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Modern portfolio theory provides the tools for building a well-balanced and less risky portfolio.

There are plenty of reasons people don’t invest their money. Some of them are valid—for example, you probably shouldn’t invest a ton if you don’t have all of your high-interest credit card debt paid off. Or, if you’re planning to make a big purchase next year, you wouldn’t want to take the risk that comes with investing your savings.

But other reasons don’t quite make sense, and they’re often based on misconceptions about investing, or a lack of knowledge about the process. The truth is, if you have long-term financial goals, like buying a home, starting a business, or retiring someday, investing may get you there far more quickly than saving alone.

Here the most common reasons people drag their feet when it comes to investing—and why they might be holding you back.

Common Reasons People Avoid Investing

1. Saving Money in a Savings Account

Savings accounts pay you interest—but not a lot. The average savings account interest rate is only .01%, and the best rates out there hover around 1.7%. But, with the current inflation rate at 0.6%, all that money you’ve socked away in savings is actually losing money.

Yes, having money in savings is recommended for any cash you need to access immediately or don’t want to risk losing in the short-term. But for the rest of it? If you want it to grow, it may be a good idea to put it somewhere else.

2. Investing Later When They Have a Higher Salary

Let’s say you’re 25 years old and you hope to retire when you’re 65. (That may seem like forever, but ask any 65-year-old—it goes by in a flash.) If you save $5,500 a year and average 7% return per year (the average return on the S&P 500 from 1950-2009), you’d have a little over a million dollars.

If you wait until age 30 and do the same thing, you’d only have about $760,000. Start at age 40, and you’d only have about $348,000! If you’re reaching retirement age and want to have a million dollars before you retire, you’ll need to save much more each year to catch up to that goal. Want to see if you are on track? Consult SoFi’s article: Am I On Track For Retirement?

Many people think that it’ll be easier to save more when they’re older and making more money. And even if that is true, know that the earlier you start investing, the more time you have to weather the ups and downs of the market. Which brings us to:

3. Trying to Time the Market

It’s tempting to delay getting started because you think the market is too high, or you want to wait for stock prices to go down. The issue with that is, when the market does take a dip, most people fear it will go down more, so they continue to wait.

Few professional investors even try to time the market, and even fewer succeed. In reality, people who do try to time the market tend to buy at or near market tops and sell at or near market lows.

4. Investing is Too Risky

You might hear about the stock market going up or down by a number of points each day, and therefore assume it fluctuates too much for your taste. Market volatility is a reality, but there are ways to invest for every level of risk tolerance. Diversified retirement accounts, mutual funds, and ETFs, for example, all allow you to invest in a variety of assets in one fund.

Yes, financial crises have happened and chances are, they’ll happen again. But when you take a long-term view of our history, those crises are blips on the timeline.

Consider this: In the time period between 1929 and 2015 (when a whole lot of upswings and downturns happened), a diversified portfolio of 70% stocks and 30% bonds averaged 9.1% per year .

5. Investing is Intimidating

If you’re new to investing, it can be difficult to wrap your head around the concept. But the good news is, you don’t have to go at it alone.

A great place to start is investing for retirement in an employer-sponsored 401(k), an IRA, or (ideally) both.

Once you’re contributing the maximum possible to both of those accounts ($19,500 per year and $6,000 per year in 2020, respectively), you can consider opening a brokerage account, which lets you invest in stocks, bonds, mutual funds, and Exchange Traded Funds (ETFs).

But you don’t even have to pick those investments yourself. A SoFi Invest® account makes it easy to get started. Our technology helps you set your financial goals and recommends the right investment strategy and level of risk to help you reach them within your desired time frame.

And our SoFi Invest Financial Planners help you plan for your future and answer any questions you have—absolutely free.

The bottom line: Investing is not just for the wealthy; it’s for anyone who wants to work toward achieving financial goals. Sounds like you? Well, it’s time to get started.

Not sure what the right investing account or investment strategy is for you? SoFi Invest financial planners are available to offer you complimentary, personalized advice. Consider working with a SoFi Invest advisor today.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, LLC and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Investing can be intimidating, especially if you’re a beginner. There are lots of terms, concepts to understand, and a variety of regulations that oversee the industry.

As a novice investor, navigating the intricacies of the investing world can be overwhelming. But investing can be part of a financial plan to help you grow your wealth in the long term.

One way to make something less intimidating? Educating yourself on the subject. Taking the time to learn a few investing basics can make the entire concept seem less frightening.

Here are some basic investing definitions and ideas to help make investing more approachable.

How Saving and Investing Are Different

You may think if you’re saving money you don’t need to invest, but in reality the two concepts are different. Saving is when you incrementally set aside money for emergencies or the future.

Your savings are typically kept in a savings account or another cash equivalent where the money can be easily accessed when you need it.

When you invest, you use your money to buy stocks, bonds, mutual funds, or real estate. The hope is that those investments will earn a return. This strategy can be used to reach long-term goals.

