Got $10,000 and wondering how to make it grow? Investing can be a great way to build wealth and secure your financial future. Whether you’re new to investing or looking for fresh ideas, these 10 brilliant investment strategies will help you make the most of your money. Find out how to wisely invest $10k and watch your wealth grow.
1. Invest in Index Funds
Image Credit: Creativa Images.
Index funds offer an easy way to invest $10K by providing low fees and diversification. They track benchmarks like the S&P 500, making them a simple way to grow wealth over time. You need a brokerage account to start.
2. Put Money in High-Yield Savings Account
Image Credit: Amnarj2006 from Getty Images.
A high-yield savings account is great for storing your $10K safely. It’s FDIC insured up to $250,000, and with interest rates of 2% or more, your money grows without losing value.
To learn more: How Many Bank Accounts Should I Have
3. Invest in Individual Stocks
Image Credit: Jittawit.21.
Investing in individual stocks can grow your wealth if you’re patient and informed. With $10K, you can buy stocks in 10 to 20 companies, diversifying your investments and potential returns.
To learn more: How To Invest In Stocks For Beginners: Investing Made Easy
4. Fund A Health Savings Account (HSA)
Image Credit: Designer491 from Getty Images.
An HSA is a smart way to invest $10K, offering a triple tax advantage and saving for future healthcare costs. Contributions, earnings, and withdrawals for medical expenses are all tax-free.
5. Invest in Entrepreneurship
Image Credit: StefanDahl.
Investing in small businesses can yield high returns and personal satisfaction. Diversifying your $10K across multiple ventures reduces risk and can amplify potential profits.
6. Invest in Rental Properties
Image Credit: 1989_s from Getty Images.
Rental properties can build long-term wealth. Use $10K as a down payment on a low-cost rental, fix it up, and let tenant payments cover the mortgage and taxes, creating a steady income stream.
7. Max Out Your Roth IRA
Image Credit: Designer491 from Getty Images.
Max out your Roth IRA to invest part of your $10K. It offers tax-deferred growth and potential tax-free withdrawals in retirement. Remember, there’s a yearly contribution limit.
To learn more: Can You Have Multiple Roth IRAs?
8. Loan to Others Through P2P Lending
Image Credit: Andrii Dodonov from Getty Images.
P2P lending can provide high returns on your $10K investment. By lending directly to borrowers via P2P platforms, you cut out banks, enjoy better rates, and diversify your investments.
9. Invest In Crypto or Bitcoin ETF
Image Credit: Jamesteohart from Getty Images Pro.
Investing in cryptocurrencies or Bitcoin ETFs can offer quick gains with market volatility. High rewards come with high risks, so be prepared for potential losses but also big profits.
10. Pay off high-interest debt
Image Credit: Africa Images.
Paying off high-interest debt with $10K can be a smart investment. It frees up cash flow for future investments in stocks, funds, or real estate, helping you grow your wealth long-term.
To learn more: How to Get Out of Debt in 5 Easy Steps
More Idea to Invest $10k
Image Credit: Dean Drobot.
Looking to invest $10K? This guide shows options for all risk levels and goals, from stocks to real estate. Start making money and take your first step to becoming a millionaire.
To learn more: How to Invest 10K: The Best Ways to Invest Money for Future
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Stocks hit fresh all time highs as the latest economic data showed the economy is still holding up as inflation recedes and the Federal Reserve nears a start to rate cuts.
Once again, smaller firms rallied, with the Russell 2000 poised for its biggest five-day run since April 2020. Conversely, the megacap space that has powered the bull market came under pressure. An equal-weighted version of the S&P 500 — where the likes of Nvidia Corp. carry the same heft as Dollar Tree Inc. — largely beat the US equity gauge. That index is less sensitive to gains from the largest companies — providing a glimpse of hope that the rally will broaden out.
The resilience of the equity market has been underpinned by optimism the economy has withstood the worst of Fed tightening. In this regard, Tuesday’s retail sales report was a “healthy” development, according to Bret Kenwell at eToro. It’s better to see the Fed cutting rates on falling inflation than to see the central bank rushing to bolster a weakened economy, he noted.
“While we are not ‘most preferred’ on small caps, they are historically cheap on a relative basis, and could snap back quickly should interest rates fall and growth remain resilient,” said Solita Marcelli, at UBS Global Wealth Management.
The S&P 500 hovered near 5,650. The Dow Jones Industrial Average rose 1.5%. The Russell 2000 gained 2%. The Nasdaq 100 was little changed. Amazon.com Inc., which kicked off its Prime Day event, outperformed. UnitedHealth Group Inc. climbed on strong results.
Traders also waded through financial earnings. Morgan Stanley dropped as results from its key wealth business fell short of estimates. Bank of America Corp. rose after saying net interest income would climb by the end of the year. Charles Schwab Corp. sank as new brokerage accounts missed estimates.
Treasury 10-year yields fell three basis points to 4.20%. Gold hit a record high on bets the Fed will soon be able to pivot.
