Investing Archives | Page 168 of 194

Jul

2023

Comparing SPAC Units With Different Warrant Compositions

SPAC Warrants vs Other Warrant Compositions

By Inyoung Hwang | Growing Wealth, invest, Investing | Comments Off

A SPAC warrant is a contract that gives a purchaser a right to purchase additional shares in the future at a set price. SPACs, or “special purpose acquisition companies,” have emerged as an alternate way for private companies to go public on the stock market. But before a company can evaluate whether or not it makes sense to go public via SPAC, the SPAC itself must “go public” and list on an exchange.

Generally, a group of individuals form a shell company and nominate a board of directors, with the hopes that investors have enough faith in their ability to source an attractive deal. They can then sell shares in this new “blank check” company. As an additional incentive for being an early investor when the SPAC debuts on an exchange, the shares, or “units,” may be comprised not only of common stock in the company, but also a warrant (whole or partial) to go along with each unit.

This benefit is only offered to early investors who buy the SPAC generally within its first 52 trading days. After the first 52 days¹, units will usually split into the common shares and the warrants, with the two trading separately under different tickers.

How to Evaluate SPACs

When evaluating whether or not to invest in a SPAC IPO, potential investors often look at the qualitative aspects previously mentioned: Who is the sponsor? Have they launched other SPACs before? Have those SPACs found targets and completed a successful company merger? Do the board members have the experience and track records that you would expect to evaluate investment opportunities?

However, it’s just as important for investors to understand the quantitative terms, or “structure,” of a SPAC deal. All SPACs are typically priced at $10 per unit, but the makeup of the units can be vastly different.

Warrants and their inclusion, or absence, in a SPAC unit can affect investor profits. A SPAC unit can have the following compositions:

• One share + one full warrant

• One share + no warrant

• One share + partial warrant

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SPAC Warrants 101

SPAC warrants are similar to stock warrants. Stock warrants are financial contracts that give holders the right to buy shares at a later date. Compared with stocks, warrants can be a relatively inexpensive way for investors to wager on an underlying asset, usually a stock, because they offer leverage — putting up a small investment for a potentially bigger payout.

Just like in options trading, warrants have an expiration date, so investors will need to pay attention if they want to exercise them. Another nuance worth noting is that when warrants get exercised, the action can be dilutive to shareholders, since a flood of new shares can enter the market.

But warrants have the potential to be incredibly lucrative for these early SPAC investors. This is because, as explained, essentially they’re buying for $10 one share plus the right to buy additional shares at a set level — what’s known as the strike or exercise price. Also importantly, even if an early investor decides to redeem their shares in the SPAC before a merger is completed, they get to keep the warrants that were a part of the SPAC units.

If the company doesn’t want to issue additional shares, they may not include warrants in their SPAC units. Market conditions may also dictate whether warrants are unnecessary.

Remember: Warrants are meant to entice investors to put in their money early. If demand for the SPAC is strong enough, the company may not feel the need to issue units with warrants.

Can You Trade SPAC Warrants?

Generally, an investor can only trade stock warrants if there is a whole number of warrants. If partial warrants are issued, that fraction could not be sold. In order to sell, the investor would need to purchase additional units in order to make up a whole warrant.

Here’s an example: Let’s say a SPAC unit consists of one share and a partial warrant that’s one-fourth of a warrant. This means that to own a whole warrant, the investor would need to purchase four units. If they were to do this, then they could trade the whole warrant, either on a stock exchange or in the over-the-counter market.

Converting SPACs Into Shares

Another thing likely on investors’ minds: How do SPAC units actually get converted into shares? Depending on the specifics of the SPAC, the process happens more or less automatically, and there’s no action needed on the part of the investor. That’s assuming that the SPAC does end up merging and going public.

Converting SPAC warrants into shares is a bit more involved, however. In the case an investor wants to convert SPAC warrants to shares, investors should get in touch with their broker to discuss their options.

SPAC Warrants: Merger vs No Merger

SPAC warrants can be traded after a merger — for years, in some cases. That’s somewhat theoretical, though, as there may be redemption clauses in contracts that require investors to redeem their warrants under certain conditions. It really all depends on the specific SPAC, and the guidelines outlined within the contracts governing them.

If there is no merger, however, SPACs typically liquidate. Investors get their money back, and warrants are more or less worthless.

Examples of SPAC Investments With Different Warrant Compositions

It’s important for investors to examine the deal structure of each SPAC closely, and they can do this by reading the initial public offering (IPO) prospectus. The information around the composition of the shares or units being offered is usually on one of the first few pages, but reading the entire prospectus is essential for investors to make the right investment decision for them.

In general, here are some other pertinent pieces of information relating to warrants that potential investors should be looking for when reading through the prospectus:

• The strike price

• Exercise window

• Expiration date

• Whether there are any specific conditions that can trigger an early redemption

Investors should also inspect the exact composition of a SPAC unit. Does it offer one whole warrant, no warrant, one-quarter, one-third, or one-half?

The strike price, or exercise price, of SPAC warrants is often $11.50 a share. Investors sometimes have until five years after the merger before the warrant expires. However, the terms of different SPAC deals can vary vastly. It’s possible that the deal terms call for an early redemption period, and if investors miss exercising their contracts in that period, the warrants could expire worthless.

SPAC Unit With Whole Warrant

Let’s say an investor buys 1,000 units of a SPAC. In this case, each SPAC unit is composed of one whole share, plus one whole warrant. That means the investor now owns 1,000 shares of the merged company stock, plus 1,000 warrants to buy shares at $11.50 each.

If the SPAC completes its merger and the shares jump to $20, our investor can buy additional shares for just $11.50 each. This would be a significant discount compared to where the existing shares are trading.

