investing in Rental Properties?

I am trying to buy as many rental properties as possible because of the great returns they provide. I am also trying to help other investors discover the fantastic world of investing in long-term rentals through my blog. However, I run into a lot of feedback from people who are worried about how risky it is to invest in rental properties. I hear: “my friend went broke investing in real estate” or “my parents had a rental and it was a money pit up until the day they were forced to sell it.” There are many horror stories involving real estate, but I have no doubt whatsoever long-term rentals are a great investment if you do your homework and buy properties right. Most of those horror stories come from people who did not do their homework, turned a personal residence into a rental out of necessity, or were hoping for appreciation. What are the real risks of rental properties and how can you mitigate these risks?

What are the main risks of investing in rental properties?

There are real risks with investing in rental properties. Many people felt the wrath of these risks in the last housing crash. Housing values plummeted and in some areas rents plummeted as well. Interestingly enough, not every area saw lower rental rates. Some areas saw rents increase because there were so many more renters (people who lost their houses) and the demand pushed rents up.

The investors who were hurt the most in the housing crash were those who were breaking even on their properties or losing money each month and hoping prices would increase to make money. When the bottom dropped out, they now had a property that was losing money each month and was worth less than they had bought it for. Many investors allowed these homes to go into foreclosure because they didn’t think they were worth keeping.

Other risks come from rentals when people buy a property and do not have enough cash to maintain the property or hold it when it is vacant. Most banks will require a certain amount of reserves when you get a loan on an investment property. But as soon as the property is purchased there is nothing stopping the owners from spending that reserve money. When you own a rental there will be times when the tenants move out, there can be evictions, and rarely a tenant can destroy a property. We see these situations occur quite often because people love to see drama but for the most part our tenants take care of our rentals and are awesome.

Why invest in rentals with these risks?

Rental properties have made me a ton of money over the last decade. Prices have increased significantly, which is great, but the properties also make money every month, and I always get a great deal on everything I buy which means I build equity on day one. There are many ways to mitigate the risks of rentals and the money I have made from my properties more than makes the risks worth it!

A lot of people will assume that when you are investing in large value assets like real estate and there can be huge returns, that the risk must be through the roof. There are types of real estate that can be very risky. We flip houses as well, and that is a much riskier venture than owning rental properties in my opinion. Development can also be much riskier but again come with huge rewards as well.

I also was an REO broker during the housing crash and I talked to many investors who lost homes. I was able to see why they lost their homes, what they could have done differently, and what happened after they lost their homes. For the most part, they bought houses that did not cash flow or make money every month and when things went bad they lost the motivation to keep paying into them. Losing the houses was also not the end of the world for these investors. Many of them had put little money down thanks to the crazy lending that was happening prior to that last crash. They were also able to keep those houses for quite a while after they stopped making payments. Many investors kept collecting rent during this time period which may or may not have been legal, but it did happen.

Many of those investors got right back in the real estate game after recovering and invested the right way with cash flow!

How can you mitigate the risk from rentals?

Buy below market value

One key to a low-risk rental strategy or any successful real estate strategy is to buy property below market value. Buying a property below market enables you to create instant equity, increase your net worth, and protects against a downturn in the market. One of the investors who was hurt badly during the crash was buying brand new houses and turning them into rentals. The houses were in great shape, but he paid full retail value for them.

When I buy rentals I want to pay at least 20% less than they are worth after considering any repairs are needed. For example:

  • A home needs $20,000 in repairs and will be worth $200,000 after those repairs. I want to pay $140,000 or less for that property ($200,000 x .80 – $20k). If I am flipping houses, I need to get an even better deal!

I also usually put about 20% down when I buy rentals which means after the property is repaired I have a loan around $110,000 and a property worth $200,000. Even if prices lost 30%, which is about how much they dropped across the county I am fine.

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Cash flow

I consider cash flow the most important factor in my long-term rental strategy. I want every property to make money each month after paying all expenses. Finding these properties that are also a great deal is not easy, but if you want to change your life with massive returns, it is not easy! When I invest I look for a return of 15% cash on cash. That means I make 15% on the money I have invested into the property. These are very high returns and not everyone needs to make this much but it is what I shoot for.

When you have cash flow coming in every month, it does not matter if values decrease because you do not need to sell the property. While it is true that rents can decrease and lower your cash flow, that is very rare and was even very rare in the last housing crash. There were some areas like Florida and Arizona that were massively overbuilt that saw lower rents, but the nation as a whole barely saw any drop.

My cash flow calculator can help you figure the real income on rentals.