Setting Your Financial Goals

One way to start is by understanding your financial goals. The goal you are saving for can inform how you invest and the types of assets you invest in. If you’re in your 20s and you’re investing toward your retirement, your strategy might be different than someone who is in their mid-40s and investing toward the same goal.

People sometimes have multiple goals they are working toward simultaneously, like saving for retirement, buying a house, or putting their children through college in the future.

Understanding Risk v. Return

In finance, risk refers to the degree of uncertainty about the rate of return on an asset and the acknowledgment that there is the potential for the financial returns to be less than you expected.

For example, an asset could perform incredibly well and make a great return for the investor. But there’s also the chance that the asset could underperform, leading to a financial loss for the investor. Generally, as investment risks rise, investors seek a higher rate of return to compensate them for taking on additional risk.

Each of your investing goals will have a different time horizon, which is the amount of time an asset is held until it is liquidated. Typically, the longer the time horizon, the more risk you can stand to take on.

For example, in your 20s you’re likely able to build a riskier retirement portfolio. As you age and get closer to retirement, you may want to adjust your investment strategy so that it is more conservative.

Diversification Can Minimize Risk

There’s really no way around risk when you’re investing, but there are strategies that can help investors minimize risk. Having a diversified portfolio is one way to reduce risk.

Portfolio diversification is spreading your investments over many different asset classes, business sectors, companies, industries, or countries.

Typically risks don’t impact all asset classes in the same way so diversifying your assets is generally less risky than concentrating your money in one asset or one asset class. A diversified portfolio can’t eliminate risk, but it can help minimize risk, especially in the long-term.

Active Investing v. Passive Investing

Active investing is a hands-on approach to investing. It’s what portfolio managers do every day. Essentially they analyze and then select investments based on worth. Typically active investing comes at a cost since you’ll usually need to rely on a team of professionals to actively manage the investments.

Passive investing is a lower-maintenance approach to investing. Instead of assessing individual assets one at a time, your goal is to match the performance of certain market indexes that already exist. Passive investing typically has lower fees than active investing.

Passive funds have been growing in popularity. There are pros and cons to investing using each approach. The markets are changing constantly, so one aspect of smart investing is staying informed.

In some cases, having a financial professional on your side to help you proactively manage your funds can help alleviate stress.

When you invest with SoFi Invest®, you’ll have the option to choose between active or automated investing options as well as the opportunity to consult with certified financial advisors who can help you develop your investment strategy and navigate the ins and outs of investing.

How Can I Start Investing?

There are a variety of options when you’re ready to get started. If your employer offers a 401(k), that can be one of the easiest ways to start investing.

A 401(k) is an employee-sponsored plan designed to help you save for retirement. It allows both you and your employer to make contributions. Another option for retirement is an IRA or individual retirement account.

You could also open a brokerage account for financial goals outside of retirement. It’s an investment account that allows you to buy and sell investments like stocks, bonds, and mutual funds.

When you’re ready to start investing you may want to speak with a qualified financial advisor who can help you establish your savings goals and risk tolerance and help you develop a personalized investment strategy.

If you choose to go this route, there will likely be a cost associated. One option to consider is SoFi Invest.

When you open an account with SoFi Invest, you’ll receive a complimentary consultation with a certified financial advisor who can help you make a plan to tackle your goals. Plus, we’ve eliminated pesky management fees.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, LLC and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“SoFi Securities”).
Advisory services are offered through SoFi Wealth LLC, an SEC-registered investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at adviserinfo.sec.gov .

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Are you one of the many people who make financial resolutions every New Year? If so, congratulations! Whether your goal is to pay off debt, increase your savings or start investing for the future, there’s no time like the present to get started.

But if you’re one of the millions of Americans with student debt , it’s hard to know where to begin. How do you find extra money after making your student loan payment each month? Should you wait until your loans are paid off to start a savings account or begin investing ASAP for retirement? How much money should you allocate to each goal?

6 Tips to Build Your Savings—Even with Student Loans

While everyone’s situation is different, there are a few rules of thumb that can be useful when you’re trying to build a solid financial foundation, no matter how much student loan debt you have. Here are six steps that could help you get started.

1. Starting Small

If you’re like many people with student loans, you might not have a lot of extra money to invest or save at the end of each month. But that doesn’t have to stop you from trying. Putting away a small but consistent amount every paycheck, or once a month, can make a big difference over time. (Even a little something is better than nothing at all).

If you feel overwhelmed, perhaps focus on one or two goals at a time and just do what you can when you can. Maybe you want to save for a car or to put a down payment on a house. Or perhaps you don’t yet have an emergency fund (see #3).

You can start out by putting whatever you can afford into a high-yield savings account each month. Online-only financial institutions, like SoFi, are often able to offer more competitive interest rates than their brick and mortar counterparts.

So, if your money is sitting in a basic checking account, you could be missing out on the extra growth an online account can offer.

If you don’t want to think about setting that money aside every month—or worry that you won’t have the discipline to stick to your plan—you can arrange automatic transfers with your financial institution.

Some financial institutions also offer programs that can take a bit of the sting out of saving by rounding up expenditures to the nearest dollar and depositing the difference into your account.

