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Dec

2024

Understanding the Environmental Services Industry

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

The environmental services sector is a multi-billion-dollar industry, which includes companies that collect and dispose of hazardous and non-hazardous types of waste and pollutants. Waste can include toxic waste in soil and water, as well as medical waste, trash, and sewage.

Companies in the environmental services industry include waste treatment plants, landfills, sewage systems, incinerator operators, testing and analysis services, and companies that provide technologies to deal with radioactive waste and other specialized areas.

The environmental services sector may offer a wide array of potential investment opportunities, thanks to an active regulatory climate, as well as growing corporate and consumer commitment to sustainability goals in the U.S. and abroad.

Key Points

• Environmental services is a multi-billion-dollar industry; it includes companies that collect and dispose of hazardous and non-hazardous waste.

• Waste can include consumer refuse, toxic waste in soil and water, as well as medical waste, sewage, and more.

• Environmental services also encompass a number of subsectors that range from testing to engineering, consulting, development, and more.

• Owing to the rising concern about environmental impacts, there is a robust regulatory climate that has helped shape and spur the growth of this sector.

• Given that continued population growth and urbanization are adding to the increase in waste and pollution, environmental services may see commensurate demand over time.

What Is the Environmental Services Sector?

Environmental services generally encompass infrastructure-based organizations and public utilities, such as sanitation and sewage processing, as well as water and wastewater treatment, and recycling.

Environmental services can also include non-infrastructure services that deal with air, water, ground, and noise pollution, as well as contaminated site remediation.

The removal and treatment of medical and hospital waste is another important environmental services function.

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Subsectors of Environmental Services

While environmental services are often couched as waste management, it’s important to remember that environmental services encompass a number of subsectors that range from testing to engineering, consulting, development, and more. These companies prevent and reduce pollution to the air, land, cities, and waterways.

Environmental services subsectors include:

• Testing and analysis for pollutants and chemical contaminants, which is an important part of regulatory compliance, as well as ensuring baseline environmental protections.

• Environmental engineering and project management services, which support sustainable infrastructure development, public services, and sustainable project management.

• Environmental assessment and permitting to ensure legally compliant project management and infrastructure development.

• Environmental services processing, which includes the facilities that handle recycling, smelting, incineration, and more.

• Environmental consulting, which includes companies that help organizations meet local and governmental sustainability standards, or improve their visibility as an environmental steward.

6 Biggest Companies Within Environmental Services

Environmental services is a $35 billion global sector, which is projected to grow at a compound annual growth rate (CAGR) of about 6.3%, and reach some $50 billion by 2028.

Some of the biggest companies by revenue, according to CSIMarket, include:

Company	Ticker	Market capitalization (in billions)
Waste Management, Inc.	WM	$87.69
Republic Services, Inc.	RSG	$65.16
Waste Connections, Inc.	WCN	$46.29
GFL Environmental, Inc.	GFL	$17.15
Clean Harbors, Inc.	CLH	$14.00
Casella Waste Systems	CWST	$6.77

Source: CSIMarket; data from Yahoo Finance, as of Nov. 7, 2024.

Investing in Environmental Services Stocks

Several factors are contributing to the growth of the environmental services sector. These include population growth, urbanization, industrialization, increased government regulations, and rising concern among consumers and investors about environmental, social, and governmental (ESG) factors.

Growth of Waste and Pollution

According to the U.S. Environmental Protection Agency, municipal solid waste (MSW) amounts alone have increased 93% from 1980 to 2018, the last year for which data is available. MSW refers to consumer waste or garbage (e.g., everything from food waste to packaging to durable goods refuse like furniture). MSW does not include industrial or hazardous waste.

On the whole, the world population is getting richer, and with that comes more consumption and more waste creation. Many people move into cities as income increases, resulting in the need for more urban waste management.

On the plus side, technology is improving within collection, recycling, and waste processing. More waste is being converted into energy, and advanced technology systems help with processing, remediation, and more.

Benefits of Investing in Environmental Services

There are several reasons why investing in environmental services and green stocks may offer investors certain opportunities. For instance:

• Environmental services are frequently needed and demand is projected to increase.

• There is a growing body of governmental regulations in this sector that require companies to rely on a range of environmental services.

• Environmental and waste management technology (e.g., water treatment, air pollution abatement) is improving and investments are being made into new systems.

• More product packaging is now recyclable.

• As more people move to cities it is easier to collect their waste and economies of scale become relevant.

Disadvantages of Investing in Environmental Services

However, there are some downsides and things to keep in mind when considering investing in environmental services stocks and ETFs. Like stocks in any sector, it’s important to do research and consider what might happen in the future. Some things to keep in mind are:

• Consumption and waste generation are closely tied to economic cycles. If there is a recession or economic downturn, people consume less, which can affect the revenue of waste management companies.

• Inflation and currency fluctuations can affect the waste management sector as well, especially in emerging markets.

• There are efforts being made by governments, NGOs, and others to educate people and encourage them to consume and waste less. While this is great news for the environment and global health, it may not be great news for waste management companies.

• Environmental services companies are increasingly involved in energy and materials sectors, making them vulnerable to fluctuations in commodities pricing and supply chain changes.