“Retail spending in June was expected to confirm signs of an economic slowdown, but instead has breathed new life into the argument that Fed officials don’t need to worry about a sluggish real economy yet,” said Mark Streiber at FHN Financial.
U.S. retail sales, excluding the impact of a cyberattack on auto dealerships, rose in June by the most in three months, a sign consumers regained their footing at the end of the second quarter. Total retail sales were unchanged, restrained by a 2% slide in receipts at auto dealers. The figures aren’t adjusted for inflation.
“This report doesn’t negate expectations that the Fed will cut rates at its September meeting, unless of course inflation-related data releases indicate an uptick in prices,” said Quincy Krosby at LPL Financial.
Fed Chair Jerome Powell said Monday that second-quarter economic data has provided policymakers greater confidence that inflation is heading down to the central bank’s 2% goal, possibly paving the way for near-term interest-rate cuts.
Northwestern Mutual Awarded Sixth Consecutive Top-Score on National Disability Equality Index MILWAUKEE, July 16, 2024 /PRNewswire/ — Northwestern Mutual announced today that the company earned its sixth consecutive top-score on the Disability Equality Index®. The recognition is a comprehensive benchmarking tool designed to recognize companies that are advancing inclusion practices and building a roadmap of … [Read more…]
Ann Henry Home Décor has relocated into the Maidencreek Towne Center, 850 Golden Drive in Maidencreek Township. The small business offers a range of specialty decorative items, antiques, artwork and seasonal merchandise, and was previously located at 965 Park Road in the township.
Larken Associates, a regional real estate building, development and management firm headquartered in New Jersey this week announced that it had recently signed a lease with Ann Henry Home Décor for a 2,826-square-foot retail space at the shopping center.
“We strive to offer the highest quality of home décor items at the lowest possible prices,” Nancy Michael, owner of Ann Henry Home Décor, said in a statement. “Our new location at Maidencreek Towne Center allows us to continue our growth and deepen our connection with the Blandon community.”
The store opened at its new location at the end of February.
“Maidencreek Towne Center serves as a commercial hub for Blandon and the surrounding areas and is well suited for businesses of all sizes, from local shops to national retail chains,” Rob Marek, executive vice president of Raider Realty, Larken’s in-house brokerage, said in a statement. “We’re excited to welcome Ann Henry Home Décor as a valued tenant and we look forward to helping them continue to grow their business in the coming years.” Larken was represented by Marek in the transaction.
Maidencreek Towne Center is a two-building shopping center with 33,767 square feet of office, medical and retail spaces, located at the intersection of Park Road and Golden Drive, according to a press release announcing the addition of Ann Henry Home Décor.
More Northwestern Mutual advisors than ever before named to Forbes’ Top Financial Security Professionals and Best-in-State lists MILWAUKEE, July 10, 2024 /PRNewswire/ — Northwestern Mutual announced today that 650 of its financial advisors earned a spot on Forbes’ Top Financial Security Professionals and Best-in-State lists – the company’s largest-ever showing on the prestigious rankings. More … [Read more…]
As a type of alternative investment, real estate can add diversification to a portfolio and act as a hedge against inflation. Real estate investment trusts (REITs) and real estate crowdfunding offer two unique entry points to this alternative asset class.
Both allow you to invest in real estate without being required to own property directly. Comparing the pros and cons of real estate crowdfunding vs. REIT investing can help you decide which one makes the most sense for your portfolio.
Understanding Real Estate Investment Trusts (REITs)
Real estate investment trusts are legal entities that own or finance income-producing properties or invest in mortgage-backed securities. The types of properties a REIT may invest in can include:
• Hotels and resorts
• Office space
• Warehouses
• Storage space
• Multifamily apartment buildings
• Data centers
• Medical facilities
• Retail shopping centers
• Single-family homes
The primary attraction of REITs is the ability to enjoy the benefits of property investment — namely, dividend income — without purchasing real estate directly.
REITs are also considered a type of alternative investment. As with many alternative investments, real estate-based assets don’t tend to move in sync with the stock market. For this reason, investing in REITs may provide portfolio diversification.
REITs may be publicly traded, meaning they trade on an exchange like a stock. REITs must pay out 90% of their taxable income to shareholders as dividends, though some may pay as much as 100%.
If you compare REITs vs. real estate mutual funds, dividends aren’t always required with the latter. Real estate mutual funds can invest in REITs, mortgage-backed securities, or individual properties. While you may have access to a broader range of properties, you may enjoy less liquidity with real estate funds.
Recommended: SoFi’s Alt Investment Guide for Beginners
Alternative investments, now for the rest of us.
Start trading funds that include commodities, private credit, real estate, venture capital, and more.
💡 Quick Tip: While investing directly in alternative assets often requires high minimum amounts, investing in alts through a mutual fund or ETF generally involves a low minimum requirement, making them accessible to retail investors.
