Financial Topics Archives

Jul

2025

Quant Trading: What It is and How to Do It

What Is Quantitative Trading

By Colin Dodds | Investing, Investment Strategy | Comments Off

Quant trading is a trading strategy that relies on quantitative analysis, employing statistical and mathematical models to find opportunities for profitable trades. Quantitative analysis takes advantage of the massive amount of market data, as well as recurring trends, to offer investment insights and evaluate stock performance.

As a strategy, quant trading uses that analysis of a given stock’s metrics, including price and volume, to predict performance and make bets based on those predictions.

Key Points

• Quant trading is becoming more accessible to individual investors through internet tools.

• Selecting the right software is crucial for efficient data tracking and trade execution.

• Emotionless decision-making through computer models helps avoid common trading pitfalls.

• Adaptability is essential to stay ahead of rapidly changing market conditions.

• Quant trading offers benefits like the ability to analyze vast amounts of data and avoid emotion-based trades, but has drawbacks.

What Is Quantitative Trading?

Historically, quant trading has been the province of large, institutional investors and hedge funds, who have had access to sophisticated research and computer models that make it easier to use technical analysis to research stocks. But that’s starting to change, with more individuals taking advantage of the tools that the internet has provided to engage in a host of quantitative trading strategies.

Some of the most common quantitative trading strategies include statistical arbitrage, high-frequency trading, and algorithmic trading. Most of those tactics involve trades with very short time horizons.

What different quant strategies have in common is that they use data-based models to locate trading opportunities, and to calculate the likelihood of a positive outcome for those opportunities. Unlike some investment strategies, it doesn’t rely on deep research of the companies underlying the securities themselves. Rather, it looks to statistical methods and computer models to find promising trades.

How Quant Traders Track Data Points

Most quant traders start by tracking specific data points. While most commonly tracked data points are price and volume, any metric can be used to build a strategy. There are some traders who even build programs to monitor social media for investor sentiment.

Quant traders use that data to discover trends or correlations that have proven to be predictive of certain outcomes, such as a stock going up or down. Then they will build a model to identify those trends and correlations as they occur. Some investors, especially high-volume investors, will even go so far as to automate their trading to execute purchases and sales whenever those conditions arise.

For example, a quant trader who believes in the power of market momentum might write a computer program that teases out stocks that have gained value during a previous upward market swing. When the markets begin another bull run, a simple version of that program will either alert the trader to those stocks, or buy them directly. A more complex version of the program might identify a common metric for the stocks that had excelled during the last runup, and then build a repository of those stocks for the next upward swing.

That example could equally apply to stocks in a down market, or stocks during sinking interest rates, or stocks during periods of persistently low unemployment. A quant trader looks at the math to anticipate the next market moves.

Getting Started With Quant Trading

For an investor who is looking to build their own models for quant trading, they need to find the right software to get started. Some of these programs can be expensive, and many require a major time investment to use them well. With that in mind, it’s helpful to do some research before choosing a software package.

Note that this will likely require some technical knowledge and background, too. And it likely won’t be cheap.

If an investor is looking for software that will help them build models, spot opportunities, and execute trades, then the stakes of choosing the right software are even higher. These software packages are typically provided by brokerages, or from specialized software firms. Most ready-made quant trading software suites will offer free trial versions that allow customers to try them out.

But they can come with blind spots, or shortfalls that can cost an investor real money. That’s why some more tech-savvy and adventurous investors will go so far as to build their own software to identify and act on investment opportunities.

Features to Look for in Quant Trading Software

Most ready-made trading software packages offer real-time market data and price quotes. Quant traders want access to company fundamentals such as P/E ratios, earnings, and other metrics updated in real time. And lacking that, they should look for software programs that allow them to easily integrate outside data sources, which can open up new and unique possibilities for research and discovery.

Depending on the breadth of their outlook, quant traders may want to trade across several different markets. But each exchange might provide data via a different digital language. Be sure that any software package can integrate feeds in these different formats, or that it has access to popular third-party data purveyors.

While those capabilities will help quant traders focus on the right data and build the right models, there’s another side, namely trading on those models. This is where finding or building the right software can make or break a quant trader.

For quant traders, especially traders who make many short-term trades in the course of a day, one vital feature for software comes down to latency. If it takes 0.2 seconds for a price quote to get to your software vendor’s data center from the exchange, and it takes 0.3 seconds for it to get from there to your screen, and then 0.1 seconds for the trading software you use to process the data, and then another 0.3 seconds for the trading software to receive the data, analyze it, and make a trade, that matters.

Especially in quant trading, time is money. But the lag continues. It may take 0.2 seconds for a trade order to get to a broker, and another 0.3 seconds for the broker to deliver that trade order to the exchange.

Especially in a stock that’s seeing heavy volume, that 1.4 seconds could mean the difference between a successful and unsuccessful trade. That means that any delay in a software constitutes a real disadvantage to a quant trader, and should be considered when buying software.

Recommended: How to Calculate Earnings Per Share

Pros and Cons of Quant Trading

Emotion can be one of the biggest obstacles to successful trading. Investors may hold onto losing positions too long, thinking they’ll turn around. And they may let winning investments run too long, and lose money when they take a turn. But computer models have no emotions. That’s one reason why quantitative trading is so popular.

That said, quantitative trading can come with its own unique problems. The main one is that the financial markets are always changing. The rules, trends, correlations, cycles and even fundamental logic of the markets often seem to change with dizzying speed. As a result, even the most back-tested and seemingly promising quantitative trading model will occasionally fail. And while many models and trading programs may be profitable for a time, a successful quant trader is always looking for the next big change.

Some investors may find that using fundamental analysis on stocks offers a bit of the best of both worlds. Fundamental analysis incorporates both quantitative and qualitative analysis, in an effort to create a better overall picture of a given stock.