The Takeaway

Environmental services are an essential part of hazardous and non-hazardous waste management, processing, remediation, and more. And as consumption and urbanization increase, the sector is projected to grow as well. Robust environmental services systems are crucial to sustainability efforts, and interested investors may find investment opportunities in the environmental services sector, but it’s important to weigh the risks in this field as well.

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FAQ

What are examples of environmental services?

Examples of environmental services include hazardous and non-hazardous waste collection and disposal, sewage treatment, recycling, landfill management, composting, toxic waste removal and remediation, and medical waste management. Environmental services can also include engineering and consulting for legal and regulatory compliance, and more.

What’s the meaning of environmental services?

Environmental services are companies and organizations whose aim is to help corporations and municipalities manage the constant generation of waste products and pollutants that are a natural but potentially hazardous aspect of modern life.

Why do we need environmental services?

As the world’s population grows and urban areas expand, there is a commensurate increase in environmental waste products and pollutants. Environmental services companies clean up, manage, and process waste and meet certain regulatory standards. This is essential to keep land, cities, air, and water clean and unpolluted.

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Dec

2024

Value-Weighted Index: Explanation and How to Calculate

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

Value weighted indexes, also called cap-weighted indexes, may be used by investors to gauge the performance of various sectors of the stock market. Indexes effectively measure a specific portion or subset of the market, which can help investors get a sense of the market’s performance.

Some of the most commonly known and used value weighted indexes include the S&P 500, Nasdaq Composite, or Wilshire 5000. While these indexes can help investors get an idea of the market’s performance, they do have flaws, which investors would do well to keep in mind.

Key Points

• Value weighted indexes aggregate stock performance using market capitalization.

• These indexes serve as benchmarks for evaluating performance in financial markets.

• Calculation involves multiplying stock price by shares outstanding, normalized by a divisor.

• Other index types include price weighted and fundamentally weighted indexes, each distinct.

• Value weighted indexes reflect market trends but can be skewed by large companies.

Value Weighted Index Explained

Value weighted indexes are often used in the investment world as a stock market evaluation tool. A value weighted index is a tool used to aggregate the performance of multiple stocks into a cohesive whole represented by a single number. In other words, it’s a way to simplify a subset of the market’s performance, and make it relatively easy to get an idea of what’s happening in the market.

Value weighted indexes multiply current share prices by the number of shares outstanding to get the market cap for each component, or asset, of the index. These individual market caps are then totaled to get the overall value of the index.

When value weighted cap indexes began, the typical method of combining these values was by using a weighted average. For instance, if a stock’s market cap represented 10% of the overall market it would be weighted at 10%.

However, that method quickly becomes complicated as stocks are removed and added from the index, and some companies may be acquired or merged. Because of this, almost all indexes calculate a divisor to normalize the business decisions made at each company so that the index represents performance as accurately as possible without being affected by individual company decisions.

Let’s examine how different constituencies use the indexes for their particular needs, including traders, investors, and fund managers.

How Traders Use Indexes

Traders may differ from “investors” in that they’re characterized by short-term decision making. Traders use indexes as a benchmark to judge performance. They try to use indexes that match with their market moves.

For example, a technology focused investor might use the Nasdaq Composite to measure how well they are meeting their investment goals. They might also use the market index to determine when to enter or exit trades by gleaning any information they can about how the overall market is moving.

How Investors Use Indexes

Investors may differ from “traders” in that they have long-term horizons or investment goals, and thus, may be a bit more conservative in their investing approach. But similar to traders, investors also use indexes as a benchmark to compare how they’re doing in comparison. But investors may also be looking for less-risky investments with broad diversification.

Exchange-traded funds, or ETFs, may align with their goals, and ETFs often seek to replicate the various indexes by holding shares in proportions to match the index. Index investing can be a relatively simple way to start investing for beginners, as it allows for a degree of built-in diversification, tends to align with market performance, and typically comes with the benefit of low transaction fees.

But further research is always required to ensure that a specific ETF aligns with an investor’s strategy. With that in mind, it may be worthwhile to review available resources to help you learn more about investing in ETFs.

How Mutual Fund Managers Use Indexes

Mutual funds pool investment resources from a number of investors to try and provide diversification across sectors, and often pursue more conservative investments. Mutual fund managers may, again, use value weighted indexes as a north star, and try to match a market index’s performance, or beat it with the goal of generating returns for investors. However, keep in mind that investors can always lose money, too.

Mutual funds are also generally aligned with an index that parallels the investment philosophy of the fund, be that stocks, bonds, commodities, etc. So, there may be mutual funds that specialize or focus on investing in certain market segments, and use those as indexes to try and match.

How Hedge Funds Use Indexes

Hedge funds pool investment resources in a similar way to mutual funds, but typically follow a far more aggressive investment strategy and managers stick to an active investing style. Though they may be a bit more aggressive and less risk-averse, like other types of funds, hedge fund managers may use indexes as a benchmark to meet or beat in an attempt to generate returns for investors. Remember: There’s a potential for losses, too.

