InvestY Archives - Hanover Mortgages

Apache is functioning normally

November 23, 2023 by Brett Tams

The average rate of return on 401(k)s is typically between 5% and 8%, depending on specific market conditions in a given year. Keep in mind that returns will vary depending on the individual investor’s portfolio, and that those numbers are a general benchmark.

While not everyone has access to a 401(k) plan, those who do may wonder if it’s an effective investment vehicle that can help them reach their goals. The answer is, generally, yes, but there are a lot of things to take into consideration. There are also alternatives out there, too.

Key Points

• The average rate of return on 401(k)s is typically between 5% and 8%, depending on market conditions and individual portfolios.

• 401(k) plans offer benefits such as potential employer matches, tax advantages, and federal protections under ERISA.

• Fees, vesting schedules, and early withdrawal penalties are important considerations for 401(k) investors.

• 401(k) plans offer limited investment options, typically focused on stocks, bonds, and mutual funds.

• Asset allocation and individual risk tolerance play a significant role in determining 401(k) returns and investment strategies.

Some 401(k) Basics

To understand what a 401(k) has to offer, it helps to know exactly what it is. The IRS defines a 401(k) as “a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts.”

In other words, employees can choose to delegate a portion of their pay to an investment account set up through their employer. Because participants put the money from their paychecks into their 401(k) account on a pre-tax basis, those contributions reduce their annual taxable income.

Taxes on the contributions and their growth in a 401(k) account are deferred until the money is withdrawn (unless it’s an after-tax Roth 401(k)).

A 401(k) is a “defined-contribution” plan, which means the participant’s balance is determined by regular contributions made to the plan and by the performance of the investments the participant chooses.

This is different from a “defined-benefit” plan, or pension. A defined-benefit plan guarantees the employee a defined monthly income in retirement, putting any investment risk on the plan provider rather than the employee.

[embedded content]

Benefits of a 401(k)

There are a lot of benefits that come with a 401(k) account, and some good reasons to consider using one to save for retirement.

Potential Employer Match

Employers aren’t required to make contributions to employee 401(k) plans, but many do. Typically, an employer might offer to match a certain percentage of an employee’s contributions.

Tax Advantages

As mentioned, most 401(k)s are tax-deferred. This means that the full amount of the contributions can be invested until you’re ready to withdraw funds. And you may be in a lower tax bracket when you do start withdrawing and have to pay taxes on your withdrawals.

Federal Protections

One of the less-talked about benefits of 401(k) plans is that they’re protected by federal law. The Employee Retirement Security Act of 1974 (ERISA) sets minimum standards for any employers that set up retirement plans and for the administrators who manage them.

Those protections include a claims and appeals process to make sure employees get the benefits they have coming. Those include the right to sue for benefits and breaches of fiduciary duty if the plan is mismanaged, that certain benefits are paid if the participant becomes unemployed, and that plan features and funding are properly disclosed. ERISA-qualified accounts are also protected from creditors.

💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

Boost your retirement contributions with a 1% match.

SoFi IRAs now get a 1% match on every dollar you deposit, up to the annual contribution limits. Open an account today and get started.

Only offers made via ACH are eligible for the match. ACATs, wires, and rollovers are not included. Offer ends 12/31/23.

401(k) Fees, Vesting, and Penalties

There can be some downsides for some 401(k) investors as well. It’s a good idea to be aware of them before you decide whether to open an account.

Fees

The typical 401(k) plan charges a fee of around 1% of assets under management. That means an investor who has $100,000 in a 401(k) could pay $1,000 or more. And as that participant’s savings grow over the years, the fees could add up to thousands of dollars.

Fees eat into your returns and make saving harder — and there are companies that don’t charge management fees on their investment accounts. If you’re unsure about what you’re paying, you should be able to find out from your plan provider or your employer’s HR department, or you can do your own research on various 401(k) plans.

Vesting

Although any contributions you make belong to you 100% from the get-go, that may not be true for your employer’s contributions. In some cases, a vesting schedule may dictate the degree of ownership you have of the money your employer puts in your account.

Early Withdrawal Penalties

Don’t forget, when you start withdrawing retirement funds, some of the money in your tax-deferred retirement account will finally go toward taxes. That means it’s in Uncle Sam’s interest to keep your 401(k) savings growing.

So, if you decide to take money out of a 401(k) account before age 59 ½, in addition to any other taxes due when there’s a withdrawal, you’ll usually have to pay a 10% penalty. (Although there are some exceptions.) And at age 73, you’re required to take minimum distributions from your tax-deferred retirement accounts.

Potentially Limited Investment Options

One more thing to consider when you think about signing up for a 401(k) is what kind of investing you’d like to do. Employers are required to offer at least three basic options: a stock investment option, a bond option, and cash or stable value option. Many offer more than that minimum, but they stick mostly to mutual funds. That’s meant to streamline the decision-making. But if you’re looking to diversify outside the basic asset classes, it can be limiting.

How Do 401(k) Returns Hold Up?

Life might be easier if we could know the average rate of return to expect from a 401(k). But the unsatisfying answer is that it depends.

Several factors contribute to overall performance, including the investments your particular plan offers you to choose from and the individual portfolio you create. And of course, it also depends on what the market is doing from day to day and year to year.

Despite the many variables, you may often hear an annual return that ranges from 5% to 8% cited as what you can expect. But that doesn’t mean an investor will always be in that range. Sometimes you may have double-digit returns. Sometimes your return might drop down to negative numbers.

Issues With Looking Up Average Returns As a Metric

It’s good to keep in mind, too, that looking up average returns can create some issues. Specifically, averages don’t often tell the whole story, and can skew a data set. For instance, if a billionaire walks into a diner with five other people, on average, every single person in the diner would probably be a multi-millionaire — though that wouldn’t necessarily be true.

It can be a good idea to do some reading about averages and medians, and try to determine whether aiming for an average return is feasible or realistic in a given circumstance.

Some Common Approaches to 401(k) Investing

There are many different ways to manage your 401(k) account, and none of them comes with a guaranteed return. But here are a few popular strategies.

60/40 Asset Allocation

One technique sometimes used to try to maintain balance in a portfolio as the market fluctuates is a basic 60/40 mix. That means the account allocates 60% to equities (stocks) and 40% to bonds. The intention is to minimize risk while generating a consistent rate of return over time — even when the market is experiencing periods of volatility.

Target-Date Funds

As a retirement plan participant, you can figure out your preferred mix of investments on your own, with the help of a financial advisor, or by opting for a target-date fund — a mutual fund that bases asset allocations on when you expect to retire.

A 2050 target-date fund will likely be more aggressive. It might have more stocks than bonds, and it will typically have a higher rate of return. A 2025 target-date fund will lean more toward safety. It will likely be designed to protect an investor who’s nearer to retirement, so it might be invested mostly in bonds. (Again, the actual returns an investor will see may be affected by the whims of the market.)

Most 401(k) plans offer target-date funds, and they make investing easy for hands-off investors. But if that’s not what you’re looking for, and your 401(k) plan makes an advisor available to you, you may be able to get more specific advice. Or, if you want more help, you could hire a financial professional to work with you on your overall plan as it relates to your long- and short-term goals.

Multiple Retirement Accounts

Another possibility might be to go with the basic choices in your workplace 401(k), but also open a separate investing account with which you could take a more hands-on approach. You could try a traditional IRA if you’re still looking for tax advantages, a Roth IRA (read more about what Roth IRAs are) if you want to limit your tax burden in retirement, or an account that lets you invest in what you love, one stock at a time.

There are some important things to know, though, before deciding between a 401(k) vs. an IRA.
💡 Quick Tip: Can you save for retirement with an automated investment portfolio? Yes. In fact, automated portfolios, or robo advisors, can be used within taxable accounts as well as tax-advantaged retirement accounts.

How Asset Allocation Can Make a Difference

How an investor allocates their resources can make a difference in terms of their ultimate returns. Generally speaking, riskier investments tend to have higher potential returns — and higher potential losses. Stocks also tend to be riskier investments than bonds, so if an investor were to construct a portfolio that’s stock-heavy relative to bonds, they’d probably have a better chance of seeing bigger returns.

But also, a bigger chance of seeing a negative return.

With that in mind, it’s going to come down to an investor’s individual appetite for risk, and how much time they have to reach their financial goals. While there are seemingly infinite ways to allocate your investments, the chart below offers a very simple look at how asset allocation associates with risks and returns.

Asset Allocations and Associated Risk/Return
Asset Allocation	Risk/Return
75% Stock-25% Bonds	Higher risk, higher potential returns
50% Stock-50% Bonds	Medium risk, variable potential returns
25% Stock-75% Bonds	Lower risk, lower potential returns

Ways to Make the Most of Investment Options

It’s up to you to manage your employer-sponsored 401(k) in a way that makes good use of the options available. Here are some pointers.

Understand the Match

One way to start is by familiarizing yourself with the rules on how to maximize the company match. Is it a dollar-for-dollar match up to a certain percentage of your salary, a 50% match, or some other calculation? It also helps to know the policy regarding vesting and what happens to those matching contributions if you leave your job before you’re fully vested.

Consider Your Investments

With or without help, taking a little time to assess the investments in your plan could boost your bottom line. It may also allow you to tailor your portfolio to better accomplish your financial goals. Checking past returns can provide some information when choosing investments and strategies, but looking to the future also can be useful.

Plan for Your Whole Life

If you have a career plan (will you stay with this employer for years or be out the door in two?) and/or a personal plan (do you want to buy a house, have kids, start your own business?), factor those into your investment plans. Doing so may help you decide how much to invest and where to invest it.

Find Your Lost 401(k)s

Have you lost track of the 401(k) plans or accounts you left behind at past employers? It may make sense to roll them into your current employer’s plan, or to roll them into an IRA separate from your workplace account. You might also want to review and update your portfolio mix, and you might be able to eliminate some fees.