Here’s a hypothetical step-by-step example of how an investor could profit from exercising their whole warrants:

1. Investor buys 1,000 units at $10 each, spending a total of $10,000.

2. SPAC shares jump to $20 each.

3. Investor exercises warrants, purchasing 1,000 shares for $11.50 each and spending an additional total of $11,500.

4. Investor sells all 2,000 shares immediately for the market price of $20 each, for $40,000 total.

5. Our investor pockets the difference (so $40,000 minus $21,500 = $18,500).

SPAC Unit With No Warrant

Now, imagine that same investor bought into a SPAC where the units had no warrants. That means, while the investor’s 1,000 shares doubled in value, they didn’t have the right to buy an additional 1,000 shares. Here’s an example of this scenario:

1. Investor buys 1,000 units at $10 each, spending a total of $10,000.

2. SPAC shares jump to $20 each.

3. Investor sells the 1,000 shares immediately for the market price of $20 each, for $20,000 total.

4. Our investor pockets the difference (so $20,000 minus $10,000 = $10,000).

SPAC Unit With Partial Warrant

Let’s say our hypothetical SPAC has units with partial warrants. So in each unit, there’s one share attached to one-half warrant. Here’s how this would look:

1. Investor buys 1,000 units at $10 each, spending a total of $10,000.

2. SPAC shares jump to $20 each.

3. Investor exercises warrants. Every two warrants converts to one share, so the investor buys 500 shares for $11.50 each, spending an additional total of $5,750.

4. Investor sells all 1,500 shares immediately on the market for $20 each, for $30,000 total.

5. Our investor pockets the difference (so $30,000 minus $15,750 = $14,250).

Here’s a hypothetical table that lays out different profit scenarios depending on the warrant composition, assuming once again that an investor has bought 1,000 units, that the exercise price of the warrants is $11.50, and the underlying shares hit $20 each.

Warrants Attached to Each SPAC Unit	1 Whole Warrant	½ Warrant	⅓ Warrant	¼ Warrant	No Warrant
Units Purchased	1,000	1,000	1,000	1,000	1,000
Number of Shares That Can Be Bought With Warrants in SPAC Unit	1,000	500	333	250	0
Cost of Exercising Warrants at $11.50 Strike Price	$11,500	$5,750	$3,829.50	$2,875	$0
Proceeds From Selling Shares Acquired Through Warrant Exercise	$20,000	$10,000	$6,660	$5,000	$0
Net Proceeds from Selling Shares Exercised From Warrants	$8,500	$4,250	$2,830.50	$2,125	$0
Net Proceeds From Selling All Shares	$18,500	$14,250	$12,830.50	$12,125	$10,000

Finding SPAC Warrants

Investors may be surprised to learn that finding SPAC warrants is relatively easy. In fact, since SPAC warrants trade like shares of stocks or ETFs on exchanges, and are listed by many brokerages, investors can often look them up and execute a trade like they would many other securities.

One tricky thing to watch out for, though, is that SPAC warrants may trade under different ticker symbols on different brokerages or exchanges. So, you’ll want to make sure you’re looking for the SPAC warrant you want before executing a trade, to be certain you’re not purchasing the wrong thing.

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

Using SPAC Warrants

SPAC warrants’ main utility is that they can be traded or executed – meaning they can be converted into shares. So, for investors, using a SPAC warrant typically comes down to one of the two in an attempt to generate a return. There may be times when a SPAC doesn’t merge and investors get their money back, but the true utility of warrants is that they can be executed or traded.

The Takeaway

With SPAC investments, whether units come with full warrants, no warrants, or partial warrants is a quantitative consideration. All else being equal, SPACs that provide full or partial warrants offer more potential profit than SPACs that offer no warrants.

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

FAQ

How do you evaluate SPACs?

Investors can evaluate SPACs by looking at qualitative aspects, including who the sponsors are, their backgrounds, whether the SPAC has found a target, and what types of experiences the board members have.

What is an example of a SPAC with a whole warrant?

An example of a SPAC with a whole warrant could include an investor buying 1,000 units for $10,000, seeing shares increase in value to $20 each, then the investor exercising the warrants for $11.50 each, and then selling the shares and pocketing the difference.

What is an example of a SPAC with a partial warrant?

An example of a SPAC with a partial warrant could include an investor buying 1,000 units for a total of $10,000, seeing shares increase to $20 each, and exercising the warrants. Each two warrants convert to one share, so the investor then buys 500 shares for $11.50 each, selling them, and pocketing the difference.

Photo credit: iStock/FatCamera

¹Investors should read all documents related to an offering as the terms of each SPAC can differ vastly.
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Jul

2023

What Are Unicorn Companies?

By Inyoung Hwang | Investing, Terminology | No Comments

Unicorns are private companies with valuations of $1 billion or more. The term was coined by venture capitalist Aileen Lee in her 2013 piece “Welcome to the Unicorn Club: Learning From Billion-Dollar Startups.” She used the word “unicorn” in order to convey the rarity of startups that hit the $1 billion mark.

When Lee came up with the term, she counted 39 unicorns in the U.S. It was still considered exceptional for a private company to grow to that size without having an initial public offering or IPO. These days, a combination of trends — companies staying private longer, widespread technological changes, and abundant money in capital markets — has enabled the creation of numerous unicorns.

Top 10 Most Valuable Unicorns

As of July 2023, there are over 1,200 unicorns worldwide, with a cumulative business valuation of $ $3.84 trillion, according to research by CB Insights, a business analytics platform.

Unicorns can be exciting for investors because they can represent rapid — even seemingly magical — growth. But are unicorns actually good investments? It’s important for investors to remember that these companies haven’t yet come under the scrutiny of public markets.

Below is a chart of the unicorn companies with the highest valuations, according to CB Insights, as of May 2023.

Company	Valuation	Date Added	Country	Industry
Bytedance	$225 billion	4/7/2017	China	A.I.
SpaceX	$137 billion	12/1/2012	U.S.	Space
SHEIN	$66 billion	7/3/2018	China	eCommerce
Stripe	$50 billion	1/23/2014	U.S.	Fintech
Canva	$40 billion	1/8/2018	Australia	Internet software & svcs.
Revolut	$33 billion	4/26/2018	U.K.	Fintech
EpicGames	$31.5 billion	10/26/2018	U.S.	Other
Databricks	$31 billion	2/5/2019	U.S.	Data management
Fanatics	$31 billion	6/6/2012	U.S.	eCommerce

Source: CB Insights

💡 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.

Characteristics of Unicorn Companies

The rapid increase in the number of unicorns has meant that these companies come from a range of industries or sectors, and geographics. Answers to questions like ‘How old are these companies?’ and ‘Who are the founders?’ have also started to vary. Let’s look at some broad-stroke trends.

Unicorns by Industry

According to Embroker, an insurance brokerage, the bulk of unicorns come from seven sectors: e-commerce, fintech, internet software, AI, healthcare, travel technology, and education technology.

Unicorns by Geography

While the Bay Area’s Silicon Valley is still synonymous with startups, a greater number of unicorn businesses have sprung from elsewhere.