Pros and Cons of Value Weighted Indexes

Value weighted indexes have their pros and cons, of course. Here’s a quick rundown of what the advantages and disadvantages of using value weighted indexes may be for investors.

thumb_up

Pros:

• Tend to offer a comprehensive market perspective

• Are often comprised of less volatile, more mature companies

• Often include a broad-based, well-diversified list of companies and have low transaction costs

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Cons:

• The largest companies in the index may overwhelm performance

• May help generate market bubbles, with overpriced assets

• May encourage buying-high, selling-low investor behavior

How Market Value Weighted Index Is Calculated

Theoretically, the calculation of a value weighted index and the weights assigned to each component are easy to calculate. But as with most things, reality is a little more complicated.

To calculate a value weighted index, the first step is to multiply the price and shares outstanding (both of which are in near constant flux) of each component to get the market capitalization for each stock. For example, if you were trying to calculate a value weighted index comprising only three companies (which would not be indicative of a true index, but for simplicity’s sake, will work for an example), you’d first figure out the market capitalization of each company.

Market Capitalization = Price per share x Shares Outstanding

In this hypothetical example, here’s how that might look:

• Company 1: 50 shares outstanding at a current price of $10 = $500

• Company 2: 100 shares outstanding at a current price of $5 = $500

• Company 3: 75 shares outstanding at a current price of $15 = $1,125

Adding those up, the entire market value of this index is $2,125. To calculate the weights of each company in the index, you divide the value of the given company by the overall value of the index:

• Company 1: $500 ÷ $2,125 = weight of 23.5%

• Company 2: $500 ÷ $2,125 = weight of 23.5%

• Company 3: $1,125 ÷ $2,125 = weight of 53%

So, our total weight between the three companies is 100%, and Company 3 carries the highest weighting.

But remember: Due to complications with adding and removing companies from the index, dividends paid, buybacks, mergers, etc., there must be some normalizing done to the formula to remove large fluctuations caused by anything other than core performance.

This function is accomplished by the divisor, which oftentimes performs double duty by scaling the index values much smaller, say in the thousands rather than in the trillions, resulting in the following formula.

Index Value = ∑_𝑖𝑝_𝑖𝑞_𝑖 / Divisor

Other Forms of Weighted Market Indexes

Value weighted indexes aren’t the only index-based securities measuring tool. Investors can utilize the following market index assessment options as well.

The Price Weighted Index

Price weighted indexes are another form of weighted market index, and a good example is the Dow Jones Industrial Average.

A price weighted index weights each component based on its stock price. Therefore a company trading at $200 will have a higher weighting than a stock trading at $5. This is despite the revenue, employment, or market capitalization of the respective companies.

The Fundamentally Weighted Index

A fundamentally weighted market index weighs companies based on some other financial criteria such as revenues, earnings, dividend rates, or other factors. Fundamentally weighted indexes allow tremendous flexibility in creating an index to match an investing criteria and strategy.

Unweighted Index

The term “unweighted” simply means that no weight is applied when measuring a stock against an index. Instead, the measurement gives equal weight to each index component. It is common to see unweighted versions of major indexes compared to the weighted indexes to get deeper market insights on, for example, how broad-based a market rally truly is.

The Takeaway

Value weighted indexes can be useful as performance benchmarks and to provide a quick overview of market conditions. By observing the index performance, investors may be better informed on entry and exit opportunities, as well as to measure their own investing performance.

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Dec

2024

Blue And Yellow Piggy Banks On A Yellow Seesaw Over Yellow Background

Comparing Neobanks vs Traditional Banks

By Timothy Moore | money, Money & Life, Terminology | Comments Off

Since coming on the scene in the 2010s, neobanks have challenged the traditional banking model by offering consumers tech-savvy, digital-only bank accounts, often with low (or no) fees and higher-than-average interest rates. Neobanks have also been early adopters of popular perks like early access to paychecks and fee-free overdraft protection.

But neobanks technically aren’t banks (they are financial technology companies) — they don’t typically have a bank charter permitting them, for example, to hold deposits and lend money. As a result, they don’t offer the same range of financial services you’d find at a traditional bank. And if you’re looking for a branch for in-person service, you won’t find one. Here’s a closer look at how neobanks and traditional banks compare.

Key Points

• Neobanks are a type of fintech company that offer banking services digitally.

• Neobanks often offer lower fees and higher interest rates than traditional banks, but they lack physical branches and tend to lack a comprehensive range of services.

• Neobanks are not licensed banks but may partner with chartered banks to provide FDIC insurance on deposits.

• Neobanks are not the same as online banks which usually have a banking charter.

• Neobanks emphasize technological innovation, offering advanced digital tools, while traditional banks may be slower to adopt new technologies.

What Are Neobanks?

Neobanks are financial technology (fintech) companies that offer banking services through mobile apps and online platforms. They operate entirely online and, due to reduced overhead, are generally able to offer consumers benefits like lower fees and higher interest rates on deposits.

Though they are called banks, neobanks do not have the required charters to meet the legal definition of a bank. Instead, they partner with chartered financial institutions to offer bank accounts, such as high-yield savings accounts and online checking accounts. Some also offer payment services, credit cards, and other financial services.

While neobanks offer online-only banking services, they are different from online banks. Generally, online banks have a bank charter and provide a broader range of services to their customers, including loans and investing services.

How Do Neobanks Work?

Neobanks operate by using technology to deliver banking services more efficiently and at a lower cost than traditional banks. They often enhance these services with digital features, such as real-time balance updates, spending trackers, and budgeting tools to help customers manage their finances effectively.