Know the Maximum Contributions for Retirement Accounts

Keep in mind that there are different contribution limits for 401(k)s and IRAs. For those under age 50, the 2023 contribution limit is $22,500 for 401(k)s and $6,500 for IRAs. For those 50 or older, the 2023 contribution limit is $30,000 for 401(k)s and $7,500 for IRAs. Other rules and restrictions may also apply.

Learn How to Calculate Your 401(k) Rate of Return

This information can be useful as you assess your retirement saving strategy, and the math isn’t too difficult.

For this calculation, you’ll need to figure out your total contributions and your total gains for a specific period of time (let’s say a calendar year).

You can find your contributions on your 401(k) statements or your pay stubs. Add up the total for the year.

Your gains may be listed on your 401(k) statements as well. If not, you can take the ending balance of your account for the year and subtract the total of your contributions and the account balance at the beginning of the year. That will give you your total gains.

Once you have those factors, divide your gains by your ending balance and multiply by 100 to get your rate of return.

Here’s an example. Let’s say you have a beginning balance of $10,000. Your total contributions for the year are $6,000. Your ending balance is $17,600. So your gains equal $1,600. To get your rate of return, the calculation is:

(Gains / ending balance) X 100 =

($1,600 / $17,600) X 100 = 9%

Savings Potential From a 401(k) Potential by Age

It can be difficult to really get a feel for how your 401(k) savings or investments can grow over time, but using some of the math above, and assuming that you keep making contributions over the years, you’ll very likely end up with a sizable nest egg when you reach retirement age.

This all depends, of course, on when you start, and how the markets trend in the subsequent years. But for an example, we can make some assumptions to see how this might play out. For simplicity’s sake, assume that you start contributing to a 401(k) at age 20, with plans to start taking distributions at age 70. You also contribute $10,000 per year (with no employer match, and no inflation), at an average return of 5% per year.

Here’s how that might look over time:

401(k) Savings Over Time
Age	401(k) Balance
20	$10,000
30	$128,923
40	$338,926
50	$680,998
60	$1,238,198
70	$2,145,817

Using time and investment returns to supercharge your savings, you could end up with more than $2 million through dutiful saving and investing in your 401(k). Again, there are no guarantees, and the chart above makes a lot of oversimplified assumptions, but this should give you an idea of how things can add up.

Alternatives to 401(k) Plans

While 401(k) plans can be powerful financial tools, not everyone has access to them. Or, they may be looking for alternatives for whatever reason. Here are some options.

Roth IRA

Roth IRAs are IRAs that allow for the contribution of after-tax dollars. Accordingly, the money contained within can then be withdrawn tax-free during retirement. They differ from traditional IRAs in a few key ways, the biggest and most notable of which being that traditional IRAs are tax-deferred accounts (contributions are made pre-tax).

Learn more about what IRAs are, and what they are not.

Traditional IRA

As discussed, a traditional IRA is a tax-deferred retirement account. Contributions are made using pre-tax funds, so investors pay taxes on distributions once they retire.

HSA

HSAs, or health savings accounts, are another vehicle that can be used to save or invest money. HSAs have triple tax benefits, in that account holders can contribute pre-tax dollars to them, allow that money to grow tax-free, and then use the holdings on qualified medical expenses — also tax-free.

Retirement Investment

Typical returns on 401(k)s may vary, but looking for an average of between 5% and 8% would likely be a good target range. Of course, that doesn’t mean that there won’t be up or down years, and averages, themselves, can be a bit misleading.

While your annual return on your 401(k) may vary, the good news is that, as an investor, you have options about how you save for the future. The choices you make can be as aggressive or as conservative as you want, as you choose the investment mix that best suits your timeline and financial goals.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

What is the typical 401(k) return over 20 years?

The typical return for 401(k)s over 20 years is between 5% and 8%, assuming a portfolio sticks to an asset mix of roughly 60% stocks and 40% bonds. There’s also no guarantee that returns will fall within that range.

What is the typical 401(k) return over 10 years?

Again, the average rate of return for 401(k)s tends to land between 5% and 8%, with some years providing higher returns, and some years providing lower, or even negative returns.

What was the typical 401(k) return for 2022?

The average 401(k) lost roughly 20% of its value during 2022, as increasing interest rates and shifting economic conditions over the course of the year (largely due to increasing inflation) caused the economy to sputter.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
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 prequalification for any loan product offered by SoFi Bank, N.A.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN0123020

Source: sofi.com

Apache is functioning normally

November 20, 2023 by Brett Tams

Whether you’re purchasing a new pair of eyeglasses, stocking up on over-the-counter medications, or paying for your child’s daycare, there may be certain expenses your health insurance plan doesn’t cover.

In those cases, having a flexible spending account, or FSA, could help you save money. This special savings account lets you set aside pretax dollars to pay for eligible out-of-pocket healthcare expenses, which in turn can lower your taxable income.

Let’s take a look at how these accounts work.

What Is an FSA?

An FSA is an employer-sponsored savings account you can use to pay for certain health care and dependent costs. It’s commonly included as part of a benefits package, so if you purchased a plan on the Health Insurance Marketplace, or have Medicaid or Medicare, you may no longer qualify for a FSA.
There are three types of FSA accounts:

• Health care FSAs, which can be used to pay for eligible medical and dental expenses.

• Dependent care FSAs, which can be used to pay for eligible child and adult care expenses, such as preschool, summer camp, and home health care.

• Limited expense health care FSA, which can be used to pay for dental and vision expenses. This type of account is available to those who have a high-deductible health plan with a health savings account.

How Do You Fund an FSA?

If you opt into an FSA, you’ll need to decide on how much to regularly contribute throughout the year. Those contribution amounts will be automatically deducted from your paychecks and placed into the account. Whatever money you put into an FSA isn’t taxed, which means you can keep more of what you earn.

Your employer may also throw some money into your FSA account, but they are under no legal obligation to do so.

You can use your FSA throughout the year to either reimburse yourself or to help pay for eligible expenses for you, your spouse, and your dependents (more on that in a minute). Typically, you’ll be required to submit a claim through your employer and include proof of the expense (usually a receipt), along with a statement that says that your regular health insurance does not cover that cost.

Some employers offer an FSA debit card or checkbook, which you can use to pay for qualifying medical purchases without having to file a reimbursement claim through your employer.
💡 Quick Tip: When you have questions about what you can and can’t afford, a spending tracker app can show you the answer. With no guilt trip or hourly fee.

What Items Qualify for FSA Reimbursement?

The IRS decides which expenses qualify for FSA reimbursement, and the list is extensive. Here’s a look at some of what’s included — you can see the full list on the IRS’ website.

• Health plan co-payments and deductibles (but not insurance premiums)

• Prescription eyeglasses or contact lenses

• Dental and vision expenses

• Prescription medications

• Over-the-counter medicines

• First aid supplies

• Menstrual care items

• Birth control

• Sunscreen

• Home health care items, like thermometers, crutches, and medical alert devices

• Medical diagnostic products, like cholesterol monitors, home EKG devices, and home blood pressure monitors

• Home health care

• Day care

• Summer camp

Are There Any FSA Limits?

For 2023, health care FSA and limited health care FSA contributions are limited to $3,050 per year, per employer. Your spouse can also contribute $3,050 to their FSA account as well.

Meanwhile, dependent care FSA contributions are limited to $5,000 per household, or $2,500 if you’re married and filing separately.

Does an FSA Roll Over Each Year?

In general, you’ll need to use the money in an FSA within a plan year. Any unspent money will be lost. However, the IRS has changed the use-it-or-lose-it rule to allow a little more flexibility.

Now, your employer may be able to offer you a couple of options to use up any unspent money in an FSA:

• A “grace period” of no more than 2½ extra months to spend whatever is left in your account

• Rolling over up to $610 to use in the following plan year. (In 2024, that amount increases to $640.)

Note that your employer may be able to offer one of these options, but not both.

One way to avoid scrambling to spend down your FSA before the end of the year or the grace period is to plan ahead. Calculate all deductibles, copayments, coinsurance, prescription drugs, and other possible costs for the coming year, and only contribute what you think you’ll actually need.

Recommended: Flexible Spending Accounts: Rules, Regulations, and Uses

How Can You Use Up Your FSA?

You can consider some of these strategies to get the most out of your FSA:

• Buy non-prescription items. Certain items are FSA-eligible without needing a prescription (but save your receipt for the paperwork!). These items may include first-aid kits, bandages, thermometers, blood pressure monitors, ice packs, and heating pads. Check out the FSA Store to find out which items may be covered.

• Get your glasses (or contacts). You may be able to use your FSA to cover the cost of prescription eyeglasses, contact lenses, and sunglasses as well as reading glasses. Contact lens solution and eye drops may also be covered.

• Keep family planning in mind. FSA-eligible items can include condoms, pregnancy tests, baby monitors, fertility kits. If you have a prescription for them, female contraceptives may also be covered.

• Don’t forget your dentist. Unfortunately, toothpaste and cosmetic procedures are not covered by your FSA, but dental checkups and associated costs might be. These could include copays, deductibles, cleanings, fillings, X-rays, and even braces. Mouthguards and cleaning solutions for your retainers and dentures may be FSA-eligible as well.
💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

Flexible Savings Account (FSA) vs. Health Savings Account (HSA)

You may have heard of a health savings account (HSA). It’s easy to confuse it with an FSA, as they share some similarities.

Both types of accounts:

• Offer some tax advantages

• Can be used to pay for co-payments, deductibles, and eligible medical expenses

• Can be funded through employee-payroll deductions, employer contributions, or individual deductions

• Have a maximum contribution amount. In 2023, people with individual coverage can contribute up to $3,850 per year, while those with family coverage can cset aside up to $7,750 per year.

That said, there are some key differences between HSAs and FSAs:

• You must be enrolled in a high deductible health plan in order to qualify for an HSA.