Cities Home to Most Unicorns, as of May 2023

City	Number of Unicorns
San Francisco	64
Beijing	51
New York	34
Shanghai	27
London	15
Hangzhou	13
Shenzhen	13
Boston	10

Source: Statista, CB Insights

Other Traits of Unicorns

Lately, U.S. unicorns have tended to be older when they enter the stock market. When Aileen Lee coined the term in 2013, the median age of a tech IPO company was nine years, data from University of Florida shows. Going back further in time, during the height of the dot-com bubble in 1999, the median age was four years. Fast forward to 2023, and the median age has jumped to 12.5 years.

When it comes to profitable businesses, though, the number has dwindled. According to Statista’s most current research, as of June 30, 2022: “The share of companies in the United States which were profitable after their IPO has been decreasing year-on-year over the past decade from a peak of 81% in 2009. In 2021, only 28 percent of companies were profitable after their IPO.”

When it comes to who’s founding these unicorns, there has been some increase in diversity. Back in 2012 or 2013, when Aileen Lee did her initial IPO research, no unicorns had female founding CEOs. However, by 2019, 21 startups founded or co-founded by a woman became unicorns.

Why Are There So Many Unicorns?

There are several reasons behind the proliferation of unicorn companies. Here are a couple.

1. Expansion of Private Markets: As mentioned above, companies are waiting longer before they go public. Part of the reason for that has been that private investments have exploded. Startups can continue to get investments from venture-capital firms (VCs) and private-equity funds in their later stages, and some prefer that option over the risky, complex process of having an IPO.

2. Sweeping Technological Change: Significant innovations — such as the rise of social media, smartphones and cloud computing — fueled growth in many unicorns. For example, the iPhone debuted in 2007, while the first Android hit the market in 2008. These events led to businesses that operate mobile apps or capitalize on smartphones to drive up sales.

3. Well-Funded Capital Markets: Since the 2008-2009 financial crisis, growth in the economy has been sluggish. That’s meant central banks worldwide have kept monetary policies easy, injecting capital into markets that have found their way into fledgling companies.

Meanwhile, tech investing has been one of the few bright spots for investors hungry for growth opportunities, driving up startup valuations.

How Do Unicorns Get Valued?

Many startups — even ones of unicorn size — are unprofitable. Investors put in money under the assumption that profits will eventually come, and that’s why businesses may rely on longer-term forecasting. Similar to how it works when it comes to growth vs. value stocks, valuation metrics like price-to-sales ratios may be used in order to measure the company’s worth.

Investors may also come up with valuations by comparing unlisted firms with similar businesses that are publicly traded. Hence, a rising stock market may also lead to higher valuations for privately held companies.

However, an academic study updated in January 2020 concluded that out of 135 venture-backed unicorns, 48% were overvalued on average, with 14 being 100% above fair value. That means around half of these supposed unicorns aren’t actually unicorns.

How to Invest in Unicorns

Accredited investors — those with $200,000 in annual income or $1 million in assets — can get exposure to unicorns by putting money into venture-capital funds: capital pools that invest in private companies. In recent years, because of the soaring success of some unicorns, they’ve attracted not just venture-capitalists, but also hedge funds, asset-management firms like mutual funds as well as sovereign wealth funds.

When it comes to exiting unicorn investments, a Crunchbase article pointed out that the majority of unicorns — two-thirds over a five-year period — conducted an IPO, giving their investors the opportunity to cash out. But in 2020, the majority of unicorn exits have been through acquisitions.

Can Average Investors Invest in Unicorns?

Unicorns don’t generally accept modest investments from individual or retail investors.

Jay Clayton, former chairman of the Securities and Exchange Commission, argued that smaller investors should get access to private-market investments. The fact that companies are staying private for longer has also made it true that individual investors are missing out more on businesses in their early stages.

But skeptics say private markets don’t have the same disclosure requirements that public markets require, a situation that could leave retail investors in the dark about a company’s financials and increase the risk of fraud. Mutual funds can put up to 15% of assets in illiquid assets, but often they don’t allocate that much to private companies since these investments are tougher to sell.

Deep-pocketed retail investors can get in early with some startups via angel investing — when individuals provide funding to very young businesses. But these businesses tend to have valuations nowhere near $1 billion.

💡 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.

Risks of Investing in Unicorns

Not all unicorns successfully transition into stock market stars. Some see their valuations dip in late private funding rounds. Some have even scrapped IPO plans at the last minute. Others disappoint after their debut in the public markets, finding that first-day pop in trading elusive or underperforming in the weeks after the IPO.

How do you know whether a unicorn is destined to be the next market darling or flame-out? There is no way to know for sure, but there are a number of risks when it comes to unicorn investing. Here are some:

• Lack of Profitability: Many unicorns offer deeply discounted services in order to supercharge growth. While venture capitals are used to subsidizing startups, public market investors may be tougher on unprofitable businesses.

• Market Competition: No matter how great an idea is and how much funding they bring in, there are always competitors. If another company has superior marketing, more users and higher sales, this may not bode well for a unicorn.

• Consumer/Business Need: Just because a founder has a cool idea and they can build it, doesn’t mean anybody will spend money on it.

• Management Team: Who are the company’s founders, and what is the culture they are creating at their startup? Many startups fail, and a founder’s management style and lack of experience can be cited as major reasons why.

• Regulatory Changes: Some unicorns represent new business models or disrupt existing industries. Such changes may come with regulatory oversight that makes operating difficult.

Alternative to Unicorns in Startup Terminology

The surge in private-market tech investing has led to a new vernacular that’s specific to startup valuations. Here’s a table that covers some popular lingo.

List of Unicorn Terminology

Startup Term	Definition
Pony	Company worth less than $100 million
Racehorse	Company that became unicorns very quickly
Unitortoise	Company that took a long time to become a unicorn
Narwhal	Canadian company with a valuation of at least $1 billion
Minotaur	Company that has raised $1 billion or more in funding
Undercorn	Company that reached a $1 billion valuation then fell below it
Decacorn	Company with a valuation of at least $10 billion
Hectocorn	Company with a valuation of at least $100 billion
Dragon	Company that returns an entire fund, meaning the single investment paid off as much as a diversified portfolio

The Takeaway

While they started out as rarities, unicorns have since multiplied. And now a herd founded over the past decade is headed for the stock market.

