Investing Archives | Page 148 of 194

Sep

2023

What Is a Candlestick Chart?

By MP Dunleavey | Growing Wealth, Investing | Comments Off

What Are Candlestick Charts?

Candlesticks are price chart units that show the high, low, opening, and closing prices of a stock or security within a specified time period. Overtime, the candles create patterns that traders can use to predict price movements, trends, and reversals.

Most candlesticks consist of a body and upper and lower wicks, which are also known as shadows or tails.

Candlestick charts are commonly used, along with line charts, bar charts, and point-and-figure charts.

Understanding Candlestick Charts

Candlesticks originated in Japan, perhaps in the 19th century, as a means of tracking the prices of certain assets and commodities. When candlestick charts were introduced in the West, they originally were called Japanese candlestick charts.

The candlestick itself consists of an open area called the “real body,” which shows the range between the open and close prices, with the price movements in the specified time period shown as vertical lines or wicks (also called shadows) on either end of the body. The wicks indicate the high and the low for that period.

When the real body is filled in with black or red it means the close was lower than the open. When it’s white (blank) or green, the close was higher than the open. On most platforms, traders can alter the colors to whatever is easiest for them to read. Some candlestick charts are black and white.

Traders can set the desired time period they want to analyze; often a candlestick represents the price movements during a trading day. Candlestick patterns are formed by a series of candles within a designated interval (e.g. days or weeks).

💡 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.

Candlestick Charts vs Bar Charts

Like candlestick charts, bar charts show security price changes over time. Many traders think candlestick charts are easier to read; the thicker candle bodies make it easy to see the distinction between the opening and closing price and the high and low.

Bar charts are also often not color coded, making it more difficult to see price trends. However, some traders prefer the cleaner aesthetic of a bar chart.

What Do Candlestick Charts Tell Investors?

Candlestick charts are composed of candles lined up next to one another, each of which shows price movement between the specified time period. Because candles show price changes in certain time periods, traders can use charts to see trends and try to predict price changes.

Candlestick patterns can show that a negative or positive price continuation is likely, or that a price trend may reverse. Even a single candlestick can help traders decide whether to buy or sell.

Some investors use fundamental analysis of an investment to make trading decisions. But that in-depth analysis is typically not of interest to a day trader.

Day traders often use what is called technical analysis in an attempt to detect patterns in a security’s performance. Although this method is common in the financial industry, many debate the validity of these patterns and whether they can be predictive, or help investors anticipate a security’s future performance in any way.

Recommended: Understanding the Risks of Day-Trading

How to Read Candlestick Charts

Owing to the four main components of a single candlestick — the opening price, closing price, the high and the low — candlestick charts convey a lot of information. Essentially you have five data points in each candlestick:

• The opening price (indicated by the top of the real body)

• The closing price (the bottom of the real body)

• The high (the upper wick)

• The low (the lower wick)

• Whether the day’s closing price was higher or lower than the previous close.

Components of a Candlestick

Real Body

As described above, the part of the candle between the top and bottom borders is called the candle body, or real body. This represents the opening and closing prices of the time period that the candle depicts.

The candle body is more important than the wicks or shadows, because the wicks show high and low trades, which may be significantly different from the majority of the day’s trades. A longer candle body shows a stronger price trend in either direction.

Upper Wick

The vertical line above the candle body is the upper wick or shadow. The top of the shadow the highest price the security was traded at during the set time period. A long upper shadow indicates a bearish price direction: It means traders are unsuccessfully attempting to increase prices.

Lower Wick

The line below the candle body is the lower wick. The bottom of the wick marks the lowest price of the security during the set time period. If a wick is short, it means the opening or closing price was near the high and low trades.

Range

The range is the difference between the top and bottom of the real body. If the close was lower than the open, the real body is filled in (usually black or red. If the close was higher than the open, the real body is hollow or green (or another color of the trader’s choice).

While these are the components of a traditional or standard candlestick chart, some candlestick charts have candles without a top or bottom or wicks.

💡 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.

Candlestick Chart Time Frames

Traders can select the time frame that each candle represents. One commonly used time frame shows the opening price, closing price, and high and low for a single day. Each candle in the chart would show the price movement in one day.

A trader could see that a stock price declined significantly over the course of the day, which could result in a continuing decline in the coming days.

The most commonly used time frames are:

• 1-minute (M1)

• 5-minute (M5)

• 15-minute (M15)

• 30-minute (M30)

• 1-hour (H1)

• 4-hour (H4)

• Daily (D1)

• Weekly (W1)

• Monthly (M1)

Shorter time frames essentially allow traders to zoom in on the price action of the chart. For example, an H1 chart would have four times the candles of an H4 chart, so traders can look more closely at price changes.

Types of Candlesticks

Candlesticks are created by price movements throughout the specified time period. Taken as a cluster, candlesticks form patterns traders use for analysis and trend prediction.

Bearish and Bullish Candles

There are two main patterns: bearish (the security’s price is likely to decline) and bullish (the security’s price is likely to rise). These reflect the common terms for bullish and bearish market conditions.

