Hedging is a type of investment that essentially acts as an insurance policy, purchased with the intent to provide protection against the risks associated with another investment.

Investing Archives | Page 117 of 191

Sep

2023

What Is Hedging & How Does It Work? Strategies & Examples

What Does Hedging Mean? How Does It Work? Strategies & Examples

By Colin Dodds | Growing Wealth, invest, Investing | Comments Off

Hedging is a type of investment strategy that seeks to limit risk exposure in different parts of your portfolio. Essentially hedging involves taking a position with one investment to offset the risk of loss in another investment.

Hedging methods vary widely depending on what the investor views as the main risks they face. Common hedges include derivatives like options and futures contracts, or investments in commodities like gold or oil, or cryptocurrencies, or fixed-income investments like Treasury bonds.

What Is Hedging?

You can define hedging as an investment that’s made to reduce the risks associated with another investment.

Most often, investors will hedge to protect themselves in the event that their investments go down in value and limit potential losses. While there are many ways to hedge, many investors go about hedging with options, purchasing securities that move in the opposite direction of the main investment.

Another common hedge is an investment whose price movements historically do not correlate to the main investment.

For investors, protecting a portfolio against downside risk can be as important as generating returns.

💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

How Does Hedging Work?

In many ways, hedging investments work like an insurance policy. A homeowner may purchase insurance to protect their home from fire or other potential risks. That insurance policy costs money, which is an investment of sorts. So if there’s a fire, that insurance may protect the homeowner from greater losses.

Hedging is like that insurance policy. Investors can’t protect against all risks. But with the proper hedges in place — the right insurance policy — they can protect their holdings from certain dangers. But, like insurance, those hedges cost money to make.

Hedging may also reduce an investor’s exposure to the upside of the other elements of their portfolio.

Pros & Cons of Hedging

In addition to investors, companies that operate with heavy exposure to the prices of certain commodities like oil, or whose business model only works in stable interest-rate environments, also use hedges to protect their business.

To understand the pros and cons of hedging, consider an airline, whose fuel costs impact the company’s profitability. The airline may have a trading desk whose sole job is to buy and sell options and futures contracts related to crude oil, as a way of protecting the company against the shock of a sudden upturn in oil prices.

The first pro of hedging for the airline is that those financial derivative instruments allow it to project its fuel costs with some degree of certainty at least a few months into the future.

The other pro of hedging comes when the price of oil skyrockets for whatever reason. In that case, the airline knows it can buy oil at the previously predetermined price in the oil futures contracts it owns.

The con of hedging would be the constant ongoing expense of maintaining it. The airline has to pay for the oil futures contracts, even if it never exercises them. Futures contracts expire on a regular basis, requiring the company to continue buying them. And if fuel costs don’t go up, then it’s likely that the futures contracts the airline buys will be worthless when they expire.

The company also has to devote personnel to maintaining the portfolio of its hedges, to buy and sell the derivatives, and to periodically test the hedge to make sure it continues to protect the company as the markets shift. For the airline that represents money and talent that is diverted away from its core business.

The analogy for investors is clear. While hedges can protect an investment plan, they also come with a cost in time and money. And it’s up to each investor to determine whether the cost of a hedge is worth the protection it offers.

💡 Quick Tip: Options can be a cost-efficient way to place certain trades, because you typically purchase options contracts, not the underlying security. That said, options trading can be risky, and best done by those who are not entirely new to investing.

Hedging Examples and Strategies

There are several ways that investors can use hedging to protect their portfolios.

Diversification

Portfolio diversification is probably the best known and most widely used risk management strategy. It relies on a broad mix of investments within a portfolio to help protect the portfolio from facing too large of a loss if one investment loses value.

A diversified portfolio will hold several distinct asset types to reduce its exposure to any single investment risk. For example, investors may balance out the risk of a stock holdings with bond securities, since bonds tend to perform better in markets where stocks struggle.

Spread Hedging

Spread hedging is a risk-management strategy employed by options traders. In this strategy, a trader will buy options with two separate strike prices to earn a small return and protect themselves against price movements in the security that underlies the options. In a bull put spread, for example, a trader might purchase one long put with a lower strike price and one short put with a high strike price.

Forward Hedge

Forward contracts are financial derivatives used mostly by businesses to protect themselves from changes in the value of a currency. For the purchaser, the contract effectively fixes the rate of exchange between two currencies for a period of time. The airline example discussed above is a forward hedge.

Delta Hedging

Delta hedging is a strategy used by options traders to reduce the directional risk of price movements in the security underlying the options contracts. In the strategy, the trader buys or sells options to offset investment risks and reach a delta neutral state, in which the investment is protected regardless of which way the asset price moves.

Tail Risk Hedging

Tail risk hedging refers to an array of strategies whose goal is to protect against extreme shifts in the markets. The strategies involve a close study of the major risk factors faced by a portfolio, followed by a search for the least expensive investments to protect against the most extreme of those risks.

For example, an investor overweight U.S. equities might purchase derivatives based on the Volatility Index, which tends to negatively correlate to the S&P 500 Index.

Binary Options Hedging Strategy

In a binary options hedging strategy, the investor buys both a put and a call on the same underlying security, each with a strike price that makes it possible for both options to be in the money at the same time. Binary options only guarantee a payout if a predetermined event occurs.

Forex Hedging

A forex hedge refers to any transaction made to protect an investment from changes in currency values. As a hedge, they may be used by investors, traders and businesses. For example, since GBP/USD and EUR/USD typically have a positive correlation, you could hedge a long position in GBP/USD with a short position in EUR/USD.

Another example of forex hedging is purchasing a currency-hedged ETF. Doing so gives investors the protection of a forex hedge against the investments within their ETFs, without having to actually purchase the hedge on their own.

Recommended: What Is Forex Trading?

Hedging for Hyperinflation

Inflation hedges are those investments that have outperformed the market when inflation is a major factor in the economy. While every inflationary period is different, with other global, market and macroeconomic factors in play, investors have historically found shelter — and even growth — during inflation by investing in certain assets.