The Takeaway

Quant trading, once the province of institutions and hedge funds, has gone mainstream. Individuals are getting in on this strategy, using data to try and predict the markets, rather than relying on emotion and instinct. It involves tracking data and using it to make investment decisions, which can be an enormous and difficult task that requires some serious computing power.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

FAQ

What is quant trading?

Quant trading, or quantitative trading, usually involves sophisticated computer models to research stocks, and can incorporate strategies such as high-frequency or algorithmic trading to attempt to generate returns over short periods of time.

Can anyone get into quant trading?

It’s possible for retail investors to get into quant trading, but it requires some serious technical knowledge, access to technology and software (which may be expensive), and time to learn to put it all to use.

What are the risks of quant trading?

Quant trading risks involve the ever-changing financial markets, and the potential to make emotional or kneejerk investment decisions that could lead to losses.

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

SOIN-Q225-042

Jul

2025

Does Renters Insurance Cover Injuries? Everything You Need to Know

By Jason Steele | Insurance | Comments Off

If someone gets injured on your rental property, you could end up facing large legal fees, medical bills, or other costs. Thankfully, renters insurance may be able to help you out. Coverage often pays for injuries, damages, and losses to other people when you’re at fault. However, as with other types of insurance, there are limits and exclusions to renters insurance.

Key Points

• Renters insurance covers injuries to others when the policyholder is at fault, including medical expenses and legal fees.

• Coverage excludes the policyholder, family, and guests in common areas.

• Common scenarios include a guest’s trip and fall or pet bites.

• Prevent injuries by maintaining your rental, inspecting it regularly, and reporting issues.

• If an injury occurs, seek medical help, document the incident, notify the landlord, and contact insurance.

Understanding Injury Coverage and Renters Insurance

Renters insurance usually includes coverage for personal liability, personal property, and medical payments. Let’s take a closer look at each type.

Personal liability pays for injuries or property damage to someone else when you’re at fault. Typically, renters insurance won’t cover your medical expenses if you’re injured in your rental, nor will it cover those of your roommates.

Personal property is what you likely think of when you think about renters insurance. It covers the cost of your personal belongings if they get damaged, lost, or destroyed in certain situations, such as a fire, storm, or explosion.

Medical payments will usually foot the bill for small medical expenses if someone else gets injured in your rental dwelling.

Common Scenarios Where Injury Coverage Applies

Most people don’t think about personal liability coverage for a rental unit. However, there are multiple scenarios where it can come in handy.

Let’s say a friend is in your apartment and trips and falls on a wet floor. If that friend sues you for their medical expenses, renters insurance can help cover your legal expenses as well as any medical expenses that you might be responsible for, up to your policy’s limit. It may also extend to cover lost wages and even death benefits if the injury results in a fatality.

Another scenario: Your pet bites someone away from your home. Renters insurance will generally cover the cost of the damages up to the policy’s limit as part of your renters insurance pet liability coverage. But note that some insurers have restrictions on certain dog breeds, so check your policy to ensure that your four-legged friend is covered.

Injury Coverage Limits and Exclusions

As mentioned, liability coverage is included with most standard renters insurance policies, but there is a coverage limit — usually $100,000. You may be able to choose a higher coverage limit, but it will likely mean paying a higher monthly premium.

There are also situational exclusions to renters insurance injury coverage. Renters insurance generally doesn’t cover injuries from car accidents, for instance, nor will it cover guests who are injured in common areas of your rental unit. (If someone slips and falls outside of your apartment building, your landlord’s liability insurance would cover their expenses.)

If you or a family member who lives with you gets injured at home, rental insurance will not cover the costs. You’d need to use your own health insurance coverage to help pay for the cost of injuries.

In addition, renters insurance likely won’t cover injuries related to your home business, though you can purchase separate business insurance liability coverage for added protection.

Preventing Injuries and Liability Claims in Your Rental

While it’s impossible to prevent all accidents, there are some things that you can do to help prevent injuries and liability claims in your rental.

A good place to start is to keep your rental well maintained. Regularly conduct inspections around your home to make sure everything is safe for you and your guests. And if you spot any issues, be sure to report them to your landlord so they can address them promptly.

What to Do If Someone Is Injured (and Renters Insurance Might Apply)

If someone is injured on your rental property, your first order of business is to get the person necessary medical help. Next, document the incident by taking pictures and writing down details. Be sure to also notify your property manager or landlord.

It’s also a good idea to contact your renters insurance provider about the incident. Ask about any deadlines for reporting claims and find out your coverage does — and doesn’t — include.

The Takeaway

Does renters insurance cover injuries? In many cases, yes. Renters insurance should cover certain situations, like if someone is injured in your rental or if your dog bites someone on the street.

However, there are exceptions and limits to know about. A policy typically won’t cover any injuries you or a housemate sustain in your rental unit, for example. And renters insurance will also only cover costs up to your policy’s limit, so if the legal fees or medical bills are high, you may still be on the hook to pay the balance. Still, renters insurance can offer tenants a degree of protection and peace of mind.

Looking to protect your belongings? SoFi has partnered with Lemonade to offer renters insurance. Policies are easy to understand and apply for, with instant quotes available. Prices start at just $5 per month.

Explore renters insurance options offered through SoFi via Experian.

FAQ

If a guest gets hurt in my apartment, what does insurance cover?

If a guest gets hurt in your apartment, your renters insurance will likely cover their medical expenses, your legal fees, and perhaps other losses, such as lost wages, up to your policy’s limits.

Does renters insurance cover my injuries if I get hurt at home?

No, renters insurance generally does not cover injuries to the policyholder or their family members who live in the rental unit. If you are injured, your own health insurance would cover your injuries.