• HSAs do not have a use-it-or-lose-it rule. Once you put money in the account, it’s yours.

• If you quit or are fired from your job, your HSA can go with you. This happens even if your employer contributed money to the account.

• If you’re 55 or older, you can contribute an additional $1,000 to your HSA as a catch-up contribution — similar to the catch-up contributions allowed with an IRA.

• If you withdraw money from your HSA for a non-qualified expense before the age of 65, you’ll pay taxes on it plus a 20% penalty.

• If you withdraw money from your HSA for any type of expense after age 65, you don’t pay a penalty. However, the withdrawal will be taxed like regular income.

Recommended: Benefits of Health Savings Accounts

The Takeaway

Flexible spending accounts are offered by employers and can be a useful tool for paying for health care- or dependent-related expenses. Notably, you fund the account with pretax dollars taken from your paycheck, which can lower your taxable income and help you save money.

You typically need to spend your FSA money within a plan year, though your employer may give you the option to either roll over a portion of the balance into the next year or use it during a grace period. There are also guidelines around what you can spend the FSA funds on and how much you can contribute to your account.

Take control of your finances with the SoFi Insights money tracker app. Connect all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

SoFi helps you stay on top of your finances.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SORL1023031

Source: sofi.com

Apache is functioning normally

October 20, 2023 by Brett Tams

An initial public offering, or IPO, represents the first time a company makes its shares available for public trading. A pre-IPO placement involves the sale of unregistered shares in a company before they’re listed on a stock exchange for the first time.

A pre-IPO placement usually occurs immediately before a company goes public.

Companies typically sell pre-IPO shares to hedge funds, private equity firms and other institutional investors that can purchase them in large quantities. It’s possible, however, to get involved in pre-IPO investing as an individual retail investor.

Investing in IPOs or pre-IPO stock could be profitable, if the company’s public offering lives up to or exceeds market expectations. But it’s also risky, since you never know how a stock will perform in the future.

How Does Pre-IPO Placement Work?

An IPO, or initial public offering, is an opportunity for private companies to introduce their stock to the market for the first time. A typical IPO requires a lengthy process, as there are numerous regulatory guidelines that companies must meet.

Once those hurdles are cleared, however, the company will have a date on which it goes public. Investors can then purchase shares of the company through the stock exchange where it lists.

Pre-IPO investing works a little differently. The end goal is still to have the company go public. But before that, the company sells blocks of shares privately, based on its IPO valuation. A successful pre-IPO gives the company attention, as well as capital from investors ahead of the actual IPO date.

For the most part, pre-IPO shares are restricted to high-net-worth investors, or accredited investors, i.e. those who can afford to invest large amounts of capital, and can afford to take on a certain amount of risk. A pre-IPO placement of shares could be made without a prospectus or even a guarantee that the IPO will occur.

Individual investors typically don’t have the funds required, or the stomach for that level of risk.

In return for that measure of uncertainty Pre-IPO investors get in on the ground floor and purchase shares before they’re available to the market at large. There may also be an added incentive. Because they’re buying such large blocks of shares, pre-IPO investors may get access to them for less than the projected IPO price.
💡 Quick Tip: IPO stocks can get a lot of media hype. But savvy investors know that where there’s buzz there can also be higher-than-warranted valuations. IPO shares might spike or plunge (or both), so investing in IPOs may not be suitable for investors with short time horizons.

An Example of Pre-IPO Placement

Pre-IPO placements have gained popularity over the last decade, with more companies opting to offer them ahead of going public. Some of the companies that have offered pre-IPO stock include Uber and Alibaba, both of which have ties to e-commerce.

Alibaba’s pre-IPO offering was notable due to the fact that a single investor and portfolio manager purchased a large block of shares. The investor, Ozi Amanat, purchased $35 million worth of pre-IPO stock at a price that was below $60 per share.

He then distributed those shares among a select group of families. By the end of the first public trading day, Alibaba’s shares had risen to $90 each. Alibaba’s IPO delivered a 48% return to those pre-IPO shareholders due to higher-than-expected demand for the company’s stock.

In Uber’s case, PayPal agreed to purchase $500 million worth of the company’s common stock ahead of its IPO. PayPal then lost a large portion of its investment when the Uber stock price fell by about 30% following its IPO.

Pros and Cons of Pre-IPO Placement

There are benefits to pre-IPOs placements, but there are also some important drawbacks that investors should understand.

Pros of Pre-IPO Placement

From the perspective of the company, pre-IPO offerings can be advantageous if they help the company to raise much-needed capital ahead of the IPO. Offering private placements of shares before going public can help attract interest to the IPO itself, which could help make it more successful.

For investors, the benefits include:

• Access to shares of a company before the public.

• The potential ability to purchase shares of pre-IPO stock at a discount. So if a company’s IPO price is expected to be $30 a share, pre-IPO investors may be able to purchase it for $25 instead. This already gives them an edge over investors who may be purchasing shares the day the IPO launches.

• Purchasing shares at a discount can potentially translate to higher returns overall if the IPO meets or exceeds initial expectations. The higher the company’s stock price rises following the IPO, the more profits you could pocket by selling those shares later.

Recommended: How to Find Upcoming IPO Stocks Before Listing Day

Cons of Pre-IPO Placement

While pre-IPO investing could be lucrative, there are some potential backs to consider. Specifically, there are certain risks involved that could make it a less attractive option for investors.

• The company’s IPO may not meet the expectations that have been set for it. That doesn’t mean a company won’t be successful later. Facebook, for example, is noteworthy for having an IPO described as a “belly flop”. A disappointing showing on the day a company goes public for the first time could shake investor confidence in the stock and bode ill for its future performance. That in turn could affect the returns realized from an investment in pre-IPO stock.

• The company may never follow through on its IPO and fails to go public. In that case, investors may be left wondering what to do with the shares they hold through a pre-IPO private placement. WeWork is an example of this in action. In 2019, the workspace-sharing company announced that it had scrapped its plans for an IPO, thanks to limited interest from investors and concerns over the sustainability of its business model. In 2021, the company did go public — but not through an Initial Public Offering. Instead, WeWork went public through a merger with a special acquisition company or SPAC.

• Pre-IPOs are less regulated than regular IPOs.

💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.

Summary of Pros and Cons of Pre-IPO Placement

Here’s a quick look at the benefits and drawbacks of pre-IPO placements:

Pre-IPO Private Placement Pros and Cons

Pros	Cons
• Investors have an opportunity to get into an investment ahead of the crowd • Pre-IPO investors may be able to purchase shares at a price that’s below the IPO price • Purchasing pre-IPO stock could yield higher returns if the IPO is successful	• Pre-IPO placements can be risky, as they’re less regulated than regular IPOs • There are no guarantees that an IPO will deliver the type of returns investors expect • Does not guarantee you’ll get the loan

Pros

Cons

• Investors have an opportunity to get into an investment ahead of the crowd

• Pre-IPO investors may be able to purchase shares at a price that’s below the IPO price

• Purchasing pre-IPO stock could yield higher returns if the IPO is successful

• Pre-IPO placements can be risky, as they’re less regulated than regular IPOs

• There are no guarantees that an IPO will deliver the type of returns investors expect

• Does not guarantee you’ll get the loan

How to Buy Pre-IPO Stock

Typically, only accredited investors can purchase pre-IPO placements. As of 2021, the Securities and Exchange Commission defines an accredited investor as anyone who:

• Earned income over $200,000 (or $300,000 if married) in each of the prior two years and reasonably expects to earn that same amount in the current year, OR

• Has a net worth over $1 million, either by themselves or with a spouse, excluding the value of their primary residence, OR

• Holds a Series 7, 65 or 82 license in good standing

If you meet these conditions for accredited investor status, then you may be able to purchase shares of pre-IPO stock through your brokerage account. Your brokerage will have to offer this service and not all of them do.

Other options for buying pre-IPO stock include purchasing it from the company directly. To do that, you may need to have a larger amount of capital at the ready. So if you’re not already an angel investor or venture capitalist, this option might be off the table.

You could also pursue pre-IPO placements indirectly by investing in companies that routinely purchase pre-IPO shares. For example, you might invest in a mutual fund or exchange-traded fund that specializes in private equity or late-stage companies preparing to go public. You won’t get the direct benefits of owning pre-IPO stock but you can still get exposure to them in your portfolio this way.

The Takeaway

For some high-net-worth or institutional investors, buying pre-IPO shares — a private sale of shares before a company’s initial public offering — might be possible. But it’s highly risky. For the most part, individual investors won’t have access to these kinds of private deals. But eligible investors may be able to trade ordinary IPO shares through their brokerage.

Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it’s wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.

Invest with as little as $5 with a SoFi Active Investing account.

Photo credit: iStock/filadendron

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
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 prequalification for any loan product offered by SoFi Bank, N.A.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.
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.

SOIN0623066

Source: sofi.com

Apache is functioning normally

October 8, 2023 by Brett Tams

Properly formulated, the weighted average cost of capital, or WACC, merges a business’s cost of capital across financial components. Once weighted for proportional balance, WACC bundles all company financial sources (with an emphasis on equity and debt) and adds them together. The final figures represent the current value of a company, or a project or initiative undertaken by a company.

Understanding the weighted average cost of capital, or the cost of capital, is both a business calculus and an economic term. It’s a term to describe the relationship between two key economic components – equity and debt, as a financial ratio.

What Is WACC?

The WACC is the rate that a company must pay, on average, to finance its operations. It’s a figure that business leaders use to make strategic decisions, and a data point used by investors as part of their fundamental analysis of a company.

In general, a low weighted average cost of capital shows that a business is in good financial health and can more efficiently and economically pay for company operations, either through debt financing or equity financing. Earnings are robust enough to curb company debt loads and offer solid investment returns to market investors, which should increase capital to the company.

