Investing Archives | Page 168 of 193

Dec

2022

Organization of the Petroleum Exporting Countries (OPEC)

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

OPEC is the Organization of the Petroleum Exporting Countries, an intergovernmental organization of 13 nations focused on coordinating and unifying the oil production policies of its member countries. The organization was founded in 1960 and is headquartered in Vienna, Austria.

OPEC’s primary goal is to regulate the supply of oil to stabilize the market and ensure that member countries receive an ideal price for their oil. To achieve this, the organization holds regular meetings where member countries discuss current market conditions and decide on production levels for each country. By controlling the oil supply, OPEC can influence the price of oil on the global market, which affects the global economy and, thus, investors.

What Is OPEC?

The Organization of the Petroleum Exporting Countries (OPEC) is a cartel of oil-producing countries founded in 1960 in Baghdad, Iraq. The founding members of OPEC were Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Since then, the group has expanded to include 13 current member countries, including Nigeria, United Arab Emirates, and Libya.

As noted above, the main function of OPEC is to regulate the oil supply that its member countries produce to manage the price of the global oil market. The organization achieves this by setting production levels, conducting research, and promoting cooperation among member countries.

Despite its power, OPEC has faced criticism in recent years for its production policies. Some critics claim that OPEC’s decisions to limit oil production have led to higher oil prices that benefit member countries while harming the global economy and consumers. Others argue that the cartel’s power has diminished in recent years due to increased competition from non-OPEC countries such as the United States and Canada.

Which Countries Are Members of OPEC?

OPEC currently has 13 member countries. At its height, OPEC had 16 member countries, but Qatar, Ecuador, and Indonesia withdrew membership in recent years.

The current member countries of OPEC are:

• Algeria

• Angola

• Condo

• Equatorial Guinea

• Gabon

• Iran

• Iraq

• Kuwait

• Libya

• Nigeria

• Saudi Arabia

• United Arab Emirates

• Venezuela

These countries are major producers and exporters of oil, and they play a significant role in the global oil market. Together, they account for about 80% of the world’s crude oil reserves and produce about 40% of the world’s oil. This makes OPEC a major player in the global energy market and allows it to wield significant power in setting the price of oil.

However, several large oil-producing countries that are not a part of OPEC, including:

• The United States is the world’s largest oil producer and consumer.

• Canada is the world’s fourth-largest oil producer.

• China is the world’s fifth-largest oil producer and the second-largest oil-consuming country.

• Brazil is the eighth-largest oil-producing country.

The decisions of oil producers in these countries may counteract OPEC policies.

OPEC vs OPEC Plus

OPEC Plus (commonly written as OPEC+) is an extension of OPEC that includes a number of non-OPEC countries that have significant oil industries. These countries have joined forces with OPEC in an effort to collectively manage the global oil market and stabilize oil prices. OPEC+ was formed in 2016 and currently includes Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Russia, Mexico, Malaysia, Oman, South Sudan, and Sudan.

The main difference between OPEC and OPEC+ is that the latter is a broader group that includes both OPEC and non-OPEC countries, and was formed more recently in response to changing market conditions. Both groups have the same goal of regulating the supply of oil to stabilize the global oil market.

💡 Latest OPEC news: How OPEC+ Cutting Oil Production Impacts Your Finances

What Is the Purpose of OPEC?

The main purpose of OPEC is to coordinate and unify the oil, gas, and energy policies of its member countries. This is done to stabilize the international oil market and secure fair and stable prices for energy producers in the member countries. By working together, OPEC member countries can ensure that they are able to influence the supply of oil in the global market, which in turn can help to maintain stable prices.

Pros and Cons of OPEC

The pros of OPEC include:

• Stabilizing the market: By regulating the supply of oil, OPEC can help to stabilize the global oil market and prevent prices from fluctuating wildly. This can provide a degree of predictability and reliability for both producers and consumers.

• Ensuring fair prices: OPEC’s goal is to ensure that member countries receive fair prices for their oil. By controlling the supply of oil, the organization can influence the price of oil on the global market and help to ensure that member countries are not exploited by outside parties.

• Providing economic benefits: The oil industry is a major source of revenue for many of the member countries of OPEC. By controlling the supply of oil, OPEC can help to maximize the economic benefits for its member countries.