How much liability coverage should I have for potential injuries?

It’s up to each person to decide how much personal liability coverage to have in place for potential injuries. When weighing your options, consider factors like how risky your property is, your assets, and your net worth.

What if my pet injures someone away from my home?

If your pet injures someone away from your home, renters insurance will generally cover the cost of the injuries up to the policy’s limit. However, some policies have restrictions on certain dog breeds. Renters insurance also won’t cover damage a pet inflicts on your belongings or those of your housemates.

Are injuries related to a home business covered?

Renters insurance likely won’t cover injuries related to a home business.

Photo credit: iStock/Liubomyr Vorona

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
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SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

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.

SOPRO-Q225-055

Jul

2025

What Is a Reverse Merger?

By Anna Davies | Growing Wealth, invest, Investing, Terminology | Comments Off

Table of Contents

Reverse Merger Meaning
Why are Reverse Mergers Important to Investors?
How Do Reverse Mergers Work?
Are Reverse Mergers Risky?
What Are the Pros and Cons of Reverse Mergers for Investors?
An Example of a Reverse Merger
Investor Considerations About Reverse Mergers
FAQ

In a traditional merger, a company may acquire another that is in a similar or complementary business in order to expand its footprint or reduce competition. A “reverse merger” works quite differently, and investors are eyeing the assets of a private company.

The acquiring company in a reverse merger is called a public “shell company,” and it may have few to no assets. The shell company acquires a private operating company. This can allow the private company to bypass an initial public offering, a potentially lengthy, expensive process. In essence, the reverse merger is seen as a faster and cheaper method of “going public” than an IPO.

Key Points

• A reverse merger involves a private company merging with a public shell to become publicly traded.

• Benefits include a potentially faster, cheaper, and less risky path to public trading.

• Risks include due diligence issues, and share value volatility.

• Reverse mergers can be completed through SPACs, typically quicker than IPOs.

• SPACs raise capital through IPOs to acquire private companies, facilitating public trading.

Reverse Merger Meaning

As mentioned, the meaning of the term “reverse merger” is when a group of investors takes over a company, rather than a competing or complementary business acquiring or absorbing a competitor. It’s a “reverse” of a traditional merger, in many ways, and appearances.

A reverse merger can also act as a sort of back door in. It can also be a way for companies to eschew the IPO process, or for foreign-based companies to access U.S. capital markets quickly.

Why are Reverse Mergers Important to Investors?

Investors may purchase units or shares in a shell company, hoping their investment will increase once a target company is chosen and acquired. This can be good for values of stocks when companies merge, netting those investors a profit.

In other cases, investors may own stock in a publicly traded company that is not doing well and is using a reverse merger to boost share values for shareholders through the acquisition of a new company.

In either case, shareholders can vote on the acquisition before a deal is done. Once the deal is complete, the name and stock symbol of the company may change to represent that of the formerly private company.

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How Do Reverse Mergers Work?

A shell company may have a primary purpose of acquiring private companies and making them public, bypassing the traditional IPO process. These types of companies can also be called special purpose acquisition companies (SPACs) or “blank check companies,” because they usually don’t have a target when they’re formed.

They may set a funding goal, but the managers of the SPAC will have control over how much money they will use during an acquisition.

A SPAC can be considered a sort of cousin of private equity in that it raises capital to invest in privately traded companies. But unlike private equity firms, which can keep a private company private for however long they wish, the SPAC aims to find a private company to turn public.

During its inception, a SPAC will seek sponsors, who will be allowed to retain equity in the SPAC after its IPO. There’s a lot to consider here, such as the differences and potential advantages for investors when comparing an IPO vs. acquisition via SPAC.

The SPAC may have a time limit to find a company appropriate to acquire. At a certain point during the process, the SPAC may be publicly tradable. It also may be available for investors to buy units of the company at a set price.

Once the SPAC chooses a company, shareholders can vote on the deal. Once the deal is complete, managers get a percentage of the profits from the deal, and shareholders own shares of the newly acquired company.

If the SPAC does not find a company within the specified time period — or if a deal is not voted through — investors will get back their money, minus any fees or expenses incurred during the life of the SPAC. The SPAC is not supposed to last forever. It is a temporary shell created exclusively to find companies to take public through acquisition.

Are Reverse Mergers Risky?

Investing in a SPAC can be risky because investors don’t have the same information they have from a publicly traded company. The lack of transparency and standard analytical tools for considering investments could heighten risk.

The SPAC itself has little to no cash flow or business blueprint, and the compressed time frame can make it tough for investors to make sure due diligence has been done on the private company or companies it plans to acquire.

Once a deal has gone through, the SPAC stock converts to the stock of the formerly private company. That’s why many investors rely on the reputation of the founding sponsors of the SPAC, many of whom may be industry executives with extensive merger and acquisition experience.

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

What Are the Pros and Cons of Reverse Mergers for Investors?

For investors, reverse mergers can have advantages and disadvantages. Here’s a rundown.

Pros of Reverse Mergers

One advantage of a reverse merger — being via SPAC or some other method — is that the process is relatively simple. The IPO process is long and complicated, which is one of the chief reasons companies may opt for a reverse merger when going public.

As such, they may also be less risky than an IPO, which can get derailed during the elongated process, and the whole thing may be less susceptible to the overall conditions in the market.

Cons of Reverse Mergers

Conversely, a reverse merger requires that a significant amount of due diligence is done by investors and those leading the merger. There’s always risk involved, and it can be a chore to suss it all out. Further, there’s a chance that a company’s stock won’t see a surge in demand, and that share values could fall.

Finally, there are regulatory issues to be aware of that can be a big hurdle for some companies that are making the transition from private to public. There are different rules, in other words, and it can take some time for staff to get up to speed.