Recommended: How to Know When to Sell a Stock

A higher weighted average cost of capital suggests the opposite outcome. The firm is likely paying more to handle their debt and paying more to raise capital for company projects. That scenario can lead to a business with a lower valuation with less demand from investors to buy company stock or invest in its bond issues, as returns on those investments would likely be lower.

Who Uses Weighted Average Cost of Capital?

The weighted average cost of capital formula can be used by a number of people in or around a business. That can include company management, who can use it to guide decisions about the direction of the company, along with investors and investment analysts, who are keeping tabs from the outside.

High vs Low WACC Calculations

Investors can use the results of WACC calculations to help guide their investment decisions. In general, a high WACC may be a turn-off for some investors, as it indicates that the company isn’t as likely to provide investors with a high rate of return. The opposite is also true – a low WACC may be a bullish sign for investors.

💡 Quick Tip: The best stock trading app? That’s a personal preference, of course. Generally speaking, though, a great app is one with an intuitive interface and powerful features to help make trades quickly and easily.

What is the WACC Formula?

The calculation used for WACC includes cost of equity and cost of debt, along with additional economic components commonly used by businesses.

Here is how those components are broken down in a WACC formula.

• E = Market value of the business’s equity

• V = Total value of capital (equity + debt)

• Re = Cost of equity

• D = Market value of the business’s debt

• Rd = Cost of debt

• T = Tax rate

Once you have those numbers, here’s how to calculate WACC:

How to Calculate WACC

Calculating WACC looks like this:

WACC = (E/V x Re) + ((D/V x Rd) x (1-T))

To use the WACC formula, you need to first multiply the costs of each financial component and include that component’s proportional rate. Once you’ve arrived at those figures, multiply them by the company’s corporate tax rate. The resulting figure gives you the company’s weighted average cost of capital.

Difficulties With Using WACC

There’s a caveat to be mindful of when calculating the weighted average cost of capital: The formula heavily relies on the cost of equity in its equation, which is largely unknown, since that value can vary. A company’s share capital depends on what the market (i.e., investors) are willing to pay to invest in the company, as exhibited by the company’s stock price.

Given that unknown, companies must evaluate the expected return of their stock, through an investor’s eyes. That represents the value of the company’s equity and any effort to hide or diminish that value could put a damper on a company’s share price.

That’s why companies factor the estimated cost of equity into the WACC equation – they view the cost of equity as the amount of capital a company needs to spend to maintain a stock price that’s largely acceptable to market investors.

An Example of the WACC at Work

As an example of the WACC at work, let’s look at a company’s weighted average cost of capital – let’s say ABC Company has an annual return of 15% and an average cost of 5% annually to pay for operations. That dynamic represents a 10% profit on its investment in the company.

From an investor’s viewpoint, that same profit scenario represents 10 cents of every dollar invested in the company. That’s 10 cents of capital a business can use to either invest back into the company or can be used to pay down company debt.

On the other end of the equation, if XYZ Company generates an annual investment return of 10% yet owns an average annual cost of capital of 15%, that company is down 5 cents on each dollar invested in the company.

In that scenario, XYZ Co. is in a bind that no company wants to find itself in – its costs of doing business exceed its investment returns. That translates into fewer investors until the firm realigns its financing picture, cuts debt, and gives investors a good reason to buy its stocks and bonds.

Why the Need for Weighted Average Cost of Capital?

The weighted average cost of capital breaks down a firm’s cost of doing business by weighing the debt (including bonds and other long-term debt) and equity structure (including the cost of both common and preferred stock) of the company.

Primarily, companies need to finance their operations in three ways:

1. Debt financing

2. Equity financing

3. A combination of debt and equity

No matter which option a company chooses, sources of capital come with a financial cost.

The WACC seeks to find the “true cost of money” in operating a business by comparing the cost of borrowing of capital to run a company versus raising capital through equity to pay for common business needs like property and equipment, research and development, human capital (i.e., employees), and business expansion, among other costs.

When company executives know the WACC, they can leverage that financial ratio to decide on funding the firm through debt or equity financing. The cost of equity will depend on the value of the company’s stock, while the cost of debt will reflect interest rates.

Basically, companies require an accurate weighted cost of capital to properly weigh expenses and provide fair cost of analysis on projects in the pipeline. Additionally, companies can leverage their WACC to evaluate their capital structure and weigh the myriad financial sources needed to fund operations, proportioned accurately.

Using one form of capital to fund a company’s operations makes the cost of capital formula fairly simple. However, when companies use multiple forms of capital the formula becomes more complicated and requires financial modeling.

💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

The Takeaway

The weighted average cost of capital is not exactly a precise measurement of a company’s financial health, but it can be a highly useful one, especially for investors. If you’re looking at potentially investing in a company, it can be one piece of information that provides more detail into the company’s relative strength.

The data is easily found in a publicly-traded company’s balance sheets, which are made available to investors on a regular basis. Just visit the company’s web site, locate its financial information page, and look for the relevant data.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

How can you calculate WACC for a private company?

Calculating WACC for a private company is more or less the same process as calculating WACC for a public company, but the calculation will need to be done using estimates of the company’s value, perhaps through cash flow analysis.

What is the difference between WACC and Required Rate of Return (RRR)?

While WACC and RRR are similar, the two are distinct from one another. In fact, WACC can be a tool used to determine RRR, but the two produce different values that can be important for investors for different reasons.

How does WACC influence sensitivity analysis?

WACC calculations can change in different scenarios, and sensitivity analysis can help determine how and what those changes are. Effectively, by experimenting with different values, you can get a sense of how sensitive a WACC calculation is, which can be important for investors.

Photo credit: iStock/fizkes

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
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 prequalification for any loan product offered by SoFi Bank, N.A.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN0723168

Source: sofi.com

Apache is functioning normally

October 7, 2023 by Brett Tams

A financial instrument is simply a contract between entities that represents the exchange of money for a certain asset. Financial instruments include most types of investments: cash, stocks, bonds, mutual funds, exchange-traded funds (ETFs), certificates of deposit (CDs), loans, derivatives, and more.

Financial instruments facilitate the movement of capital through the markets and the broader economic system. While this may take different forms, the flow of capital remains a central feature.

What Is a Financial Instrument?

Generally Accepted Accounting Principles (GAAP) defines a financial instrument as cash; evidence of an ownership interest in a company or other entity; or a contract. A financial instrument confers either a right or an obligation to the holder of the instrument, and is an asset that can be created, modified, traded, or settled.

Investors can trade financial instruments on a public exchange. The New York Stock Exchange (NYSE) is an example of a spot market in which investors can trade equity instruments for immediate delivery.
💡 Quick Tip: The best stock trading app? That’s a personal preference, of course. Generally speaking, though, a great app is one with an intuitive interface and powerful features to help make trades quickly and easily.

Financial Instrument vs Security

A security is a type of financial instrument with a fluctuating monetary value that carries a certain amount of risk for the individual or entity that holds it. Investors can trade securities through a public exchange or over-the-counter market.

The federal government regulates securities and the securities industry under a series of laws, including the Securities Act of 1933, the Securities Exchange Act of 1934, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

All securities are financial instruments but not all financial instruments are securities.

Like financial instruments, securities fall into different groups or categories. The four types of securities include:

• Equities. Equities represent an ownership interest in a company. Stocks and mutual funds are examples of equity securities.

• Debt. Debt refers to money lent by investors to corporate or government entities. Corporate and municipal bonds are two examples of debt securities.

• Derivatives. Derivatives are financial contracts whose value is tied to an underlying asset. Futures and stock options are derivative instruments.

• Hybrid. Hybrid securities combine aspects of debt and equity. Convertible bonds are a type of hybrid instrument.

Recommended: Bonds vs. Stocks: Understanding the Difference

Types of Financial Instruments

Financial instruments are not all alike. There are different types of financial instruments in different asset classes. Certain financial instruments are more complex in nature than others, meaning they may require more knowledge or expertise to handle or trade.

1. Cash Instruments

Cash instruments are financial instruments whose value fluctuates based on changing market conditions. Cash instruments can be securities traded on an exchange, such as stocks, or other types of financial contracts.

For example, a certificate of deposit account (CD) is a type of cash instrument. Loans also fall under the cash instrument heading as they represent an agreement or contract between two parties where money is exchanged.

2. Derivative Instruments

Derivative instruments or derivatives draw their value from an underlying asset, and fluctuate based on the changing value of the underlying security or benchmark.

As mentioned, options are a type of derivative instrument, as are futures contracts, forwards, and swaps.

3. Foreign Exchange Instruments

Foreign exchange instruments are financial instruments associated with international markets. For example, in forex trading investors trade currencies from different currencies through global exchanges.

Asset Classes of Financial Instruments

Financial instruments can also be broken down by asset class.

4. Debt-Based Financial Instruments

Companies use debt-based financial instruments as a means of raising capital. For example, say a municipal government wants to launch a road improvement project but lacks the funding to do so. They may issue one or more municipal bonds to raise the money they need.

Investors buy these bonds, contributing the capital needed for the road project. The municipal government then pays the investors back their principal at a later date, along with interest.

5. Equity-Based Financial Instruments

Equity-based financial instruments convey some form of ownership of an entity. If you buy 100 shares of stock in XYZ company, for example, you’re purchasing an equity-based instrument.

Equity-based instruments can help companies raise capital, but the company does not have to pay anything back to investors. Instead, investors may receive dividends from the stock shares they own, or realize profits if they’re able to sell those shares for a capital gain.

Are Commodities Financial Instruments?

Commodities such as oil or gas, precious metals, agricultural products and other raw materials are not considered financial instruments. A commodity itself, such as pork or copper, doesn’t direct the flow of capital.

That said, there are certain instruments whereby commodities are traded, including stocks, exchange-traded funds, and futures contracts.