The cons of OPEC include:

• Harming the global economy: Critics argue that OPEC’s decisions to limit oil production can lead to higher oil prices, which can harm the global economy and consumers. High oil prices can lead to inflation and reduce the purchasing power of consumers, which can slow economic growth.

• Diminishing power: Some argue that the power of OPEC has diminished in recent years as a result of increased competition from non-OPEC countries such as the United States and Canada. This has led to a more fragmented and complex global oil market, which has reduced OPEC’s ability to influence the price of oil.

• Facilitating corruption: Because OPEC is a cartel of oil-producing countries, it has been criticized for facilitating corruption and non-transparent practices. This can lead to abuses of power and mismanagement of oil revenues, which can have negative consequences for both the member countries and the global market.

How Does OPEC Affect Oil Prices?

OPEC’s decisions about production levels can have a significant impact on the price of oil. If OPEC decides to reduce production levels, it can lead to a decrease in the global supply of oil, which can cause the price of oil to increase. On the other hand, if OPEC decides to raise production levels, it can increase the global supply of oil, which can cause the price of oil to decrease.

Therefore, OPEC’s decisions about production levels can significantly impact the price of oil on the global market, as well as global investments. By controlling the oil supply, the organization can influence the price of oil and help ensure that member countries receive fair prices for their oil.

However, OPEC’s influence on oil prices has arguably waned in recent years, largely because the United States has become the world’s largest producer and one of the largest exporters of oil. Because the U.S. has grown its oil-production market share, it has lessened the influence of OPEC on the markets.

OPEC is also facing challenges to its oil hegemony because of the rise of renewable energy sources, like solar energy, which may lessen the demand for oil in the future.

Does OPEC Affect Investing in the Oil Sector?

The decisions made by the Organization of the Petroleum Exporting Countries (OPEC) may affect investors. Because OPEC members control a large portion of the world’s oil supply, its decisions about production levels can affect the global supply of oil and, ultimately, the price of oil on the market.

If OPEC decides to reduce production levels, it can lead to a decrease in the global supply of oil, which can cause the price of oil to increase. This can be beneficial for investors who have invested in energy stocks or oil-related assets, as they may see an increase in the value of their investments. However, higher oil prices could also harm the global economy, which may be a drag on an investor’s overall portfolio.

On the other hand, if OPEC decides to boost production levels, it can increase the global oil supply, which can cause the price of oil to decrease. This can be detrimental for investors who have invested in oil companies or oil-related assets, as they may see a decrease in the value of their investments.

Therefore, it is essential for investors to monitor OPEC’s decisions and how they may affect the global oil market. By understanding the organization and its role in the market, investors can make more informed decisions about their investments in the oil industry.

💡 Recommended: How and Why to Invest in Oil

The Takeaway

OPEC is a major player in the global oil market and economy. When the organization meets and makes production decisions, it can ultimately affect consumers at the gas pump and investors’ portfolios. Thus, staying up to speed with OPEC and its decisions can help you understand how the organization affects your wallet.

If you’re interested in investing in the energy sector, SoFi can help. With a SoFi Invest® online brokerage account, you can trade energy-related stocks and exchange-traded funds (ETF), along with IPOs and more, with no commissions for as little as $5. All you need to do is open an account.

Build your portfolio with SoFi Active Investing.

Photo credit: iStock/shapecharge

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

Dec

2022

Cash and Cash Equivalents, Explained

By AJ Smith | Budgeting & Goals, Growing Wealth, Investing, mortgage | No Comments

For many people, cash and cash equivalents are highly liquid assets that can help offset risk in a financial plan or investing portfolio. Cash equivalents are low-risk, low-yield investments that can be converted to cash quickly and are thus considered relatively stable in value.

For companies, though, cash and cash equivalents (CCE) refers to an accounting term. Cash and cash equivalents are listed at the top of a company’s balance sheet because they’re the most liquid of a company’s short-term assets. A company’s cash on hand can be considered one measure of its overall health.

It’s important for people to understand the role of cash and cash equivalents in their own asset allocation.

What Are Cash and Cash Equivalents?

People keep their money in a variety of accounts and investments. Investments may include stocks, bonds, mutual funds, exchange-traded funds (ETFs), real estate holdings, and more. Many investments fluctuate in value, and some investments can be quite volatile.