Some investments that have a reputation as inflation hedges include precious metals such as gold, and commodities like oil, corn, beef, and natural gas. Other inflation hedges include REITS and real estate income.

Dollar-Cost Averaging

Some investors view dollar-cost averaging, which involves investing a set amount of money at preset intervals regardless of market performance, as a way to hedge against market volatility. That’s because dollar-cost averaging, by definition, means that you’re buying investments when they’re both high and low — and you don’t have to worry about trying to time the market.

Is Hedging Viable for Retail Investors?

Yes. While some hedging involves complicated options strategies, you can also hedge your portfolio by simply making sure that you have diversified holdings. If you’re investing to protect against certain risks, such as inflation or interest rate increases, that’s also an example of hedging.

The Takeaway

Hedges are investments, often derivatives, that help protect investors from risk. Hedging is a common strategy to use certain types of securities to offset the risk of loss from another security.

However, it’s possible to hedge some investments without investing in derivatives. Building a diversified portfolio of stocks and bonds, for example, or investing in real estate to protect against inflation risk are also examples of hedging.

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SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
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.

SOIN0723073

Sep

2023

Understanding the Different Types of Mutual Funds

By Rebecca Lake | Growing Wealth, invest, Investing | Comments Off

A mutual fund is a portfolio or basket of securities (often stocks or bonds) where investors pool their money. Globally, there are more than 125,000 regulated funds investors can choose from, and they come in many different flavors — from equity funds to government bond funds, as well as growth funds, sector funds, index funds, and more.

While most mutual funds are actively managed (i.e. there is a team of portfolio managers that run the fund), many are passively managed and track an index.

How these types of funds differ typically comes down to their investment objectives and the strategies employed to achieve them.

Mutual Funds Recap

A mutual fund is an investment vehicle that pools money from many investors in order to invest in different securities. For example, mutual funds may hold any combination of stocks, bonds, money market instruments, or cash and cash equivalents. They may also include alternative investments, such as real estate, commodities, or investments in precious metals.

A mutual fund is considered an open-end fund, because its shares are available continuously, versus a closed-end fund which sells a set number of shares at once during an initial public offering.

Mutual fund shares can be purchased through the fund company, from a bank, a brokerage account or through a retirement plan at work. For example, you might hold mutual funds inside a taxable investment account or within an individual retirement account (IRA) with an online brokerage. Or you may invest in mutual funds through your 401(k) at work.

Investing in different types of mutual funds can help with diversification and managing risk in a portfolio. If one investment in a mutual fund underperforms, for example, the other investments in the fund are there to help balance that out.

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9 Types of Mutual Funds

It’s important to understand how and why a mutual fund’s type matters before adding it to your portfolio. Some types of funds may be designed for growth, for example, while others are designed to generate income through dividends. Certain mutual funds may carry a higher risk profile than others, though they may yield the potential for higher rewards.

Knowing more about the different mutual fund options can make it easier to choose investments that align with your goals and risk tolerance.

1. Equity Funds

• Structure: Open-end

• Risk Level: High

• Investment Goals: Growth or income, depending on the fund

• Asset Class: Equity (i.e. stocks)

Equity funds or stock funds primarily invest in stocks, with one of two goals in mind: capital appreciation or the generation of regular income through dividends. The types of companies an equity fund invests in can depend on the fund’s objectives.

For example, some equity funds may concentrate on blue-chip companies that offer consistent dividends while others may lean toward companies that have significant growth potential. These are often referred to as growth funds. Sector funds, meanwhile, may focus on companies from a single stock market sector. Equity funds can also be categorized based on whether they invest in large-cap, mid-cap or small-cap stocks.

Investing in equity funds can offer the opportunity to earn higher rewards but they tend to present greater risks. Since the prices of underlying equity investments can fluctuate day to day or even hour to hour, equity funds tend to be more volatile than other types of funds overall.

2. Bond Funds or Fixed-Income Funds

• Structure: Typically open-end though some bond funds may be closed-end

• Risk Level: Low

• Investment Goals: To provide fixed income to investors

• Asset Class: Fixed income/bonds

Bond funds or fixed-income funds are mutual funds that invest in bonds or other investments that are designed to provide consistent income. A bond is a type of debt instrument that pays interest to investors. Like equity funds, bond funds may target a specific type of investment. For example, there are funds that focus exclusively on government bonds while others hold municipal bonds or corporate bonds.

Generally speaking, bonds tend to be lower risk compared with other types of funds. But they’re not 100% risk-free and it’s still possible to lose money on bond fund investments. That’s because bonds tend to be sensitive to interest rate risk and credit risk.

For that reason, it’s important to compare credit ratings when choosing bonds for a portfolio. It’s also helpful to understand the inverse relationship between interest rates and bond yields when choosing different types of funds to invest in.

Recommended: How Do Bonds Work?

3. Money Market Funds

• Structure: Open-end

• Risk Level: Low

• Investment Goals: Income generation

• Asset Class: Short-term fixed-income securities

Money market funds or money market mutual funds invest in short-term fixed-income securities. For example, these funds may hold government bonds, municipal bonds, corporate bonds, bank debt securities (i.e. certificates of deposit, bankers’ acceptances, etc.), cash and cash equivalents.

Money market funds can be labeled according to what they invest in. For example, Treasury funds invest in U.S. Treasury securities, while government money market funds invest in government securities.

In terms of risk, money market funds are considered to be some of the safest types of mutual funds and some of the safest investments overall. That means, however, that money market mutual funds tend to produce lower returns compared to other mutual funds.

It’s also worth noting that money market funds are not the same thing as money market accounts (MMAs). Money market accounts are deposit accounts offered by banks and credit unions. While these accounts can pay interest to savers, they’re more akin to savings accounts than investment vehicles.

💡 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.

4. Index Funds

• Structure: Open-end

• Risk Level: Moderate

• Investment Goals: To replicate the performance of an underlying market index

• Asset Class: Available in all asset classes

Index funds are a type of mutual fund that has a very specific goal: To match the performance of an underlying market index. For example, an index fund may attempt to mirror the returns of the S&P 500 Index or the Russell 2000 Index (or any other of the many market indices). The fund does this by investing in some or all of the securities included in that particular index.