Pros and Cons of Reverse Mergers for Investors
Pros	Cons
Simple	Homework to be done
Lower risks than IPO	Risk of share values falling
Less susceptibility to market forces	Regulation and compliance

An Example of a Reverse Merger

SPACs have become more common in the financial industry over the past five years or so, and were particularly popular in 2020 and 2021. Here are some examples.

Snack company UTZ went public in August 2020 through Collier Creek Holdings. When the deal was announced, investors could buy shares of Collier Creek Holdings, but the shares would be converted to UTZ upon completion of the deal. If the merger was successful, shareholders had the option to hold the stock or sell.

But sometimes, SPAC deals do not reach completion. For example, casual restaurant chain TGI Fridays was poised to enter a $380 million merger in 2020 through acquisition by shell company Allegro Merger — a deal that was called off in April 2020 partially due to the “extraordinary market conditions” at the time.

Allegro Merger’s stock was liquidated, while the owners of TGI Fridays — two investment firms — kept the company.

Investor Considerations About Reverse Mergers

Some SPACs may trade in exchange markets, but others may trade over the counter.

Over-the-counter, or off-exchange, trading is done without exchange supervision, directly between two parties. This can give the two parties more flexibility in deal terms but does not have the transparency of deals done on an exchange.

This can make it challenging for investors to understand the specifics of how a SPAC is operating, including the financials, operations, and management.

Another challenge may be that a shell company is planning a reverse merger with a company in another country. This can make auditing difficult, even when good-faith efforts are put forth.

That said, it’s a good idea for investors to perform due diligence and evaluate the shell company or SPAC as they would analyze a stock. This includes researching the company and reviewing its SEC filings.

Not all companies are required to file reports with the SEC. For these non-reporting companies, investors may need to do more due diligence on their own to determine how sound the company is. Of course, non-reporting companies can be financially sound, but an investor may have to do the legwork and ask for paperwork to help answer questions that would otherwise be answered in SEC filings.

The Takeaway

Understanding reverse mergers can be helpful as SPACs become an increasingly important component of the IPO investing landscape. It can also be good to know how investments in reverse merger companies may or may not align with financial goals. Many investors get a thrill from the “big risk, big reward” potential of SPACs, as well as the relatively affordable per-unit price or stock share that may be available to them.

Due diligence, consideration of the downsides, and a well-balanced portfolio may lessen risk in the uncertain world of reverse mergers. If you’re interested in learning how they could affect your portfolio or investing decisions, it may be a good idea to speak with a financial professional.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

FAQ

What is an example of a reverse merger?

A SPAC transaction is an example of a reverse merger, which would be when a SPAC — or special purpose acquisition company — is founded and taken public. Shares of the SPAC are sold to investors, and then the SPAC targets and acquires a private company, taking it public.

Why would a company do a reverse merger?

A reverse merger can be a relatively simple way for a company to go public. The traditional path to going public, through the IPO process, is often long, expensive, and risky, and a reverse merger can offer a simpler alternative.

How are reverse mergers and SPACs different?

The term “reverse merger” refers to the action being taken, or a company being taken public through a transaction or acquisition. A SPAC, on the other hand, is a vehicle or business entity used to facilitate that acquisition.

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

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Dollar Cost Averaging (DCA): Dollar cost averaging is an investment strategy that involves regularly investing a fixed amount of money, regardless of market conditions. This approach can help reduce the impact of market volatility and lower the average cost per share over time. However, it does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals, risk tolerance, and market conditions when deciding whether to use dollar cost averaging. Past performance is not indicative of future results. You should consult with a financial advisor to determine if this strategy is appropriate for your individual circumstances.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. This should not be considered a recommendation to participate in IPOs and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation. New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For more information on the allocation process please visit IPO Allocation Procedures.

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

SOIN-Q225-120

Jul

2025

25+ Potential Ways to Invest in a Carbon-free Future

27 Potential Ways to Invest in a Carbon-Free Future

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

Table of Contents

How Carbon Impacts Our Planet
Climate-Friendly Industries and Companies to Invest In
FAQ

Investing in a carbon-free future may be a powerful way for individuals to help make an impact on the climate. Studies have shown that investing in climate mitigation efforts and adaptation now may prevent trillions of dollars in potential future losses from disaster relief, GDP decreases, and property losses, and it may cost far less to act now than to deal with future damages.

Investors with environmental priorities might consider investing in green stocks as a way to help build a strong long-term portfolio. As with all investing, it’s essential to carefully consider the risks involved in your chosen investment strategies. Some, all, or none of the strategies below may be appropriate for you.

Key Points

• Investing in carbon offsets and credits provides an option to support renewable energy and sustainable agriculture, though effectiveness is debated.

• ESG and climate-focused ETFs may help drive market growth and innovation in climate-friendly industries.

• Sustainable agriculture and forestry can help improve soil quality, enhance food production, and increase CO2 removal.

• Individual investments in green sectors can help support efforts vital for mitigating climate change and building a resilient, low-carbon economy.

• Green bonds, blue bonds, and investments in electric vehicles, green shipping, and waste management provide options for scaling climate solutions.

How Carbon Impacts Our Planet

Current carbon dioxide (CO2) levels in the atmosphere are higher than they have been for a long time, and likely higher than they have been in the past 3 million years.

Human activities ranging from automobile use and building construction to agriculture results in greenhouse gas emissions. Over millions of years prior to the Industrial Revolution, carbon was removed from the atmosphere naturally through plant photosynthesis and other processes — but by burning fossil fuels like coal and oil, humans have put that carbon back into the atmosphere in just a few hundred years. Once emitted, that CO2 stays in the air for centuries.