For that reason, people also tend to keep a portion of their portfolio in cash or cash equivalents, because while cash doesn’t typically grow in value, it also typically doesn’t fluctuate or lose value (although periods of inflation can take a bite out of the purchasing power of cash).

Cash refers to the funds in any account that are available for immediate use. Cash equivalents are short-term investment vehicles that can be converted to cash very quickly, or even immediately.

Difference Between Cash and Cash Equivalents

The primary difference between cash and cash equivalents is that cash equivalents are investment vehicles with a specified maturity. These can include certificates of deposit (CDs), money market accounts, U.S. Treasuries, and other low-risk, low-return investments.

If you’re considering opening a checking account, you wouldn’t be thinking about cash equivalents, but rather getting the best terms for the cash in your account. If you’re looking for added stability in an investment portfolio, you may want to consider cash equivalents.

How Do Cash Equivalents Work?

As noted above, the idea behind a cash equivalent is that it can be converted to cash swiftly. So the maturity for cash equivalents is generally 90 days (3 months) or less, whereas short-term investments mature in up to 12 months.

Cash equivalents have a known dollar amount because the prices of cash equivalents are usually stable, and they should be easy to sell in the market.

Types of Cash Equivalents

There are a number of cash equivalents investors can consider. Some offer higher or lower potential returns, and a wide variety of terms.

Certificates of Deposit (CDs)

A certificate of deposit, or CD is like a savings account, but with more restrictions and potentially a higher yield. With most CDs you agree to let a bank keep your money for a specified amount of time, from a few months to a few years. In exchange, the bank agrees to pay you a guaranteed rate of interest when the CD matures.

If you withdraw the money before the maturity date, you’ll typically owe a penalty.

The longer the term of the CD, the more interest it pays — especially in the higher-rate environment of Q4 2022 — but it’s important to do your research and find the best terms.

CDs are similar to savings accounts in that you can deposit your money for a long period of time, these accounts are federally insured, so they’re considered safe (although typically the yield is quite low). But you can’t add or withdraw money, generally speaking, until the CD matures.

There are a few different kinds of CDs that offer different features. Some bank CDs have variable rates that allow you to change the rate once during the term. There are also brokerage CDs, which are marketed as securities and sometimes sold by banks to investment companies.

Owing to their lower risk profile and modest but steady returns, allocating part of your portfolio to CDs can offer diversification that may help mitigate your risk exposure in other areas.

Note that a CD which does not permit withdrawals, even with the payment of a penalty, can be considered an unbreakable CD. As such, it wouldn’t be considered a cash equivalent because it cannot readily be converted to cash.

US Treasury Bills

U.S. Treasury Securities are another type of conservative investment. They’re a type of debt instrument or bond, and they’re backed by the U.S. government.

Treasury bonds (T-bonds) usually mature in 10 years or more, but treasury bills or T-bills can be purchased with terms that range anywhere from a couple of days to a few weeks to a year.

Because Treasuries are popular, the market is active and they’re easy to sell if necessary. Still, Treasuries are affected by other types of risk, including inflation and changing interest rates.

While investors can expect to receive interest and principal payments as promised at maturity, if they attempt to sell the bond prior to maturity, they may receive more or less than the principal depending on current market conditions.

Other Government Bonds

Other government entities, including states and municipalities, may offer short-term bonds that could be considered cash equivalents. But investors must evaluate the creditworthiness of the entity offering the bond.

Money Market Funds

Don’t confuse money market funds and money market accounts. Money market funds invest your money, then pay a portion of the earnings to you in the form of dividends.

Because the funds’ short-term investments generally mature in less than 13 months, they’re generally considered very low risk. But unlike a savings or money market deposit account, they’re not federally insured. That means there’s no guarantee you’ll make back your investment, and it’s possible to lose money in a volatile market.

Savings and Money Market Accounts

A savings account has long been an essential money management tool. When you deposit your money in a member-FDIC bank savings account, the Federal Deposit Insurance Corporation (FDIC) insures it up to the maximum amount allowed by law, so you can be sure your money is secure. Another bonus: You can make regular deposits and withdrawals (within federal limits) without committing to a term length or worrying about withdrawal penalties.

But a savings account is usually a lower priority when you compare the interest rate offered to those of other bank products and cash equivalents. A money market account is also FDIC-insured, so it’s safe, and it pays interest like a savings account — but usually at a higher rate if you keep a higher balance. If your balance drops below a specified minimum, you might end up paying a monthly fee.