For investors, unicorn companies may appear to be a good way to diversify and get access to a high-growth business. But it’s important to remember that many unicorns are unprofitable businesses that secure $1 billion valuations by making very long-term projections. Plus, financial information isn’t as readily available as for a company that’s already listed.

It’s important to look closely at a new company’s management team, history, as well as financials before investing in it. Whether you’re a new or seasoned investor, researching which stocks to buy and when to buy them can be time-consuming and challenging.

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

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

Jul

2023

Money Managers Explained

By Austin Kilham | Growing Wealth, invest, Investing | Comments Off

Money managers can help individuals set financial goals, plot and implement investment strategies, and more. You may not think you need one, either, but an experienced, trustworthy, and savvy guide can be a tremendous help when trying to wrangle your finances. Amid the sea of financial professionals are money managers, who can take a hands-on approach with an investment portfolio.

Before hiring a money manager, however, it’s important to understand what they do, how they get paid, and how they may differ from other financial professionals.

What Is a Money Manager?

Money managers are also known as portfolio, asset, or investment managers. They are people or companies that provide individualized advice about building a portfolio. They buy and sell securities on behalf of their clients, provide updates, and make suggestions for changes as market conditions shift. Clients include individuals and institutional investors like universities and nonprofit organizations.

Money managers have a fiduciary duty to their clients: They are obligated by law to put their clients’ best interests first. This may seem like a no-brainer, but it is not necessarily true of all financial professionals.

Investment advice must advance a client’s goals, not because it is more profitable for the advisor. For example, a money manager could not suggest a particular investment to a client just because the manager would receive higher compensation.

Fiduciary rules mean that advice must be as accurate as possible based on the information that is available. A fiduciary (from the Latin “fidere,” meaning “to trust”) is to take into account cost and efficiency when making investments on behalf of clients, and alert clients to any potential conflicts of interest.

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

What Makes Money Managers Different?

As you search for someone who can help you invest, you may encounter any number of titles, from asset manager to financial advisor, wealth manager to registered investment advisor. To make matters more confusing, “financial planner” covers a broad range of possible professions. They could be investment advisors, brokers, insurance agents, or accountants.

A potential client can check the registration status and background of a professional or firm on Investor.gov, the SEC’s Investment Adviser Public Disclosure website, FINRA’s BrokerCheck, and/or individual state securities regulators.

Here’s a look at some of the most common financial professionals you may encounter and what may make money managers different.

Registered Investment Advisors

Registered investment advisors, as the name suggests, provide investment advice to clients. They must register with the Securities and Exchange Commission or a state authority, and they have a fiduciary duty to hold a client’s interests above their own. They can manage client portfolios, making trades and offering advice on investment strategies.

Registering as an investment advisor means disclosing investment styles and strategies, total assets under management, and fee structure. RIAs must also disclose past disciplinary action and conflicts of interest.

Broker-dealer

A broker-dealer is an individual or company licensed to buy and sell securities. Brokers act as middlemen, buying and selling stocks and other securities for other people. When they are buying for their own accounts they are functioning as dealers.

Stockbrokers usually work at brokerage firms and earn their money by charging a fee for transactions they make.

Brokers register with the Financial Industry Regulatory Authority, an industry group. FINRA has enforced a “suitability” rule for them, meaning they needed to have reasonable grounds to believe that a recommended transaction or investment strategy involving a security or securities was suitable for the customer.

Now the SEC is enforcing a new rule, Regulation Best Interest, that establishes a “best interest” standard for broker-dealers. It requires them to stop referring to themselves as advisors if they aren’t working under a fiduciary standard.

Certified Financial Planners

Financial professionals who carry the CFP® credential have gone through the rigorous training and experience requirements required by the CFP® board. They must also pass a six-hour exam.

They have a fiduciary duty to their clients but can offer services that don’t require regulation. They can help with general financial planning, such as putting together a retirement plan or a debt reduction plan. They may make recommendations about asset allocation, investment accounts, and tax planning.

Money Managers

Money managers may offer a combination of the services mentioned above. They chiefly manage people’s investment portfolios, but they may also offer other forms of financial planning. They likely give investment advice, which means they must be registered as an RIA.

	Fiduciary?	Offer advice?	Area of focus
Money Managers	Yes	Yes	Portfolio management
Certified Financial Planners	Yes	Yes	Financial planning (retirement, etc.)
Broker-dealers	Sometimes	Sometimes	Facilitating transactions
Registered Investment Advisors	Yes	Yes	Investment advice

Pros and Cons of Hiring a Money Manager

HIring a money manager, like any other financial professional, can have its pros and cons.

Pros of Having a Money Manager

The advantages of having a money manager are rather obvious: You get expertise and experience in helping you make financial decisions. This can save you a ton of resources–such as time–when trying to decide your next moves. It could, potentially, save you money, too, in saving missteps that need to be rectified (rebalancing your portfolio, for instance). In short, though, the pros of hiring a professional are that you have a professional guiding hand helping you out.

At the end of the day, a money manager is theoretically better at managing money than the average person.

💡 Looking for a DIY approach? Check out our Money Management Guide for Beginners.

Cons of Having a Money Manager

Likely the biggest drawback, in most people’s minds, to hiring a money manager is that you need to pay for their service. Some people may also like to make their own decisions as it relates to their money, and have trouble handing over the reins, so to speak. There’s also the chance that a money manager has a conflict of interest or is not acting in your best interests — something to be aware of when looking to make the right hire.

How Do Money Managers Get Paid?

Money managers typically charge a management fee equal to a percentage of a client’s portfolio each year. On average, advisors charge between 1% and 2% of clients’ assets under management. But there are a lot of variables to consider.

A manager’s fees may be assessed quarterly, which could mean the amount you pay at the end of the year may be a bit more or less than if you were to pay annually.

An asset manager’s fees may also decrease depending on the size of an account. For example, fees on very large accounts may be smaller so that single clients don’t end up paying exorbitant amounts.

Asset managers and other financial advisors may also charge an hourly rate, especially if they are doing any consulting or working on a special project. They may also charge fixed fees for certain services. Some advisors and managers may earn a commission when purchases or trades are made. And there may be performance-based fees if a portfolio performs beyond an established benchmark.

Fee-only advisors earn their money only from the fees they charge clients. They do not earn commissions. This fact makes them distinct from fee-based advisors, who may earn money from fees and commissions.

💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

Should You Hire a Money Manager?