Index funds are considered passively managed or unmanaged because there is no active portfolio manager at the helm. Also, the underlying shares of the companies in the fund rarely change, unlike an active fund, where the portfolio manager and management team may make frequent trades.

An index fund that tracks the S&P 500 index, for instance, primarily invests in large-cap U.S. companies represented in the index itself.

Market capitalization is a commonly used metric for determining the makeup of equity index funds. Market cap measures a company’s size based on the number of shares it has outstanding and the price of those shares. Mega-cap and large-cap companies have higher market capitalization or value than mid- or small-cap companies.

Investing in index funds might appeal to investors who prefer passive investments. These funds often have lower expense ratios, as they are unmanaged and tend to have lower turnover. While they’re not free from risk, index funds can be less risky than actively managed equity funds, where tracking error and underperformance can affect overall returns.

5. Balanced Funds

• Structure: Open-end

• Risk Level: Moderate

• Investment Goals: Balancing risk and reward

• Asset Class: Equity, fixed income, cash

Balanced funds, sometimes referred to as hybrid funds, include a mix of different asset classes. For example, balanced funds can hold stocks, bonds, and cash investments. The goal in doing so is to create balance between risk and reward. Specifically, these funds aim to provide above-average return potential while mitigating risk to investors as much as possible.

Balanced funds can be growth funds or income funds. Growth balanced funds focus on capital appreciation. Income balanced funds, on the other hand, aim to provide investors with steady income through dividends and/or interest.

Investing in balanced funds could appeal to investors who want to generate potentially higher returns without exposing themselves to more risk than they’re capable of tolerating. They can also be useful for adding diversification to a portfolio that may be stock or bond heavy.

6. Income Funds

• Structure: Open-end

• Risk Level: Low to moderate

• Investment Goals: To provide income to investors

• Asset Class: Bonds, income-generating assets

Income funds have a singular goal of providing income to investors. While they can sometimes be grouped with bond funds, income funds are their own mutual fund type. While these funds can invest in bonds, they can also hold a wide range of investments, including dividend-paying stocks, money market instruments and preferred stock.

Like bond funds, income funds are subject to many of the same risks including interest rate risk and credit risk. Those apply specifically to bond holdings. Investments in dividend stocks, preferred stock, and money market instruments carry separate risks.

For that reason, income funds are somewhere in the middle between bond funds and fixed-income funds and equity funds in terms of risk. While they can offer potentially higher returns and steady income to investors, it is still possible to lose money if underlying investments in the fund are affected by changing market conditions.

7. International Funds

• Structure: Generally open-end, though some may be closed-end

• Risk Level: High

• Investment Goals: Capital appreciation or income, depending on the fund

• Asset Class: Equity, though some international funds can include bonds or fixed-income securities

International mutual funds hold investments from securities markets around the world, excluding the United States. So, for example, an international mutual fund may invest in European companies, Asian companies or in companies from emerging markets. The key hallmark of these funds is that U.S. companies are not represented here. (Global funds, on the other hand, can hold a mix of both U.S. and international securities.)

Adding international funds to a portfolio can increase diversification if you’ve primarily invested in U.S. companies or bonds so far. But keep in mind that international funds can carry unique risks. For example, investing in an international fund that holds real estate could be tricky if the real estate market in a particular country experiences a downturn.

For that reason, investing experts often recommend limiting how much of your portfolio you commit to international funds.

8. Specialty Funds

• Structure: Open or closed-end

• Risk Level: Varies by fund

• Investment Goals: Varies by fund

• Asset Class: Equity, bonds, fixed-income, cash, alternatives

Specialty fund is a catch-all term to describe types of mutual funds that are built around a specific theme. For example, hedge funds are considered to be a specialty fund since they rely on hedge fund trading strategies to achieve their investment objectives. Sector funds could also fall under the specialty fund umbrella since they invest in securities from individual market sectors.

Investing in specialty funds can help diversify a portfolio because it offers an opportunity to look beyond stocks or bonds. Specialty funds can offer exposure to things like real estate, commodities, or even cryptocurrency. You could also use specialty funds to pursue specific investing goals, such as investing with environmental, social, and governance (ESG) principles in mind.

In terms of risk, specialty funds can be all over the spectrum, with some posing less risk and others carrying higher risk. That also translates to wide variations in the return potential of specialty funds. It’s important to do your research to understand what kind of risk/return profile a particular fund may have.

9. Target Date Funds

• Structure: Typically a fund of funds

• Risk Level: These funds are designed to become more conservative (i.e. less risky) over time.

• Investment Goals: To provide returns and risk that align with a target retirement date

• Asset Class: Equity, bonds, fixed-income

Target date funds are mutual funds that adjust their asset allocation automatically over time, based on a predetermined glide path. The glide path is simply an automated plan for how the fund will become more conservative over time.

Say you plan to retire in 2050. You could invest in a 2050 target date fund, and as you get closer to retirement the fund will automatically shift its asset allocation to become less aggressive (i.e. dialing back on equities) and more conservative as the target date approaches.

Like mutual funds, target date funds are offered by nearly every investment company. In most cases, they’re recognizable by the year in the fund name.

If you have a 401(k) at work, it’s likely you may have access to various target date funds for your portfolio. These funds have become increasingly popular among 401(k) plan administrators due to their simplicity. Workers can select a target date fund based on when they plan to retire, and the fund’s asset allocation will adjust over time to become more conservative. But there is still the possibility a target fund could lose money.

Also, because the mix of investments in a target fund is predetermined, it’s important to know you cannot change the underlying assets. That’s why it’s best to be cautious when combining target date funds with other mutual funds in your portfolio; you don’t want to inadvertently make your portfolio overweight in a certain asset class, or even a specific security, if there’s an overlap between funds.

What’s the Difference Between Mutual Funds and ETFs?

It might be easy to confuse exchange-traded funds or ETFs with mutual funds, but they are different animals.

• ETFs are considered funds yet in many ways they behave more like stocks. ETFs trade on an exchange, like stocks, and investors buy and sell shares of the ETF throughout the day, which can cause the share price to fluctuate. By contrast, mutual funds are priced at the end of the day.