Commercial Paper

Commercial paper refers to short-term debt issued by a corporation. These bonds carry different terms, maturity dates, and yields. Some can be considered cash equivalents.

Cash and Cash Equivalents vs Short-Term Investments

Investors might also consider including some short-term investments in their asset allocation as well, as these investments can offer higher returns vs. cash equivalents. The goal of short-term investments is to generate some return on capital, without incurring too much risk.

Short-term investments are also sometimes called marketable securities or temporary investments. Some include longer-term versions of the cash equivalents listed above (e.g. CDs, money market funds, U.S. Treasuries), and are meant to be redeemed within five years, but often less.

The Takeaway

Cash and cash equivalents perform an important role in many investors’ portfolios. These assets are considered highly liquid and less likely to fluctuate in value, especially when compared with equities and other securities that offer more growth potential, but more exposure to risk.

If you’re looking for ways to add to your cash holdings, or have your cash work a little harder (but without increasing your exposure to risk), consider opening a SoFi Checking and Savings account, which has a competitive APY and make a plan for your goals, and SoFi members qualify for complimentary financial advice from professionals.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.

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SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

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

SOIN1122030

Dec

2022

Using Fundamental Analysis to Choose Stocks

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

A popular method that analysts use to evaluate stocks is fundamental analysis. Learn what it is and how it’s used for stock purchases.

Dec

2022

How to Transfer Brokerage Accounts: 6 Steps

By Michael Flannelly | Growing Wealth, Investing | No Comments

If an investor is unhappy with their current brokerage firm’s service or tools, they shouldn’t let the hassle of the transfer process keep them from switching to brokerages. Putting off a transfer may keep investors from future portfolio growth because they don’t enjoy using the platform or are paying high fees.

Transferring brokerage accounts is not the huge hassle people might think it is. While it’s not as fast as certain cash payment services, the process only requires a few forms and patience to get it done. Keep reading to learn more about moving your investments from one account to another.

When to Consider Switching Brokers

There are several reasons why an investor might consider switching brokers, including the following:

• High fees: If you pay high investment fees and commissions to your current broker, you may find a more cost-effective option by switching to a different broker. Many online brokerage firms now offer very low or no commissions.

• Lack of customer service: If your current broker is not meeting your needs in terms of the types of investment products they offer, the level of customer service they provide, or the quality of their trading platform, you may want to consider switching to a different broker that better meets your needs.

• Changes in your investment strategy: If you plan to make significant changes to your investment strategy, such as switching to a new asset class or adopting a new approach to trading, you may want to consider switching to a broker better equipped to support your new strategy. For example, your current broker may not offer options trading, but you’d like to start using options to speculate, generate income, or hedge risk.

• Changes in your financial situation: If your personal finances change significantly, consider reviewing your broker to ensure it is still the best fit for your needs. For instance, your current broker may have a minimum account balance you can no longer meet.

However, switching brokerage accounts can be time-consuming and potentially costly, so it’s important to consider whether the benefits outweigh the costs.

Two Ways to Transfer Assets to Another Broker

When transferring a brokerage account from one broker to another, there are two main ways investors can transfer assets: cash transfer and in-kind transfer.

Cash Transfer

A cash transfer involves selling the assets in the account and transferring the proceeds to the new broker in the form of cash. A cash transfer is a straightforward and quick way to transfer an account, but it may not be the most tax-efficient option, as it could trigger capital gains or losses that may be subject to taxes.

💡 Recommended: Capital Gains Tax Guide: Short and Long-Term

In-Kind Transfer

An in-kind transfer involves transferring the assets in the account directly to the new broker without selling them. This may be a more tax-efficient investing option, as it allows you to carry over the cost basis of the assets to the new broker. However, executing an in-kind transfer may be more complex and time-consuming, as it may require the transfer of specific securities or other assets rather than just cash.

How to Move Investments From One Brokerage Account to Another

The process for transferring cash or securities from one brokerage account to another typically involves the following steps:

1. Confirming Account Information

Before an investor starts the transfer process, they should take some time to review their existing account, taking note of the assets they hold, total amounts held, and basics like account numbers and information on file.

Having a snapshot of account totals can serve as a backup if anything goes wrong in the transfer. Investors might want proof of their assets for confidence before getting started.