A futures contract represents an agreement to buy or sell a certain commodity at a specific price at a future date. So, for example, an orange grower might sell a futures contract agreeing to sell a certain amount of their crop for a set price. An orange juice company could then buy a contract to purchase oranges at X price.

For the everyday investor, futures trading in commodities typically doesn’t mean you plan to take delivery of two tons of coffee beans or 4,000 bushels of corn. Instead, you buy a futures contract with the intention of selling it before it expires.
💡 Quick Tip: It’s smart to invest in a range of assets so that you’re not overly reliant on any one company or market to do well. For example, by investing in different sectors you can add diversification to your portfolio, which may help mitigate some risk factors over time.

Uses of Financial Instruments

Investors and businesses may use financial instrument for the following purposes:

1. As a Means of Payment

You already use financial instruments in your everyday life. When you write a check to pay a bill or use cash to buy groceries, you’re exchanging a financial instrument for goods and services.

Likewise, business entities may charge purchases to a business credit card. They’re borrowing money from the credit card company and paying it back at a later date, often with interest.

2. Risk Transfer

Investors use financial instruments to transfer risk when trading options and other derivative instruments, such as interest rate swaps. With options, for example, an investor has the option to buy or sell an underlying asset at a specified price on or before a predetermined date. A contract exists between the individual who writes the option and the individual who buys it. This type of financial instrument allows an investor to speculate about which way prices for a particular security may move in the future.

3. To Store Value

Businesses often use financial instruments in this way. For example, say you default on a credit card balance. Your credit card company can write off the amount as a bad debt and sell it to a debt collector. Meanwhile, businesses with outstanding invoices they’re awaiting payment on can use factoring or accounts receivables financing to borrow against their value.

4. To Raise Capital

Companies may issue stocks or bonds in order to get access to capital that they can invest in their business. In this case, the financial instruments could be a means of raising capital for one party and a store of value for the other.

Importance of Financial Instruments

Financial instruments are central to not only the stock market, but also the financial and economic system as a whole. They provide structures and legal obligations that facilitate the regulated exchange of capital via investing, lending and borrowing, speculation and growth.

In short, financial instruments keep the financial markets moving, and they also help businesses to keep their doors open and allow consumers to manage their finances, plan for the future, and invest with the hope of future gains.

For example, you may also have a savings account that you use to hold your emergency fund, an Individual Retirement Account (IRA) that you use to save for retirement and a taxable brokerage account for trading stocks. Your checking account is one of the basic tools you might use to pay bills or make purchases.

You might be paying down a mortgage or student loans while occasionally using credit cards to spend. All of these financial instruments allow you to direct the flow of money from one place to another.

The Takeaway

Financial instruments are integral to every aspect of the financial world, and they also play a significant part in business transactions and day-to-day financial management. If you trade stocks, invest in an IRA, or write checks to your landlord, then you’re contributing to the movement of capital with various financial instruments. Understanding the different types of financial instruments is the first step in becoming a steward of your own money.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

Photo credit: iStock/Love portrait and love the world

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
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 prequalification for any loan product offered by SoFi Bank, N.A.

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN0723141

Source: sofi.com

Apache is functioning normally

October 1, 2023 by Brett Tams

Quadruple witching refers to the simultaneous expiration of four popular investment contracts, creating wild market conditions. Given its name, it may just be the spookiest day of the year for investors – sorry, Halloween! Quadruple witching day occurs on the third Friday in March, June, September, and December.

The last hour of those trading days is known as the “quadruple witching hour”, when many derivatives contracts expire, often creating volatility in the markets. That’s because there may be higher market volume on those days as traders either close out or roll over their positions.

What is Quadruple Witching Day?

Quadruple witching, or quad witching, is trader’s terminology for the four dates on the calendar when four kinds of options contracts expire: stock options, stock index futures, index options, and stock futures.

Each of the contracts has expiration dates that will match up each quarter, which is why quadruple witching, or quad witching, happens in the third, sixth, ninth and twelfth month of the year respectively. The expiration for these contracts happen at the same time in the day — the afternoon.

While events like quadruple witching may not impact how and when you invest (especially if you’re investing for the long term), they are a good reminder of the investment risks that any investing strategy or approach brings.

How much attention individual investors pay to witching day may depend on their investing philosophy and their time horizon. Since quad witching can result in short-term volatility, many passive investors may ignore them entirely. On the other hand, active investors who try to time the market and get in and out of trades quickly in the most advantageous manner, may use them to inform their strategy and consider buying or selling witching hour stocks.

💡 Quick Tip: If you’re opening a brokerage account for the first time, consider starting with an amount of money you’re prepared to lose. Investing always includes the risk of loss, and until you’ve gained some experience, it’s probably wise to start small.

Contracts Involved in Quad Witching

To understand quadruple witching, you have to first understand the different options contracts involved. Stock index futures, stock index options, single stock futures and single stock options are all derivatives, meaning their value corresponds to the value or change in value of an underlying asset. The underlying assets are either stock market indexes, like the S&P 500, or individual company stocks.

Options contracts give holders the right, but not the obligation, to buy or sell a stock at a certain price at a future date. Futures contracts are contracts to purchase shares of a given stock at a certain price in the future.

For indices, futures and options are contracts on the value of an equity index. Investors often use these either to hedge or make outright speculations on the moves of an index. All four derivatives are complex investments that involve risks when playing the market, and they’re more often used by professional traders and institutional traders than retail investors.

Recommended: Is it Possible to Time the Stock Market?

How Does Quadruple Witching Affect the Market?

Quadruple witching days are those four days of the year when these types of contracts all expire, those who bought contracts and choose to exercise them will receive their stock or cash, or they make additional transactions to take advantage of arbitrage opportunities.

This can lead to more buying and selling of shares than is typical for a given day or, especially a given hour. Increased volume can mean more volatility in the markets and the possibility of large swings during the day.

One reason these days can cause hiccups in the markets is that while certain positions expire, investors may want to extend them. This means they have to “roll” the bet in order to keep it active, potentially forcing other players in the market to buy or sell, especially if the market is already volatile or choppy.

For trades that involve the transfer or automatic buying of stock, like options trades on individual shares, the quadruple witching date can mean automatic buying up of shares to fulfill the options contracts, leading to spikes even if there is no “fundamental” reason for them.

Overall, volumes in options trades can go up on quadruple witching days, which can sometimes have knock-on effects on the price of the underlying assets involved in options contracts.

The Takeaway

Quadruple witching day occurs on the third Friday in March, June, September, and December. The last hour of those trading days is known as the “quadruple witching hour”, when many derivatives contracts expire, often creating volatility in the markets. That’s because there may be higher market volume on those days as traders either close out or roll over their positions.

Quadruple witching offers an opportunity to understand how market mechanics can affect actual prices, but it may not impact the strategy for most long-term investors. More experienced investors and traders may find profitable opportunities, however, as the markets enter a period of volatility.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

Photo credit: iStock/Radachynskyi

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
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 prequalification for any loan product offered by SoFi Bank, N.A.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN0623052

Source: sofi.com

Apache is functioning normally

October 1, 2023 by Brett Tams

Leverage ratios are a collection of formulas commonly used to compare how much debt, or leverage, a company has relative to its assets and equity. It shows whether a company is using more equity or more debt to finance its operations. Understanding a company’s debt situation is a key part of fundamental analysis during stock research. Calculating its financial leverage ratio helps potential investors understand a company’s ability to pay off its debt.

A high leverage ratio could indicate that a company has taken on more debt than it can pay off with its current cash flows, potentially making the company a riskier investment.

How to Calculate Leverage

A company increases its leverage by taking on more debt, acquiring an asset through a lease, buying back its own stock using borrowed funds, or by acquiring another company using borrowed funds.

There are several types of leverage ratios, which compare a company’s or an individual’s debt levels to other financial indicators. Some commonly used ones are:

Debt-to-Assets Ratio

This ratio compares a company’s debt to its assets. It is calculated by dividing total debt by total assets. A higher ratio could indicate that the company has purchased the majority of its assets with debt. That could be a warning sign that the company doesn’t have enough cash or profits to pay off these debts.

Formula: Total debt / total assets

Debt-to-Equity Ratio (D/E)

The debt-to-equity ratio compares a company’s debt to its equity. It is calculated by dividing total debt by total equity. If this ratio is high, it could indicate that the company has been financing its growth using debt.

The appropriate D/E ratio will vary by company. Some industries require more capital and some companies may need to take on more debt. Comparing ratios of companies in the same industry can give you a sense of what the typical ranges are.

Formula: Total debt / total equity

Asset-to-Equity Ratio

This is similar to the D/E ratio, but uses assets instead of debt. Assets include debt, so debt is still included in the overall ratio. If this ratio is high, it means the company is funding its operations mostly with assets and debt rather than equity.

Formula: Total assets / total equity

Debt-to-Capital Ratio

Another popular ratio, this one looks at a company’s debt liabilities and its total capital. It includes both short- and long-term debt, as well as shareholder equity. If this ratio is high, this may be a sign that the company is a risky investment.

Formula: Debt-to-capital ratio: Total debt / (total debt + total shareholder equity)

Degree of Financial Leverage

This calculation shows how a company’s operating income or earnings before interest (EBIT) and taxes will impact its earnings per share (EPS). If a company takes on more debt, it may have less stable earnings. This can be a good thing if the debt helps the company earn more money, but if the company goes through a less profitable period it could have a harder time paying off the debt.

Formula: % change in earnings per share / % change in earnings before interest and taxes

Consumer Leverage Ratio

This ratio compares the average American consumer’s debt to their disposable income. If consumers go into more debt, their spending can help fuel the economy, but it can also lead to larger economic problems.

Formula: Total household debt / disposable personal income

💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

Ways to Use Leverage Ratio Calculations

Understanding the definition of leverage ratio and the formulas for various types, is the first step toward using the measurement to make investing decisions. Investors use leverage ratios as a tool to measure the risk of investing in a company.