Overview of Real Estate Crowdfunding
What is real estate crowdfunding? It’s a strategy that allows multiple investors to pool funds for property investment. In return, investors share in the profits generated by the investments. Regulation crowdfunding makes real estate crowdfunding possible, as entities can raise capital from investors without registering with the SEC, as long as they offer or sell less than $5 million in securities.
In terms of how it works, real estate crowdfunding platforms seek out investment opportunities and fully vet them before making them available to investors. Individual investors can then choose which properties they’d like to invest in.
Depending on the nature of the investment, you may collect interest payments, rental income, or dividends. Real estate crowdfunding can offer access to a variety of property types, including:
• Multifamily housing
• Industrial space
• Build-for-rent projects
The minimum investment varies by platform — it is commonly upwards of $5,000, but may be $500 or even lower in some cases. Some real estate crowdfunding platforms require investors to be accredited, meaning they must:
• have an income exceeding $200,000 (or $300,000 with a spouse or spousal equivalent) in each of the two prior years, with an expectation of the same income for the current year, OR
• have a net worth exceeding $1 million, alone or with a spouse/spousal equivalent, excluding the value of their primary residence, OR
• hold a Series 7, Series 65, or Series 82 license in good standing
Comparing REITs and Real Estate Crowdfunding
When choosing between a REIT vs. crowdfunding, it’s helpful to understand each option’s potential advantages and disadvantages.
Pros and Cons of REITs
Here are the main benefits of investing in REITs vs. crowdfunding.
• Risk management. Alternative investments like real estate may help you balance risk in your portfolio. REITs and real estate in general have a lower correlation with the stock market.
• Accessibility. Purchasing an actual investment property usually requires getting a loan and raising capital for down payments and closing costs. REITs can offer a much lower barrier to entry for investors.
• Dividends. REITs must pay dividends to investors, which may be attractive if you want to generate passive income with investments.
• Liquidity. Publicly traded REITs offer liquidity since you can buy and sell shares as needed, similar to a stock.
• Returns. REITs can potentially generate significant returns in a portfolio compared to stocks or other investments.
Now, here are some of the drawbacks of REIT investing.
• Fees. You’ll typically pay management fees to invest in REITs, as with any investment, but some may charge more than others. Paying attention to investment costs is key, as the more fees you pay, the less of your investment returns you keep.
• Overweighting. You can choose which REITs to invest in, but you don’t have a say in the underlying properties. Investing in REITs that own similar properties could overweight your portfolio in a single sector (e.g., malls or office buildings) and thus increase your risk profile.
• Interest rate risk. Changing interest rates can affect the value of REITs, which can influence the yield you might get. When rates rise, REIT values can decline, requiring you to adjust your expectations for a profit.
• Taxes. REIT dividends are typically taxed as ordinary income, up to 37% (plus a 3.8% investment surtax). But investors may also see a short- or long-term profit from the REIT, which would be taxed as capital gains. There is also the potential for return on capital, which can be complicated. It may be wise to consult a professional.
Pros and Cons of Real Estate Crowdfunding
Here are the main pros of crowdfunding real estate investments.
• Diversification. As with REITs, real estate crowdfunding allows you to diversify beyond traditional stocks and bonds.
• Low minimums. Some, though not all, real estate crowdfunding platforms allow you to get started with as little as a few hundred dollars. That can make entering this alternative asset class or spreading your investment dollars out over multiple property types easier.
• Geographic diversification. Real estate crowdfunding platforms can offer investors exposure to markets across the country. That can make it easier to target a specific region if you’re looking for the next “hot” market.
• Returns. Crowdfunded real estate may generate above-average returns, or exceed the returns you could get with REITs.
• Passive income. Owning a rental property can be time-intensive if you’re managing the property yourself. Real estate crowdfunding allows you to reap the benefits of rental income, without the typical headaches that go along with being a property owner.
And now, here are the cons.
• Fees. Just like REITs, real estate crowdfunding platforms can charge fees. Fee structures can sometimes be complex, making it difficult to assess what you’ll pay to invest.
• Illiquidity. Liquidity in the stock market is one thing, but when it comes to real estate crowdfunding, it’s an even bigger consideration owing to the length of time your capital may be locked into an investment. Once you invest in a property, you’re essentially committed to owning it for the duration of the holding period. It’s not unusual for real estate crowdfunding platforms to offer investments with holding periods of five years or more, making them highly illiquid.
• Accreditation requirements. Some crowdfunding platforms only accept accredited investors. If you don’t meet the standards, you won’t be able to invest through those platforms.
• Taxes. Income from crowdfunded real estate investments is taxable, though not always in the same way. You may be subject to different tax rates based on how dividends and interest are paid out to you. You may want to consult with a professional.
Which Investment Strategy Is Riskier?
It’s difficult to pinpoint which is riskier when comparing a REIT vs. real estate crowdfunding, as each one has different risk factors.
With REITs, the biggest risks may include:
• Liquidity risk, which could make it difficult to sell your shares if you’re ready to leave an investment.
• Changing market conditions or rising and falling trends, either of which could directly impact real estate values.
