Leveling Up Your Investment Strategy with SoFi FInancial Planners

Ready to level up? Whether that means beginning to invest in retirement funds, coming with a strategy, or consuming front page finance news, there are plenty of levels, when it comes to investing.
But, there’s always a chance to level up. Recently, SoFi members were invited to continue their financial journey with a choose your own adventure event. Browse the topics below, covered during the event, for tips to power-up on your financial strategy.

Level 1: Investing Basics

Let’s start at the beginning. Understanding investing basics can help build a foundation of knowledge that an investor will carry with them as they level up.
When a person starts out investing, the first thing they should ask themselves is “Is this the best use of my next dollar?” reminded Brian Walsh, certified Financial Planner and Senior Manager of Financial Planning at SoFi.

Before putting more money into investing, it’s recommended to have an appropriately sized emergency fund, and “bad” debt, like high-interest credit cards and personal loans, under control. With these under control, it’s time to start talking investments.

Types of Investments

Each type of investing can be used in different ways, and has its own unique pros and cons:

•  Cash. Whether it’s in a wallet or bank account cash money means something. It’s liquid, which means a person can get to it whenever they need to, and the returns don’t fluctuate. That stability comes with the drawback of purchasing power; cash investments, even if they’re in a high-yield savings, Certificate of Deposit, or a checking and savings account like SoFi Checking and Savings®, , don’t keep up with inflation.

•  Bonds. A bond is basically loaning someone, a government, company, or municipality, money. Bonds can provide a steady stream of income, which includes interest payments and initial investment. However, bonds are riskier than cash, bond issuer can default, and the yields in the long-term aren’t as high as other investments.

•  Stocks. A stock is essentially a small piece of a company. Investors can buy stock, and in doing so, become shareholders of that specific company. Money can be earned in two ways, through the stocks value growing over time, as well as dividends, if applicable. Investing in stocks can offer the potential to earn a high rate of return in the long term, but that potential comes with some risk. They’re one of the more volatile forms of investing for the short and medium term.

•  Mutual funds. Mutual funds combine a variety of different assets. Buying into a mutual fund means purchasing a small share of the combination. It can be a very economic way to invest, because it pulls a bunch of people together to buy a large collection of investments. Most mutual funds are actively managed by a professional, who decides when to buy, sell, and hold the portfolio of assets. However, they can be passively managed as well.

•  ETFs. ETFs are very similar to mutual funds and offer investors easy diversification since buying into an ETF is also buying into a collection of different assets. ETFs are generally passively managed. ETFs generally have lower fees than mutual funds. There are also differences in how ETFs and mutual funds are traded. ETFs can be traded like stocks, while mutual funds trade once per day. For more information on the differences between ETFs and mutual funds, take a look at this SoFi resource.

With an understanding of different types of investing under the belt, the next step is figuring how much risk to take on.

Understanding Risk and Return

“There’s no such thing as a free lunch,” Walsh explained, “every investment carries some kind of risk.” For that reason, it’s important for investors to decide how much risk they’re willing to take on. As a general rule of thumb, the higher the risk of the investment, the higher the return, and vice versa.
Deciding how much risk to take can be tied to when the money is needed. For example, in the case of an emergency fund, the risk should be low, because a person never knows when they’ll need the money.
On the reverse, many investors will make higher risk investments for retirement, because they won’t need the money for a long time, and the rate of return averages out the longer and investment is held.
With an understanding of types of investments and the risk versus return, it’s time to climb to the next level.

Level 2: Developing an Investment Strategy

Developing an investment strategy relies on an understanding of timeline, types of risk, and diversification, said Lauren Anastasio, Financial Planner at SoFi and leader of the “Level 2” session. Strategy relies on an understanding of personal financial goals, as well as the construction of the portfolio.

How Long is the Investment?

Knowing what a person is investing towards can help them figure out their timing. Generally, investment timelines generally fall into the following parameters:

•  Short Term: 0-3 years. Saving in the short term to pay for things like a wedding, a down payment on home, or tuition means taking on little to no risk. That means keeping the investment liquid a savings account or short term bonds.