Managing your money can take a lot of time and effort, especially if you have multiple investment accounts or you’re juggling a lot of assets.

Money managers typically have many advantages when it comes to choosing investments. Not only are they trained to make investment decisions but they typically have access to a lot of information — including analytical data, research reports, financial statements, and sophisticated modeling software—that the average person doesn’t have. So they may be better equipped to make informed decisions.

For investors who have struggled to understand how to best put their money to work in order to meet financial goals, a money manager may be able to help. A large portfolio isn’t necessary. Even those who are just starting out may be able to benefit from working with one.

Even if you’re just starting to invest, it may be worth it to look into hiring one.

3 Tips on Choosing a Money Manager

You can review some money management tips, but additionally, here are a few things to keep in mind when choosing a money manager.

1. Know What You’re Looking For

Before hiring a money manager, figure out what type of financial help you need. If you’re just starting out, you may want to hire someone who can help you put together a long-term financial plan, for example.

2. Check Credentials

An online check with one or more of the aforementioned official websites will show how long an advisor has been registered, where they have worked, and what licenses they hold.

3. Interview

After narrowing the search, it’s a good idea to speak to a few candidates to get an idea of how they communicate, how they typically work with clients, and how they are compensated. If an advisor is cagey about answering the latter question, that’s a red flag.

The Takeaway

With so many titles and options, from financial planner to broker and money manager, it might be hard to choose a guide to handle your finances. A money manager is a strategist who specializes in managing investment portfolios and has a fiduciary duty to clients.

There are a slew of different types of advisors, planners, and managers in the financial world, so it’s important to know the differences. It’s also important to keep in mind that hiring a money manager can have pros and cons. Bringing in professional help may not be the best route for everyone.

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

FAQ

What is the difference between a money manager and a financial advisor?

A money manager is a sort of subset of financial advisors, often with more specialized services offered to clients. The differences likely lie in the specific services and expertise offered.

Is it worth it to use a money manager?

If you value expertise and a guiding hand in the market, hiring a money manager may be worth it to you. Be aware, though, that there are costs to hiring a money manager, and the costs may not always outweigh the benefits for everyone.

Is it better to have a financial advisor or a financial planner?

Depending on your individual circumstances, goals, and needs, whether a financial advisor or planner is better will vary. Each may offer different services, so know what you’re looking for before hiring either.

SoFi Invest®

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

Jul

2023

Where Should I Invest My Money?

By Amanda Holden | Growing Wealth, invest, Investing | Comments Off

At any given time, there are numerous places and ways to invest your money, ranging from the stock market to real estate. But how and where you invest your money also brings up numerous potential risks and potential outcomes — for that reason, it can be difficult to decide what to do.

And while investors are right to wonder what investments make sense given the current economic and political climates, they may be surprised to hear that other, longer-term factors are just as important. As such, you may find it useful to learn the behavior of the available investment types, and then compare those patterns to whatever it is that you’re trying to accomplish, and along what timeline.

Learning About Investment Options

If you’re wondering “where should I invest my money right now?” there are several different potential answers and investment opportunities out there. But before you do anything, you’ll need to make some key decisions.

The first is to make a decision by investment type, which involves deciding to invest in certain asset classes or asset types. Your portfolio mix will be your asset allocation, which is covered below.

Stocks, bonds, cash, and money market funds, and real estate are just a few of the asset classes available to investors. Generally, the first order of business is to determine which is most appropriate for the financial goals an investor has. In order to determine this, it’s important to understand how each investment type earns a return.

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

Where to Invest Money

As noted, there are many different assets that investors can utilize or add to their portfolio. Here’s a rundown.

Stocks

A stock represents a share of ownership in a company. When an investor buys a share in a company, they own a small proportion of that company. Shareholders may even receive voting rights. This is why stocks are sometimes referred to as equities; investors now own equity in that company.

A stock can earn money in two ways. The first way is through the value of shares appreciating over time; this is called capital appreciation. The second is through periodic cash payments made to shareholders, called dividends.

Stock prices can be influenced by both internal and external factors, such as a new product launch or broader national or global events like a political event or natural disaster. Because the nature of business is highly unpredictable, stock prices can be volatile.

Bonds

A bond, on the other hand, is an investment in the debt of a company or government. The bondholder earns a rate of return by collecting a rate of interest on that debt for a predetermined amount of time, such as 10 or 20 years. Because the terms are stated upon purchase, bond values generally tend to be less volatile than stocks, but have more modest returns. That said, bonds are not completely without risk, and it is possible for bonds to lose value.

When interest rates are low, overall, bonds will likely pay out a lower rate of interest. Interest rates can change, and quickly, sometimes, which is something investors may want to take into account.

Typically, stocks are considered to have a higher potential for returns over time, but that comes with the price of volatility — the possibility of an investment losing value, especially in the short-term. Bonds are often considered a safer, more stable investment that may be more appropriate for investors who aren’t as comfortable with the volatility of the stock market.

A big part of deciding where to invest has to do with determining your relative comfort level with each of the different asset classes.

Mutual Funds

Investing directly in stocks isn’t the only option available to investors. Mutual funds present another way to invest in the stock market. Think of funds as baskets that hold an assortment of some other investment type, such as those mentioned above — stocks, bonds, and real estate holdings. Funds provide investors an easy way to access diversified exposure to many investments at once, but they are not an asset class in and of themselves.

Investment funds can be an affordable and quick way to get (and stay) invested, which makes them popular with both new and seasoned investors. But even if you decide to use funds as the device for which you invest in different markets, the first order of business is to understand the fund’s underlying asset class.

For example, someone who purchases a mutual fund that holds 500 stocks, is invested in those 500 stocks — and very much invested in the stock market. If you buy a mutual fund comprising 1,000 bond holdings, then you are invested in those bonds. If you buy a fund with real estate holdings, well, you get the idea.

Options

Options are a form of derivative, and are “higher-level” investments than, say, stocks or bonds. Options can be difficult to understand, but fairly easy to trade — you’d likely want to discuss options trading or investing with a financial professional before you get into it.

That said, investors can invest their money in various forms of options, but they’ll need to keep an eye on their portfolios. Options trading is an active form of investing, as there are strike prices and dates that they’ll need to be aware of.

Exchange-Traded Funds (ETFs)

Exchange-traded funds, or ETFs, are very similar to mutual funds in that they’re effectively a basket of different investments, all compiled into one security. There are tons of different types of ETFs, encompassing all sorts of different market indexes, sectors, and asset classes. Odds are, if you’re looking for a specific type of ETF, there’s likely one out there that fits the bill — or that comes close to it.