You can typically set up an account with a neobank by downloading an app, providing some personal information, and going through identity verification processes. Once your account is open, you manage it entirely online. Customer support is typically provided 24/7 via phone, online chat, in-app messaging, and email. Many neobanks partner with nationwide ATM networks to offer customers fee-free access to cash.

Though neobanks typically aren’t chartered, they will often partner with traditional banks to use their banking licenses, allowing them to offer insured deposit accounts and other regulated banking services. To make sure your deposits are insured by the Federal Deposit Insurance Corp. (FDIC), you’ll want to look for the FDIC logo. Keep in mind, however, that any funds you deposit in a neobank may not be protected while they are in transit to the insured bank account. The FDIC does not cover the failure or closing of a non-bank company or any money that has not been deposited in an FDIC-insured bank.

What Are Traditional Banks?

Traditional banks are established financial institutions with physical branch networks that offer a wide range of banking services. These services generally include personal and business accounts, auto loans, mortgages, credit cards, and investment products. Traditional banks offer FDIC insurance on accounts, so you can’t lose your money (up to insured limits) even if the bank were to go out of business.

Traditional banks cater to a wide range of customers, from individuals to large corporations. They often have long-standing reputations and a history of customer trust, which makes them a popular choice for many consumers who prefer in-person banking experiences or require access to specialized financial services.

How Do Traditional Banks Work?

Traditional banks operate through a network of physical branches, ATMs, and online banking platforms. Customers can visit a branch for services like opening accounts, depositing checks, applying for loans, or speaking with a financial advisor. Traditional banks also offer online and mobile banking.

In addition to providing basic banking services, traditional banks offer specialized services like wealth management, foreign currency exchange, and business loans. Banks in the U.S. are regulated on either the federal or state level, depending on how they are chartered. Some are regulated by both.

Recommended: Traditional vs. Online Banks

Neobanks vs. Traditional Banks

	Neobanks	Traditional Banks
Physical branches	No physical branches (online only)	Physical branches and ATMs
Fees/rates	Lower or no fees for basic services; higher rates on deposits	Fees for services like account maintenance; lower rates on deposits
Products/Services	Limited services; may not offer loans/mortgages	Offers comprehensive banking services
Customer Service	Virtual support only (chat, email, phone)	In-person, phone, and online support
Tech Features	Advanced technology, innovative tools	Slower adoption of new technologies
FDIC Insurance	Available if partnered with an FDIC-insured bank	FDIC insured
Target Audience	Tech-savvy users, younger demographics	Broader audience including businesses

How Neobanks and Traditional Banks Are Different

Neobanks and traditional banks differ in several key ways, including their business models, services, and fee structures. Here are some of the main differences:

• Physical presence: Neobanks operate exclusively online with no physical branches, while traditional banks have physical branches where customers can conduct transactions in person.

• Fees/rates: Due to lower overhead, neobanks may often offer no- or lower-fee banking services and more competitive interest rates compared to traditional banks.

• Range of services: Traditional banks generally provide a wider range of offerings, including business accounts, loans, mortgages, and investment products. Neobanks tend to focus on basic banking services, such as online checking accounts, savings accounts, payment services, and secured credit cards.

• Customer service: Neobanks typically offer customer support through digital channels like chatbots and email, as well as by phone. Traditional banks offer the option of in-person customer service, which can be an advantage for those who prefer face-to-face interactions.

• FDIC insurance: While both types of institutions may offer FDIC insurance on deposits (up to the legal limit), neobanks do not provide this protection directly.

• Technological innovation: Neobanks often prioritize user experience and incorporate the latest fintech innovations, such as budgeting tools, spending analysis, and instant transfers. Traditional banks may lag behind in these areas due to legacy systems.

How Neobanks and Traditional Banks Are Similar

Despite their differences, neobanks and traditional banks share some common features:

• Account types: Both neobanks and traditional banks offer basic banking services like checking and savings accounts.

• Online and mobile banking: While neobanks operate solely online, traditional banks also offer online and mobile banking options for customers.

• Security: Both neobanks and traditional banks typically offer state-of-the-art security technologies, including encryption, two-factor authentication, and biometrics (such as fingerprint or facial recognition).

Note: Online banks combine some of the features of traditional banks and neobanks. Like traditional banks, they may be chartered and FDIC-insured banking institutions. Similar to neobanks, they may offer tech-forward online-only banking, low/no fees, and competitive rates on deposits.

Pros and Cons of Traditional Banking for Consumers

Traditional banking offers both advantages and disadvantages. Here are some to consider.

Pros

• Wide range of services: Traditional banks offer comprehensive financial services, including home and auto loans, credit cards, investment management services, commercial banking, and safe deposit boxes.

• Physical branch access: Customers can visit branches for in-person assistance, which can make it easier to handle complex transactions or receive personalized advice. Branch access also offers a convenient way to make cash deposits.

• Reputation and trust: Established banks have built customer trust over decades, providing a sense of security.

• FDIC insurance: Federally insured banks protect your deposits up to $250,000 per depositor.

Cons

• High fees: Traditional banks often charge fees for account maintenance, overdrafts, and other services.

• Low returns: Traditional banks typically pay lower yields on savings and other deposit products compared to neobanks and online banks.