• Some investors prefer ETFs because they are more liquid than mutual funds.

• Though you can buy actively managed ETFs, the majority of these funds track an index and are passively managed. The reverse is true of mutual funds, where the majority are actively managed (though that balance is shifting toward passive strategies, which have been shown generally to deliver higher returns).

• Because ETFs are largely passive (i.e. unmanaged), they are often cheaper than mutual funds.

Like mutual funds, though, ETFs provide investors with many different ways to invest in the market. Investors can choose between equity and bond ETFs, sustainable ETFs, ETFs that invest in foreign currency, precious metals ETFs, and more. Some ETFs are also known for using “themed” strategies that allow investors to invest in hyper-specific market segments, e.g. semiconductors, clean water technology, infrastructure, robotics, cloud computing, and so on.

Recommended: A Closer Look at ETFs vs Mutual Funds

The Takeaway

With tens of thousands of mutual funds available to investors, how do you choose the ones that suit your financial goals? Fortunately, mutual funds are among the most versatile and affordable investments, offering investors the ability to incorporate a range of asset classes in their portfolio: from equities and bonds to more specialized assets like dividend-paying stocks or foreign securities.

Investing in mutual funds may provide investors with the potential for higher returns or steady income — or even emerging market opportunities. Of course, all investments also carry the potential for risk, but here investors can also decide whether to invest in lower-risk funds, like bond funds and money market funds — or use a variety of mutual funds to create a well-balanced portfolio.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.

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An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.
SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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 https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN0723071

Sep

2023

What Are Power Hour Stocks? What to Know When Trading

Power Hour Stocks: What Are They and How Do You Trade Them?

By Brian O'Connell | Growing Wealth, invest, Investing | Comments Off

While the U.S. stock market is technically open from 9:30am to 4pm ET, some times of day are more active than others, and go by the moniker “power hour.”

Depending on who you talk to, the power hour can be the first hour of trading (from 9:30 to 10:30 ET) or the last hour of trading (3:30 to 4:30 ET).

Derivative traders may argue that the time is even more specific, such as at 3:30 on the third Friday of every month in March, June, September, and December when option, futures and index contracts all expire on the same day. They call that the “triple witching hour.”

Here’s a closer look at the power hour, and what it might mean to you.

What Is the Stock Market Power Hour?

During the trading day, the power hour is when traders have a concentrated time to leverage specific market opportunities. That goes for anyone trading common market securities like stocks, index funds, commodities, currencies, and derivatives, especially options trading and futures.

When Does Stock Power Hour Occur?

The term power hour is subjective, but most market observers land on two specific times in defining the term:

• The first trading hour of the market day. This is when news flows in overnight from across the world that can impact portfolio positions that investors may want to leverage.

• The last hour of the trading day. This is when sellers may be anxious to close a position for the day, and buyers may be in a position to pounce and buy low when selling activity is high.

One commonality between the first hour of a stock market trading session and the last hour is that trading volatility tends to be higher than it is during the middle of a normal trading day. That’s primarily because traders are looking to buy or sell when demand for trading is robust, and that usually happens at or near the market opening or the market close.

Each power hour brings something different to the table, when it comes to potential investing opportunities.

💡 Quick Tip: When people talk about investment risk, they mean the risk of losing money. Some investments are higher risk, some are lower. Be sure to bear this in mind when investing online.

Power Hour Start of Day

The first hour of any trading session tends to be the most active, as traders react to overnight news and data numbers and stake out advantageous positions.

For example, an investor may have watched financial or business news the previous night, and is now reacting to a story, interview, or prediction.

Some traders refer to this scenario as “stupid money” trading, as conventional wisdom holds that one news event or one interview with a Fortune 500 CEO shouldn’t sway an investor from a strategy-guided long-term investment position. The fact is, by the time the average investor reacts to overnight data, it’s likely the chance for profit is already gone.

Here’s why: Most professional day traders were likely already aware of the news, and have already priced that information into their portfolios. As the price goes up on a stock based on artificial demand, the professional traders typically step in and take the other side of the trade, knowing that in the long run, investing money will drift back to the original trade price for the stock and the professional investor will likely end up making money.

Power Hour End of Day

The last hour of the trading day may also come with high market volatility, which tends to generate more stock trading. Many professional traders tend to trade actively in the morning session and step back during mid-day trading, when volatility is lower and the market is quieter than in the first and last hours of the day.

Regular traders can perk up at the last hour of trading, where trading is typically more frequent and the size of trades generally climb as more buyers and sellers engage before the trading session closes out. Just as in the first hour of the trading day, amateur investors tend to wade into the markets, buying and selling on the day’s news.

That activity can attract bigger, more seasoned traders who may be looking to take advantage of ill-considered positions by average investors, which increases market trading toward the close.

Red Flags and Triggers to Look for During Power Hour Trading

For any investor looking to gain an advantage during power hour trading, the idea is to look for specific market news that can spike market activity and heighten the chances of making a profit in the stock market.

These “triggers” may signal an imminent power hour market period, when trading can grow more volatile.

💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

Any Earnings Report

Publicly-traded companies are obligated to release company earnings on a quarterly basis. When larger companies release earnings, the news has a tendency to move the financial markets. Depending on whether the earnings news comes in the morning or after hours, investors can typically expect higher trading to follow. That could lead to heavier power hour trading.

News on Big “Daily Gainers”

Stock market trading activity can grow more intense when specific economic or company news pushes a single large stock — or stock sector — into volatile trading territory.

For instance, if a technology company X announces a new product release, investors may want to pounce and buy the stock, hoping for a significant share price uptick. That can lead to higher volume trading stock X, making the company and the market more volatile (especially later in the day), thus ensuring an active power hour trading time.

Reserve/Economic News

Major economic news, like jobs reports, consumer sentiment, inflation rates, and gross domestic product (GDP) reports, are released in the morning. Big news from the Federal Reserve typically comes later in the day, after a key speech by a Fed officer or news of an interest rate move after a Fed Open Markets Committee meeting.