Type of property

The older the property, the better the chance of a major repair needing to be done. I have enough cash flow coming in to account for major repairs, but homes over 100 years old can have issues come up that could wipe out all equity. It is rare, but a foundation or structural problem can make a property uninhabitable and cost tens of thousands of dollars to repair. By purchasing newer properties, I lessen the chances of running into repairs that could wipe out my profit for a year or even two.

Multifamily and commercial real estate can also carry more risk. Those types of properties are more complicated and have fewer buyers. I also buy multifamily and commercial properties but I am very careful what I buy and understand there will most likely be way more costs and exposure if the market changes.

If you buy properties that need a ton of work that can add to the risk as well. On my flips and rentals, the worst deals I have done were properties that needed massive remodels. It takes so much time, so many resources, and there is so much that can go wrong. It can also be risky trying to do all of that work yourself!

Cash reserves

One of the most important things to have when investing in real estate is cash! If you buy rentals or flips that can be expensive at times. It is very important to set aside cash to take care of the problems that might come up. When I figure my cash flow I set aside money for vacancies and repairs. You need to have cash set aside in case something goes wrong and this is one of the biggest mistakes landlords make is not having cash around.

Ironically, getting a loan allows investors to have more cash in many cases. Paying down the mortgage early or trying to pay it off with all your extra cash can leave you in a bad situation. If you do pay a property off and need to access that money in an emergency it can be hard to get to without selling.

Good management

Another way to have problems with your rentals is to manage them poorly. Many people have no idea how to manage a rental but decide they can do it on their own. They choose a bad tenant after not screening them, then never check on the property, and are surprised when it gets trashed. If you are going to manage rentals on your own you have to take the time to learn how to manage them. You have to screen tenants, and keep tabs on the properties!

If you don’t want to manage them yourself, you can hire a property manager as well. It takes time to find a good property manager and this is where it takes from work from the landlord as well. Again, no one said owning rentals was easy, but there are many ways to make them a great investment if you are willing to put in the work.

Liability and damage

Another risk that comes with rental properties is natural disasters or liability from accidents. People can get hurt and can sue tenants or tornados can wipe your property off the earth. Both instances are rare, but they happen. To mitigate the liability side you can put your properties in an LLC or make sure you have the property insurance coverage like a landlord and umbrella policy. With these policies, if you have a tenant destroy property or need to be evicted, they can help cover those costs as well! Putting a property in an LLC can help with getting sued but is not foolproof.

It is important to make sure your insurance agent knows you are using the property as a rental so you have the right coverage. It might be cheaper to leave homeowners insurance on the property if you used to live there but that can cause problems down the road.

Risks that are tough to mitigate

There are some cases where a landlord does everything right but still has a massive loss. These are rare but can happen and just about any investment or simply living life comes with risks.

  • Meth or drug house: If someone is cooking meth or using meth in your house it can cause damage that insurance will not cover. You may have to make major repairs depending on how bad it is. These risks can be alleviated by good tenant screening and checking on the properties often. It is not always the case, but many drug houses we see have cameras all over. That can be a sign to check the house out more if you see cameras on your rental.
  • Floods: Not all floods are covered by insurance. You often need an additional rider or flood coverage. If you are in a flood zone the lender will require the additional coverage but if you pay cash or use private money you may not be required to have it. There is also the risk of a flood outside a flood zone. If the property has a risk of flooding it is important to talk to your insurance agent about additional coverage.

Why does everyone say rentals are risky?

I won’t tell you it is impossible to lose money investing in long-term rentals. It can easily happen if you don’t have a plan, have reserves, or are impatient. It is not easy to buy properties below market value with great cash flow. If it were easy investing in long-term rentals, everyone would be investing in real estate.

The reason so many people think rentals are risky is that they hear anecdotal stories. Stories are good for entertainment and drama but they don’t give the entire picture. “my cousins, aunts, friend, lost all their money when their rental was trashed!” They failed to tell us the person self-managed a property they used to live in from 4 states away and never once talked to the tenant in 3 years. Then they were surprised it was trashed. There are all kinds of stories but usually, you can find one of the main reasons above for why people lose money on rentals. Overall, real estate is one of the best ways to build wealth!

Don’t be scared to invest in rental properties

There are many people who have gotten rich and retired early by investing in long-term rentals. There is a lot of opportunity and many advantages to investing in real estate. Just because you can have some great rewards does not mean there is a massive risk. Some risk? Yes of course and the less you pay attention to your investment the riskier it will get!

Categories Rental Properties

Source: investfourmore.com

Inter-Vivos Trusts: How Do They Work?