• Interest rate sensitivity, which can influence REIT values.
The main real estate crowdfunding risks may include:
• Platform risk, or the risk that the marketplace you’re using to invest could shut down before you’re able to withdraw your capital.
• Poor vetting, which may allow unsuitable investments to make it onto the platform.
• Changing regulations, which may affect the real estate crowdfunding space as a whole.
Whether you choose a REIT vs. crowdfunding, lack of education or understanding is also a risk factor. If you don’t understand the basics of how either type of investment vehicle works, you could be putting yourself in a position to lose money.
Due Diligence Considerations
REITs and real estate crowdfunding platforms should perform due diligence in vetting investments to make sure they’re suitable. However, it’s wise to do your own research to understand what you’re investing in, who you’re investing with, and the potential risks.
As you compare REITs or real estate crowdfunding platforms, keep the following in mind:
• Minimum requirements to start investing, including accredited investor status
• Range of investment options
• Transparency concerning fees and investment selection
• Holding periods
• Performance track record
• Overall reputation
Talking to other investors who have used a particular crowdfunding platform or invested in a certain REIT can offer perspective on the good and bad.
The Takeaway
Real estate can be an addition to your portfolio if you already have some experience in the market, and have an affinity for real estate. As a type of alternative asset class, investing in real estate can add diversification to your portfolio, and potentially act as a hedge against inflation. Both REITs and real estate crowdfunding enable you to invest in real estate without the hassle of actual property ownership and maintenance, but come with different risk factors than you’d find with traditional securities.
Ready to expand your portfolio’s growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi’s easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it’s important to consider your portfolio goals and risk tolerance to determine if they’re right for you.
Invest in alts to take your portfolio beyond stocks and bonds.
FAQ
What are the main advantages and disadvantages of investing in REITs?
Investing in REITs can offer the benefits of dividend income and portfolio diversification, without requiring you to own property directly. The disadvantages of REITs can include interest rate risk and market risk, both of which can affect the value of your investments.
How does real estate crowdfunding differ from traditional REIT investments?
Real estate crowdfunding allows investors to pool funds together to invest in property and collect interest, dividends, and/or rental income. REITs own and operate investment properties and pay dividends to investors. REITs and real estate crowdfunding can differ concerning the types of properties you can invest in, the minimum investment required, and the fees you’ll pay.
How are taxes treated for REITs and real estate crowdfunding?
REIT dividends are primarily treated as ordinary income for tax purposes (although you may face capital gains on any profits). Real estate crowdfunding returns may be subject to capital gains tax and/or ordinary income tax rates, depending on how they’re structured. Because the tax treatment of these two entities can be complicated, it’s probably wise to consult a professional.
Photo credit: iStock/kate_sept2004
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
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 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.
An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing. Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor’s risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds. Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
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.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
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.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. SOIN-Q224-1900951-V1
In the investing ecosystem, the term “margin” is used to describe the money that may be borrowed from a brokerage to execute trades or a strategy. Buying assets on margin can help magnify gains and returns, but it can do the same with your losses.
When you buy on margin, you’re purchasing assets using money that you borrow from your broker. Margin trading might seem more complicated than some other ways to invest in the stock market, but it’s a method that many investors favor — especially experienced investors. If there’s one thing to know about margin trading, though, it’s that it can cut both ways, and may incur serious risks.
Table of Contents
What Is Margin Trading?
Margin trading, or “buying on margin,” is an advanced investment strategy in which you trade securities using money that you’ve borrowed from your broker to potentially increase your return. Margin is essentially a loan where you can borrow up to 50% of your security purchase, and as with most loans, a margin loan comes with an interest rate and collateral.
Trading on margin is similar to “buying on credit.” Using margin for a trade is also known as leveraging. Margin interest rates are determined by your broker, and collateral types can be stock holdings or cash. Traders must also maintain a margin balance, known as the maintenance margin, in their accounts to cover potential losses.
As noted, margin trading is a bit more complicated (and risky) than some other ways to invest in the stock market, but it’s a tactic used by many investors.
How Does Margin Trading Work?
While margin trading may seem straightforward, it’s important to understand all the parameters.
For all trades, your broker acts as the intermediary between your account and your counterparty. Whenever you enter a buy or sell trade on your account, your broker electronically executes that trade with a counterparty in the market, and transfers that security into/out of your account once the transaction is completed.
To execute trades for a standard cash account vs. margin account, your broker directly withdraws funds for a cash trade. Thus every cash trade is secured 100% by money you’ve already deposited, entailing no risk to your broker.
In contrast, with margin accounts, a portion of each trade is secured by cash, known as the initial margin, while the rest is covered with funds you borrow from your broker.
Consequently, while margin trading affords you more buying power than you could otherwise achieve with cash alone, the additional risk means that you’ll always need to maintain a minimum level of collateral to meet margin requirements.
While margin requirements can vary by broker, we’ve defined and outlined the minimums mandated by financial regulators.