Make no mistake, news on both fronts can be big market movers, and can lead to even more powerful power hour trading sessions. Anticipation of huge economic news, like a Federal Reserve interest rate hike or the release of the U.S. government’s monthly non-farm labor report, can move markets before the actual news is released, potentially fueling an even larger trading surge after the news is released, either at the open (for government economic news) or at the end of the trading day (for Federal Reserve news).

Triple Witching Hour Events

Quarterly triple witching hours — when stock options, futures and index contracts expire on four separate Fridays during the year — historically have had a substantial impact on market activity on those Friday afternoons, in advance of the contracts expiring at the days’ end.

When options contracts involving larger companies expire, market activity on a Friday afternoon prior to closing can be especially volatile. Thus, any late afternoon power hour on a triple-witching-hour Friday can be highly active, and may be one of the largest drivers of power hour trading during the year.

The Takeaway

The concept of a stock market “power hour” is very real, but so is the risk of trading in more volatile markets when power hours tend to be more active.

Consequently, it’s a good idea to give power hours a wide berth if you’re not familiar with trading in choppy markets, where the risk of losing money is high when power trading activity is at its highest.

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Sep

2023

What Is Asset Allocation?

By Samuel Becker | Growing Wealth, invest, Investing | Comments Off

Asset allocation is the practice of investing across asset classes in a portfolio in order to balance the different potential risks and rewards. The three main asset classes are typically stocks, bonds, and cash.

Asset allocation is closely tied with portfolio diversification. Diversification means spreading one’s money across a range of assets. In a general sense, it’s like taking the age-old advice of not putting all your eggs in one basket. An investor can’t avoid risk entirely, but diversifying their investments can help mitigate the risk that one asset class poses.

In addition to stocks, bonds and cash, some investors also allocate money into real estate, a range of commodities, private-equity or hedge funds, as well as even cryptocurrencies. Determining what kind of asset allocation makes the most sense for you depends on personal goals, time horizon, and risk tolerance.

Here’s a deeper dive on how asset allocation works.

Common Assets

The most common assets you can invest in are:

• Stocks: Stocks can be volatile, with the market going up and down, but they can also offer a higher return than bonds over the long run.

• Bonds: Bonds, such as Treasuries or municipal bonds, can be lower risk because they’re backed by government entities, but they also offer lower returns. There are higher-yield corporate bonds, which have greater returns and risk, but also tend to be less volatile than stocks.

• Cash or cash equivalents :This includes money in savings accounts or money market accounts, as well as certificates of deposit or Treasury bills. Obviously, the returns on these are very low but they’re also very secure. The biggest concern with cash investments is if inflation outpaces the return, then you technically could be losing money (e.g. future purchasing power).

What Factors Determine Your Asset Allocation?

There are three basic factors that will affect your asset allocation — your goals, your risk tolerance, and your time horizon.

• Goals. Your goals may be short term, such as adopting a child, starting a business, or saving for a down payment on a house in the next year or two. Or they may be long term, like planning ahead for that child’s education or saving for your retirement.

• Risk tolerance. Your risk tolerance is how much volatility — or ups and downs in the market — you can tolerate. This factor is important to get right. If you take on more risk than you’re comfortable with, and the market starts to drop, you might panic and sell investments at an inopportune time.

• Time horizon. Finally, your time horizon is the amount of time you have to invest before you need to achieve your goal. This factor can help you determine how much risk you’re comfortable with and influence your portfolio allocation. For example, if you have a long horizon there is more time to ride out the ups and downs in the market, and as a result, your risk tolerance may be higher.

You can see how these three factors come together to determine your asset allocation. If you have a short-term financial goal and will need your money relatively quickly — for example, if you’re about to buy that house you’ve been saving for — your risk tolerance will likely be lower, as you don’t want a market downturn to take a bite out of your investments just when you need to cash them out.

On the other hand, if you have a greater tolerance for risk — and if you think you may need more money for a down payment — you may choose a more aggressive allocation (for instance, tilting toward stocks) — in the hope of seeing more growth.

What’s a Good Asset Allocation Strategy?

The best asset allocation to meet your financial goals depends on a number of factors, most importantly your timeframe and your risk tolerance. For example, if you’re very far away from retirement, then you may be able to handle more risk in your retirement portfolio. But if you’re investing for your teenage kids’ college education, then that’s a shorter time frame and you probably shouldn’t take as many risks.

Your risk tolerance will also affect how you react to ups and downs in the market. Multiple studies have correlated the frequency with which you check your portfolio to losses over time — the more you stress over it, the more likely you are to pull your money out when you should just wait and stick with it.

So if you’re going to be someone who worries about every little blip in your investment portfolio, then you might need less risky investments. No investment is without risk, but you can spread the risk out across different assets and asset classes. But in general, higher-risk investments often have higher returns.

The 100 Rule

A common rule of thumb is known as The 100 Rule: Subtract your age from 100 and that’s the percentage of your portfolio that should be invested in stocks. For example, if you’re 25, then the 100 rule would suggest that 75% of your portfolio be in stocks and 25% in safer investments, like bonds, Treasurys, cash or money market accounts.

Target date funds are funds that more or less follow this style of rule — automatically adjusting the make-up of stocks vs. bonds as you near your target retirement date.

However, there are some caveats to this rule of thumb — people are living longer, every person’s situation may be different, and this is really only an asset allocation suggestion for retirement, not other financial goals you might have. Some financial advisors have even adjusted it to “The 110 or 120 Rule” because of increases in life expectancy.

What Is Risk Tolerance–Based Asset Allocation?

Risk tolerance–based asset allocation involves shaping your portfolio based on the level of risk you’re most comfortable with. For example, if you fit into the aggressive investor risk tolerance profile, that means you may commit a larger share of your portfolio to stocks and other higher-risk investments.

On the other hand, you may have a smaller asset allocation to stocks if you lean more toward the conservative end of the spectrum. The style of investor you are will likely shift throughout your lifetime. As discussed above, different life stages bring new concerns and priorities to mind, and this will naturally change how you view your asset allocation.

One thing that’s important to understand when basing asset allocation on risk tolerance is how that aligns with your risk capacity. Your risk capacity is the amount of risk you must take to achieve your investment goals. This is important to understand for choosing assets based on risk tolerance to find the right portfolio allocation.