• Limited technological innovation: Many traditional banks can be slow to adapt to new digital technology and may lack advanced features compared to neobanks.

• Inconvenience of physical visits: While traditional banks offer online banking services, there may still be times when you need to visit a branch in person, which can be time consuming.

Pros and Cons of Neobanking for Consumers

Neobanking also has both benefits and drawbacks. Here’s a closer look.

Pros

• Lower fees: Neobanks typically offer fee-free accounts or lower fees compared to traditional banks.

• Higher APYs: Neobanks typically pay more interest on deposits compared to traditional banks.

• User-friendly digital experience: Advanced mobile apps and digital tools provide customers with an easy, intuitive way to manage finances.

• Convenience: Fully online banking can be a major time-saver, allowing you to avoid waiting on lines to see a teller. Many neobanks offer round-the-clock customer service.

Cons

• Limited product range: Neobanks may not offer a full range of financial services, such as loans, mortgages, or investment products.

• No physical branches: The lack of in-person support can be a disadvantage for customers who prefer face-to-face interactions.

• Challenges with cash deposits: Unless the neobank is linked to ATMs that accept cash, you won’t be able to deposit cash into your account.

• Not FDIC-insured: Neobanks are typically not chartered banks and rely on partnerships with FDIC-insured banks.

The Takeaway

Neobanks and traditional banks both offer banking services, and each has benefits and drawbacks. Neobanks can work well for those seeking a low-cost, technology-driven banking experience, while traditional banks offer more comprehensive services and the convenience of physical branches.

The right choice for you will depend on your personal preferences, financial needs, and comfort with digital banking.

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FAQ

How are neobanks and traditional banks different?

Neobanks are financial technology firms that offer digital banking services through apps and online platforms. They operate without physical branches and focus on low fees, streamlined services, and innovative financial tools. Neobanks are not technically banks, however, and must partner with chartered banks to offer FDIC-insured accounts.

Traditional banks have physical branches, providing in-person services alongside online banking. They are fully licensed, offer a broader range of financial products than neobanks, but tend to charge higher fees and offer lower yields on deposits.

What are the downsides of neobanks?

One potential downside of neobanks is that they’re online-only. As a result, there are no branches you can visit for in-person transactions or assistance. Neobanks also have a narrower range of financial products and services compared to traditional banks. In addition, neobanks technically aren’t banks and must partner with chartered and licensed institutions to offer Federal Deposit Insurance Corporation (FDIC) insurance.

What are some advantages of neobanks?

Neobanks offer a number of advantages, including competitive interest rates on deposits, low (or no) account fees, and 24/7 customer service. Many also offer in-app perks like real-time spending notifications and user-friendly budgeting tools.

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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.

SOBK0523012

Dec

2024

Guide to SARs: Suspicious Activity Reports

By Timothy Moore | money, Money & Life, Terminology | Comments Off

A suspicious activity report, or SAR, is a document that financial institutions must submit to the federal government when they detect unusual and suspicious activities. SARs serve as an early warning system for the authorities, helping law enforcement detect, investigate, and prevent financial crimes like money laundering, fraud, and terrorist financing.

Here’s a closer look at what a SAR is and what type of financial activity triggers a suspicious activity report.

Key Points

• Financial institutions file suspicious activity reports (SARs) to alert authorities about unusual or illegal activities.

• The Financial Crimes Enforcement Network (FinCEN) regulates SARs under the Bank Secrecy Act.

• Large cash transactions, unusual account activity, and structuring transactions to evade reporting are common triggers for SARs.

• SARs are held in a database that law enforcement agencies can search, helping them uncover networks and prevent financial crimes.

• Banks are not allowed to disclose SARs to customers, but many reports never lead to charges or adverse consequences.

What Is a SAR?

A SAR, or suspicious activity report, is the standard document that banks and some other businesses must file with the Financial Crimes Enforcement Network (FinCEN) if they detect unusual behavior by an individual or organization. These reports are housed in a central government database and are designed to pick up illegal activities, such as money laundering, tax evasion, criminal financing, or other types of fraud that would not be flagged under other reports.

SAR filings can be triggered by any type of financial transaction that is out of the ordinary, such as large cash deposits or withdrawals into bank accounts, frequent wire transfers to countries known for criminal activity, structuring transactions to avoid reporting requirements, and any transaction that doesn’t seem to have a legitimate business purpose.

A suspicious activity report will contain details about the suspect transaction, the parties involved, and the reasons why the transaction is considered suspicious. The financial institution is not required to provide proof that a crime has occurred, nor is the institution’s client notified that a SAR related to their account has been filed.

The data contained in SARs is made available to multiple law enforcement agencies and is often combined with other information to build cases and prevent financial crimes.

Who Regulates SARs?

In the United States, the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, regulates SARs.

Under the Bank Secrecy Act (BSA) of 1970, banks and other financial institutions must file SARs with FinCEN to help government agencies detect and prevent money laundering and other financial crimes. Traditionally, this meant filing a paper report, but starting in 2013, FinCEN moved its reports entirely online. Businesses and individuals now use the BSA E-Filing System to submit a SAR.

FinCEN sets the rules and guidelines that determine when a SAR should be filed, what information should be included, and how financial institutions should handle suspicious transactions.