•  Mid Term: 3-7 years. With a medium term goal, investors can put money into the market, think brokerage accounts, with a mix of bonds and stocks. Even if the investment suffers a downturn, it’s possible to bounce back from it within the timeline.

•  Long Term: 7+ years. Long term investments can go onto taxable investment accounts, qualified retirement accounts, as well as stocks and bonds. This long term investment can be earmarked towards retirement or wealth generation. These long term investments can take a high amount of risk, as they won’t be used for years.

Understanding how long a person plans to invest can help direct where the funds will be allocated.

Systematic and Unsystematic Risk

Yes, all forms of investing carry some kind of risk, but some risk is, well less risky, than others.

Systematic risk is the risk everyone takes on while investing. It’s elements “we simply cannot control,” explained Anastasio, such as COVID-19 or the election cycle. Anyone who invests will take on some level of systematic risk.

Unsystematic risk is risk associated with specific investments. It’s a risk the investor chooses to take on, sometimes unintentionally. For example, Millennial tend to invest in technology companies because they’re familiar with them, but investing a lot in a single stock or industry can mean assuming more risk, “we like to invest in what we know, and there’s some risk in that,” reasoned Anastasio.
Opting for diversified investment strategy can help mitigate risk. Creating a diversified portfolio, by spreading investments across different assets and asset classes, can help insulate an investor against some risk.

Establish Long-Term Habits

One of the most important factors in investing is time. The power of recurring investments and compound interest is just as essential as the perfectly balanced portfolio. Saving early and investing often can have a huge impact.

Another healthy habit to establish is keeping an eye on costly fees in investment accounts. Some services, like SoFi Invest®, allow free trades, but other services can charge management, advisory, or trade fees. “Don’t give up earning to folks charging you,” Anastasio reminded.

Investors can also avoid fees and taxes by max out tax-efficient accounts, like IRAs and HSAs, to allow for more compound growth.

Starting to invest is just the beginning. Leveling up means keeping an eye on details like fees, diversity, and goal setting.

Level 3: Staying on Top of Current Events

Ready to take investing to an even higher level? Greg Palmieri, Financial Planner at SoFi, shared how following current events and economic reports can help people better understand their investment strategies.
Presidential elections and their results can certainly sway market movement, said Palmieri. Political affiliation can sway economic decision making, “they can bring a lot of fear and emotion into investing,” reminded Palmieri.

However, investors should resist the urge to make knee jerk reactions on that basis, as data shows annual growth over a president’s term tends to average out no matter who’s serving in office. “Smart entrepreneurs will find ways to make the economy grow, no matter who’s in office,” Palmieri explained.

The current pandemic also has many investors reconsidering their strategy. Many believe their life has changed forever from the impact of COVID-19. While not all changes will be permanent, investors should consider keeping an eye on data and reports.

Recent surveys from Americans claim that they either plan to, or are already, traveling less, they are working remotely, or are moving closer to their family in direct reaction to the pandemic.

While data and surveys should be considered with a grain of salt, investors should understand that the landscape is changing, and not everything that was a guarantee in the past will be the same in the future. The trick is paying attention to news and trends, monitoring how consumer habits are changing, and adjusting investments accordingly.

Keeping an eye on current events and trends can help investors better understand the market. However, that doesn’t mean checking investment portfolios multiple times a day or rehauling retirement plans due to a single piece of news. Take all data and news with a healthy dose of skepticism, and don’t forget to check historic patterns to see what can be learned.

Level Up, with Some Help

No matter the level of the investor, it’s never too late to ask for help and learn something new.
SoFi members can make an appointment for complimentary one-on-one financial planning. So whether an investor is just starting out or is perfecting their portfolio, SoFi’s team of certified financial planners can help.

Make an appointment with a SoFi Financial planner at no additional cost.

Make an Appointment

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

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