Changing the concentration of greenhouse gases in the atmosphere changes the Earth’s carbon cycles and results in global climate change. Some effects of climate change are already visible: rising sea levels, more intense hurricanes and fires, disappearing glaciers, and more. Around half of the CO2 emitted since 1850 is still in the atmosphere, and the rest of it is in the oceans causing ocean acidification, which interferes with the ability of marine life to grow skeletons and shells.

Currently, CO2 emissions continue to increase yearly, so it’s just as important for us to scale up the removal of CO2 from the atmosphere as it is to continue working on reducing emissions.

There are ways companies can do construction, agriculture, and all other industrial activity without emitting greenhouse gases into the atmosphere, but scaling up these solutions will require a massive amount of investment. That’s where individual investors can make a difference: By putting money behind companies that are working to create a carbon-free planet.

Climate-Friendly Industries and Companies to Invest In

Ready to make a difference by supporting climate visionaries? Here are 25+ ways to invest in efforts supporting carbon reduction.

1. Carbon Offsets

Individuals and companies can purchase carbon offsets to zero out their carbon emissions. How they work: You can calculate your estimated emissions from air or car travel or other activities, and invest in local or international projects that contribute to the reduction of emissions. For instance, an individual could invest in a solar energy project in Africa to offset their annual emissions.

Although carbon offsets are controversial because they don’t directly work to reduce one’s emissions, they do help to build out renewable energy infrastructure, regenerative agriculture, and other important initiatives. They are also helpful for offsetting certain activities that are often unavoidable and have no carbon neutral option, such as flying in a plane.

2. Carbon Credits

Carbon credits give a company the right to emit only a certain amount of carbon dioxide or other greenhouse gases.

They create a cap on the amount of emissions that can occur, and then the right to those emissions can be bought and sold in the market. Caps may be placed on nations, states, companies, or industries.

Carbon credits are controversial because larger companies can afford more credits which they can either use or sell for a profit, and some believe the program may lower the incentive for companies to reduce their emissions.

However, companies may be incentivized to reduce emissions in two different ways:

1. They can sell any extra credits they don’t use, thus making money.

2. Generally, limits are lowered over time, and companies that exceed their limits are fined — therefore, transitioning to lower emissions practices is in their best interest.

Although carbon credits are used by companies, individuals can invest in carbon credits through ETFs, or consider carbon emissions alternative investments.

3. ESG Indices and Impact Investing ETFs

Individuals can invest in ESG (environmental, social, governance) and impact investing ETFs, which are funds made up of companies focused on socially and environmentally responsible practices. Companies included in these funds may be working on renewable energy, sustainable agriculture, plastics alternatives, or other important areas, such as human rights standards and board policies.

4. Climate and Low-Carbon ETFs

Within the impact investing and ESG investing space, there are ETFs specifically focused on climate change and carbon reduction. These exclude companies that rely on fossil fuels, focusing exclusively on companies deemed as climate-friendly.

5. Carbon Capture, Sequestration, and Storage

There are many ways that carbon can be removed from the atmosphere, including through trees and other plants, or by machinery. CO2 can also be captured at the source of emission before it is released into the atmosphere. Once captured, the carbon needs to be stored in the ground or in long-lasting products, so it doesn’t get leaked into the air. Interested investors might want to consider buying stocks in companies that sequester millions of tons of CO2 each year.

6. Products and Materials Made from Captured Carbon

Once removed from the atmosphere, carbon can be used to make many products and materials, including carbon fiber, graphene, and cement. The construction industry is one of the biggest emitters of carbon dioxide, so replacing standard materials with ones made from sequestered CO2 could have a huge impact. All of these materials industries are poised to see huge growth in the coming years, and investing in them helps promote market growth, which may lower the cost of materials and help make them more accessible to customers.

7. Tree-Planting Companies and Sustainable Forestry

The business of planting trees has been growing. Newer tree planting companies may currently be private, but investors have the option to buy stocks, REITs (Real Estate Investment Trusts) and ETFs in companies that practice sustainable forestry and land management, as well as companies that allow investors to purchase a tree.

8. Regenerative Agriculture

The way the majority of agriculture is currently practiced worldwide depletes the soil and land over time. This not only makes it harder to grow food, it also decreases the amount of CO2 that gets removed from the atmosphere and stored in the soil. But with regenerative agricultural practices, the quality of soil improves over time. Spreading the knowledge and use of regenerative farming can be extremely important to both food security and greenhouse gas management. Individuals have the option to invest in regenerative agriculture through REITs, or even by investing in individual farms.

9. Green Bonds and Climate Bonds

Green bonds function the same way as other types of bonds, but they are specifically used to raise money to finance projects that have environmental benefits. Projects could include biodiversity, rewilding, renewable energy, clean transportation, and many other areas in the realm of sustainable development. In addition to buying individual bonds, investors can consider buying into bond funds.

10. Blue Bonds

Blue bonds focus on protecting the oceans by addressing plastic pollution, marine conservation, and more.

11. Refrigerant Management and Alternatives

Refrigerants used for cooling are a top emitter, and there are several ways to invest in improvements in the refrigerant industry:

• Invest in alternative refrigerants such as ammonia and captured carbon dioxide.

• Invest in companies making new types of cooling devices.

• Invest in refrigerant management companies that reclaim refrigerants.

Other companies are working to retrofit old buildings and provide new buildings with more efficient HVAC systems.

12. Plant-based Foods

Raising livestock for food has a huge environmental footprint: It leads to huge amounts of deforestation, and cows emit methane when they burp, which is a much stronger greenhouse gas than CO2. Raising cows also uses a lot of water, transportation, chemicals, and energy. Replacing meat and materials with plant-based options can significantly reduce emissions and resource use.