2. Contacting the New Broker

To kick off the process, an investor would reach out to their new broker, also known as the “receiving firm,” in the transfer. Each brokerage firm will have a slightly different transfer process, but most accounts will be transferred in an automated process through the help of the National Securities Clearing Corporation (NSCC).

NSCC runs Automated Customer Account Transfer Service (ACATS), a service that allows accounts to be transferred in a standard way from one brokerage firm to another. ACATS should work for most transfers, including cash, stocks, and bonds.

When an investor contacts the receiving firm, they’ll receive instructions and, often, a physical or digital copy of the Transfer Initiation Form (TIF). At this stage, investors don’t need to reach out to their old brokerage firm.

3. Completing a Transfer Initiation Form (TIF)

Completing the standard TIF officially kicks off the process. Once the receiving firm has an investor’s TIF, they’ll start making arrangements with the investor’s old brokerage firm, or “delivering firm,” to send the assets over.

Investors should take care to complete the TIF thoroughly and correctly. If information (such as Social Security number, name, or address) is not the same with both the delivering and receiving firms, the request could be flagged as fraud and rejected.

That means confirming an investor’s receiving and delivering firms have the correct personal information on file.

The most common hold-up in the transfer process is an investor error in the TIF.

TIFs typically include the following information:

• Numbers for both brokerage accounts

• The brokerage account type, such as joint, individual, Roth IRA, trust, estate, limited liability, 401(k), etc.

• Social Security number

• The delivering firm’s contact information

• Specific assets to transfer in the event of a partial transfer

4. Submitting the TIF, and Sitting Tight

The investor will submit the TIF to their receiving firm when everything looks complete. From there, the investor will wait.

While the investor can’t do much more than sit on their hands and wait, the receiving firm is entering the TIF into ACATS. This information becomes a digital request submitted to the delivering firm, requesting a transfer of assets from one brokerage to another.

When the TIF is being reviewed, investors should pay close attention to their email and phone. If there’s any mismatched information on the TIF or between the two firms, the receiving firm will likely reach out to the investor to amend the issue.

Missing outreach could mean an even longer transfer period. That’s why investors should double-check that all the information on the TIF and between the two brokerages is consistent.

If the form is correct and approved by the delivering firm within the appropriate window, they will send a list of assets to the receiving firm. Now, it’s the receiving firm’s time to accept or reject.

While uncommon, a brokerage can reject the assets. Thus, an investor might consider contacting the receiving firm before the transfer to confirm their assets will be accepted. The receiving firm gets to decide if they want to accept or reject those assets.

If the assets are accepted, the delivering firm will digitally move the holdings to the receiving firm.

5. Contacting Your Old Broker (Optional)

In the world of texting, a phone call might be the last thing a person wants to do. But a simple call could save a few bucks in the transfer process. One hiccup that can come from the process is the account transfer fee. In some instances, the delivering firm will charge an “exit fee” when an investor makes a full transfer, partial transfer or decides to close an account entirely.

To avoid the surprise of a fee, an investor may reach out to their old brokerage firm and ask if they’ll be charged a fee for leaving or transferring funds.

If the delivering firm charges a fee, investors could reach out to the receiving firm to ask if they have any promotions for new clients that would cover the cost of transfer fees.

6. Watching the New Account, and Waiting

After the delivering and receiving firms approve the transfer request, it will still take a few days for the investments to move accounts.

Investors shouldn’t be alarmed when assets disappear from both accounts for a day or two, but the process typically takes no more than six business days.

The process may take longer if the delivering firm is not a broker-dealer. The transfer often takes longer than six business days if the delivering firm is a bank, mutual fund, or credit union.

No matter the length of the transfer, it’s common for one or both of the brokerage accounts involved to be frozen. That means no trades are allowed until the process is complete.

Investors may plan ahead and avoid trading during this period. If there is a stock or fund investors are looking to sell in the near future, they might want to sell it before starting a transfer.

Special Circumstances That Can Affect the Stock Transfer Process

Transferring Retirement or Other Tax-Advantaged Accounts

Transferring a tax-advantaged brokerage account, such as an individual retirement account (IRA) or 401(k) account, from one broker to another generally follows a similar process to regular brokerage accounts.