Retirement Plans

A retirement plan or account is another place that investors can put their money to work. There are various types of retirement plans — the list includes individual retirement accounts (IRAs), 401(k) plans, and the Roth variations of each. Not all investors may have access to each type, so, see what’s available to you, and which type of plan best fits your investing strategy.

Index Funds

As discussed, index funds offer yet another investment vehicle. These are investment funds that track an index, which is usually a specific part of the broader market. For example, there are index funds that track the S&P 500, or there are index funds that track the tech sector.

Investing in an index fund allows investors to gain exposure to their preferred market segment, and there are numerous options out there, too.

Real Estate

Real estate investing can include physical property — houses, commercial buildings, etc. — or, it comprises purchasing certain real estate-oriented investment vehicles. While many investors may not have the capital laying around to buy a house for investing purposes, they can buy real estate stocks, or even look at REITs, or real estate investment trusts, to get real estate exposure into their portfolios.

Certificates of Deposit (CDs)

Certificates of deposit, often called CDs, should also be on investors’ radar. CDs are somewhat like savings accounts, in which investors “lock up” their funds for a predetermined period of time in exchange for interest rate payments. Functionally, they’re similar to bonds, but there can be fees if you need to pull your money out of a CD before it matures.

Options for Cash

In some instances, it may make the most sense to keep the money for a particular goal in cash. It is helpful to understand what options are available for cash savings.

Savings accounts at a traditional bank or credit union: This is likely the most familiar option. Traditional and commercial banks remain popular for their large geographical footprint. Note that many traditional banks tend to pay a relatively low rate of interest on any cash holdings.

Online-only checking and savings accounts: A newer option for bankers, online-only banks and banking platforms may offer a slightly higher yield than a savings account at a commercial bank. Additionally, many do not require minimums or charge monthly maintenance or account fees.

Money market funds: Often found in brokerage accounts, a money market fund is a fund that holds cash and or other “very liquid investments,” like short-term government securities.

Certificate of deposit (CD): As discussed previously, certificate of deposit is a savings account that holds money for a fixed amount of time, like one year or three years. A fixed rate of return is paid out during that period. Generally, there is a penalty to cash out a CD prior to expiration.

When considering cash as an asset class, consider the risk and reward tradeoff, just as one would for any other investment type. Although cash might not be risky when considered in terms of volatility, it does not come without risk. Cash carries the risk of losing value over the long-term due to the effects of inflation, or prices rising over time.

Beginner-Friendly Places to Invest

If you’re a beginner investor looking for places to put your money, it may be beneficial to revisit some basic investing rules or guidelines. For instance, you’ll likely want to build an emergency savings fund before focusing on your stock portfolio.

But assuming you’re ready to put your money in the market or otherwise start building your investment portfolio, many beginners begin with some basic investment funds. ETFs are a popular choice, as are mutual funds — but note that there are some differences to be aware of.

If you’re not sure where to turn or what to do, consider speaking with a financial professional for advice.

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Which Investments Provide the Highest Returns?

You’ve probably heard a certain phrase before: The higher the risk, the higher the reward. That largely holds true in the financial space, although not in every instance. It’s all to say that riskier investments tend to provide higher returns.

Assets like stocks are probably, by and large, going to provide higher or better returns than, say, bonds. Trading options can likewise be more profitable than buying and holding stocks, too. But there are significant risks involved in any strategy, and those risks can be magnified by the specific investments involved.

Again, if you’re looking for the highest possible return, it may be best to consult with a financial professional for guidance, or to give some thought to how each type of investment fits with your overall strategy.

Creating a Goals-Based Strategy

Contrary to how many new investors are encouraged to think about investing, it may not make sense to try and pick “hot” stocks right out of the gates.

Instead, take a step back and consider the bigger picture view, and ask whether stocks are even appropriate given your goals and investing timeline. This decision on which combination of asset classes to be invested in, and in what proportions, is called asset allocation.

To determine your asset allocation, start by thinking of each “bucket” or “pot” of money independently. For example, maybe someone has $1,000 set aside for retirement and another $1,000 that they’d like to use as a down payment for a home. Think about this intuitively; these are very different goals with different timelines and therefore, may require different investing strategies.

Next, consider the financial goals, risk tolerance, and investment time horizon for each bucket. This can sound pretty boring especially if you’ve been conditioned to believe that you should invest in whatever is currently the talk of the town.

Risk vs Reward

The asset allocation decision really boils down to an examination of an investment’s risk and reward characteristics in order to determine whether it’ll work on a personal level. Here’s what’s so important to understand: with investing, risk and reward are two sides of the same coin. Investors cannot have one without the other. For more reward potential, an investor will have to take more risk. There is no such thing as an investment that produces returns with no risk.

Let’s consider, again, the two hypothetical investment goals from above: $1,000 for a down payment and $1,000 for retirement. How do goals lead one down the path of where to invest?

First, the $1,000 for a down payment: If the money is designated for use in the next few years, the risk of losing any money in a volatile investment may outweigh the potential to earn investment returns. Therefore, it might be best to keep this money in a lower-risk investment or cash equivalent.

Next, the $1,000 for retirement. Many retirement investors have the goal of reasonable growth over the long-term. Because of this long time horizon, there should be enough time to grow beyond spates of short-term volatility. Therefore, it may be suitable to create a portfolio that is primarily invested in the stock market or a combination of stocks and bonds.

Retirement investors close to retiring may opt to consider some exposure to bonds for both diversification purposes and to lower the overall volatility of the portfolio. Ultimately, a person’s comfort level with the stock market will determine their specific stock and bond allocations. And it’s worth noting that an investing strategy isn’t stagnant. As a person ages, their goals and investing strategy will likely need to evolve, too.

Opening the Right Account

Here’s another way to answer the question, “where should I invest my money?” By doing so, in an appropriate account type, at a brokerage bank or on an investing platform.

Just as it makes sense to keep cash in a bank account, the same must be done with investments. But with investments, opening the right account can be a bit trickier.

It is not uncommon to hear someone refer to a 401(k) or a Roth IRA as if one of those is, in itself, an investment. But retirement accounts are not investments — they are accounts. Granted, they can hold investments, but they are still accounts.