Simply put, they show how much borrowed money a company is using. Each industry is different, and the amount of debt a company has may differ depending on who its competitors are and other factors, such as its historical profits. In a very competitive industry or one that requires significant capital investment, it may be riskier to invest in or lend to a company with a high leverage ratio.

The interest rates companies are paying matters also, since debt at a lower rate has a smaller impact on the bottom line.

Regardless of industry, If a company can not pay back its debts, it may end up going bankrupt, and the investor could lose their money. On the other hand, if a company is using some leverage to fuel growth, this can be a good sign for investors. This means shareholders can see a greater return on equity when the company profits off of that growth. If a company can’t or chooses not to borrow any money, that could signal that they have tight margins, which may also be a warning sign for investors.

Investors can also use leverage ratios to understand how a potential change in expenses or income might affect the company.

Recommended: How Interest Rates Impact the Stock Market

How Lenders Use Leverage Ratios

In addition to investors, potential lenders calculate leverage ratios to figure out how much they are willing to lend to a company. These calculations are completed in addition to other calculations to provide a comprehensive picture of the company’s financial situation.

Overall, leverage ratio is one calculation amongst many that are used to evaluate a company for potential investment or lending.

Recommended: What EBIT and EBITDA Tell You About a Company

How Leverage is Created

There are several different ways companies or individuals create leverage These include:

• A company may borrow money to fund the acquisition of another business by issuing bonds

• Large companies can take out “cash flow loans” based on their credit status

• A company may purchase assets such as equipment or property using “asset-backed lending”

• A company or private equity firm may do a leveraged buyout

• Individuals take out a mortgage to purchase a house

• Individual investors who trade options, futures, and margins may use leverage to increase their position

• Investors may borrow money against their investment portfolio

The Takeaway

All leverage ratios are a measure of a company’s risk. Understanding basic formulas for fundamental analysis is an important strategy when starting to invest in stocks. Such formulas can help investors weigh the risks of a particular asset investment and compare assets to one another.

There are numerous ways to use leverage ratios, and lenders can use them as well. In all, knowing the basics about them can help broaden your knowledge and understanding of the financial industry.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

Photo credit: iStock/MicroStockHub

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
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 prequalification for any loan product offered by SoFi Bank, N.A.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN0623017

Source: sofi.com

Apache is functioning normally

September 27, 2023 by Brett Tams

Starting a family comes with an entirely new set of responsibilities. One of the most important, yet frequently overlooked, necessities is setting up a will. This crucial document outlines tons of important details should you pass away, including what happens to your child.

Estate planning for parents can be broken down into just a few digestible steps. Here’s everything you need to think about, plus tips on how to organize all of your documents.

Estate Planning for New Parents

1. Draft a Will

About 67% of Americans don’t have a will. Setting up a will can be simpler than it seems. A will is a document that outlines how you want things handled after you pass away, including distribution of assets and how any minor children to be cared for.

While some people with complex investments and multiple properties may want to hire a lawyer for help, younger, healthy individuals can seek out online services that can walk them through the steps to make a will and sometimes have no initial cost.

Then, you can follow the execution instructions, which typically include signing your will in front of eligible witnesses. Check your state’s individual requirements. Sometimes, you must have your will notarized in order to become valid. Many banks and public libraries offer this service for free.

If you’re married, consider drafting a joint will with your spouse. This gives you the ability to plan for different scenarios, like what happens when one spouse passes away versus both passing away at the same time. Remember to regularly update your will whenever a major life change occurs, like having another child or adding new major assets.
💡 Quick Tip: We all know it’s good to have a will in place, but who has the time? These days, you can create a complete and customized estate plan online in as little as 15 minutes.

2. Choose an Executor

When you’re setting up a will, you’ll need to choose an executor. This is the person responsible for handling the legal and logistical aspects of disbursing your assets. They are also responsible for filing any remaining taxes and settling your debts.

Consequently, your executor should be someone you trust and who has the ability to handle the tasks involved. This is especially important when you have young children because the executor’s ability to tie up your finances will impact your kids’ inheritance.

Once you choose an executor, let them know that you’ve chosen them. Give them a quick rundown of what to expect, and also let them know where to find your will and other relevant documents.

3. Name a Guardian

When you start having kids, you also need to name a guardian to care for them if you pass away before they reach legal adulthood. There are a lot of things to consider when making this important decision.

First, think about the potential guardian’s ability to care for children. Are their grandparents too old to take care of them? Does the guardian live far away from other friends and family who could serve as a support system?

Also consider their financial capabilities and their ability to manage any assets you leave to help pay for your kids’ expenses.

Finally, think about your values and who would raise your children in a way that’s similar to your own parenting style. Also realize that your kids will be going through a tough time, so their guardian would ideally be someone whom they trust and would provide emotional comfort.

If you have more than one child, make sure you name a guardian for each one, even if it’s the same person. That means you need to update your will every time you have a new baby. Be as explicit as possible when naming a guardian; for instance, if you pick a sibling and their spouse, name both individuals as coguardians.

4. Set Up the Right Accounts

Some types of accounts may help you pass on your assets without having to pay as much in taxes. It’s an important part of the estate planning process and can help you maximize the amount of money you’re able to pass onto your kids. A trust fund can protect the money from being spent too quickly, either by the guardian or your children themselves.

You can implement safeguards as to how much money can be taken out and when. Even if your kids are of legal age, you can put annual withdrawal limits on the trust to prevent a young adult from overspending. Alternatively, even if you pick a guardian to oversee the emotional wellbeing of your children, that same person may not be the best at handling money. Choosing a trust can limit their spending on behalf of your children as well.

There are many different types of trusts, so you may consider consulting an estate planning attorney to choose the best one for your family’s needs.
💡 Quick Tip: A trust is a customized estate planning tool that can be helpful for your heirs in addition to a will.

5. Designate Beneficiaries

The final step of estate planning for parents is to designate a beneficiary for every account and insurance policy you have. Include bank accounts, retirement and other investment accounts, and life insurance policies.

When choosing beneficiaries, find out how each type of account is taxed for the recipient. Also create a list of all of your account numbers and other pertinent details and include them with your will. This makes it easy for your executor to locate all of your assets. Include debt information as well, like your mortgage and/or auto loan servicer.

You can also update beneficiaries as life changes. For instance, you might initially name your spouse as your life insurance beneficiary. But if they pass away before you, it’s time to update that designation to someone else.

[embedded content]

6. Safely Store Your Documents

Once you’ve drafted your will and signed it in accordance with your state’s laws, it’s time to store all of the appropriate estate planning documents to make it easy for your executor and beneficiaries to access.

Lots of documents are now stored online, but you’ll still need to keep your original, signed will in physical form. You can keep it in a fire-proof box at home, or in a safety deposit box at your local bank. Be sure your executor knows where and how to access your documents.

7. Outline Access to Financial Accounts

Remember to keep an up-to-date list of all your financial accounts that need to be taken care of. Bank statements should include the account numbers to make it easy for your executor to find. Also include the location of any valuable items, like art or jewelry.

Finally, it’s helpful to include the contact information for any professionals you work with, like an accountant, financial advisor, and estate attorney. Include insurance policy numbers, loan details, credit card numbers, and any other financial accounts that would need to be closed.

The Takeaway

Estate planning for parents isn’t a one-time event. Get started when you have your first child, but also review your intentions and make changes at least once a year. That way, you always have an up-to-date and comprehensive will that reflects your current financials and family structure.

When you want to make things easier on your loved ones in the future, SoFi can help. We partnered with Trust & Will, the leading online estate planning platform, to give our members 15% off their trust, will, or guardianship. The forms are fast, secure, and easy to use.

Create a complete and customized estate plan in as little as 15 minutes.

Coverage and pricing is subject to eligibility and underwriting criteria.

Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.

Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, Social Finance. Inc. (SoFi) and Social Finance Life Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under Ladder Life™ policies. SoFi is compensated by Ladder for each issued term life policy.

SoFi Agency and its affiliates do not guarantee the services of any insurance company.

All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPT0923005

Source: sofi.com

Apache is functioning normally

September 25, 2023 by Brett Tams

A limit order allows investors to buy or sell securities at a price they specify or better, providing some price protection on trades.

When you set a buy limit order, for example, the trade will only be executed at that price or lower. For sell limit orders, the order will be executed at the price you set or higher. By using certain types of orders, traders can potentially reduce their risk of losses and avoid unpredictable swings in the market.

Table of Contents

How do Limit Orders Work?

In the simplest terms, limit orders work as a sort of restriction that an investor can choose (to either buy or sell) with “limits” on a minimum or maximum price. An investor places an order to buy a stock at a minimum price, for instance, or places an order to sell at a maximum price, in an effort to maximize their returns.

There are two types of limit orders investors can execute: buy limit orders and limit sell orders. An important thing to know is that while a limit order specifies a desired price, it doesn’t guarantee the trade will occur at that price — or at all.

When you set a limit order, the trade will only be executed if and when the security meets the terms of the order — which may or may not happen, depending on the overall market conditions. So, when an investor sets a limit order, it’s possible to miss out on other investing opportunities.

Types of Limit Orders

As mentioned, there are two types of limit orders investors can execute: buy limit orders and limit sell orders.

For buy limit orders, you’re essentially setting a ceiling for the trade — i.e. the highest price you’d be willing to pay for each share. For sell limit orders, you’re setting a price floor — i.e. the lowest amount you’d be willing to accept per share.

• What is limit order to buy? If a trader places a buy limit order, the intention is to buy shares of stock. The order will be triggered when the stock hits the limit price or lower.

For example, you may want to buy shares of XYZ stock at $15 each. You could place a buy limit order that would allow the trade to be carried out automatically if the stock reaches that purchase price or better.

• What is limit order to sell? If a trader places a limit order to sell, the order will be triggered when the stock hits the limit price or higher. So you could set a sell limit order to sell XYZ stock once its share price hits $20 or higher.