No pattern is a guarantee of a price change or of a security’s performance. Candlestick charts are therefore used more as indicators of potential price trends.

Doji Candles

If the price closes exactly where it opened, there is no candle body. This is called a doji and is marked with a cross. A doji candlestick is rare, but when it shows up it can be a predictor of a price reversal.

Marubozu

The marubozu is essentially the opposite of the doji. It has a long candle body and no wicks or shadows. This type of candle indicates that the price didn’t trade beyond the range of the open and closing prices.

Types of Candlestick Patterns

Certain candlestick patterns can help traders make short-term predictions about price movements. Although a single candle indicates whether buying or selling action is strong, it doesn’t necessarily mean that the long-term price will continue in that direction. This is why traders look at different time periods to get a sense for longer-term trends, and to understand support and resistance levels.

There are many ways to read candlestick charts, depending on trading strategy and time frame.

At first glance, candlestick charts can appear pretty random. But there are many bullish and bearish patterns traders can identify in order to try to predict price movements. It’s important to remember that patterns are not guarantees of future price movement.

Bearish Engulfing Pattern

If there are more sellers than buyers when a chart has been trending upward, traders will see a long red candlestick after a small green one. This can indicate that prices may decline.

Bullish Engulfing Pattern

The opposite pattern will occur if the price is trending downward but then a long green candlestick appears in the chart. This may indicate that prices will continue to increase.

Bearish Evening Star

The evening star pattern is uncommon, but considered a strong indicator of future price declines when it does show up. It’s generally a three-day candlestick pattern.

• The first day is a large white or green candle, indicating a clear rise in price.

• The second day shows a smaller candle, indicating a more modest price increase.

• The third day is a long red candle that opens at a lower price than the previous day, and closes near the middle of the first candle’s range.

Morning Star

The reverse of the evening star is the morning star, a bullish indicator. The first candlestick in this pattern is long and red, the second is short and lower than the first, and the third is a long green candlestick that closes above the center of the first, indicating an upward price trend.

Bearish Harami

This is a two-candle pattern. If traders see a small red or black candle body that fits completely within the previous day’s candle body, it could indicate a price reversal. Price action continuing downward after the small candle could indicate a longer-term downward trend.

Bullish Harami

A bullish harami is a three-day pattern that may indicate a reversal of a bearish trend. If there are two black or red candles, indicating the downward trend, followed by a small white or green candle that fits completely within the body of the previous candle, that may signal a bullish turn.

Harami Cross

The harami cross can be bearish or bullish. With a bearish harami cross, there is a long candle that’s part of a downtrend and it’s followed by a doji.

With a bullish harami cross, there is a long candle that’s part of an upward trend, also followed by a doji.
In either case, the doji could signal a reversal of the trend.

Falling Three Methods

This is a bearish pattern that includes five candlesticks. Typically there is one day with a strong downward trend, followed by three small green candle bodies that stay within the boundaries of the first candle, followed by another long red candle. The falling three methods may signal an interruption of the trend, but not a full-on reversal.

Hammer

If the price significantly decreases but then makes a comeback and ultimately closes near the high, this is called a hammer. The hammer pattern has a small body and a long lower wick. It’s a bullish signal because it shows that the price was declining but then traders pushed it back up.

Hanging Man

The hanging man pattern is the opposite of the hammer. It is also referred to as an inverted hammer. This pattern looks like a square lollipop. If traders are attempting to spot the top or bottom of a market, they often use hammer and hanging man patterns as indicators.

Shooting Star

A shooting star takes shape when a security opens, the price rises significantly over the trading period, but then closes near the opening price, signaling a reversal.

To really be considered a shooting star pattern, this particular candlestick — with the short real body, long top wick, and hardly any bottom wick — must occur within an upward price trend.

Gaps

A gap is a window of time in which there are no trade transactions. Gaps in a chart can indicate support and resistance levels, which can be followed by a further bullish or bearish trend.

The Takeaway

Candlestick charts are a way of condensing price information about a security into a fairly simple diagram that looks like a candle with two wicks. The candle’s “real body” shows the range between the open and close prices. The wicks are the vertical lines at the top and bottom of the real body, indicating the high and the low for that period.

Candlesticks can be grouped together into patterns that traders can interpret as signals of price trends that are either bearish or bullish. Often it’s best to use tools like this with other types of technical indicators.

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

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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Sep

2023

Guide to Investing in a Bear Market: 8 Investing Strategies

By Michael Flannelly | Growing Wealth, invest, Investing | Comments Off

While it may seem counterintuitive to invest during a bear market — a prolonged market decline typically of 20% or more — in fact there are opportunities during downturns, if you know where to look and what strategies to use.

Market conditions during a bear market are unusual, and securities may behave in different ways. By knowing which bear market investing strategies might make sense, it’s possible to mitigate losses and possibly realize some gains.

Also, for investors with a long-term wealth-building goal, it’s important to remember that bear markets are often relatively short. So rather than panic, it can help to look for potential investment opportunities that may be beneficial.

How to Invest in a Bear Market: 8 Options

Some investors may be tempted to sell assets during a bear market, content to keep their money in cash while the markets seem to slide. However, there are some bear market investing strategies investors may want to consider.