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An inter-vivos trust or living trust is a legal arrangement that allows a person to transfer ownership of assets to a trust while they are still alive. Inter-vivos trusts distribute property to beneficiaries when a person dies and helps an estate avoid probate. A financial advisor can guide you through the process of creating an inter-vivos trust and address other estate planning needs.

How Inter-Vivos Trusts Work

While a testamentary trust takes effect when the grantor (person who created it) dies, an inter-vivos trust allows a person or married couple to transfer assets like money, real estate or investments to a separate entity while they are still alive.

An inter-vivos trust can be either revocable or irrevocable. When a living trust is revocable, the trustor can change or cancel it, and can even act as its trustee (person who manages the trust). An irrevocable trust, on the other hand, may not be changed once it is created. Assets transferred to an irrevocable trust cannot be transmitted back to the original owner.

Whether it’s revocable or irrevocable, an inter-vivos trust must have someone assigned as the trustee. Even if the person who established the trust opts to serve as trustee, they still must name a successor trustee to manage the trust when they die. A grantor must also name beneficiaries who will receive assets from the trust at the time of their death.

Last but not least, an inter-vivos trust does not render a will unnecessary. In fact, a will is still needed to execute the trust. Wills can also serve as a backup of sorts and account for any assets not included in the trust. For instance, if you acquire real estate later in life and never added it to the trust, a will can ensure the property is transferred to the proper person at the time of your death.

Advantages of Inter-Vivos Trusts

Property transferred to an inter-vivos trust is not subject to probate, the legal procedure by which a deceased person’s will is processed. This court-supervised process ensures that an estate’s assets are inventoried and distributed properly and that its debts are paid.

By skipping these lengthy and potentially costly proceedings, the assets held by a trust can be smoothly transferred to beneficiaries without becoming public record like a will do.

There are also specific benefits associated with revocable and irrevocable living trusts. A revocable trust gives the grantor the option to add new beneficiaries, remove assets or make other changes. While flexibility is the main advantage of a revocable trust, their counterparts offer more protection for the assets they hold. When a grantor establishes an irrevocable trust, they give up ownership of the assets held by the trust, which protects them from creditors.

How to Create an Inter-Vivos Trust

There are two primary ways to create an inter-vivos trust: enlisting the help of a professional or doing it yourself. A financial advisor, especially one with the accredited estate planner (AEP) designation, or an estate planning attorney can streamline the process for you and ensure that your trust is created properly.

However, a basic living trust doesn’t have to be overly complicated and can even be set up online. If you’re looking to go it alone, you will first need to decide what kind of trust you want to establish and the assets that you’ll transfer to it. Next, you’ll have to pick a trustee and beneficiaries. Then, you’ll create a Declaration of Trust online and sign it in front of a notary. Lastly, you’ll need to transfer the titles of trust property to the trustee (even if it’s you) and then safely store the document.

While it may save you money, be aware of the potential pitfalls and dangers of DIY estate planning, which can create additional problems for beneficiaries when you’re gone.

Bottom Line

An inter-vivos trust is an estate planning tool that helps a person or couple transfer assets to beneficiaries without exposing their estate to the probate system. While some trusts go into effect when a person dies, an inter-vivos or living trust is created when the grantor is still alive. They can be revocable or irrevocable, and can be created with the help of a professional or one’s own.

Estate Planning Tips

  • As mentioned above, a financial advisor who specializes in estate planning can help you navigate what can be a complicated process of planning an estate. SmartAsset’s free matching tool can pair you with up to three local advisors in a matter of minutes. If you’re ready to find a professional, get started now.
  • Depending on the size of your estate and where you live, your assets may be subject to state or federal estate taxes. But remember that up to $11.7 million in assets are exempt from federal estate taxes in 2021. Married couples are also permitted to tap their spouse’s unused portion of this exemption limit, effectively allowing couples to transfer a combined $23.4 million to beneficiaries free of federal estate taxes.

Photo credit: ©iStock.com/Andrii Dodonov, ©iStock.com/fizkes, ©iStock.com/shapecharge

Patrick Villanova, CEPF® Patrick Villanova is a writer for SmartAsset, covering a variety of personal finance topics, including retirement and investing. Before joining SmartAsset, Patrick worked as an editor at The Jersey Journal. His work has also appeared on NJ.com and in The Star-Ledger. Patrick is a graduate of the University of New Hampshire, where he studied English and developed his love of writing. In his free time, he enjoys hiking, trying out new recipes in the kitchen and watching his beloved New York sports teams. A New Jersey native, he currently lives in Jersey City.

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Source: smartasset.com