Money is contributed to any investment account in cash, and then those proceeds are used to purchase investments, like stocks, mutual funds, and ETFs. (In a plan sponsored by a workplace plan, like a 401(k), the investing might happen automatically, hence the confusion about it being an investment itself.)

It is also possible to invest in an account that is not designated for retirement. At a brokerage firm, these are often simply referred to as brokerage accounts. If you use a trading platform, it may be referred to as an individual or a wealth account.

Retirement accounts offer some sort of tax benefit, like tax-free growth on your investments, which make them suitable vehicles for long-term goals. But because they offer a tax benefit, there are more rigid rules for use. For example, some retirement accounts, like 401(k) and Traditional IRAs, levy a 10% penalty on money withdrawn before retirement age (there are some exceptions to this withdrawal fee). Also, there are limits to how much money can be contributed annually to retirement accounts.

💡 Learn more: How to Open an IRA: Beginners Guide

Weighing Your Options

It all comes down to the individual. You’ll need to look at your risk tolerance, time horizon, and personal preferences to determine the most suitable investing path or accounts.

For short-term goals that require more flexibility, a non-retirement account may be a better choice. Because there are no special taxation benefits, there are generally no rules about when money can be withdrawn or how much can be contributed. Because of this, non-retirement accounts can also be a good place to invest for folks who have met their maximum contribution amount for the year in their retirement accounts.

Investing With SoFi

At any given time, there are a plethora of places or vehicles in which you can invest your money. You can invest in stocks, bonds, funds, real estate — the list is long. But each has its own considerations and risks that must be taken into account. Overall, an individual’s investing strategy is the most important thing to keep in mind.

As for where to open an account, new investors may want to focus on an institution or platform where they are able to keep costs low. There’s not a whole lot that investors can control, like investment performance, but how much they pay in fees is one of them. There are lots of options for investors.

SoFi Invest offers educational content as well as access to financial planners. The Active Investing platform lets investors choose from an array of stocks, ETFs or fractional shares, but restrictions apply.

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

FAQ

Which investment gives the highest returns?

Higher-risk investments tend to give the highest returns, but can also give the highest losses. These can include certain stocks or investment funds, particularly those focused on market segments that are risky or volatile.

Where can you invest your money as a beginner?

Beginners can use any number of investment vehicles to invest their money. Some choices include investment funds like ETFs or mutual funds, or even retirement accounts or plans.

Where can you invest money to get good returns?

There are numerous investment vehicles that can provide good returns, but those returns can be thwarted by down markets. Stocks and more volatile investments tend to provide higher returns, but also tend to have higher risks than other investment types.

SoFi Invest®

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

Jul

2023

What Is the Spot Market & How Does It Work?

By Brian Nibley | Growing Wealth, invest, Investing, Terminology | Comments Off

The spot market of a commodity is a market where buyers meet sellers and make an immediate exchange. In other words, delivery takes place at the same time payment is made. This is the simplest spot market definition available.

Commodity markets are somewhat different from the markets for stocks, bonds, mutual funds, and ETFs, all of which trade exclusively through brokerages. Because they represent a physical good, commodities have an additional market — the spot market. This market represents a place where the actual commodity gets bought and sold right away.

Spot Markets Definition

If you’re trying to define the spot markets, it may be helpful to think of it as a public financial market, and one on which commodities are bought and sold. They’re also bought and sold for immediate, or quick, delivery. That is, the asset being traded changes hands on the spot.

Prices quoted on spot markets are called the spot price, naturally.

One example of a spot market is a coin shop where an individual investor goes to buy a gold or silver coin. The prices would be determined by supply and demand. The goods would be delivered upon receipt of payment.

Understanding Spot Markets

Spot markets aren’t all that difficult to understand from a theoretical standpoint. There can be a spot market for just about anything, though they’re often discussed in relation to commodities (perhaps coffee, corn, or construction materials), and specific things like precious metals.

But again, an important part of spot market transactions is that trades take place on the spot — immediately.

Which Types of Assets Can Be Found on Spot Markets

As noted, all sorts of assets can be found on spot markets. That ranges from food items or other consumables, construction materials, precious metals, and more. If you were, for instance, interested in investing in agriculture from the sense you wanted to trade contracts for oranges or bananas, you could likely do so on the spot market.

Some financial instruments may also be traded on spot markets, such as Treasurys or bonds.

How Spot Market Trades Are Made

In a broad sense, spot market trades occur like trades in any other market. Buyers and sellers come together, a price is determined by supply and demand, and trades are executed — usually digitally, like most things these days. In fact, a spot market may and often does operate like the stock market.

You may be surprised to learn that stock markets are, in fact, spot markets, with financial securities trading hands instantly (in most cases).

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

What Does the Spot Price Mean?

As mentioned, the spot price simply refers to the price at which a commodity can be bought or sold in real time, or “on the spot.” This is the price an individual investor will pay for something if they want it right now without having to wait until some future date.

Because of this dynamic, spot markets are thought to reflect genuine supply and demand to a high degree.

The interplay of real supply and demand leads to constantly fluctuating spot prices. When supply tightens or demand rises, prices tend to go up, and when supply increases or demand falls, prices tend to go down.

The Significance of a Spot Market

The spot market of any asset holds special significance in terms of price discovery. It’s thought to be a more honest assessment of economic reality.

The reason is that spot markets tend to be more reliant on real buyers and sellers, and therefore should more accurately reflect current supply and demand than futures markets (which are based on speculation and can be manipulated, as recent legal cases have shown. More on this later.)

Types of Spot Markets

There’s only one type of spot market — the type where delivery of an asset takes place right away. There are two ways this can happen, however. The delivery can take place through a centralized exchange, or the trade can happen over the counter.

Over-the-counter

OTC trades are negotiated between two parties, like the example of buying coins at a coin shop.

Market Exchanges

There are different spot markets for different commodities, and some of them work slightly differently than others.

The spot market for oil, for example, also has buyers and sellers, but a barrel of oil can’t be bought at a local shop. The same goes for some industrial metals like steel and aluminum, which are bought and sold in much higher quantities than silver and gold.

Agricultural commodities like soy, wheat, and corn also have spot markets as well as futures markets.

Spot Market vs Futures Market

One instance that makes clear the difference between a spot market and a futures market is the price of precious metals.

Gold, silver, platinum, and palladium all have their own spot markets and futures markets. When investors check the price of gold on a mainstream financial news network, they are likely going to see the COMEX futures price.