As noted above, the main upside of using limit orders is that traders get to name a desired price; they generally end up paying a price they expect; and they can set an order to execute a trade that can be executed even if they are doing other things.

In this way, setting limit orders can help traders seize opportunities they might otherwise miss because limit orders can stay open for months or in some cases indefinitely (the industry term is “good ‘til canceled,’ or GTC). The limit order will still execute the trade once the terms are met.

Limit Order vs Market Order

Limit orders differ from market orders, which are, essentially, orders to buy a security immediately at its given price. These are the most common types of orders. So, while a market order is executed immediately regardless of terms, limit orders only execute under certain circumstances.

Limit orders can also be set for pre-market and after-hours trading sessions. Market orders, by contrast, are limited to standard trading hours (9:30am to 4pm ET).

Remember: Even though limit orders are geared to a specific price, that price isn’t guaranteed. First, limit orders are generally executed on a first-come-first-served basis. So there may be orders ahead of yours that eliminate the availability of shares at your limit price.

And it bears repeating again: There is also the potential for missed opportunities: The limit order you set could trigger a trade. But then the stock or other security might hit an even better price.

In other words, time is a factor. In today’s market, computer algorithms execute the majority of stock market trades. In this high-tech trading environment, it can be hard as an individual trader to know when to buy and sell. By using certain types of orders, like limit orders, traders can potentially limit their losses, lock in gains, and avoid swings in the market.

Though limit orders are commonly used as a part of day trading strategies, they can be useful for any investor who wants some price protection around their trades. For example, if you think a stock is currently undervalued, you could purchase it at the current market price, then set a sell limit order to automatically sell it when the price goes up. Again, the limit order can stay open until the security meets your desired price — or you cancel the order.

However, speculating in the market can be risky and having experience can be helpful when deciding how and when to set limit orders.
💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

Limit Orders vs Stop Orders

There is another type of order that can come into play when you’re trying to control the price of a trade: a stop order. A stop order is similar to a limit order in that you set your desired price for a stock, say, and once the stock hits that price or goes past it, a market order is triggered to execute the purchase or sale.

The terms of a limit order are different in that a trade will be executed if the stock hits the specified price or better. So if you want to sell XYZ stock for $50 a share, a sell limit order will be triggered once the stock hits $50 or higher.

A stop order triggers a market order once XYZ stock hits $50, period. By the time the order is executed, the actual stock price could be higher or lower.

Thus with a stop order there’s also no guarantee that you’ll get the specified price. A market order is submitted once the stop price is hit, but in fast-moving markets the actual price you pay might end up being higher or lower.

Stop orders are generally used to exit a position and to minimize losses, whereas limit orders are used to capture gains. But two can also be used in conjunction with each other with something called a stop-limit order.

Stop-Limit Orders

A stop-limit order is a combination of a stop order and a limit order. Stop-limit orders involve setting two prices. For example: A stock is currently priced at $30 and a trader believes it’s going to go up in value, so they set a buy stop order of $33.

When the stock hits $33, a market order to buy will be triggered. But with a stop-limit order, the trader can also set a limit price, meaning the highest price they’re willing to pay per share — say, $35 per share. Using a stop-limit order gives traders an additional level of control.

Stop-limit orders can also help traders make sure they sell stocks before they go down significantly in value. Let’s say a trader purchased stock XYZ at $40 per share, and now anticipates the price will drop. The trader doesn’t want to lose more than $5 per share, so they set a stop order for $35.

If the stock hits $35 — the stop price — the stock will be triggered to sell. However, the price could continue to drop before the trade is fully executed. To prevent selling at a much lower price than $35, the trader can set a limit order to only sell between $32 and $35.

When a Trader Might Use a Limit Order

There are several reasons why you might want to use a limit order.

• Price protection. When a stock is experiencing volatility, you may not want to risk placing a market order and getting a bad price. Although it’s unlikely that the price will change drastically within a few seconds or minutes after placing an order, it can happen, and setting a limit order can set a floor or a ceiling for the price you want.

• Convenience. Another occasion to use a limit order might be when you’re interested in buying or selling a stock but you don’t want to keep a constant eye on the price. By setting a limit order, you can walk away and wait for it to be executed. This might also be a good choice for longer-term positions, since in some cases traders can place a limit order with no expiration date.

• Volatility. Third, an investor may choose to set a limit order if they are buying or selling at the end of the market day or after the stock market has closed. Company or world news could be announced while the market is closed, which could affect the stock’s price when the market reopens. If the investor isn’t able to cancel a market order while the market is still closed, they may not be happy with the results of the trade. A limit order can help prevent that.

Limit orders can also be useful when the stock being traded doesn’t have a lot of liquidity. If there aren’t many people trading the stock, one order could affect the price. When entering a market order, that trade could cause the price to go up or down significantly, and a trader could end up with a different price than intended.

Get up to $1,000 in stock when you fund a new Active Invest account.**

Access stock trading, options, auto investing, IRAs, and more. Get started in just a few minutes.

**Customer must fund their Active Invest account with at least $10 within 30 days of opening the account.
Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

When to Consider a Market Order vs a Limit Order

If you’re trying to parse out when a market order or a limit order is the best tool to use, consider the following.

A trader might want to use a market order if:

• Executing the trade immediately is a priority

• The stock is highly liquid

• They’re only trading a small number of shares

• The stock has a narrow bid-ask spread (about a penny)

A trader might want to use a limit order if:

• They want to specify their price

• They are trading an illiquid stock

• They want to set a long-term trade (or even walk away for their lunch break and still have the trade execute)

• They feel a stock is currently over- or undervalued

• The stock has a large bid-ask spread

• They are trading a larger number of shares

How to Set a Limit Order

When placing a limit order with your brokerage firm, the broker or trading platform might ask for the following information:

• The stock or security

• Is it a buy or sell order

• Number of shares to buy or sell

• Stock order type (limit order, market order, or another type of order)

• Price

When setting up a limit order, the trader can set it to remain open indefinitely, (until the stock reaches the limit price), or they can set an expiration date.

For example, say a trader would like to purchase 100 shares of stock XYZ. The highest price they want to pay per share is $26.75. They would set up a limit buy order like this:

Buy 100 shares XYZ limit 26.75.

Is a Limit Order Bad?

Limit orders are not necessarily good or bad. As mentioned, they can offer advantages to investors who understand how to use them.

For example, limit orders can offer more control and flexibility than using market orders. And they can work well in a number of different trading situations. If the stock being traded is highly volatile, for instance, a limit order can help traders retain control and avoid paying an unexpected price.

Each time a trader does research on a stock and decides to buy or sell shares, they also consider their goals and the current market conditions to decide whether to place a market or a limit order.

Pros and Cons of Using Limit Orders

Each type of order has pros and cons depending on the particular situation.

Pros of Limit Orders:

• The trader gets to name their price. One of the chief reasons traders rely on limit orders is to set baselines for profits and losses. They won’t end up paying a price they didn’t expect when they buy or get a price below their target when it’s time to sell.

• The trader can set the order and walk away. Day trading can be time consuming and it requires a significant amount of knowledge. Investors who use limit orders don’t have to continuously watch the market to get the price they want.

• Traders may pay less in fees. Commissions can take a bite out of your profits, something many investors would prefer to keep to a minimum. When trading illiquid stocks, sometimes the bid-ask spread is enough to cover broker fees.

• Insulate against volatility. Volatility can cause you to make emotional decisions. Limit orders can give traders more control over their portfolio and ward off panic-buying or selling.

• Ride the gaps. Stock prices can fluctuate overnight due to after hours trading. It’s possible to benefit from price differences from one day to another when using limit orders.

For example, if a trader places a buy limit order for a stock at $3.50, but the order doesn’t get triggered while the market is open, the price could change overnight. If the market opens at $3.30 the next morning, they’ll get a better price, since the buy limit order gets triggered if the stock is at or below the specified price.

Cons of Limit Orders:

• The order may never be executed. There may not be enough supply or demand to fulfill the order even if it reaches the limit price, since there could be hundreds or even thousands of other traders wanting to buy or sell at the specified price.

• The stock may never reach the limit price. For example, if a stock is currently priced at $20, a trader might set a limit order to buy at $15. If the stock goes down to $16 and then back up to $20, the order won’t execute. In this case, they would miss out on potential gains.

• The market can change significantly. If a trader sets a shorter-term limit order they might miss out on a better price. For example, if a stock a trader owns is currently priced at $150, the trader may choose to set a sell limit order at $154 within four weeks. If the company then makes a big announcement about a new product after that period, and the stock’s price spikes to $170, the trader would miss out on selling at that higher price.

• It takes experience to understand the market and set limit orders. New investors can miss out on opportunities and experience unwanted losses, as with any type of investment.

What Happens If a Limit Order Is Not Filled?

A limit order can only be filled if the stock’s price reaches the limit price or better. If this doesn’t happen, then the order is not executed and it expires according to the terms of the contract. An order can be good just for a single trading day, for a certain period of time, or in some cases it’s possible to leave the limit order open-ended using a GTC (good ‘til canceled) provision.

So if you placed a buy limit order, but the stock does not reach the specified price or lower, the purchase would not be completed and the order would expire within the specified time frame.

And if you’re using a sell limit order, but the security never reaches the specified sell price or higher, the shares would remain in your trading account and the order would expire.
💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

Limit Orders and Price Gaps

Price gaps can occur when stocks close at one price then open at a different price on the next trading day. This can be attributed to after-market or pre-market trading that occurs after the regular market hours have ended. After-hours trading can impact stock price minimally or more substantially, depending on what’s spurring trades.

For example, say news of a large tech company’s planned merger with another tech giant leaks after hours. That could send the aftermarket trading markets into a frenzy, resulting in a radically different price for both company’s stocks when the market reopens. Pricing gaps don’t necessarily have to be wide but large pricing swings are possible with overnight trading.