1. Invest Defensively

The first of these bear market strategies involves buying assets that may increase in price when the overall financial markets decline. Many factors influence which investments perform well during a bear stock market.

Investors may shift their portfolios to defensive stocks, to bigger and more mature companies, and companies in sectors with constant demand such as utilities and food. These may be good assets to hold during bear markets because these stocks tend to hold steady, even in a downturn.

Defensive investments may provide consistent income through dividend payouts (more on that below) while experiencing less volatile share price action during market downturns. Buying assets like these at the beginning of a downturn can be beneficial.

2. Consider Dollar-Cost Averaging

Using a dollar-cost averaging strategy isn’t limited to bear markets; it’s a time-honored practice among many buy-and-hold investors.

Dollar-cost averaging is when you buy a set dollar amount of an investment at regular intervals (e.g. weekly, monthly, quarterly), regardless of whether the markets are up or down. That way, when prices are lower you buy more; when prices are higher you buy less. Otherwise, you might be tempted to buy less when prices drop, and buy more when prices are increasing, based on your emotions.

For example, if you invest $100 in Stock A at $20 per share, you get 5 shares. The following month, say, the price has dropped to $10 per share, but you stay the course and invest $100 in Stock A — and you get 10 shares. Now you own 15 shares of stock A at an average price of $13.33.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

3. Use Short Strategies

One of the more sophisticated bear market trading strategies is placing bets that will rise in value when other investments lose value. This might involve, for example, purchasing put options contracts on stocks that may decline in value. A put option allows investors to benefit from falling share prices.

Shorting stocks to speculate on falling stock prices is another strategy investors can employ. When investors short a stock, they sell borrowed shares and hopefully repurchase them at a lower price. The investor profits when the price they pay to buy back the shares is lower than the price at which they sold the borrowed shares.

Alternatively, investors might consider inverse exchange-traded funds (ETF) as the overall market declines. An inverse ETF tracks a market index and, through complex trading strategies, looks to produce the opposite result of the index. For example, if the S&P 500 index declines, an inverse ETF that tracks the index will hopefully increase in value.

However, using put options, inverse ETFs, and other short strategies involves many nuances that may be complicated for some investors. They are very risky trading strategies that could compound losses if the bets do not work out. Interested investors ought to conduct additional research before considering this strategy.

4. Hold for the Long Haul

During a bear market, it’s not always necessary to do anything special. Investors with a long time horizon sometimes choose to hold on and stay the course, even when a portfolio declines in value. Taking a long-term perspective may pay off well over many years, as the market as a whole tends to trend upward over time.

For example, the bear market that began in December 2007 was over by March 2009, lasting about a year and a half. But the bull market that followed lasted almost eleven years; the S&P 500 index recouped its losses from the bear market by March 2013, and from March 2009 through February 2020, the S&P 500 increased just over 400%

💡 Quick Tip: Newbie investors may be tempted to buy into the market based on recent news headlines or other types of hype. That’s rarely a good idea. Making good choices shouldn’t stem from strong emotions, but a solid investment strategy.

5. Diversify Your Holdings

It also helps if investors have a well-diversified portfolio during any market. Diversifying typically ensures that all of an investor’s eggs are not in one basket, which can help mitigate the risk of loss, since you’re not overexposed in one sector or asset class.

One easy way to accomplish portfolio diversification might be to buy structured securities like ETFs or index funds.

6. Focus on Dividend Stocks

One way to invest during a bear market is to focus on stocks that provide income, i.e. dividend-paying stocks. Typically, these companies are bigger, more established, and growth oriented. And, clearly, they have the ability to give investors a regular payout.

A dividend is a portion of a company’s earnings that is paid to its shareholders, as approved by the board of directors. Companies usually pay dividends quarterly, but they may also be distributed annually or monthly.

Most dividends are paid in cash, on a per-share basis. For example, if the company pays a dividend of 50 cents per share, an investor with 100 shares of stock would receive $50.

Many investors who rely on dividend-paying stocks do so as part of an income investing strategy — which also serves investors during a downturn.

7. Look Toward Growth

While value stocks are generally considered undervalued relative to their actual worth, growth stocks are shares of companies that have the potential for higher earnings, often rising faster than the rest of the market. In addition, growth stocks have shown historic resilience in market downturns.

These companies tend to reinvest their earnings back into their business to continue their company’s growth spurt. Growth investors are betting that a company that’s growing fast now, will continue to grow quickly in the future.

To spot growth stocks, investors look for companies that are not only expanding rapidly but may be leaders in their industry. For example, a company may have developed a new technology that gives it a competitive edge over similar companies.

Recommended: Value vs. Growth Stocks

8. Consider Laying Low

If none of the above bear market strategies appeals to you, there is always the option of “playing dead,” as the saying goes. This derives from the advice given to those in the wilderness who might face a live bear: to not panic or do anything rash or risky.

In the same way, some investors believe the best way to handle a bear market is to stay calm, moving a portion of your portfolio into more secure and stable investments like Treasury bills, bonds, and money market funds.