However, if you transfer a tax-advantaged account, you may need to follow certain rollover rules to avoid triggering taxes. For example, if you transfer an IRA, you generally have 60 days to complete the rollover and deposit the assets in the new account to avoid taxes and penalties.

💡 Recommended: IRA Transfer vs Rollover: What’s the Difference?

Transferring Stocks to Another Person

Transferring or gifting stocks to another person may have tax implications. For instance, transferring stocks may trigger gift taxes depending on their value.

Understanding Brokerage Transfer Fees

Brokerage account transfer fees are charges that may be assessed by a broker when an investor transfers their account from one broker to another. The new or old brokerage may charge these fees, which can vary depending on the broker and the assets being transferred.

Some common types of brokerage account transfer fees include:

• Account transfer fees: These are fees that the current broker may charge for transferring the account to the new broker.

• Termination fees: Some brokers may charge termination fees for closing an account or transferring assets out of the account.

• Trade execution fees: If you need to sell any assets in your account to transfer them to the new broker, you may be subject to trade commission fees.

Keeping Records From Your Old Account

It’s generally a good idea to keep records from your old brokerage account following an account transfer, as these records may be helpful for various purposes.

For example, you may need to refer to your old brokerage account records for tax purposes. The information in these records can help you accurately report any capital gains or losses subject to taxes.

You may also need to refer to your old brokerage account records if you need to resolve any disputes or errors related to the transfer of your account or the assets held in the account.

Tax Implications of Switching Brokers

The tax implications of switching brokers will depend on several factors, including the type of assets held in the account, the method used to transfer the assets, and your tax situation.

If you sell and cash out stocks in your account to transfer them to the new broker, you may incur capital gains or losses that could be subject to taxes.

Additionally, the transfer may affect the cost basis and holding period of the assets in your account. The cost basis is the amount you paid for the asset, and the holding period is the length of time you have owned the asset. These factors can affect the amount of any capital gains or losses that may be subject to taxes.

Switching to SoFi Invest

People might put off transferring their brokerage account because they believe it’s involved and complicated. While it’s not instant, the process typically takes just six business days from start to finish. That means investors are only a few days and a simple form away from a new brokerage service. As long as an investor is careful and asks their receiving firm the right questions before getting started, they should avoid any significant roadblocks during the transfer.

By opening an online brokerage account with SoFi Invest®, you can take control of your financial portfolio with a DIY approach. You can trade stocks, exchange-traded funds (ETFs), fractional shares, and more with no commissions, all in the SoFi app.

Take a step toward reaching your financial goals with SoFi Invest.

FAQ

Can you transfer brokerage accounts?

It is generally possible to transfer a brokerage account from one broker to another. Transferring an account typically involves requesting a transfer form from your new broker and completing the transfer form and any other necessary documents.

How do you transfer stock to a family member?

To transfer stock to a family member, you will need to follow the steps for selling or transferring the stock following the policies of your brokerage firm. This may involve completing and submitting a stock transfer form or other required documentation to your broker and paying applicable fees.

What is an Automated Customer Account Transfer Service (ACATS)?

The Automated Customer Account Transfer Service (ACATS) is a system that facilitates the transfer of securities and cash between brokerage firms in the United States. It allows investors to transfer their accounts from one broker to another without manually selling and buying securities or transferring cash balances, which can streamline the process and minimize the risk of errors.

How will I know that my transfer is complete?

Once you have initiated the process of transferring your brokerage account from one broker to another, you should receive confirmation from both the current and new brokers when the transfer is complete. This confirmation may come in the form of a written statement or an email.

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Dec

2022

What Is an Equal-Weighted Index? How to Calculate It

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

An equal-weight index gives each constituent the same weight in the index, versus a market-cap-weighted or price-weighted index, where bigger companies (or those trading at higher prices) hold a larger share of the index.

Equal weighting strives to equalize the impact of each company’s performance on the overall index. Traditional market-cap weighting tends to give bigger companies more influence over outcomes.

Equal-weight investing is a smart beta strategy that may appeal to certain types of investors more than others. This article will delve deep into equal-weight investing, including:

• What Is an Equal Weighted Index?

• How to Calculate an Equal Weighted Index.

• Advantages of Using an Equally Weighted Index.

• Disadvantages of Using an Equally Weighted Index.

What Is an Equal-Weighted Index?

A stock market index tracks the performance of a specific group of stocks or a particular sector of the market. For example, the S&P 500 Composite Stock Price Index tracks the movements of 500 companies that are recognized as leaders within their respective industries.