Who Can Make SARs?

Generally, financial institutions and businesses engaged in financial services are required to make SARs. This includes banks, credit unions, stock/mutual fund brokers, and different kinds of money service businesses (such as check-cashing companies and money order providers). Other types of businesses that must submit SARs include:

• Casinos

• Precious metals and gems dealers

• Insurance companies

• Mortgage companies

Essentially, if there is an opportunity to launder money or commit any other type of financial crime, a business or organization (and its employees) are required to be aware of the rules and requirements of SARs.

Who Do SARs Alert?

A suspicious activity report often begins when an employee of a financial institution notices an unusual activity, such as large sums of money being deposited into an account that had never been used for that kind of activity, or an anonymous wire transfer of funds out of the country. The individual would then communicate their observation to a supervisor, who files a SAR.

When a SAR is filed, it goes to the Financial Crimes Enforcement Network, or FinCEN. This regulatory body is in charge of analyzing SARs and providing the resulting intelligence to law enforcement agencies, including the Federal Bureau of Investigation (FBI) and Drug Enforcement Administration (DEA). The information from SARs helps these agencies detect patterns of illegal activity and investigate cases that could otherwise go unnoticed.

What Triggers SARs?

A variety of situations can trigger the filing of a SAR. These scenarios typically involve activities that seem unusual, inconsistent with normal financial behavior, or indicative of illegal conduct. Here are some common triggers:

Large Cash Transactions

Unusually large cash deposits or withdrawals, especially when they are inconsistent with a customer’s usual banking patterns, can trigger a SAR. Financial institutions are required to report cash transactions exceeding $10,000 per day.

Unusual Account Activity

If there is sudden or unusual account activity, such as rapid transfers between accounts or sudden high-value transactions without an apparent legitimate purpose, a SAR may be filed. This type of activity could suggest money laundering, tax evasion, or fraud.

Structuring Transactions

Structuring occurs when an individual deliberately breaks up large amounts of money into smaller transactions to evade reporting requirements. This is a common tactic used in money laundering and can trigger the filing of a SAR.

Suspicious Wire Transfers

An unusually large number of wire transfers; wire transfers that fall into certain repeated patterns; and wire transfers to or from countries known for financial crime (such as tax evasion or terrorism) can trigger a SAR.

Unexplained Wealth

If a customer suddenly deposits large sums of money into a checking or savings account, or purchases expensive assets without a clear, legitimate source of funds, a SAR may be triggered. This could be seen as a sign of illicit activity, such as drug trafficking, corruption, or fraud.

Transactions Involving Shell Companies

The use of shell companies to conduct financial transactions can be considered suspicious. Shell companies often lack significant assets or operations and may be used to conceal the true nature of financial dealings, prompting a SAR filing.

What Happens When a SAR Is Triggered?

If your financial institution files a SAR due to any of your banking transactions, nothing would happen right away. And since banks are not allowed to disclose a SAR to customers, you would not even be aware of it.

Typically, If there’s no illegal activity involved, FinCEN will not pursue the issue and it will not have any negative impacts on your life. Banks routinely file SARs to avoid being cited for violating their legal responsibilities and many do not lead to adverse consequences. However, if a SAR is suspicious enough, it may gain the attention of federal law enforcement authorities.

If, after conducting an investigation, the government believes illegal activity occurred, it could potentially seek a court order to temporarily freeze your bank account. This is done to keep the funds in question from being withdrawn until the investigation is completed.

Why Suspicious Activity Reports Are Important

SARs play a vital role in combating financial crime. They provide a way for financial institutions to alert regulators to potential illegal activities, giving them an opportunity to investigate and take action before criminal activities escalate. SARs help prevent money laundering, terrorist financing, drug trafficking, tax evasion, and other serious crimes.

SARs also contribute to global efforts to combat financial crime, since the intelligence is often shared across borders. International cooperation is often crucial for investigating and prosecuting transnational criminal organizations, making SARs a valuable tool in global anti-money laundering efforts.

Are SARs Confidential?

Yes, SARs are confidential, and strict rules govern how they are handled. The person or organization that files a SAR is prohibited from disclosing the report’s existence or the fact that it has been filed. This confidentiality is crucial to ensure that the subject of the SAR is unaware of the investigation, thereby preventing them from altering their behavior, destroying evidence to cover their tracks, or fleeing.

Violating SAR confidentiality is a serious offense and can lead to legal penalties for the individual or institution responsible. The only parties allowed to know about the SAR are the regulatory authorities and law enforcement agencies involved in investigating the suspicious activity.

Recommended: How to Make Money Fast

The Takeaway

Suspicious activity reports (SARs) are essential tools for detecting and preventing financial crime. These reports enable financial institutions to alert authorities when they encounter transactions that raise red flags for illegal activities such as money laundering, fraud, or terrorist financing.

However, SARs are commonly filed and, in many cases, do not lead to further investigation. As long as you’re not engaging in any illegal financial activities, a SAR should not have any impact on your life or cause any interruptions in your ability to use your checking or savings account.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

What triggers a suspicious activity report?