What Causes a Bear Market and How Long Do They Last?

The causes of bear markets can vary. Sometimes a weak economy is the main cause — e.g. low employment, low productivity, disappointing corporate earnings. But a bear market might also be the result of a sudden shock, like the brief bear market that hit during the early days of the pandemic.

Other events that can spark a bear market might include geopolitical crises, a paradigm shift (e.g. the growth of the digital workforce), or government actions that impact taxes, interest rates, and so forth.

Bear Markets Run Short

As noted above, bull markets generally last far longer on average than bear markets — about 1,752 days for the average bull market versus 363 days for the average bear.

This is another factor to bear in mind if you’re thinking about investing in a bear market. Developing smart bear market investing strategies has to take into account the shorter time frames as well as the unusual market conditions.

Bear Market Investing vs Bull Market Investing

For those investing for the long term, the only real difference between a bear market and a bull market will be a temporary dip in the value of their portfolio. The main goal will be to stay the course. As mentioned, long-term investors often make regular, recurring purchases of financial assets.

During bull markets, a common investment strategy is to buy and hold. This tends to work because bull markets are characterized by most asset classes rising in unison.

However, investors may have to be a little more active with their portfolios during bear markets. Some investors choose to increase the amount of money they put into their investments during market downturns. Their overall strategy remains the same, but buying more assets at lower prices lets them acquire a larger number of assets overall.

For those with a higher risk tolerance looking to make short-term gains (often referred to as speculators), a mix of strategies might be employed. Speculators may look to short the market using puts or inverse ETFs, or research assets likely to increase in value due to current bear market trends.

Invest With SoFi

When the financial markets are in turmoil and your portfolio seems to be in the red, you may be tempted to panic. You may want to sell off your assets to mitigate further losses, content to pocket the cash. However, this sort of strategy may be short-sighted for most investors as it locks in your losses.

Also, you may be setting yourself up to miss a potential rally by getting out of the markets. After all, bear markets are often relatively short-lived and are followed by bull markets.

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

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.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.
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Sep

2023

Averaging Down Stocks: Meaning, Example, Pros & Cons

By AJ Smith | Growing Wealth, invest, Investing | Comments Off

Averaging down stocks refers to a strategy of buying more shares of a stock you already own after that stock has lost value — effectively buying the same stock, but at a discount. In other words, it’s a way of lowering the average cost of a stock you already own.

It’s similar to dollar-cost averaging, where you invest the same amount of money in the same securities at steady intervals, regardless of whether the prices are rising or falling.

While this strategy has a potential upside — if the stock price then rises again — it does expose investors to greater risk.

Table of Contents

What Is Averaging Down?
Example of Averaging Down
Why Average Down on Stock
Pros and Cons of Averaging Down
Tips for Averaging Down on Stock
The Takeaway

What Is Averaging Down?

By using the strategy of averaging down and purchasing more of the same stock at a lower price, the investor lowers the average price (or cost basis) for all the shares of that stock in their portfolio.

So if you buy 100 shares at one price, and the price drops 10%, for example, and you decide to buy 100 more shares at the lower price, the average cost of all 200 shares is now lower.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Example of Averaging Down

Consider this example: Imagine you’ve purchased 100 shares of stock for $70 per share ($7,000 total). Then, the value of the stock falls to $35 per share, a 50% drop.

To average down, you’d purchase 100 shares of the same stock at $35 per share ($3,500). Now, you’d own 200 shares for a total investment of $10,500. This creates an average purchase price of $52.50 per share.

Potential of Gain Averaging Down

If the stock price jumps to $80 per share, your position would be worth $16,000, a $5,500 gain on your initial investment of $10,500. In this case, averaging down helped boost your average return. If you’d simply bought 200 shares at the initial price of $70 ($14,000), you’d only see a gain of $2,000.

Potential Risk of Averaging Down

As with any strategy, there’s risk in averaging down. If, after averaging down, the price of the stock goes up, then your decision to buy more of that stock at a lower price would have been a good one. But the stock continues its downward price trajectory, it would mean you just doubled down on a losing investment.

While averaging down can be successful for long-term investors as part of a buy-and-hold strategy, it can be hard for inexperienced investors to discern the difference between a dip and a warning sign.

Why Average Down on Stock

Some investors may use averaging down stocks as part of other strategies.

1. Value Investing

Value investing is a style of investing that focuses on finding stocks that are trading at a “good value” — in other words, value stocks are typically underpriced. By averaging down, an investor buys more of a stock that they like, at a discount.

But in some cases, a stock may appear undervalued when it’s not. This can lead investors who may not understand how to value stocks into something called a value trap. A value trap is when a company has been trading at low valuation metrics (e.g. the P/E ratio or price-to-book value) for some time.

While it may seem like a bargain, if it’s not a true value proposition the price is likely to decline further.

2. Dollar-Cost Averaging

For some investors, averaging down can be a way to get more money into the market. This is a similar philosophy to the strategy known as dollar-cost averaging, as noted above, where the idea is to invest steadily regardless of whether the market is down or up, to reap the long-term average gains.