Term
Amount
Definition
Minimum margin
$2,000
Amount you need to deposit to open a new margin account
Initial margin
50%
Percentage of a security purchase that needs to be funded by cash
Maintenance margin
25%
Percentage of your holdings that needs to be covered by equity
💡 Quick Tip: Options can be a cost-efficient way to place certain trades, because you typically purchase options contracts, not the underlying security. That said, options trading can be risky, and best done by those who are not entirely new to investing.
Increase your buying power with a margin loan from SoFi.
Borrow against your current investments at just 12%* and start margin trading.
Example of Margin Trading (Buying on Margin)
Here’s an example of how margin trading works, or could work, in the real world. Imagine you open a margin account with $2,000 at a brokerage firm. It’s helpful to keep the maintenance margin in mind, too, when reading through this example.
Now, say you have your eyes set on Stock X, that’s trading at $100 per share. You can afford to buy 10 shares with the cash in your account. But, you want to buy more — margin allows you to do that. Given your margin account’s 50% initial margin requirement, that means you can effectively double your purchasing power.
So, you can buy 20 shares of Stock X for a total of $2,000, and $1,000 of that purchase would be buying on margin.
If Stock X appreciates in value by, say, 100% (it’s now worth $200 per share), you could sell your holdings and end up with $4,000. You could then pay back your brokerage for the margin loan, and have realized a greater return than you would have without using margin.
But the opposite can happen, too. If Stock X depreciates by 50% (it’s now worth $50) and you sold your holdings, you’d have $1,000, and owe your broker $1,000. So, you’ve wiped out your cash reserves by using margin — one of its primary risks.
To recap: In both scenarios, the margin loan balance remains the same ($1,000), while the equity value took the entire gain or loss.
Bear in mind, too, that for simplicity, this example ignores interest charges. In a real margin trade, you would need to also back out any interest expense incurred on the margin loan before calculating your return; this would act as an additional drag on earnings.
Potential Benefits of Margin Trading
As noted, margin trading has some pretty obvious benefits or advantages. Those may include the following:
• Potential to enhance purchasing power. A primary benefit of margin trading is the potential expansion of an investor’s purchasing power, sometimes exponentially. This could possibly help boost returns if the price of the stock or other investment purchased with a margin trade goes up.
• Possible lower interest rates. Benefits of margin loans might include lower interest rates relative to other types of loans, such as personal loans, if the investor is borrowing money to make trades. Plus, there typically isn’t a repayment schedule.
• Diversification. You could also use margin trading to diversify your portfolio.
• Selling short. Another potential advantage might be a complicated trading method called short selling. Margin trading might make it possible for you to sell stocks short. Short selling differs from most other investment strategies in that investors make a bet that a stock’s price will fall.
Note, however, that the rules for short selling with a margin account can get even more complicated than a traditional margin trade. For instance, Regulation T of the Federal Reserve Board requires margin accounts to have 150% of the value of the short sale when the trade is initiated.
While the benefits of being able to buy more investments — and potentially generate larger returns — might seem appealing to some investors, there are also some potential risks to using margin. It might be worth considering these before you decide if trading on margin is right for you.
Potential Risks of Margin Trading
There are potential benefits, and there are potential risks associated with margin trading. Here are some of those risks:
• Possible loss beyond initial investment. While a primary benefit of margin trading may be increased buying power, investors could lose more money than they initially invested. Unlike a cash account, the traditional way to buy stocks or other investments, losses in a margin account can actually extend beyond the initial investment.
For example, if an investor purchases $20,000 worth of stock with a cash account, the most they can lose is $20,000. If that same investor uses $10,000 of their own money and a margin — essentially a loan — of $10,000 and the stock loses value, they may actually end up owing more money than their initial $10,000.
• Possibility of margin call. Another potential negative aspect of margin trading is getting a margin call. Investors might need to put additional funds into their account on short notice if a margin call is triggered because the investment lost value. Moreover, a drop in value might mean an investor needs to sell off some or all of the investment, even at an inopportune time.
The SEC warns investors that they must sell some of their stock, or deposit more funds to cover a margin call. If you get a margin call, it is your responsibility to deposit more funds, add securities or sell holdings in your account. If you don’t meet the margin call after a number of warnings from your broker, then the broker has the right to sell all or some of the current positions to bring the account back up to minimum value.
💡 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 to Get Started With Margin Trading
Typically, the first step to getting started with margin trading is to open a margin account with a brokerage firm.
Even if you already have a stock or investment account, which are cash accounts, you still need to open a margin account because they are regulated differently. First-time margin investors need to deposit at least $2,000 per FINRA rules. If you’re looking to day trade, this dollar figure goes up to $25,000 according to FINRA rules. This is the minimum margin when opening a margin trading account.
Once the margin account has been opened and the minimum margin amount deposited, the SEC advises investors to read the terms of their account to understand how it will work. The SEC advises investors to hedge their risks by making sure they understand how margin works, understanding that interest charges may be levied by your broker, knowing that not all assets can be purchased on margin, or even communicating with your broker to get a sense if a margin account is the right tool for you.