And should you get an unexpected financial windfall—a tax refund, some birthday money, or a bonus at work—putting all, or a portion of it into that savings account can give it a nice boost here and there.

2. Reducing High Interest Rate Debt

If you have multiple sources of debt, it may make sense to focus your efforts on those with the highest interest rates first.

Of course, you should always pay at least the minimum on every debt you have each month. But if you have credit card debt as well as student loan debt, you might benefit from using a debt reduction strategy to pay off your bills.

Everyone’s financial situation is different, and there’s no “right way” to tackle debt, but we think SoFi’s “Fireball” method offers a balanced approach, because it targets high-interest debt and helps keep you motivated as you knock down each bill. Here’s how it works:

1. First, you’d separate your bills into “good” and “bad” debt. “Good” debts are those that can help you build your net worth—like a mortgage, business loan, or student loans. Good debt usually comes with a lower interest rate—typically 7% or less. “Bad” debt is different, because it can inhibit your ability to save money, and with higher interest rates, it’s usually more expensive in the long run.

2. Next, you’d take those bad-debt bills and list them in order from the smallest balance to the highest. Take the No. 1 bill on that list (the one with the smallest balance), and once you’ve paid the minimum on all your other bills—you could make it your mission to funnel any extra cash toward knocking down that balance.

3. Work your way down the list until all the bad debts are paid off. Once you blaze through the list, you should have more money to put toward the next bill and the next, until you get to and through the highest balances.

4. Carrying a balance on a high-interest credit card is kind of like swimming with weights tied to your ankles—it can make your financial strategy more difficult than it needs to be. So the last step of the Fireball method is to keep those balances paid off.

If you only have student loans, you can still use the Fireball method to pay them off. For example, you might pay the minimum on your lowest-interest subsidized loans while paying down your high-interest, unsubsidized PLUS or private loans more aggressively.

It also may be worth looking into consolidating your non-educational debt with a personal loan or, if you qualify, refinancing your student loans at a lower interest rate. A lower interest rate can reduce the amount of money you spend on any debt over the life of the debt.

And if the debt seems overwhelming—if, for example, you have multiple student loans—combining them into one payment could make things more manageable. (It’s important to note, though, that if you refinance your federal loans with a private student loan, you will lose access to borrower protections, such as Public Service Loan Forgiveness and income-driven repayment plans.)

3. Giving Yourself a Cushion

A general rule of thumb is to have three to six months’ worth of living expenses saved in an emergency fund in case you’re faced with an unexpected expense or if your source of income should suddenly disappear.

This is especially crucial for student loan borrowers, since, in some cases, even one late or missed payment can have an impact on your credit score. The ultimate purpose of an emergency fund is to create a financial cushion that allow you to pay all of your bills, including payments on your student loans, for at least a few months until you’re back on your feet.

4. Considering Investing as Soon as Possible

When it comes to retirement investing, waiting can cost you money. The sooner you start investing, the more time your portfolio has the potential to grow through compound interest.

Delaying your savings means you may need to save more on a monthly basis down the line. If you wait to get started until your student loans are totally paid off, you could be missing out on a lot of precious time.

That said, you don’t want retirement investing to come at the expense of your overall financial health. For example, you may want to delay or minimize investment contributions until you’ve paid down your high-interest debt and established an emergency fund (see #2 and #3). Instead, you could plan to increase contributions when you have only low interest rate student loans left on your plate.

5. Take the (Free) Money and Run

If you’re ready to start investing even though you still have student loans, there are a lot of account options out there. You could start by checking with your employer to see if the company offers a defined contribution plan, such as a 401(k), and if there is some type of matching contribution.

Many employers will match an employee’s elective deferral contribution up to a certain dollar amount or percentage of compensation. If that’s a perk at your place of business, why not aim to make the most of that match?

If you can do more, a frequently cited target is to save 15% of your income annually. But remember, if you start saving for retirement early, even small contributions can have an impact.

If your employer doesn’t offer a defined contribution plan or you’re self-employed, there are a number of other tax-advantaged retirement accounts that can help you grow your nest egg.

If you’re opening your own retirement savings account, such as a traditional or Roth IRA, you can do so at a brokerage firm, a bank, or an online financial services company, including SoFi Invest®. To find the right account for you, do your research and talk to a financial professional if needed. (As a SoFi member, you can get one-on-one access to financial advisors on the house.)

6. Adjusting as Needed

Your financial situation may look different each year, so you may want to occasionally revisit your strategy. (Quarterly might be a solid goal for you, but if that seems like a lot, an annual review could still be helpful.) In between reviews, you may find that using a tracking app can help you stick to your plan.

With an app like SoFi Relay, you can set goals, track your spending, and monitor your savings. As part of that review, you also may want to see if your investment account still matches the asset allocation you’re comfortable with, or if it needs rebalancing.

Staying on top of the day-to-day movements in your financial life can help you make better decisions for now and the future.

The next time you think about making an impulse purchase, you might decide to apply that money to your financial strategy instead. And if, down the road, you get a new job, get married, or get pregnant, you’ll have a head start on planning for what’s next.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, LLC and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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