3. Loss Mitigation

Some investors turn to this strategy to help dig out of the very hole that the lower price has put them into. That’s because a stock that has lost value has to grow proportionally more than it fell in order to get back to where it started. Again, an example will help:

Let’s say you purchase 100 shares at $75 per share, and the stock drops to $50, that’s a 33% loss. In order to regain that lost value, however, the stock needs to increase by 50% (from $50 to $75) before you can see a profit.

Averaging down can change the math here. If the stock drops to $50 and you buy another 100 shares, the price only needs to increase by 25% to $62.50 for the position to be profitable.

Pros and Cons of Averaging Down

As you can see, averaging down stocks is not a black-and-white strategy; it requires some skill and the ability to weigh the advantages and disadvantages of each situation.

Pros of Averaging Down

The primary benefit to averaging down is that an investor can buy more of a stock that they want to own anyway, at a better price than they paid previously — with the potential for gains.

Whether to average down should as much be a decision about the desire to own a stock over the long-term as it is about the recent price movement. After all, recent price changes are only one part of a stock’s analysis.

If the investor feels committed to the company’s growth and believes that its stock will continue to do well over longer periods, that could justify the purchase. And, if the stock in question ultimately turns positive and enjoys solid growth over time, then the strategy will have been a success.

Cons of Averaging Down

The averaging down strategy requires an investor to buy a stock that is, at the moment, losing value. And it is always possible that this fall is not temporary — and is actually the beginning of a larger decline in the company and/or its stock price. In this scenario, an investor who averages down may have just increased their holding in a losing investment.

Price change alone should not be an investor’s only indication to buy more of any stock. An investor with plans to average down should research the cause of the decline before buying — and even with careful research, projecting the trajectory of a stock can be difficult.

Another potential downside is that the averaging down strategy adds to one particular position, and therefore can affect your asset allocation. It’s always wise to consider the implications of any shift in your portfolio’s allocation, as being overweight in a certain asset class could expose you to greater risk of loss.

Tips for Averaging Down on Stock

If you are going to average down on a stock you own, be sure to take a few preparatory steps.

• Have an exit strategy. While it may be to your benefit to buy the dip, you want to set a limit should the price continue to fall.

• Do your research. In order to understand whether a stock’s price drop is really an opportunity, you may need to understand more about the company’s fundamentals.

• Keep an eye on the market. Market conditions can impact stock price as well, so it’s wise to know what factors are at play here.

The Takeaway

To recap: What is averaging down in stocks? Simply put, averaging down is a strategy where an investor buys more of a stock they already own after the stock has lost value.

The idea is that by buying a stock you own (and like) at a discount, you lower the average purchase price of your position as a whole, and set yourself up for gains if the price should increase. Of course, the fly in the ointment here is that it can be quite tricky to predict whether a stock price has simply taken a dip or is on a downward trajectory — so there are risks to the averaging down strategy for this reason.

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

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Sep

2023

How Often Are Dividends Paid?

By Pam O’Brien | Growing Wealth, invest, Investing | Comments Off

Some companies make regular payments, called dividends, to investors who own shares of its stock. For investors, this may be considered an advantage of investing in a company — though they may wonder, when are dividends paid?

Not all companies pay dividends, so if steady dividend income is the goal, an investor would need to look specifically for dividend-paying investments.

How often do dividends pay? Dividends are typically paid quarterly, though there are cases where they are paid more or less frequently. But there’s more to it than simply investing in a stock and waiting for one’s dividend to roll in.

What Are Dividends?

Companies will sometimes share a portion of their profits with shareholders, and this is called a dividend. Dividends are typically distributed as cash, although it’s also possible to receive a dividend in the form of stock.

Typically, dividends work on a per-share basis. For example, if Company A pays a cash dividend of 50 cents per share, and an investor owns 50 shares, they would receive $25 in cash.

If a company pays a stock dividend, it’s usually a percentage increase in the number of shares an investor owns. So if Company A awards a 5% stock dividend and an investor owns 100 shares of Company A, they would have 105 shares after the dividend payout.

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How Often Are Dividends Paid Out?

In most cases in the U.S., dividends are paid quarterly, or four times a year, on the same schedule as they must report earnings (quarterly). If you’re wondering why companies generally pay quarterly vs. monthly dividends, logically, it makes sense that dividends would come only after a company has finalized its income statement and its board of directors has reviewed (and approved) the numbers.

Some investments pay dividends on other schedules, such as twice a year, once a year, or as monthly dividend stocks, or on no schedule at all (called “irregular” dividends), but this isn’t typical in the United States. Ultimately, the dividend payout schedule is up to a company’s board of directors.

It’s also possible for a company to pay a special one-time dividend. Usually a special dividend is paid out when a company has had a stronger-than-usual earnings period or has excess cash on hand — from the sale of a business, perhaps, or the liquidation of an investment, or a major litigation win. These special one-time dividends may be paid as cash, stock, or property dividends.

When it comes to mutual funds that invest in dividend-paying companies, they may pay dividends on a more frequent basis, such as monthly or even weekly.

Recommended: Do IPOs Offer Dividends?