The Takeaway
Margin trading, as discussed, means that investors are trading securities with borrowed funds from their brokers. This allows them to potentially increase their returns, but also carries the risk of ballooning losses. As with most investing strategies and vehicles, margin trading comes with a unique set of potential benefits, risks, and rewards. Margin trading can seem a little more complicated than some other approaches to investing. As the investor, it is up to you to decide if the potential risks are worth the potential rewards, and if this strategy aligns with your goals for the future.
If you’re an experienced trader and have the risk tolerance to try out trading on margin, consider enabling a SoFi margin account. With a SoFi margin account, experienced investors can take advantage of more investment opportunities, and potentially increase returns. That said, margin trading is a high-risk endeavor, and using margin loans can amplify losses as well as gains.
Get one of the most competitive margin loan rates with SoFi, 12%*
FAQ
Is margin trading profitable?
Margin trading can be profitable, but there are no guarantees for investors that it will be. It can also lead to outsized and substantial losses for investors, so it’s important to consider the risks and potential benefits.
What happens if you lose money on margin?
If you lose money on margin, you may have a negative balance with your brokerage, and owe the broker money. You may also be subject to interest charges on that balance, too.
Should beginners trade on margin?
It’s best to consult with a financial professional before trading on margin, but generally, it’s likely that professionals would recommend beginners do not trade on margin.
How do you pay off margin?
Typically, if you have a negative balance in your margin account, you can reduce or pay it off by simply depositing cash into your account, or selling assets.
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
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 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.
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.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
*Borrow at 12%. 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 $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
Americans with a financial advisor expect to retire two years earlier according to Northwestern Mutual’s Planning & Progress Study Ready to Retire: 75% of those who work with an advisor say they will be financially prepared for retirement versus 45% of people without an advisor Free from Anxiety: 64% of Americans with an advisor say … [Read more…]
June’s housing market data shows a mixed bag for prospective homebuyers as prices hit a new all-time high but monthly mortgage payments decreased, a report from Redfin said.
U.S. house values reached a peak in June with the median home sale price coming in at $397,954, the biggest increase since March. This led to a 5% decline in pending sales, the real estate brokerage reported.
With the new record, affordability is even more out of reach for many potential homeowners. The affordability crunch is unlikely to change by the end of 2024, according to First American Data & Analytics’ Real Home Price Index.
“Unfortunately, inflation has proven stubborn and led to the Federal Reserve’s ‘higher-for-longer’ stance on interest rates, contributing to an elevated outlook for mortgage rates, while house prices have once again demonstrated their ‘downside stickiness,'” said chief economist Mark Fleming at First American Financial, First American Data & Analytics’ parent company.
Redfin found that June’s pending home sales posted their biggest decline since February, as the median sale price rose 5% from last year.
The good news for prospective homeowners, however, is that more new listings are on the market for them to choose from, Redfin reported. Also, monthly housing payments decreased by nearly $100 from their peak in April.
New listings jumped 10% in June, the biggest increase seen in two months. Over 100,000 new listings landed on the market, a 9.9% increase year-over-year.
As of July 2, the daily average 30-year fixed mortgage rate sat at 7.13%. The latest metric is up from a three-month low of 6.97% that was seen three weeks earlier. Fortunately, the current number is still a ways away from a five-month high of 7.52% in early May.
“While affordability is likely to remain constrained for the remainder of 2024, mortgage rates are expected to come down in 2025, which would be welcome news for potential home buyers,” Fleming continued.
Inside: The answer is so obvious! Stop the assumptions with the 3 percent or 4 percent rule of retirement. Learn how much money to save for retirement today.
We all know that saving money for retirement is something we should do.
Maybe you are contributing the minimum to your 401K through work to get the match. Possibly saving money in a Roth IRA.
But, are you truly saving enough for retirement?
More than likely not.
Don’t feel like you are alone. According to a new study, only half of households actually have money saved in retirement accounts. The good news for those who have saved is the dollar amount saved for retirement has been increasing in the past 10 years.
Here is the real reason you don’t save for retirement… you have absolutely no clue how much money you need to be saved to retire.
You have tried to use all of the online retirement calculators from all of the big companies. Your results are millions of dollars different. You have no clue where to start, or what to believe.
And then you just get unmotivated because you’re like there’s absolutely no way I can make that dollar amount work.
So, What is Our Retirement Number
Personally, I completely get it this is a conversation. My husband and I have had it for years.
What is our retirement number?
What amount do we need to retire with?
And honestly, even can I actually save that much before I am too old to work?
It is all a complete unknown, it is a best-guess scenario.
There is absolutely no way for you to truly understand how much you need because there are so many things that go into it, including inflation, your savings rate, your withdrawal rate, and your anticipated expenses. So there’s a lot of variables and that’s when the variables get too confusing you don’t know which way to start.