COMEX is short for the Commodity Exchange Inc., a division of the New York Mercantile Exchange. As the largest metals futures market in the world, COMEX handles most related futures contracts.

These contracts are speculatory in nature — traders are making bets on what the price of a commodity will be at some point. Contracts can be bought and sold for specific prices on specific dates.

Most of the contracts are never delivered upon, meaning they don’t involve delivery of the actual underlying commodity, such as gold or silver. Instead, what gets exchanged is a contract or agreement allowing for the potential delivery of a certain amount of metal for a certain price on a certain date.

For the most part, futures trading only has two purposes: hedging bets and speculating for profits. Sophisticated traders sometimes use futures to hedge their bets, meaning they purchase futures that will wind up minimizing their losses in another bet if it doesn’t go their way. And investors of all experience levels can use futures to try to profit from future price action of an asset. Predicting the exact price of something in the future can be difficult and carries high risk.

The spot market works in a different manner entirely. There are no contracts to buy or sell and no future prices to consider. The market is simply determined by what one party is willing to purchase something for.

Spot Market vs Futures Market
Spot Market	Futures Market
No contracts to buy or sell	Contracts are bought and sold outlining future prices
Trades occur instantly	Trades may never actually occur at all
Non-speculative	Speculative by nature

Another important concept to understand is contango and backwardation, which are ways to characterize the state of futures markets based on the relationship between spot and future prices. Some background knowledge on those concepts can help guide your investing strategy.

Note, too, that some investors may be confused by the concepts of margin trading and futures contracts. Margin and futures are two different concepts, and don’t necessarily overlap.

💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.

Example of a Spot Market

Consider the spot and futures markets for precious metals.

Precious-metal prices that investors see on financial news networks will most often be the current futures price as determined by COMEX. This market price is easy to quote. It’s the sum of all futures trading happening on one central exchange or just a few central exchanges.

The spot market is more difficult to pin down. In this case, the spot market could be generally referred to as the average price that a person would be willing to pay for a single ounce of gold or silver, not including any premiums charged by sellers.

Sometimes there is a difference between prices in the futures market and spot market. The difference is referred to as the “spread.” Under ordinary circumstances, the difference will be modest. During times of uncertainty, though, the spread can become extreme.

Futures Market Manipulation

To fully answer the question “What does the spot price mean?” it’s important to include one final note on futures markets. This will illustrate a key difference between the two markets.

Recent high-profile cases brought by government enforcement agencies like the Securities and Exchange Commision and Commodities and Futures Trading Commission highlight the susceptibility of futures markets to manipulation.

Some large financial institutions have been convicted of engaging in practices that artificially influence the price of futures contracts. Again, we can turn to the precious-metals markets for an example.

During the third quarter of 2020, JP Morgan was fined $920 million for “spoofing” trades in the gold and silver futures markets and lying about it to COMEX.

Spoofing involves creating large numbers of buy or sell orders with no intention of fulfilling the orders.

Because order book information is publicly available, traders can see these orders, and may act on the perception that big buying or selling pressure is coming down the pike. If many sell orders are on the books, traders may sell, hoping to get ahead of the trade before prices fall. If many buy orders are on the books, traders may buy, thinking the price is going to rise soon.

Cases like this show that futures markets can be heavily influenced by market participants with the means to do so.

Spot markets, on the other hand, are much more organic and more difficult to manipulate.

3 Tips for Spot Market Investing

For those interested in trying their hand in the spot market, here are a few things to keep in mind.

1. Know What’s Going On

Often, prices in the spot market can change or be volatile in relation to the news or other current events. For that reason, it’s important that investors know what’s happening in the world, and use that to assess what’s happening with prices for a given asset or commodity.

2. Keep Your Emotions in Check

Emotional investing or trading is a good way to get yourself into financial trouble, be it in the spot market, or any other type of trading or investing. You’d likely do well to keep your emotions in check when trading or investing on the spot market, as a result.

3. Understand the Market

It’s also a good idea to do some homework and make a solid attempt at trying to understand the market you’re trading in. There may be jargon to learn, terms to understand, price discovery mechanisms that could otherwise be foreign to even a seasoned investor — do your best to do your due diligence.

Spot-on Investing

Spot markets are where commodities are traded, instantly. There are numerous types of spot markets, and there are numerous types of commodities that might be traded on them. Investors would be wise to know the basics of how they work, and come armed with a bit of background knowledge about the given commodity they’re trading, in order to reach their goals.

Spot market trading can be a part of an overall trading strategy, but again, investors should know the ropes a bit before getting in over their heads. It may be a good idea to speak with a financial professional before investing.

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

FAQ

What is spot market vs a futures market

Trades on a spot market occur instantly, on the spot. Trades in the futures market involve contracts for commodities with prices outlined for some time in the future — if they occur at all.

What does spot market mean?

The term spot market refers to a financial market where commodities are bought and sold by traders. The trades occur on the spot, or instantly, for immediate delivery.

What is the difference between spot market and forward market?

Forward markets involve trading of futures contracts, or transactions that take place at some point in the future, whereas spot market trades occur instantly, often for cash.

SoFi Invest®

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

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The Takeaway

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The Takeaway

Money Managers Explained

What Is a Money Manager?

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

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

What Makes Money Managers Different?

Registered Investment Advisors

Broker-dealer

Certified Financial Planners

Money Managers

Pros and Cons of Hiring a Money Manager

Pros of Having a Money Manager

Cons of Having a Money Manager

How Do Money Managers Get Paid?

Should You Hire a Money Manager?

3 Tips on Choosing a Money Manager

1. Know What You’re Looking For

2. Check Credentials

3. Interview

The Takeaway

FAQ

What is the difference between a money manager and a financial advisor?

Is it worth it to use a money manager?

Is it better to have a financial advisor or a financial planner?

Where Should I Invest My Money?

Learning About Investment Options

Where to Invest Money

Stocks

Bonds

Mutual Funds

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

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

Options

Exchange-Traded Funds (ETFs)

Retirement Plans

Index Funds

Real Estate

Certificates of Deposit (CDs)

Options for Cash

Beginner-Friendly Places to Invest

Which Investments Provide the Highest Returns?

Creating a Goals-Based Strategy

Risk vs Reward

Opening the Right Account

Weighing Your Options

Investing With SoFi

FAQ

Which investment gives the highest returns?

Where can you invest your money as a beginner?

Where can you invest money to get good returns?

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