Important Dividend Dates

Although the answer to the question “How often are dividends paid out?” may vary, there are four essential dates involved in the payment of dividends:

1. Declaration date: This is the day that a company’s board of directors states their intention to pay a dividend.

2. Date of record: This is the date on which a company will review its records to establish who its shareholders are. In order to receive a dividend, an investor must be a “holder of record,” which means they owned shares on or before the ex-dividend date.

3. Ex-dividend date: This is the date by which an investor must have purchased shares of a stock in order to receive an upcoming dividend. If an investor bought shares of Company A on or after the ex-dividend date, the dividend would go to the investor from whom they purchased the shares — they themselves would not receive a dividend.

4. Payment date: This is the date a dividend is paid to company shareholders.

IMPORTANT DIVIDEND DATES for 5 Companies in the S&P 500 Dividend Aristocrats Index
Company	Dividend Payout	Declaration Date	Ex-Dividend Date	Date of Record	Payment Date
AbbVie Inc. (ABBV)	$1.48	June 22, 2023	July 13, 2023	July 14, 2023	August 15, 2023
Atmos Energy Corp (ATO)	$0.74	May 3, 2023	May 19, 2023	May 22, 2023	June 5, 2023
Chevron Corp (CVX)	$1.51	July 28, 2023	August 17, 2023	August 18, 2023	September 11, 2023
General Dynamics (GD)	$1.32	August 1, 2023	October 5, 2023	October 6, 2023	November 10, 2023
Nucor Corp (NUE)	$0.51	June 8, 2023	June 29, 2023	June 30, 2023	August 11, 2023

Typically, investors wondering, when are dividends paid?, can get information about a company’s dividend dates by visiting its investor relations page. To find this, search for the company’s name and “investor relations” online. Or check a company’s dividend history online. Many investment websites, including Nasdaq.com, track this information.

When Are Dividends Paid?

Once a company’s board of directors approves a plan to pay out dividends, the company announces the dividend payment information, including: the amount to be paid out, the date it will be paid, the date of record, and the ex-dividend date.

On the payment date, the dividend is paid to investors who owned the stock before the ex-dividend date.

Example:

The Coca-Cola Company (NYSE: KO) announced a dividend of $0.46 per share on February 16, 2023. The payment date for the dividend was April 3, 2023 to shareholders of record on March 17, and the ex-dividend date was March 16. That means, to receive the dividend that was paid on April 3, you would have had to buy or have already owned Coca-Cola shares before March 16. (The Coca-Cola Company was chosen as an example only; this is not a recommendation to buy, sell, or hold KO.)

Different Dividend Payout Methods

These are some of the ways dividends may be paid to investors.

Cash Dividends

Dividends are often paid in cash. Companies typically send cash dividends directly to an investor’s brokerage, where the money is deposited into their account. The company might also mail a check to stockholders.

Company Stock Dividends

In other cases, investors will be paid in company stocks. Some companies and mutual funds offer the option of a dividend reinvestment plan (DRIP) that will automatically buy additional shares for an investor with their dividends. This provides the advantages of both simplifying the process (since investors won’t have to receive the cash and buy more shares themselves) and potentially being more cost effective, since many DRIP programs don’t charge commissions.

Additionally, some DRIP programs discount the purchase of additional shares. For this and other reasons, some investors may specifically look to find dividend reinvestment stocks.

Property Dividends

More rarely, a company might award a property dividend instead of cash or stock payouts. This could include company products, shares of a subsidiary company, or physical assets the company owns.

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Are Dividends Taxable?

Dividend income is always taxable, but tax treatment will depend on how long an investor has held the investment and what kind of account they’re holding it in.

For instance, if an investor is holding the investment in a retirement account such as a 401(k) or IRA, the dividend isn’t taxable at the time of distribution. (Though depending on the account, the income may be taxed upon withdrawal during retirement.)

If the investment is held in a taxable account, then a dividend is considered income, and the tax rate will depend on whether it’s a qualified dividend or nonqualified (ordinary) dividend.

Tax Rate for Qualified Dividends

These are dividends paid by a U.S. corporation or a qualified foreign corporation on stock that an investor has held for a certain period of time—generally more than 60 days during the 121-day period that starts 60 days before the ex-dividend date.

For some preferred stock, the investor must have held it for 91 days out of the 181-day period starting 90 days before the ex-dividend date. Taxes on qualified dividends are paid at long-term capital gains rates, which range from 0% to 20% based on an individual’s modified adjusted gross income.

In other words, the taxes investors pay on qualified dividends are based on their overall income tax bracket, and they could pay 0%, depending on their income. Because the long-term capital gains tax rate is lower than ordinary income tax rate, qualified dividends are preferable to nonqualified dividends.

Tax Rates for Long-Term Capital Gains

Tax Rates for Long-Term Capital Gains
Filing Status	0% Rate	15% Rate	20% Rate
Single	Up to $44,675	$44,676 to $492,300	Over $492,300
Head of household	Up to $59,750	$59,751 to $523,050	Over $523,050
Married filing jointly	Up to $89,250	$89,251 to $553,850	Over $553,850
Married filing separately	Up to $44,675	$44,676 to $276,900	Over $276,900

Tax Rate for Nonqualified Dividends

The more common type of dividend is a nonqualified — or ordinary — dividend. When companies pay ordinary dividends, they’re considered ordinary income, so an investor will be taxed at ordinary income tax rates.