A suspicious activity report (SAR) is triggered when a financial institution detects unusual or potentially illegal activity. This can include large cash transactions, sudden changes in account usage, wire transfers to countries known for criminal activity, and structuring transactions (i.e., breaking up large amounts into smaller transactions to evade reporting requirements). The goal is to help government authorities detect and investigate crimes like money laundering, tax evasion, fraud, and terrorist financing.

What happens when you get a SAR?

If a bank or company submits a SAR about you, it is submitted to the Financial Crimes Enforcement Network (FinCEN). The report remains confidential, and you will not be informed. FinCEN reviews the SAR and may share it with law enforcement agencies for further investigation. Not all SARs lead to further investigation, however. A large number are simply routine and don’t lead to any adverse consequences.

What are examples of suspicious activity for SARs?

Examples of suspicious activity that can trigger a SAR include:

• Large or unusual cash deposits or withdrawals

• Transactions that seem unusual for the stated business type

• Transactions inconsistent with a customer’s profile

• Frequent international wire transfers to high-risk jurisdictions

• Structuring transactions to avoid reporting thresholds

• Use of shell companies for significant financial transactions

• Sudden large asset purchases without a clear source of funds

Photo credit: iStock/Zorica Nastasic

SOBK0523009

Dec

2024

Evaluating the Pros and Cons of Alternative Investments

By MP Dunleavey | Growing Wealth, invest, Investing | Comments Off

As alternative investments have become more accessible for all investors, it’s essential to weigh the pros and cons of these assets: on the one hand, alts offer the potential for diversification and higher returns — but they’re often higher cost, illiquid, and subject to complex tax treatment.

Understanding the advantages and disadvantages of these assets is especially crucial right now, because alts used to be the province of high net-worth and accredited investors. Now, however, alts are accessible to individual (retail) investors via conventional instruments like mutual funds and ETFs, as well as some retirement accounts like certain types of IRAs.

Pros and Cons of Alternative Investments
Advantages	Disadvantages
May provide portfolio diversification.	Many alts have low liquidity and/or come with redemption restrictions.
May offer higher returns compared with traditional assets.	Alts may employ high-risk strategies like short selling and leverage.
May offer passive income opportunities.	Some alts could be subject to higher volatility in some circumstances.
May be a hedge against inflation or interest rate fluctuations.	Owing to lack of transparency, obtaining historic data on certain alternatives can be difficult.
Accessible through ETFs and mutual funds, and some available via traditional retirement accounts, e.g. an IRA.	Investing directly in alternatives, or via a fund, may require complex tax treatment that varies from one asset class to the next.
Alts may appeal to investors’ personal hobbies and interests (e.g. wine, art, collectibles).	May require high minimum investment and often charge higher fees.

Recommended: What Are Alternative Investments?

Pros of Investing in Alts

There are a number of reasons why investors may find alternative investments attractive.

Diversification

Whereas traditional investments tend to move in tandem with the markets, this makes them vulnerable to market volatility, and increases risk exposure. But because most alternative investments have a low correlation with stock and bond markets, they generally move independently, and can thus provide a buffer against risk.

Investing in alts therefore can provide portfolio diversification, which may also help improve risk-adjusted returns over time.

Potential for Higher Returns

There are a couple of reasons why some alts may deliver higher portfolio returns. The first relates to the factors above. Because alternative investments have a low correlation with other assets and provide diversification (and a hedge against inflation or interest rates), this can improve a portfolio’s risk-adjusted returns.

The second is that some alts — e.g. hedge funds, private equity, venture capital, derivatives trading — employ high-risk strategies like short selling, various types of options trading, and leverage (among others), that may deliver higher returns.

Keep in mind that pursuing above-average returns almost always means a much higher risk exposure.

Potential for Passive Income

Some alternatives, like real estate, not only offer the potential for gains but the possibility of passive income as well. For example, real estate investment trusts (REITs) are required to distribute at least 90% of the fund’s income to shareholders.

In addition, certain types of alts (for example, some private equity stocks and funds that invest in these) may also pay dividends, which can also enhance income.

Hedge Against Inflation

Similarly, investing in alternative assets like real estate or commodities (e.g precious metals) can, in some cases, provide a hedge against inflation. That’s because tangible alts may increase in value during inflationary periods versus more traditional asset classes, which may see their value eroded by inflation.

By the same token, some alts can provide a hedge against interest rate risk, again because they have a low correlation with the asset classes that suffer in periods of rising rates.

The challenge here for investors is that both interest rates and inflation can be unpredictable, and using certain assets as a hedge is no guarantee of success.

Recommended: 2023 Capital Gains Tax Guide

Alts Are Available Through ETFs and Mutual Funds

As noted above, a shift has occurred in recent years, allowing individual investors to access different alternative asset classes within traditional fund structures like ETFs and mutual funds.

This is one way that retail investors can gain access to this class of assets that once was limited to high net-worth and accredited investors.

The relative accessibility of publicly traded funds can allow individuals to invest in different alternative sectors — e.g. private equity, private credit, real estate, currencies (including digital currencies) — through these vehicles.

That said, although a mutual fund is a type of pooled investment fund, that doesn’t eliminate all the risk factors that can come with investing in alts.

Accessible via Retirement Accounts

Related to the above, another advantage to investing in alts for individual investors is that it’s possible in some cases to add alts to your IRA. While most mainstream or discount brokers don’t yet offer this option, it’s possible to find asset managers that do.