13. Food Waste Solutions

Food waste in landfills does not biodegrade naturally — instead it gets buried under more layers of refuse and biodegrades anaerobically, emitting greenhouse gases into the atmosphere for centuries. Landfills are one of the biggest contributors to global emissions, with food waste contributing 8% of greenhouse gas emissions worldwide.

Some companies are heavily investing in waste-to-energy and landfill gas-to-energy facilities, which turn landfill waste into a useful energy source — essentially making products out of food ingredients and byproducts that would otherwise have gone to waste. One has developed a promising food waste recycling unit that could help reduce the amount of waste that sits in landfills as well.

14. Biodiversity and Conservation

Protecting biodiversity is key to creating a carbon-free future. Biodiversity includes crucial forest and ocean ecosystems that sequester and store carbon while also maintaining a planetary balance of nutrient and food cycles.

Interest in biodiversity investments has been growing, and there is even an ETF focused on habitat preservation.

15. Sustainable Aquaculture

The demand for fish rises every year, in part because eating fish is better for the planet and emissions than eating livestock. But a lot of work goes into making sure fishing is done sustainably to avoid overfishing and species depletion, and prevent widespread disease and wasted seafood. Investors may choose to support sustainable aquaculture by seeking out new and established businesses in the industry, or by investing in ETFs that include companies involved in responsible use and protection of ocean resources.

16. Green Building Materials

Creating construction materials such as steel and concrete results in a significant amount of CO2 emissions. There is currently a race in the materials industry to develop new materials and improve the processes of making existing ones. Both new and established businesses are part of this race. Besides steel and concrete, other key building materials that can help contribute to a carbon-free future include bamboo and hemp.

17. Water

Clean water systems are essential to the health of the planet and human life. As the population grows, there will be more demand for water, which requires increased infrastructure and management. Proper water management can have a huge impact on emissions as well.

There are three main ways for individuals to invest in the future of water. One is to invest in public water stocks such as water utilities, equipment, metering, and services companies. Another is to invest in water ETFs or in ESG funds that focus on water.

18. Green Shipping

The transportation of goods around the globe is a huge contributor to greenhouse gas emissions. In order to improve shipping practices, a massive shift is underway. The future of green shipping includes battery-operated vessels, carbon-neutral shipping, and wind-powered ships. Other technologies that play into green shipping including self-driving vehicle technology and AI. Investing in any of these areas can help the shift towards a carbon-free future.

19. Electric cars and bicycles

The use of electric cars and bicycles can significantly reduce the amount of CO2 emissions that go into the atmosphere. Interested investors might want to research stocks in the electric vehicle, charging, and battery space.

20. Telepresence

As proven during the pandemic in 2020, the reduction of work-related travel can significantly reduce global CO2 emissions. Video conferencing and telepresence tools continue to improve over time, which reduces the need for people to fly and drive to different locations for business meetings. Investing in companies working on these technologies may help solidify and continue the trend of remote work.

21. Bioplastics

Bioplastics include plastics that are completely biodegradable as well as plastics that are made partially or entirely out of biological matter. Currently bioplastics make up a very small portion of global plastic use, but increasing their use can greatly help to reduce waste and emissions.

22. Energy Storage

One of the biggest hurdles to scaling up renewable energy is creating the technology and infrastructure to store the energy, as well as reducing the costs of energy storage to make it more accessible. Investing in energy storage can help develop and improve the industry to help hasten the transition away from fossil fuels.

23. Green Building

Making the construction industry carbon-free goes beyond the creation and use of green building materials to include LED lighting, smart thermostats, smart glass, and more. These technologies can drastically reduce the energy used in buildings. There are many companies to invest in in the green building industry, as well as ETFs that include green building stocks.

24. Recycling and Waste Management

As the world’s population grows and becomes more urbanized, waste management and recycling will become even more important. Preventing waste from going to landfills is key to reducing emissions, as is the reuse of materials. For interested investors, there are many companies to invest in within waste management.

25. Sustainable Food

Food production is heavily resource-intensive, with many moving parts. In addition to companies working to improve soil health, refrigeration, plant-based foods, and food waste, there are also companies working on sustainable fertilizers, pesticides, irrigation, seeds, and other areas. One way to invest in sustainable food is through an ETF.

26. Sustainable Fashion

The fashion industry is one of the world’s worst polluters. In fact, the fashion industry produces about 10% of global carbon emissions, in addition to its huge water use and polluting the ocean with plastics. Several of the world’s most well-known sustainable fashion brands are privately held, but increasingly, public companies are also making big strides in sustainability. Individuals can also help support sustainable fashion by investing in material companies and agricultural producers that make bioplastics, bamboo, hemp, and sustainable leather alternatives.

27. Renewable and Alternative Energy

Energy is another important area to invest to help support a carbon-free future. Within the renewable and alternative energy space, individuals can invest in companies working on wind, solar, biomass, hydrogen, geothermal, nuclear, or hydropower. There are many companies and ETFs to invest in within renewable energy.

The Takeaway

Every industry around the world needs to make big shifts in the coming years in order to reduce emissions and help and build a carbon-free future. As an individual, investors can make their voices and their choices heard with their dollars, by investing in companies leading the way in sustainability.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

FAQ

What are green stocks?

Green stocks are shares of companies that are focused on sustainability, or that are working on technologies or in industries that are looking to help decarbonize the planet.

What does ESG stand for?

ESG stands for “environmental, social, governance,” and is a broad qualifier for certain investments that qualify for certain activities. That may include, for example, sustainable agriculture, renewable energy, fair executive pay ratios, and labor rights.

What is green building?

Green building refers to construction projects that utilize low-carbon or carbon-free resources, such as LED lighting, smart thermostats, smart glass, and more. These can also reduce energy usage in buildings.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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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.