One Guaranteed Truth…
The financial advisors believe they are the know-all-be-all with their calculations while charging you an asset management fee that is putting a drag on your overall portfolio.
And then October 27, 2020, Bill Bengen announced that instead of using the 4% rule is outdated, and now you can use a 5% rule. (Bill Bengan is a financial advisor who made the 4% rule of thumb famous 25 years ago.) So, this latest information just throws a curveball into everything that has previously been used for the past 25 years, and now you’re left wondering…
Well, I have no idea what is the proper amount I need to save for retirement.
Do you know what the amount that you need to save for retirement is?
So, let’s dig in for a little bit and we’re gonna talk about the three different percentages that are talked about the most. It’s the 3% rule, the 4% rule, and the 5% rule is one better than another. We’ll debate that and shortly.
How does Withdrawal Rate work?
But first of all, you have to realize that not everything works the way you want, so let’s show some examples before we dig into the specifics of the different rules.
Basically, the whole concept is if you save $1 million and you start withdrawing either 3%, 4%, or 5%. That withdrawal amount is the amount of income that you would live on each and every year, while the rest of your portfolio is continuing to grow and increase in value.
The ultimate, perfect-scenario goal is that you would withdraw as much as you possibly could without depleting the portfolio.
Withdrawal Rate Example:
Here are the assumptions:
Plan to spend $50,000 a year
7% rate of return on your money
Age doesn’t matter and not accounting for taxes or inflation (we want to keep this simple)
The amount you would need to save based on each of the withdrawal rates:
3 percent rule, you would need: $1,666,667
4 percent rule, you would need: $1,250,000
5 percent rule, you would need: $1,000,000
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
The Withdrawal Rate Confusion
In our example, we used simple calculations that don’t account for age, taxes, or inflation and the amount you need to save for retirement is $666,667 different.
The numbers are too much for the average person to understand and have faith in.
This is why the confusion on how much to save for retirement and what model and which retirement calculator is the best.
Shortly, we are going to give you the simple answer of how much to save for retirement. But, first, a little background on the various percent rules for retirement.
3 Percent Rule
The 3% rule has gotten very popular with the FIRE movement.
The FIRE movement is Financial Independence Retire Early.
Because most of these people aren’t looking at retiring in the normal typical retirement age of 60s, they’re looking to retire in their 30s or 40s. They feel like they need to be super conservative because they are trying to estimate how much they need each month to live off their money for possibly the next 50 years.
That’s a lot of variables that you have to take into account.
The good news is you can always learn and figure out ways to make money in retirement so it’s not a complete waste, you can always go back to work because you are younger, and have youth on your side. So, is 3% a safe withdrawal rate?
The golden advice is you want to plan for the worst but hope for the best. The goal is that 3% would cover all of your necessities and basic expenses.
4 Percent Rule
Is the 4 percent rule viable?
The 4 percent rule of retirement was made famous by Bill Bengen 25 years ago (and just recently he said that number is outdated.)
The assumptions were if you withdraw 4% of your investment account every year, you will still have enough to live on throughout retirement.
This was based on what has happened in the markets, accounted for inflation, and the age you want to retire. He conducted many possible case scenarios and concluded that by only withdrawing 4 percent will make sure your money lasts. That is why it has been what is called a golden rule for retirement.
How long will my money last using the 4% rule? If you do all the calculations, it should last for at least 30 years. Obviously, you are looking at many variables of the stock market doing well and your living expenses staying low. Once again, the other big factor is what inflation will do in the future.
So, is the 4% rule that much better?
5 Percent Rule
And then, October 2020 rolls in. The breaking news is that Bill Bengen announced the 4 percent rule for retirement is too conservative and now you can actually use 5%.
So, that leaves the average person going… Okay. My head is spinning. I’m not sure how much I need to save for retirement. What is a good number?
Can I safely withdraw 5% of my investment accounts and still have enough money? That means I need less money to retire.
This is where people quit investing and saving for retirement becomes too hard.
Real truth from real people
Can you Overcome Why Most People don’t save for Retirement?
There are too many variables, there are too many unknowns, and they don’t understand how it all works.
That is the real reason people don’t save for retirement.
I get it. I’m there with you. I feel it. I hear it from readers. But, we are going to break down some of the key items so that way you know how much you need for retirement.
And just remember, even if you messed up your numbers, the market went down, or you want to spend more in retirement than you are, then you could always go back to work. Even better, learn how to make money online for beginners, pick up a side hustle, make a little bit of extra money, and actually do something that you truly enjoy doing.
Learn how much money should I have saved by 30.
How Much do I need to Retire?
The simple answer… aim for $1,000,000 in investment accounts.
You may be able to aim lower depending on some variables which we cover shortly.
Investment accounts can include any of the following:
401K
Roth IRA
IRA
HSA (health saving account)
Brokerage Accounts
High-interest bank accounts
Real estate
You want accounts with liquidity. Things that can be bought and sold for cash. Those are the assets we are counting on how much to retire with.