In general, investors should assume that any dividend they receive is an ordinary dividend unless told otherwise. (The payer of the dividend is required to identify the type of dividend when they report them on Form 1099-DIV at tax time.)

Can You Live on Dividends?

In general, retirees should plan to live off a combination of Social Security, interest income from bonds, and selling a small portion of their investments each year. The 4% retirement rule maintains that if one withdraws no more than 4% of their portfolio each year, they’ll be able to make their nest egg last — although some financial professionals believe this formula is too conservative.

Investments that pay regular dividends may shift an individual’s retirement equation by providing steady income over time that may allow them to sell fewer investments — or no investments at all. The amount of dividends a stock pays often grows over time as companies get larger and continue to increase their profits.

Investing with an eye toward dividend income may allow an investor to create an income stream that could successfully supplement their Social Security and other income in retirement.

Investing With SoFi

Dividends — cash or stock rewards from a company to its shareholders—are typically paid quarterly to qualifying shareholders. These financial “bonuses” can be attractive to investors, who may seek out dividend-paying companies specifically in hopes of boosting their bottom line. Some investors look specifically for investments that pay dividends as a way to generate income and savings for retirement.

Dividends may provide a source of consistent and predictable income, which may be a helpful addition to an individual’s portfolio, depending on their investing goals. Investors may choose to use dividend income to supplement other income or to reinvest in their portfolio.

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

FAQ

How long do you have to hold a stock to get a dividend?

In order to get a dividend, an investor needs to be a “holder of record.” That means they need to buy, or already own, shares of the stock before what’s known as the ex-dividend date, which is the business day before the date of record. The date of record is when the company reviews its records to determine who its shareholders are. The date of record is generally announced when the dividend is announced.

Are dividends taxed if they are reinvested?

Yes. Dividends that are reinvested are considered income, just like cash dividends, and must be reported on your tax return. The way you are taxed on dividends depends on whether your dividends are qualified or nonqualified. The more common type of dividend is nonqualified, and these dividends are taxed at ordinary income tax rates. Qualified dividends are taxed at long-term capital gains rates.

What happens if you take more dividends than profit?

Typically, a portion of a company’s earnings should go to paying out dividends. This is known as the dividend payout ratio. Investors typically look for payout ratios that are 80% or less — meaning that the company is not paying all of its earnings in dividends.

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.

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.

SoFi Invest®

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

Sep

2023

What Are Real Estate Options? Advantages for Buyers

Understanding the Basics of Real Estate Options

By Laurel Tincher | Growing Wealth, invest, Investing, Terminology | Comments Off

Another way to invest in real estate is through buying or selling real estate options. With an options contract, a buyer is granted the right to purchase a property for a specific price by a specific date, but they are not obligated to buy it.

In order to purchase this option, the buyer of the contract pays the seller a premium.

This is a flexible and typically less expensive way to enter the real estate market that may also help reduce risks involved in single property investment.

What Are Real Estate Options?

Real estate options are contracts between a potential buyer and seller. They grant the buyer the exclusive right to purchase a particular property within terms set in the contract. But the buyer doesn’t have to purchase the property.

However, if the buyer decides to exercise the option and purchase the property, the seller is obligated to sell the property at the agreed-upon price. Once the agreement is entered into, the property owner can’t sell to anyone else within the time period set in the option.

An options contract for a purchase is also known as a call option, whereas an option to sell would be called a put option.

Recommended: Call vs Put Options: Main Differences

How Do Options in Real Estate Work?

Generally, real estate options set a particular purchase price and are valid for anywhere from six months to one year. The buyer doesn’t have to purchase the property, but if they want to, the seller is obligated to sell to them even if the market price has gone up.

The buyer pays what is known as a “premium” in options terminology to enter into the contract. If they decide not to buy the property, the property owner (the seller) keeps that premium.

Real estate options are most often used in commercial real estate, but they can be used by retail investors as well. They aren’t sold on exchanges, and each contract is specific for the property it represents. Usually a contract is only for a single property, not multiple properties.

Real estate options are similar to stock options in that they set a specific price, premium, and period of time for a contract related to an underlying asset. Options can be exercised early or at the expiration date. They can also be sold to another investor.

• Most of the benefits involved in real estate options tilt in the buyer’s favor.

• If the property value goes up a few months into the contract, the buyer can exercise the contract and purchase the property, and sell it for a profit.

• If the property value drops, the buyer can simply let the option expire — thus losing only the premium they paid, which is typically a small percentage of the value of the underlying asset or property in this case.

If the buyer decides not to exercise the contract, they can sell it to another buyer at a potentially higher premium (and pocket the difference).

For a seller, there is the potential for them to make a profit if the buyer exercises their option to purchase the property. They may also profit if the buyer doesn’t exercise the option — at which point they can keep the premium amount, and then sell the contract (or the property) to someone else.