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¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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Jul

2025

How to Stop Overspending Money

By Alyssa Schwartz | Budgeting & Goals, Financial Independence, money | Comments Off

Table of Contents

12 Ways to Stop Overspending
5 Factors That Contribute to Your Spending Problem
FAQ

If you feel that, despite your best intentions, your hard-earned money gets frittered away, you may need to curb your spending.

Sure, shopping and dining out are part of life, but the convenience of tapping and swiping can make it easy to overdo it. And all the tempting things you see on social media can lead to less than mindful buying, not to mention credit card debt. In fact, the average American currently has $6,730 in high-interest credit card debt, according to Experian®’s latest research, and some of that could be due to overspending.

Read on to learn more about what can cause you to overspend, plus tactics that can help you better control your spending.

Key Points

• To stop spending money, individuals should identify their spending triggers and understand the emotions behind their spending habits.

• Creating a budget and tracking expenses helps individuals gain awareness of where their money is going.

• Practicing delayed gratification by waiting before making non-essential purchases can curb spending.

• Finding alternative activities or hobbies that bring joy without requiring excessive spending is beneficial.

• Understanding how FOMO, lifestyle creep, and social media impact your financial habits can help you rethink spending and save more.

12 Ways to Stop Overspending

If you find yourself being a bit too freewheeling with your spending, try some tactics to help you cut back.

1. Mapping Out a Budget

Without a budget, you can spend money mindlessly, without thinking much about it. To create a budget and learn how to be better with money, check your income and track your current spending patterns from bank and credit card statements. You can also use a free tool to track your spending, which makes the process even easier. You can start by seeing what your financial institution offers.

Identify essential expenses vs. non-essential ones. Necessary spending includes such items as housing, groceries, utilities, health care costs, and transportation. Non-essential costs are things like eating out, leisure travel, and entertainment — and they can add up to a lot of money over a month.

Once you see how much you spend in each expense category, it may be easier to reduce spending. Experiment with different budget methods to find the right fit.

Recommended: 50/30/20 Budget Calculator

2. Calculating Hourly Earnings

A night out may not seem like a huge splurge in the moment — especially when compared to your total earnings for the month. But, that same expense can quickly appear more significant when you tabulate how many hours of work are needed to pay for it.

To try this approach, figure out your hourly pay: Divide your after-tax pay by the number of hours worked. If you get paid twice a month and work a 40-hour week, divide your total earnings by 80 (two weeks times 40 hours). Then use that insight:

• For instance, a birthday dinner and drinks with friends that costs $200 would translate to four hours of work if you earn $50 per hour.

Whether that spend feels worth it is a personal decision, but this process can nudge you to consider carefully to make sure the expense feels worth it.

3. Understanding What Triggers Spending

Whether it’s the gourmet food section at the grocery store, the Instagram influencer with the covetable closet of clothes, or that friend who drops big bucks on concert tickets, for all of us, the urge to spend can be triggered by emotions and outside influences.

Even the physical shopping environment — in-store displays, prominent markdown messaging, and subtler cues like store layout — can trigger people to overspend. When figuring out how to stop spending money, it can be key to understand which emotional or psychological cues make you take out your wallet and short-circuit their impact on you.

💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.

4. Shopping with a Plan

Of course you can’t always avoid spending triggers. We all have to shop sometimes. But here’s how to stop overspending: Create a shopping list, and stick to it. That’s one way to spend wisely.

For example, going grocery shopping may be easiest to do right after work. But that time of day may also coincide with when you’re ravenous. Hungry shoppers, research shows, tend to buy more non-essential items.

5. Finding It Cheaper

There are times when you’ll choose to spend money on specific purchases. Comparison shopping may help you cut back on expenses since you may be able to find the item cheaper elsewhere. Try these tips, too:

• Try couponing and discount codes. There are many sites that can help, such as Coupons.com and Retailmenot.com.

• Join a warehouse or wholesale club. These stores can be cheaper than your local supermarket. Are the quantities too big for your household? Share them with friends and split the cost.

• Shop where you get rewards that lower your costs. Loyalty can pay off.

6. The 30 Day Rule

Want another way to avoid overspending? Before you purchase something, take some time to think it over, rather than giving in to impulse buying.

Studies show that activities that provide instant gratification, such as impulse shopping, activate feel-good chemicals in the brain, according to the Cleveland Clinic. But that purchase could come at the expense of your financial standing. How to avoid that:

• If you see an item of significant expense that triggers a “gotta have it” feeling, put a note in your calendar for 30 days later. Write down the item, the price, and where you saw it.

• When that date rolls around, if you still feel you must have the object of your affection, you can decide to get it. But there’s a very good chance that your sense of urgency will have passed. That can be a way to stop spending money.

7. A No-Spend Challenge

You can gamify your spending to help you save. Try a no-spend challenge; you may want to have a friend or family member join you to make it more fun and help you stay accountable.

In a no-spend challenge, you typically pick a period of time during which you will only buy essentials. One popular option is a No-Spend September. Or you might declare that you won’t buy any fancy coffees for a week and put the money saved toward debt. Then, the next month, you could not buy any personal care items that are luxuries rather than necessities.

Recommended: 15 Creative Ways to Save Money

8. Using Cash Instead of Credit

When you swipe or tap a credit card, it can feel almost as if you aren’t spending money at all. But of course you are, and what you spend will accrue high interest if you don’t pay it off promptly and in full.

However, if you instead commit to using cash or a debit card to pay for purchases as often as possible, you can only really spend what you have. This can help you be more in touch with your money and avoid splashing out on random unplanned purchases, whether that’s a daily fancy iced coffee or a new wristwatch you stumble upon at the mall. (Of course, sometimes life happens, you make an error, and spend more than you have. That’s where overdraft protection can come in handy.)