Don’t use equity in your house because you need a place to live. If you want to use equity, that is fine, but your calculations just become slightly more difficult. We want simplicity.
Right now, your money goal is to reach $1,000,000 in investment accounts. Specifically in liquid net worth.
(Of course, this number may be lower if you live in a low cost of living area, plan to move with overall lower costs or another country, or have good options with lower health care costs. There have been plenty of people who retired with less and love life.)
Based on these variables, you may just need $500,000 to retire. Or somewhere in that range.
Realistic Retirement Savings for Motivation
We shared what a realistic retirement savings amount of $1 million dollars is. Is your first reaction – yikes, there is absolutely no way I can reach that amount.
However, you can!
Just break it down into smaller chunks.
For instance, make your next goal to save $100,000. You do that 10 times and you hit that realistic retirement savings amount.
If that seems like a stretch, then break it down even further. To stay motivated you can strive to save $50K or even $20K.
Break it into bite-sized manageable pieces to help you save for retirement and stay on track.
Learn what happens if you don’t save for retirement.
Best Ways to Save for Retirement
This is the basics to start saving for retirement.
You already know much should you really save for retirement. Now, you just to need to do it.
Here is the safest way to save for retirement. First, open up one or all of these accounts (pending where you are on your money journey). Then, look at investing in S&P 500 Index funds. The most highly recommended index fund for beginners is VTSAX.
1. Contribute to 401K
This is the simplest way to start saving.
Make sure you are contributing at least the minimum to your employer’s 401K.
Every year you can contribute up to a maximum amount. In 2023, an employee can contribute $22,500 to their 401k (the employer is eligible to contribute as well for a combined amount not to exceed $66,000 or 100% of your compensation, whichever is less). For the latest contribution limits, check out the IRS site.
Each year, increase your percentage by 1%. A simple way to reach maxing out your 401K.
Pro Tip: Check if your employer offers a ROTH IRA option. These are becoming more and more popular with companies. A Roth 401K will let your money grow tax-free because you pay taxes when you contribute money. If they don’t offer one, pester the human resources department.
2. Open Roth IRA
The next best option is the ROTH IRA. You want to contribute to a Roth IRA because you pay taxes upfront rather than at withdrawal like a traditional IRA.
Since ROTH IRAs have tax advantages, there are also contribution limits set by the IRS. The contribution amounts have remained the same for a couple of years now. The annual contribution limit is $6,000 per year, or $7,000 if you’re age 50 or older.
The downside to Roth IRAs… the amount you can contribute may be limited based on your income and filing status. However, for the average American, you should be able to max out the amount you can save each year.
Learn if can you have multiple Roth IRAs as it may be a smart financial move.
Pro Tip: Even if one spouse is a stay-at-home parent, you can still contribute to a Roth IRA for the non-working spouse.
3. Health Savings Account
Say what? Yes, a health savings account is on the list as a way to save for retirement. It is a great way to grow your money tax-free going in and on withdrawals.
You must have a High Deductible Health Insurance Plan to open a health savings account.
This is something you want to do and contribute the maximum amount each year. For 2023, you can contribute $3,850 for individuals and $7,750 for family coverage. Typically, the limits go up $50 each year, which helps you save more every year.
Pro Tip: This account will stay with you even when you leave your current employer and insurance. Plus you can use the HSA funds forever – even to pay Medicaid premiums. (Hopefully, nothing changes on these tax-advantaged accounts).
4. Traditional Brokerage Account
The last avenue has no tax benefits, but you are still saving money to be used later. That is what really matters.
Since there are no tax advantages to these basic brokerage amounts, there also are no limits on how much you can contribute.
This is where you would save the remaining money after you exhausted all the other methods listed above.
Side Note…
Yes, there are other ways to save for retirement. For this post and the average investor, the above-mentioned accounts are a great place to start. Once you become savvier and want to invest more money, then you can look at back door IRAs, 529s, or whole life insurance.
Saved $1 million for retirement, Now What?
Once you reach that 1 million dollars retirement mark, congratulations!!
That is a huge milestone that many people never reach. So, what is the next step?
Now, that you are closer to finally being able to live off your investments, you must start to look at the retirement calculators more seriously and factor in all of those variables (age, taxes, and inflation). It is much easier to predict the future once you have built a solid nest age and are closer to living off your investments.
Everyone started the financial independence journey at a different age and will reach their million-dollar mark at different times.
For the average person, you know learned how to save for retirement. You know what you need to do and where to start.
In this post, we took out all of the confusion on how much to save for retirement. Don’t worry about is the 4 percent rule is viable – or if it should be the 3 percent rule or the new 5% rule. The assumptions and variables will hold you back from starting. You know the dollar amount to start with, move on with that.
This simple advice for hitting your first milestone is the motivation to keep you going. Along the way, you will become savvier with finances and investing.
When it is time to move to the question of “can I retire” at such and such age, you have already taken out many of the variables, and the decision becomes more and more clear.
Take steps to reach that $1000000 mark today.
Get ahead now…
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.