Limit orders can help to downplay the potential for losses associated with pricing gaps. Placing a buy limit order or limit sell order may not close the gap entirely. But it could help to mitigate the losses you may experience when gaps in pricing exist. Whether the gap is moving up or down can determine what type of limit order to place and where to cap your limit price.

The Takeaway

Limit orders can be an effective and efficient way for investors to set price caps on their trades, and also give them some protection against market swings. Limit orders offer other advantages as well, including giving traders the ability to place longer- or shorter-term trades that will be executed even if they’re not continuously watching the market. This can potentially protect investors against losses and potentially lock in gains.

That said, limit orders are complicated because they don’t guarantee that the trade will be executed at the set price. The stock (or other security) could hit the limit price — and there might not be enough supply or demand to complete the trade. There is also the potential for some missed opportunities, if the price you set triggers a trade, and subsequently the stock or other security hits an even better price.

Investors can also consider combining a limit order with a stop order. A stop-limit order can provide even more protection against potential losses.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

Can I specify the price for a limit order?

Yes, investors can specify the price for a limit order. In fact, the price typically is the limit in a limit order, representing either a price ceiling or a price floor.

How long does a limit order stay active?

Generally, a limit order will stay active indefinitely, unless an investor cancels it or specifies otherwise. That means that if the limit is never reached, the order will not execute, and the limit order will remain active until the limit is reached.

Can I cancel a limit order once it’s placed?

Investors can cancel standing limit orders as long as conditions haven’t arrived that’s led to the order being actively executed. The cancelation process will depend on the specific exchange an investor is using, however.

What happens if the market price doesn’t reach my limit price?

If the market price of a stock does not reach the limit price — either a price floor or price ceiling — then the limit order will not execute, and the limit order will remain active until it does.

Can I place a limit order outside of regular trading hours?

It’s possible to place limit orders outside of regular trading hours, depending on the rules of a given exchange, and market conditions dictate. The order itself, of course, won’t execute until the market opens, assuming that the limit is reached.

Are there any fees associated with limit orders?

There may or may not be fees associated with limit orders, and it’ll depend on the specific exchange or brokerage an investor is using. Note that some brokerages may charge higher fees for limit orders than market orders — but some may charge no fees at all.

Are limit orders guaranteed to be executed?

No, there is no guarantee that a limit order will be executed, as it will only execute if the limit price is reached. If the limit is not reached, the order will remain active but not execute.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
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 prequalification for any loan product offered by SoFi Bank, N.A.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN0723102

Source: sofi.com

Apache is functioning normally

September 18, 2023 by Brett Tams

Paper trading is simulated trading, done for practice without real money. It’s a way to test different trading strategies without the risk of losing money, before an investor starts trading with real capital.

The practice gets its name from how investors would once mark down their hypothetical stock purchases and sales — and track their returns and losses — on paper. But today, investors typically use digital platforms to virtually test out hypothetical investment portfolios, day-trading tactics, and broader investing strategies.

How do Paper Trades Work?

What is paper trading? In its most basic form, paper trading involves selecting a stock, group of stocks, or a sector, then writing down the ticker or tickers and choosing a time to buy the stock. The paper trader then writes down the purchase price or prices.

When they sell the stock or stocks, they write down that price as well, and tally up their return.
💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.

Pros and Cons of Paper Trading

Paper trading has both benefits and drawbacks. Here are a few factors to consider before you try paper trading.

The Pros of Paper Trading

Build skills: Paper trading is a way to learn and build trading skills in either a bear or a bull market. For new traders, a virtual trading platform offers a way to make rookie mistakes without risking real money. It’s a method to get comfortable with the process of buying and selling stocks, and making sure you don’t enter a limit order when you mean to place a market order.

Test out strategies: Paper stock trading allows for experimentation. For example, an investor might hear about shorting a stock. But they may not know how the process works, and what it actually pays out. Paper trading permits investors to learn how these trades work in practical terms. Or, they might want to try out other strategies, such as swing trading.

Learn about strengths and weaknesses: Paper trading is also a way for investors to learn about their own strengths and weaknesses. Traders lose money in the markets for a number of personal reasons. Some stick to their guns too long, while others give up too soon when the market is down. Some lose money because they panic, while others lose money because they ignore clear warning signs. Paper trading is a way for investors to learn their own tendencies and weaknesses without paying for the lesson.

Keep emotions out of it: Finally, paper trading can help teach investors to keep their emotions in check while the markets are going up and down. Investing with hypothetical dollars can be good practice in the valuable art of making rational decisions in stressful situations and allow investors to find risk management techniques that work best for them.

The Cons of Paper Trading

It’s not real: The biggest drawback of paper trading is that it’s not real. An investor can’t keep the returns they earn paper trading. And those paper returns can lead the investor to have an unrealistic sense of confidence, and a false sense of security. Paper trading also doesn’t account for real-life situations that might require an investor to withdraw money from the market for personal reasons or the impact of an unexpected recession.

The emotional impact is hard to gauge: Paper trading does limit the impact of emotions, but once an investor’s real, actual money is in play, it may be more difficult to reign in emotions. That money represents a month’s salary, or a semester’s tuition, or a house payment, and so forth, so it can be hard to remain calm and keep perspective when the market plunges over the course of a trading day.

Could be misleading: While paper trading offers important lessons, it can also mislead investors in other ways. If a paper trading strategy focuses on just a few stocks, or using one trading strategy, they can easily lose sight of how broader market conditions actually drive the performance of those stocks, including stock volatility, or their strategy, or have an inflated confidence in their ability to time the markets. They need to realize their holdings or strategy may offer very different results in a real-world scenario.

Doesn’t involve the true costs of trading: Another danger with paper-trading is that traders may overlook the cost of slippage and commissions. These two factors are a reality of actual trading, and they erode an investor’s returns. Slippage is the difference between the price of a trade at the time the trader decides to execute it and the price they actually pay or receive for a given stock.

Especially during periods of high volatility, slippage can make a significant impact on the profitability of a trade. Any difference, up or down, counts as slippage, so slippage can be good news at times. Since brokerage commissions and other fees always come out of a trader’s bottom line, paper traders should include them in their model.
💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

Live Trading vs Paper Money

When an investor uses live trading, they are using real money to buy and/or sell stocks or other securities. They will confront market fluctuations and need to make decisions, sometimes quickly, about what to do. Live trading can be very stressful, but it does offer the opportunity for an investor to earn money. However, it also comes with the very real risk of losing money.

With paper trading, there is no money involved to lose. But once again, it’s not “real,” so while it may teach you some basics, paper trading does have limits and drawbacks, as detailed above.

Paper Trading in the Digital Age

Wondering how to paper trade? There are different ways to do it. Some investors swear by a tangible notebook-and-paper approach to paper trading, others keep a spreadsheet, which allows them to track other factors involved in the investment, including the exact time of the purchase and sale, volume, holding period, index direction, overall market volatility, and other factors they may be studying.

But while paper or spreadsheets are valuable tools, most investors testing out their trading chops or portfolio-construction skills now prefer virtual trading platforms, which pit a hypothetical portfolio or strategy against real markets. These platforms mimic the look and feel of an actual trading platform, but deal only in hypothetical assets. Understanding a platform can make it easier to transition to real-life trading in the future.

On these platforms, an investor will start with fake money and begin trading. As they do, they can track the fluctuations in an account’s value, along with profit and loss, and other key metrics. Many trading simulators offered by online brokerages allow investors to virtually trade in real-time during live markets without risking their money. For some investors, this can be a valuable experience before they dive in with real money–and the potential for real losses.

Recommended: Managing the Common Risks of Day Trading

How to start paper trading

If you’d like to try paper trading, be sure to research your investments, just like you would if you were investing for real, and use the same amount of paper money you would use in real life. This will help mimic the actual experience.

If you choose to paper trade with a pencil and paper, you can simply choose a stock or group of stocks, write down the ticker, and pick a time to buy the stock. You then write down the purchase price, or prices. When you sell the stock you record that price and then figure out your up their return.

If you decide to use a virtual trading platform, you’ll need to choose a platform. There are many free platforms available. You may want to look for one that has live market feeds so that you can practice trading without delays.

Setting up a Paper Trading Account

Once you’ve selected a virtual trading platform, you’ll set up an account. Simply log onto the platform and follow the prompts to set up an account. Once you’ve done that, there should be a “paper trading” option you can click on.You’ll need to select a balance and then you should be able to start simulating trading.

The Takeaway

Paper trading can be a way to learn about investing. By keeping track of all trades, and the losses or gains they generate, it creates a low-stress practice for examining why certain stocks, and certain trades, perform the way they do. That can be invaluable later, when there’s real money on the line.

However, remember that paper trading isn’t real. In real-life trading with an investment account, you’ll have the potential for gains, but also for losses. Make sure you are comfortable taking that risk.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

Do you make money from paper trading?

No. With paper trading, there is no real money involved, so there is no opportunity to make (or lose) money. Paper trading is a way to learn about trading without risking money.

How realistic is paper trading?

Paper trading involves using real trading strategies and simulates a real market experience. However there are no real losses or gains since no real money is involved. Because of that, it doesn’t convey a fully realistic experience.

Is paper trading good for beginners?

Paper trading can be a way to learn the basics of investing. A beginner could build their skills and test different strategies without risking loss. However, paper trading can be misleading because there is no real risk involved. An investor might be tempted to take more risks than they would in a real life investing scenario, for instance.

Why is paper trading important?

Paper trading could be important because it allows beginning investors to practice trades, build their skills, and test different market strategies, without the risk of losing money. However, it can’t replicate the experience of real trading with actual money and the potential to possibly lose money, which someone who tries paper trading should keep in mind.

Photo credit: iStock/fizkes

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
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 prequalification for any loan product offered by SoFi Bank, N.A.

SOIN0723122

Source: sofi.com