If you have a low risk tolerance, but a higher risk capacity is required to achieve the investment goals you’ve set, then you may be at risk of falling short of those goals.

Meanwhile, having a higher risk tolerance but a lower risk capacity could result in taking on more risk than you need to in order to achieve your investment goals. Finding the right balance between the two is key when using a risk tolerance based asset allocation strategy.

How to Rebalance Asset Allocation

The other factor to consider is when to rebalance your portfolio in order to stay in line with your asset allocation goals. Over time, the different assets in your portfolio have different returns, so the amount you have invested in each changes—one stock might have high enough returns that it grows and makes up a significant portion of your stock investments.

If, for example, you’re aiming for 70% in stocks and 30% in bonds, but your stock investments grow faster until they make up 80% of your portfolio, then it might be time to rebalance. Rebalancing just means adjusting your investments to return to your desired portfolio make-up and asset allocation.

There are many rebalancing strategies, but you can choose to rebalance at set times — monthly, quarterly, or annually — or when an asset changes a certain amount from your desired allocation (for example, if any one asset is more then 5% off your target make-up).

In order to rebalance, you simply sell the investments that are more than their target and buy the ones that have fallen under their target until each is back to the weight you want.

The Takeaway

The effect of asset allocation has been studied over the years and while the findings varied, one thing has remained constant—how you allocate your money to different assets is vitally important in determining what kind of returns you see.

However, it’s more than just diversifying within each asset class—it’s also about diversifying your entire investment portfolio across asset classes and styles. In general, for instance, stocks are considered riskier than bonds—though there are also different kinds of bonds.

There are many different kinds of funds with different asset allocation, and a fund doesn’t guarantee diversification—especially if it’s a fund that invests in just one sector or market. That’s why it’s important to understand what you want out of your portfolio and find an asset allocation to meet your goals — which may require professional help.

SoFi Invest® offers Automated Investing for those who need help finding the right mix of assets in their portfolio. Investors who want to pick and choose stocks, ETFs and fractional shares themselves can take advantage of the Active Investing platform.

Get started with a SoFi Invest account today.

FAQ

How often should I review and rebalance my asset allocation?

You can review and rebalance your portfolio and asset allocation at any time, but you may want to set regular check-ins, whether they’re quarterly, biannually, or annually. One general rule to consider is rebalancing your portfolio whenever an asset allocation changes by 5% or more.

What factors should I consider when determining my asset allocation?

There are three main factors that will affect your asset allocation. First are your goals and whether they’re short term like saving for a house, or long term like retirement. Second is your risk tolerance, or how many ups and downs in the market you can live with. Risk tolerance is important because you’ll want to take on only as much risk as you can tolerate. Otherwise, you might panic during a market downturn and sell investments at a loss. The third factor to consider for asset allocation is your time horizon, or the amount of time you have to invest before you need to achieve your goal. This factor can help you determine how much risk you’re comfortable with.

How can I assess my risk tolerance and align it with my asset allocation strategy?

With risk tolerance–based asset allocation, you shape your portfolio based on the level of risk you’re most comfortable with. That said, the type of investor you are will likely change through the decades. Different life stages come with new priorities, and those will influence how you view your asset allocation.

When you base your asset allocation on risk tolerance, it’s important to understand how it aligns with your risk capacity, or the amount of risk you must take to achieve your investment goals. For instance, if you have a low risk tolerance, but a higher risk capacity is required to achieve your investment goals, you might fall short of your goals. Finding the right balance between the two is critical when you’re using a risk tolerance based asset allocation strategy.

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Aug

2023

Should You Use Your 401(k) as a First-Time Home Buyer?

By Austin Kilham | Growing Wealth, Investing, Preparing for Retirement | Comments Off

Withdrawing money from a 401(k) to buy a house may be allowed by your company-sponsored plan, but this tactic is not always advisable, especially for first-time home buyers.

When it comes to using money from a 401(k), first-time home buyers need to keep in mind a few things, including the rules and penalties around early withdrawals from a 401(k) account — as well as the potential loss of retirement savings.

Before you consider using a 401k to buy a house, explore alternatives like withdrawing funds from a Roth IRA, seeking help from a Down Payment Assistance Program (DAP), or seeing if you qualify for other types of home loans.

Let’s take a look at the pros, cons, and important considerations that can help prospective homebuyers make a more informed decision about using funds from a 401(k) to buy a home.

Can You Use a 401(k) to Buy a House?

Before you quickly search up “401k first time home buyer,” here’s the answer: If you’re a first-time home buyer, and your employer plan allows it, you can use your 401(k) to help buy a house. There are a couple of ways to access the funds.

First, it’s possible for a first-time homebuyer to take a loan from an existing 401(k). Your employer generally sets the rules for 401(k) loans, but you typically must pay back the loan, with interest, within five years. You pay yourself interest to help offset the loss of investment growth, since the funds are no longer invested in the market.

You can take out a 401(k) loan for a few different reasons (e.g., qualified educational expenses, medical expenses), depending on your plan’s policies. Those using a loan to purchase a residence may have more time to pay back the loan.

In certain rare circumstances, in the case of an “immediate and heavy financial need,” the IRS will allow you to make a 401(k) hardship withdrawal to purchase a primary residence. Hardship withdrawals do not cover mortgage payments, but using a 401(k) for a down payment for a first-time home buyer could be allowed.

The IRS has very strict rules for qualifying for a hardship withdrawal . And if you don’t meet them, the funds you withdraw will be subject to income tax and a 10% early withdrawal penalty.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

How Much of Your 401(k) Can Be Used For Home Purchase?

Generally, home buyers who want to use their 401(k) funds to finance a real estate transaction can borrow or withdraw up to 50% of their vested balance or a maximum of $50,000 — whichever is less. This limit typically applies to any 401(k) loan, not only a home purchase.

4 Potential Drawbacks of Using Your 401(k) to Buy a House

Taking money out of a 401(k) to buy a house may be allowed, but it’s not always recommended.