💡 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.

Lease Options

In addition to real estate options for purchases, there are also lease options. These are rent-to-own agreements between a buyer and seller. They let someone lease a property with the option to buy it after a certain amount of time, but not the obligation.

Generally with a lease option, some or all of the rental payment goes towards the purchase. Some lease options lock in a particular price, but others just give the buyer the exclusive right to buy at whatever the market price is.

Although lease options can be great for buyers, they are also more expensive than simply renting a property since they involve a premium. For this reason, it’s important for a buyer to carefully consider the contract and their future plans before entering into a lease option agreement.

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2 Advantages of Real Estate Options for Buyers

Options are a common investing strategy for commercial real estate investors. There are several reasons a buyer might enter into a real estate option contract with a seller.

It Can Allow Time for the Buyer to Amass Funds

One might choose a real estate option if they want to secure a piece of land or property at a certain price but they need some time to get funds in order for the purchase.

A Real Estate Option Locks in a Price

If a buyer thinks the price of a property might go up, they can purchase an option to lock in the current market price. However, some real estate options are not completely set in their sale prices. There may be clauses in the contract to determine what the final sale price will actually be.

2 Advantages of Real Estate Options for Investors

Real estate investors can also use options to their advantage.

It’s a Lower-Risk Way to Develop Property

For example, let’s say an investor finds a property they’re interested in developing into housing. The investor needs to create a plan for the property and get other investors involved before they can buy it, so they purchase a real estate option to give them the exclusive right to buy the land.

The investor can make a profit by bringing in investors at a higher rate than the option. They can then buy the land and sell it to the developers they brought in to make a profit.

If they aren’t able to get developers and investors involved before the contract expires then they simply don’t buy the land.

An Investor Can Buy and Sell Real Estate Options

Investors can also make a profit just on buying and selling real estate options contracts rather than the properties themselves. This is a much less capital-intensive way to get involved in real estate investing.

For instance, an investor might find a property they expect will increase in value in the coming months. They purchase a real estate option to buy the land at the current market rate within the next year, pay a premium, and wait.

At any point during the period of the agreement the investor can either act on the contract and buy the property, or they can sell the contract to someone else. Let’s say the value of the property increases three months into the contract. The investor can find another investor who wants to purchase the contract for them for a higher price than the premium the original investor paid.

Whether any investor buys the property or not, the seller of the property keeps the premium.

The Takeaway

Real estate options are a way for investors to get involved in real estate investing without directly buying properties. As with any other kind of options, the investor buys the right to buy or sell at a certain price, but is not obligated to do so.

Investors who are ready to try their hand at options trading despite the risks involved, might consider checking out SoFi’s options trading platform offered through SoFi Securities, LLC. The platform’s user-friendly design allows investors to buy put and call options through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.

Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors. Currently, investors can not sell options on SoFi Active Invest®.

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

Photo credit: iStock/Melpomenem

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.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.

SOIN0723075

What Is a Candlestick Chart?

What Are Candlestick Charts?

Understanding Candlestick Charts

Candlestick Charts vs Bar Charts

What Do Candlestick Charts Tell Investors?

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How to Read Candlestick Charts

Components of a Candlestick

Real Body

Upper Wick

Lower Wick

Range

Candlestick Chart Time Frames

Types of Candlesticks

Bearish and Bullish Candles

Doji Candles

Marubozu

Types of Candlestick Patterns

Bearish Engulfing Pattern

Bullish Engulfing Pattern

Bearish Evening Star

Morning Star

Bearish Harami

Bullish Harami

Harami Cross

Falling Three Methods

Hammer

Hanging Man

Shooting Star

Gaps

The Takeaway

Guide to Investing in a Bear Market: 8 Investing Strategies

How to Invest in a Bear Market: 8 Options

1. Invest Defensively

2. Consider Dollar-Cost Averaging

3. Use Short Strategies

4. Hold for the Long Haul

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5. Diversify Your Holdings

6. Focus on Dividend Stocks

7. Look Toward Growth

8. Consider Laying Low

What Causes a Bear Market and How Long Do They Last?

Bear Markets Run Short

Bear Market Investing vs Bull Market Investing

Invest With SoFi

Averaging Down Stocks: Meaning, Example, Pros & Cons

What Is Averaging Down?

Example of Averaging Down

Potential of Gain Averaging Down

Potential Risk of Averaging Down

Why Average Down on Stock

1. Value Investing

2. Dollar-Cost Averaging

3. Loss Mitigation

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Pros and Cons of Averaging Down

Pros of Averaging Down

Cons of Averaging Down

Tips for Averaging Down on Stock

The Takeaway

How Often Are Dividends Paid?

What Are Dividends?

How Often Are Dividends Paid Out?

Important Dividend Dates

When Are Dividends Paid?

Different Dividend Payout Methods

Cash Dividends

Company Stock Dividends

Property Dividends

Are Dividends Taxable?

Tax Rate for Qualified Dividends

Tax Rate for Nonqualified Dividends

Can You Live on Dividends?

Investing With SoFi

FAQ

How long do you have to hold a stock to get a dividend?

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