Stock market indices are often price-weighted or capitalization-weighted.

• In a price-weighted index, the stocks that have the highest share price carry the most weight. In a capitalization-weighted index, the stocks with the highest market capitalization carry the most weight.

• Market capitalization represents the value of a company as measured by multiplying the current share price by the total number of outstanding shares.

While some investors may wish to invest in stocks, others may be interested in mutual funds or index funds, which are like a container holding many stocks.

How Equal Weighting Works

An equal-weighted index is a stock market index that gives equal value to all the stocks that are included in it. In other words, each stock in the index has the same importance when determining the index’s value, regardless of whether the company is large or small, or how much shares are trading for.

An equally weighted index essentially puts all of the stocks included in the index on a level playing field when determining the value of the index. With a price-weighted or capitalization-weighted index, on the other hand, higher-priced stocks and larger companies tend to dominate the index’s makeup — and thereby dictate or influence the overall performance of that index.

This in turn influences the performance of corresponding index funds, which track that particular index. Because index funds mirror a benchmark index, they are considered a form of passive investing.

Most exchange traded funds (ETFs) are passive funds that also track an index. Now there are a growing number of actively managed ETFs. While equal-weight ETFs are considered a smart beta strategy, they aren’t fully passive or active in the traditional sense. These funds do track an index, but some active management is required to rebalance the fund and keep the constituents equally weighted.

Examples of Equal-Weight Funds

Equal-weight exchange-traded funds (ETFs) have grown more common as an increasing number of investors show interest in equal-weight funds. Equal weight falls under the umbrella of smart-beta strategies, which refers to any non-market-capitalization strategy.

The term “smart beta” doesn’t mean a particular strategy is better or more effective than others.

Equal-weight funds, for example, are designed to shift the weight of an index and its corresponding funds away from big cap players, which can unduly influence the performance of the index/fund. And while an equal-weight strategy may have improved fund performance in some instances, the results are inconsistent.

Here is a list of the top five equal-weight ETFs by assets under management (AUM), according to ETF.com.

1. Invesco S&P 500 Equal Weight ETF (RSP )

2. SPDR S&P Biotech (XBI )

3. SPDR S&P Oil and Gas Exploration and Production (XOP )

4. SPDR S&P Global Natural Resources ETF (GNR )

5. First Trust Cloud Computing ETF (SKYY )

How to Calculate Equal-Weighted Index

To calculate equal weighted index, you need to know two things:

• The share price of each stock that’s included in the index

• Total number of stocks included in the index

If you’re calculating an equally weighted index value for an index that has five stocks in it, each one would be weighted 20%, regardless of its stock price or market capitalization. To find an equal-weighted index value, you would simply add the share price of each stock together, then multiply it by the weight.

So for example, say an index has five stocks priced at $100, $50, $75, $90 and $85. Each one would be weighted at 20%.

Following the formula, you would add each stock’s price together for a total of $400. You’d then multiply that by the 20% weighting to arrive at an equal-weighted value of 80.

As fund turnover occurs and new assets are exchanged for old ones, or as share prices fluctuate, the equally weighted index value must be recalculated.

The equally weighted index formula can be used to determine the value of a particular index. You may want to do this when determining which index ETF to invest in or whether it makes sense to keep a particular index mutual fund in your portfolio.

Advantages of Using an Equally Weighted Index

An index investing strategy might be preferable if you lean toward more conservative investments or you simply want exposure to a broad market index without concentrating on a handful of stocks. That’s something you’re less likely to get with mutual funds or ETFs that follow a price-weighted or capitalization-weighted index.

Here are some of the reasons to consider an equal-weighted index approach:

• An equal-weight strategy can increase diversification in your portfolio while potentially minimizing exposure to risk.

• It’s relatively easy to construct an equally weighted portfolio using index mutual funds and ETFs.

• It may appeal to value investors, since there’s less room for overpriced stocks to be overweighted and undervalued stocks to be underweighted.

• Equal-weighted indices may potentially generate better or more incremental returns over time compared to price-weighted or capitalization-weighted indices, but there are no guarantees.