1. Withdrawal limits

Since there are limits on the amount you can withdraw or borrow for a home purchase, bear in mind that the total amount you can access may not cover all the costs (e.g., the down payment and closing costs) of the transaction. Be sure to run the numbers, to ensure that a 401(k) loan makes sense.

2. Lost contributions

Homebuyers who borrow from their 401(k) plans can’t make additional contributions to the accounts or receive matching contributions from their employers while paying off the loan. Depending on how much they were contributing, these home buyers could miss out on years of retirement contributions while they’re paying back the loan. That could take a substantial bite out of their overall retirement savings.

3. Automatic repayment terms

Generally, it’s not up to you to repay the loan; your company will deduct the loan payments automatically from your paycheck. This could be viewed as a convenience, since you don’t have to think about it, or as an inconvenience, as it lowers your take-home pay.

4. Loan terms change if you leave your job.

Finally, if an individual borrows from their 401(k) to purchase a home and leaves employment at their company (whether voluntarily or via layoff), the loan balance may be deducted from their remaining 401(k) funds in what’s called an offset. An offset is then treated like an early withdrawal, and potentially subject to taxes and a 10% penalty if the borrower is under 59 ½.

As an example: Derek is 35 and has $100,000 in his 401(k) and borrows $30,000 for a home purchase. He pays back $5,000 including interest, but still owes $25,000 when he takes another job. The remaining $25,000 would be deducted from his 401(k) as an offset, leaving $75,000 in the 401(k) or rollover IRA. Worse, the $25,000 would be treated by the IRS as an early withdrawal or distribution, and Derek would owe taxes, plus a 10% penalty ($2,500).

Terms may vary depending on the terms of your loan and the plan rules.

💡 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.

Pros and Cons of Using a 401(k) to Buy a House

Here are the pros and cons of using a 401(k) to buy a home, at a glance:

Pros of Using a 401(k) to Buy a House	Cons of Using a 401(k) to Buy a House
Individuals may be able to purchase a home that they might otherwise not be able to afford.	Individuals can’t make regular contributions to their 401(k) while making loan payments.
When using a 401(k) loan, individuals are borrowing money from themselves, so they don’t owe interest to a bank or other institution.	Borrowed or withdrawn funds aren’t growing inside the 401(k) account, potentially derailing an individual’s retirement savings.
Interest rates are generally low.	If a person doesn’t qualify for a hardship withdrawal and they’re under age 59 ½, withdrawals would be subject to income tax and a 10% early withdrawal penalty.
You don’t have to meet any credit requirements.	If a person leaves their job before the loan is repaid, the balance owed could be deducted from the remainder of their 401(k) funds as an offset. For those under 59 ½, the amount of the offset would be considered a distribution and the borrower would potentially owe taxes and a 10% penalty.

What are the Rules & Penalties for Using 401(k) Funds to Buy a House?

Here’s a side-by-side look at some key differences between taking out a 401(k) loan and withdrawing funds from a 401(k).

401(k) loans	401(k) withdrawals
• Must be repaid with interest in a certain period of time — usually 5 years. • Qualified loans are penalty free and tax free, unless the borrower defaults or leaves their job before closing the loan. • The maximum loan amount is 50% of the vested account balance, or $50,000, whichever is less. (For accounts with a vested account balance of less than $10,000, the maximum loan amount is $10,000.) • Interest accrued on the loan goes back into the 401(k), so the borrower is basically paying interest back to themselves. The interest is also tax-deferred until retirement. • If the borrower doesn’t repay the loan on time, the loan is treated as a regular distribution (a.k.a. withdrawal) and subject to taxes and an early withdrawal penalty of 10%.	• Do not have to be repaid. • Usually allowed only in the case of “financial hardship,” which can include medical expenses, funeral expenses, and primary home-buying expenses, if the individual meets strict IRS criteria for “hardship.” ◦ Subject to income tax and a 10% early withdrawal penalty for people under age 59 ½. • One can only withdraw enough to cover the immediate expense (a down payment, for example, not future monthly mortgage payments), with a limit of 50% of the vested balance or $50,000—whichever is less • You can only withdraw enough to cover the immediate expense (a down payment, for example, not future mortgage payments), with a limit of 50% of the vested balance or $50,000 — whichever is less.

401(k) loans

401(k) withdrawals

• Must be repaid with interest in a certain period of time — usually 5 years.

• Qualified loans are penalty free and tax free, unless the borrower defaults or leaves their job before closing the loan.

• The maximum loan amount is 50% of the vested account balance, or $50,000, whichever is less. (For accounts with a vested account balance of less than $10,000, the maximum loan amount is $10,000.)

• Interest accrued on the loan goes back into the 401(k), so the borrower is basically paying interest back to themselves. The interest is also tax-deferred until retirement.

• If the borrower doesn’t repay the loan on time, the loan is treated as a regular distribution (a.k.a. withdrawal) and subject to taxes and an early withdrawal penalty of 10%.

• Do not have to be repaid.

• Usually allowed only in the case of “financial hardship,” which can include medical expenses, funeral expenses, and primary home-buying expenses, if the individual meets strict IRS criteria for “hardship.”

◦ Subject to income tax and a 10% early withdrawal penalty for people under age 59 ½.

• One can only withdraw enough to cover the immediate expense (a down payment, for example, not future monthly mortgage payments), with a limit of 50% of the vested balance or $50,000—whichever is less

• You can only withdraw enough to cover the immediate expense (a down payment, for example, not future mortgage payments), with a limit of 50% of the vested balance or $50,000 — whichever is less.

What are the Alternatives to Using a 401(k) to Buy a House?

For some first-time homebuyers, there may be other, more attractive options for securing a down payment than taking money out of a 401(k) to buy a house. Here are a few of the alternatives.

Withdrawing Money from a Roth IRA

Using a Roth IRA to help buy a first home can be a smart alternative to borrowing from a 401(k) that might be beneficial for some home buyers. Unlike 401(k)s, Roth IRA contributions are made with after-tax dollars.

Contributions can be withdrawn at any time, tax free; earnings can be withdrawn without a penalty at age 59 ½ or older, as long as you’ve held the account for at least five years.