9. Setting Up Automatic Savings Transfers

Many people overspend because they see money in their checking account, feel flush, and go shopping. But then, when it’s time to fund your savings (whether for summer vacation or the down payment on the house), you don’t have enough cash.

That’s why the habit of paying yourself first is a good one, and automating savings by setting up recurring transfers from your checking account to savings can be valuable. It can be wise to have an amount (20% of your paycheck is recommended by many financial experts, but even $25 is a start) whisked out right after your paycheck hits.

This can help you save regularly and fund your financial goals; you can even set up separate savings vaults for different goals.

10. Focus on Value vs Price

Here’s a smart way to think about your spending: Price is what you pay, and value is what you get. So if you spend $300 on a pair of shoes but you don’t wear them often or they fall apart quickly, you haven’t gotten good value for the price.

This is not to say that higher-priced items are never worth the cost. If you pay $300 for a pair of shoes that are top quality, last for years, and can be worn often, you’ve gotten great value. By thinking of value instead of price, you can avoid overspending, whether that means paying too much for an item that isn’t worth it or else buying a bargain-priced product that doesn’t deliver.

11. Reduce Dining Out

Dining out can be a fun way to socialize and enjoy food you couldn’t (or wouldn’t) make at home. But the cost can really add up and empty out your checking account. The average monthly spend dining at restaurants in 2024 was $191 vs. $166 in 2023, according to data from US Foods.

To save some cash, consider meeting friends for, say, a walk in the park or a free day at a local museum instead of a pricey brunch out. Or you might create a recipe club with friends in which you try cooking new dishes together. To save money when dining out, try tricks like skipping high-priced cocktails or splitting a few appetizers instead of ordering main courses.

12. Cancel Unnecessary Subscriptions

Comb through your credit card charges carefully, and you may discover that you are paying every month for subscriptions that you’ve forgotten about or aren’t getting good value from. That language app you signed up for before last year’s trip to Spain may still be charging you even though you haven’t opened it in months. You could live without it and keep that money. Or you might save on streaming services because you realize you actually aren’t watching one or two and can cancel them.

Recommended: How to Make Money Fast

5 Factors That Contribute to Your Spending Problem

As you work to stop overspending money, you may want to consider and avoid some of the things that can trigger you to dole out too much cash.

1. Social Media

As you scroll on Instagram, TikTok, and other platforms, you are likely to be exposed to dozens of influencers and offers that can encourage you to buy things you never previously knew about or wanted. Recognize that social media can encourage you to buy items (from kitchen gadgets to gummy candy) that you would never otherwise buy just because you’re a captive audience for clever marketing.

One way to fight back? It may be helpful not to link your credit card to your social media accounts to minimize the possibility of overspending.

2. Emails and Text Messages

Here’s another way your digital life can contribute to overspending: If you get emails or text messages heralding new products, sales, and other offers, it can trigger you to buy.

For example, if your favorite home design retailer sends you a message saying their most popular throw pillows are almost sold out, that may get you to buy. Unsubscribing from these marketing messages can be a budget-wise move.

3. Retail Therapy

Many of us shop as a pick-me-up. If you’re having a bad day at work, had a fight with your significant other, or are stressed about almost anything, hitting some stores can be a welcome distraction. However, this can also lead you to buy things that you neither need nor craved before you set foot inside the shop.

Recognizing what triggers retail therapy can help you break a bad spending habit. Or you can try the tactic of leaving your credit cards at home when you go browsing at boutiques.

4. FOMO

FOMO stands for “fear of missing out,” and it can drive a lot of impulse purchases. If your friend says you must try a pricey new restaurant in your neighborhood or your coworker suggests a life-changing hairstylist, you might feel as if, yes, you must spend money on these things. It can make you feel as if you are part of the in-crowd or “keeping up with the Joneses.”

Understanding this FOMO spending dynamic can be a major step toward stopping this kind of overspending.

5. Lifestyle Creep

Lifestyle creep occurs when, as you earn more, you spend more. Many people think that getting, say, a 10% raise is license to go spend 10% more. However, this can just keep your finances at a baseline level rather than helping you build wealth and reach longer-term goals.

As your income climbs, it can be wiser to raise your debt payments or put more in a high-yield online savings account rather than heading to the mall to celebrate.

The Takeaway

While it’s not possible to stop spending money altogether, adopting a few smart habits — such as budgeting, understanding your spending triggers, and shopping with a list — could help you take control of your money and spend less.

The right banking partner can help with budgeting, tracking your spending, and putting your money to work for you.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

What is it called when you can’t stop spending money?

There are various terms used to describe the issue of spending too much, such as compulsive shopping, impulsive shopping, shopping addiction, and pathological buying.

Is overspending a mental disorder?

Sometimes called money dysmorphia or money disorder, overspending may be considered a psychological disorder. It involves a person being preoccupied with money, spending it, and financial status. It can trigger feelings of anxiety and inadequacy. In addition, compulsive shopping can be considered a form of obsessive-compulsive or impulse-control disorder. Working with a qualified therapist can be helpful in managing the psychological reasons for overspending.

How much is too much spending?

There is no set amount that equals too much spending. Rather, it occurs when spending negatively impacts your financial and personal life. If you can’t stick to a budget, are burdened by debt, or find that your preoccupation with shopping interferes with your work or relationships, then your spending could be excessive.

How do I stop the cycle of overspending?

You can stop the cycle of overspending in a variety of ways, including creating and sticking to a budget, planning your purchases (whether a big-ticket item or just weekly groceries), using cash, and going on a spending freeze.

What is the root cause of overspending?

Overspending has various causes. It could be due to boredom, lifestyle creep, FOMO (fear of missing out), and wanting to reward oneself or boost one’s mood, among other reasons.

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