It bears repeating, though, that retirement funds are meant for the long term, and it’s wise to carefully vet all investment choices in order to limit losses.

Personal Appeal

Some alternatives, such as collectibles (e.g. wine, art, memorabilia, antiques, classic cars) offer the additional gratification of fulfilling an investor’s passion or hobby.

Alternative investments,
now for the rest of us.

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

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

Cons of Investing in Alts

Alternative investments, which fall outside the realm of conventional securities and strategies, by their nature come with a few disadvantages investors must keep in mind.

Low Liquidity/Redemption Issues

Alternative investments are notoriously illiquid. That means that they aren’t traded frequently, and the markets for these assets can be smaller with lower trading volume.

For example, some collectibles also come with a high degree of risk because a car, case of wine, set of sports cards, could become worthless if there is a shift in taste or trends. These types of tangible or physical investments — including certain types of real estate and commodities — are also more vulnerable to environmental factors (fire, flood, weather, deterioration) that can instantly erode the asset’s value.

High-Risk Strategies

In the quest for higher returns, many alternative asset classes use high-risk strategies that include the risk of total loss. Trading futures, options, and other derivatives, for example, can be highly risky, especially for less experienced investors.

The same is true of certain vehicles, like investing in hedge funds (which also come with high fees) which employ a high degree of leverage, or venture capital, where an investment in a particular venture can go south.

Recommended: What Are Liquid Assets?

Complex Tax Treatment

Some alts may offer certain tax advantages. However, alts can be taxed in different ways, and don’t necessarily lower your investment taxes.

Most investment gains are taxed according to capital gains tax rules, but that isn’t always true of alternative investments when purchased directly, or when investing in a fund. It might be wise to consult a tax professional.

Higher Costs

Some alts come with a higher barrier to entry in terms of investment fees, management fees, and other charges that are not as common with conventional securities.

Hedge funds, for example, typically have a very high minimum investment requirement, often in the six or seven figures, in addition to management and performance fees that can hit 20%.

Lack of Transparency and Publicly Available Data

One of the most troubling aspects of alternative investments is that there is very little transparency around how these assets are traded, their historical price data, and so on.

This can make it difficult to conduct certain types of technical or fundamental analysis, as you might with stocks, in order to gauge the real-time value of a certain asset, never mind its long-term potential.

The Takeaway

As investors’ interest in branching out beyond the traditional asset classes continues to grow, alternative investments may continue to spark new interest among individuals, especially as the availability of alts expands into new vehicles, like conventional mutual funds, ETFs, and even retirement accounts.

Understandably, investors are often on a quest to find the next new thing that will help tamp down risk and improve returns. But alts do come with some notable risk factors that investors must take into account before embarking on any new strategies.

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

Photo credit: iStock/cagkansayin

SoFi Invest®

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

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

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

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.

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

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN1123004

Understanding the Environmental Services Industry

What Is the Environmental Services Sector?

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Subsectors of Environmental Services

6 Biggest Companies Within Environmental Services

Investing in Environmental Services Stocks

Growth of Waste and Pollution

Benefits of Investing in Environmental Services

Disadvantages of Investing in Environmental Services

The Takeaway

FAQ

What are examples of environmental services?

What’s the meaning of environmental services?

Why do we need environmental services?

Value-Weighted Index: Explanation and How to Calculate

Value Weighted Index Explained

How Traders Use Indexes

How Investors Use Indexes

How Mutual Fund Managers Use Indexes

How Hedge Funds Use Indexes

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Pros and Cons of Value Weighted Indexes

Pros:

Cons:

How Market Value Weighted Index Is Calculated

Other Forms of Weighted Market Indexes

The Price Weighted Index

The Fundamentally Weighted Index

Unweighted Index

The Takeaway

Comparing Neobanks vs Traditional Banks

What Are Neobanks?

How Do Neobanks Work?

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What Are Traditional Banks?

How Do Traditional Banks Work?

Neobanks vs. Traditional Banks

How Neobanks and Traditional Banks Are Different

How Neobanks and Traditional Banks Are Similar

Pros and Cons of Traditional Banking for Consumers

Pros

Cons

Pros and Cons of Neobanking for Consumers

Pros

Cons

The Takeaway

FAQ

How are neobanks and traditional banks different?

What are the downsides of neobanks?

What are some advantages of neobanks?

Guide to SARs: Suspicious Activity Reports

What Is a SAR?

Who Regulates SARs?

Who Can Make SARs?

Who Do SARs Alert?

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What Triggers SARs?

Large Cash Transactions

Unusual Account Activity

Structuring Transactions

Suspicious Wire Transfers

Unexplained Wealth

Transactions Involving Shell Companies

What Happens When a SAR Is Triggered?

Why Suspicious Activity Reports Are Important

Are SARs Confidential?

The Takeaway

FAQ

What triggers a suspicious activity report?

What happens when you get a SAR?

What are examples of suspicious activity for SARs?

Evaluating the Pros and Cons of Alternative Investments

Pros of Investing in Alts

Diversification

Potential for Higher Returns

Potential for Passive Income

Hedge Against Inflation

Alts Are Available Through ETFs and Mutual Funds

Alternative investments,
now for the rest of us.

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