If you’re under 59 ½ or don’t meet the five-year criteria, some exceptions may apply for a first-time home purchase.

• After the account has been open for five years, Roth IRA account holders who are buying their first home are allowed to withdraw up to $10,000 in investment earnings with no taxes or penalties. (Meaning a person could withdraw the amount of their total contribution plus up to $10,000 in investment earnings.) The $10,000 is a lifetime limit.

• Roth IRA funds can be used to help with the purchase of a first home not only for the account holders themselves, but for their children, parents, or grandchildren.
One important requirement to note is that time is of the essence when using a Roth IRA to purchase a first home: The funds have to be used within 120 days of the withdrawal.

💡 Quick Tip: How much does it cost to set up an IRA? Often there are no fees to open an IRA, but you typically pay investment costs for the securities in your portfolio.

Low- and No-Down-Payment Home Loans

There are certain low- and no-down-payment home loans that homebuyers may qualify for that they can use instead of using a 401(k) for a first time home purchase. This could allow them to secure the down payment for a first home without tapping into their retirement savings.

• FHA loans are insured by the Federal Housing Administration and allow home buyers to borrow with few requirements. Home buyers with a credit score lower than 580 qualify for a loan with 10% down, and those with credit scores higher than 580 can get a loan with as little as 3.5% down.

• Conventional 97 loans are Fannie Mae-backed mortgages that allow a loan-to-value ratio of up to 97% of the cost of the loan. In other words, the home buyer could purchase a house for $400,000 and borrow up to $388,000, leaving only a down payment requirement of 3%, or $12,000, to purchase the house.

• VA loans are available for U.S. veterans, active duty members, and surviving spouses, and they require no down payment or monthly mortgage insurance payment. They’re provided by private lenders and banks and guaranteed by the United States Department of Veterans Affairs.

• USDA loans are a type of home buyer assistance program offered by the U.S. Department of Agriculture to buy or possibly build a home in designated rural areas with an up-front guarantee fee and annual fee. Borrowers who qualify for USDA loans require no down payment and receive a fixed interest rate for the lifetime of the loan. Eligibility requirements are based on income, and vary by region.

Other Types of Down Payment Assistance

For home buyers who are ineligible for no-down payment loans, there are a few more alternatives instead of using 401(k) funds:

• Down Payment Assistance (DAP) programs offer eligible borrowers financial assistance in paying the required down payment and closing costs associated with purchasing a home. They come in the form of grants and second mortgages, are available nationwide, can be interest-free, and sometimes have lower rates than the initial mortgage loan.

• Certain mortgage lenders provide financial assistance by offering credits to cover all or some of the closing costs and down payment.

• Gifted money from friends or family members can be used to cover a down payment or closing costs on certain home loans.

The Takeaway

Generally speaking, a 401(k) can be used to buy a house, either by taking out a 401(k) loan and repaying it with interest, or by making a 401(k) withdrawal (which is subject to income tax and a 10% withdrawal fee for people under age 59 ½).

However, using a 401(k) for a first-time home purchase is usually not advisable. Both qualified loans and withdrawals have some potential drawbacks — primarily the possibility of owing taxes and a penalty under certain conditions. Fortunately, there are other options. Certain Roth IRA withdrawals can be made tax and penalty free. Qualified homebuyers can also seek financial help from down payment assistance programs and other low- or no-interest plans.

As you weigh your choices, it helps to know where your retirement stands. Many people lose track of retirement accounts when they change jobs. To help manage your retirement funds, consider doing a 401(k) rollover. That’s when you move funds from an old 401(k) to an IRA.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

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SOIN0723055

What Does Hedging Mean? How Does It Work? Strategies & Examples

What Is Hedging?

How Does Hedging Work?

Pros & Cons of Hedging

Hedging Examples and Strategies

Diversification

Spread Hedging

Forward Hedge

Delta Hedging

Tail Risk Hedging

Binary Options Hedging Strategy

Forex Hedging

Hedging for Hyperinflation

Dollar-Cost Averaging

Is Hedging Viable for Retail Investors?

The Takeaway

Understanding the Different Types of Mutual Funds

Mutual Funds Recap

Alternative investments, now for the rest of us.

Start trading funds that include commodities, private credit, real estate, venture capital, and more.

9 Types of Mutual Funds

1. Equity Funds

2. Bond Funds or Fixed-Income Funds

3. Money Market Funds

4. Index Funds

5. Balanced Funds

6. Income Funds

7. International Funds

8. Specialty Funds

9. Target Date Funds

What’s the Difference Between Mutual Funds and ETFs?

The Takeaway

Power Hour Stocks: What Are They and How Do You Trade Them?

What Is the Stock Market Power Hour?

When Does Stock Power Hour Occur?

Power Hour Start of Day

Power Hour End of Day

Red Flags and Triggers to Look for During Power Hour Trading

Any Earnings Report

News on Big “Daily Gainers”

Reserve/Economic News

Triple Witching Hour Events

The Takeaway

What Is Asset Allocation?

Common Assets

What Factors Determine Your Asset Allocation?

What’s a Good Asset Allocation Strategy?

The 100 Rule

What Is Risk Tolerance–Based Asset Allocation?

How to Rebalance Asset Allocation

The Takeaway

FAQ

How often should I review and rebalance my asset allocation?

What factors should I consider when determining my asset allocation?

How can I assess my risk tolerance and align it with my asset allocation strategy?

Should You Use Your 401(k) as a First-Time Home Buyer?

Can You Use a 401(k) to Buy a House?

First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.

How Much of Your 401(k) Can Be Used For Home Purchase?

4 Potential Drawbacks of Using Your 401(k) to Buy a House

1. Withdrawal limits

2. Lost contributions

3. Automatic repayment terms

4. Loan terms change if you leave your job.

Pros and Cons of Using a 401(k) to Buy a House

What are the Rules & Penalties for Using 401(k) Funds to Buy a House?

What are the Alternatives to Using a 401(k) to Buy a House?

Withdrawing Money from a Roth IRA

Low- and No-Down-Payment Home Loans

Other Types of Down Payment Assistance

The Takeaway

CATEGORIES

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