Disadvantages of Using Equally Weighted Index

While there are some pros to using an equal weighted approach, it may not always be the best choice depending on your investment goals. In terms of potential drawbacks, there are two big considerations to keep in mind:

• Equal-weighted index funds or ETFs that have a higher turnover rate may carry higher expenses for investors.

There is typically a constant buying and selling of assets that goes on behind the scenes to keep an equal-weighted mutual fund or ETF in balance.

Higher turnover ratios, i.e. how often assets in the fund are swapped in and out, can lead to higher expense ratios if a fund requires more active management. The expense ratio is the price you pay to own a mutual fund or ETF annually, expressed as a percentage of the fund’s assets. The higher the expense ratio, the more of your returns you hand back each year to cover the cost of owning a particular fund.

• Equal-weighted indices can also be problematic in bear market environments, which are characterized by an overall 20% decline in stock prices. During a recession, cap-weighted funds may outperform equal-weighted funds if the fund is being carried by a few stable, larger companies.

◦ Conversely, an equal-weighted index or fund may miss out on some of the gains when markets are strong and bigger companies outperform.

Advantages	Disadvantages
Can increase diversification	Will typically have higher costs
Constructing an equal-weight portfolio is straightforward	May see outsize declines in bear markets
Equal-weight strategies may appeal to value investors	May not realize full market gains
Equal-weight strategies may perform better than traditional strategies, but there are no guarantees

The Takeaway

In an equal-weight index, each stock counts equally toward the index’s value, regardless of whether the company is large or small, or what shares are currently trading for. The same is true of any corresponding fund.

There are advantages to investing in an equal-weight index fund over a capitalization-weighted index or price-weighted index. For example, equal-weighted indices may generate better or more consistent returns. Investing in an equal-weight index may be appealing to investors who prefer a value investing strategy or who want to diversify their portfolio to minimize risk.

With a SoFi Invest online trading account, you can begin building your portfolio using SoFi’s streamlined, secure investing app. You can follow a DIY path by choosing which stocks or ETFs to invest in, in addition to many other options including fractional shares, IPO shares, and more. SoFi doesn’t charge any commission, and members have access to complimentary financial advice from professionals.

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

FAQ

How do equal-weight ETFs work?

Like an equal-weight index, an equal-weight ETF holds the same proportion of each of its constituents, which in theory may equalize the impact of different companies’ performance.

When should you buy equal-weighted ETFs?

If you’d like to invest in a certain sector, but you don’t want to be riding the coattails of the biggest companies in that sector because you see the value in other players, you may want to consider an equal-weight ETF.

What is the equally weighted index return?

The return of an equally weighted index would be captured by the performance of an investment in a corresponding index fund or ETF. So if you invest $100 in Equal Weight Fund A, which tracks an equal weight index, and the fund goes up or down by 5%, you would see a 5% gain or loss.

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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.
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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.

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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.
SOIN1022012

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What Is OPEC?

Which Countries Are Members of OPEC?

The current member countries of OPEC are:

OPEC vs OPEC Plus

What Is the Purpose of OPEC?

Pros and Cons of OPEC

The pros of OPEC include:

The cons of OPEC include:

How Does OPEC Affect Oil Prices?

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Difference Between Cash and Cash Equivalents

How Do Cash Equivalents Work?

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Certificates of Deposit (CDs)

US Treasury Bills

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Commercial Paper

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Two Ways to Transfer Assets to Another Broker

Cash Transfer

In-Kind Transfer

How to Move Investments From One Brokerage Account to Another

1. Confirming Account Information

2. Contacting the New Broker

3. Completing a Transfer Initiation Form (TIF)

4. Submitting the TIF, and Sitting Tight

5. Contacting Your Old Broker (Optional)

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Special Circumstances That Can Affect the Stock Transfer Process

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Tax Implications of Switching Brokers

Switching to SoFi Invest

FAQ

Can you transfer brokerage accounts?

How do you transfer stock to a family member?

What is an Automated Customer Account Transfer Service (ACATS)?

How will I know that my transfer is complete?

What Is an Equal-Weighted Index? How to Calculate It

What Is an Equal-Weighted Index?

How Equal Weighting Works

Examples of Equal-Weight Funds

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How to Calculate Equal-Weighted Index

Advantages of Using an Equally Weighted Index

Disadvantages of Using Equally Weighted Index

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FAQ

How do equal-weight ETFs work?

When should you buy equal-weighted ETFs?

What is the equally weighted index return?

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