Financial Topics Archives | Page 42 of 816

Feb

2025

9 Types of Investments & Their Pros and Cons

By Pam O’Brien | Growing Wealth, Investing | No Comments

There are numerous different types of investments, ranging from stocks and bonds, to real estate and commodities. In tandem, these different types of investments can help investors build a diversified portfolio, and in effect, may help them reach their financial goals.

But having a solid understanding of the different types of investments is paramount, too, to creating and following through on an investment strategy. As such, you’ll want to at least have some baseline knowledge of each type — with that knowledge in-hand, you should hopefully be able to make financial decisions that align with your goals and strategy.

Key Points

• Investing in a variety of assets can help investors target financial goals and balance risk.

• Stocks, bonds, mutual funds, ETFs, annuities, derivatives, commodities, real estate, and private companies are common investment types.

• Each investment type offers unique benefits and drawbacks, such as stability or potentially higher returns in exchange for higher risk

• Diversification through different investments can protect against market volatility and enhance returns.

• Additional resources are available for in-depth learning about each investment type.

9 Common Types of Investments

Having different types of investments, as well as short-term vs. long-term investments can help you diversify your portfolio. All together, your portfolio should align with your financial or investment goals, and balance potential risks with potential returns — it isn’t easy, but it all starts with understanding what, exactly, you’re investing in. Here are some of the most common types of investments investors should know about.

1. Stocks

When you think of investing and investment types, you probably think of the stock market. A stock gives an investor fractional ownership of a public company in units known as shares.

Pros and Cons of Stock Investing

Here’s a brief rundown of the pros and cons of investing in stocks:

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Pros:

• If the stock goes up, you can sell it for a profit.

• Some stocks pay dividends to investors.

• Stocks tend to offer higher potential returns than bonds.

• Stocks are considered liquid assets, so you can typically sell them quickly if necessary.

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Cons:

• There are no guaranteed returns. For instance, the market could suddenly go down.

• The stock market can be volatile. Returns can vary widely from year to year.

• You typically need to hang onto stocks for longer time periods to see potential returns.

• You can lose a lot of money or get in over your head if you don’t do your research before investing.

Why Invest in Stocks?

Only publicly-traded companies trade on the stock market; private companies are privately owned. They can sometimes still be invested in, though the process isn’t always as easy and open to as many investors.

Further, investors may want to invest in stocks as stock can potentially make money in two ways: It could pay dividends if the company decides to pay out part of its profits to its shareholders, or an investor could sell the stock for more than they paid for it.

Some investors are looking for steady streams of income and therefore pick stocks because of their dividend payments. Others may look at value or growth stocks, companies that are trading below their true worth or those that are experiencing revenue or earnings gains at a faster pace.

2. Bonds

Bonds are essentially loans you make to a company or a government — federal or local — for a fixed period of time. In return for loaning them money, they promise to pay it back to you in the future and pay you interest in the meantime. That stability is one reason many investors are interested in buying bonds, though it’s important to know they are not without risk.

Different Types of Bonds

Treasurys: These are bonds issued by the U.S. government. Treasurys (sometimes stylized as “Treasuries”) can have maturities that range from one-month to 30-years, but the 10-year note is considered a benchmark for the bond market as a whole.

Municipal bonds: Local governments or agencies can also issue their own bonds. For example, a school district or water agency might take out a bond to pay for improvements or construction and then pay it off, with interest, at whatever terms they’ve established.

Corporate bonds: Corporations also issue bonds. These are typically given a credit rating, with AAA being the highest. High-yield bonds, also known as junk bonds, tend to have higher yields but lower credit ratings.

Mortgage and asset-backed bonds: Sometimes financial institutions bundle mortgages or other assets, like student loans and car loans, and then issue bonds backed by those loans and pass on the interest.

Zero-coupon bonds: Zero-coupon bonds may be issued by the U.S. Treasury, corporations, and state and local government agencies. These bonds don’t pay interest. Instead, investors buy them at a great discount from their face value, and when a bond matures, the investor receives the face value of the bond.

Pros and Cons of Bond Investing

Here’s a rundown of the pros and cons of bond investments:

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Pros:

• Bonds offer regular interest payments.

• Bonds tend to be lower risk than stocks.

• Treasurys are generally considered to be safe investments.

• High-yield bonds tend to pay higher returns and they have more consistent rates.

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Cons:

• The rate of returns with bonds tends to be much lower than it is with stocks.

• Bond trading is not as fluid as stock trading. That means bonds may be more difficult to sell.

• Bonds can decrease in value during periods of high interest rates.

• High-yield bonds are riskier and have a higher risk of default, and investors could potentially lose all the money they’ve invested in them.

Why Invest in Bonds?

When it comes to bonds vs. stocks, the former are typically backed by large companies or the full faith and credit of the government. Because of this, they’re often considered lower risk than stocks.

However, the risk of investing in bonds varies, and bonds are rated for their quality and credit-worthiness. Because the U.S. government is less likely to go bankrupt than an individual company, Treasury bonds are considered to be some of the least risky investments. Note, though, that they also tend to have lower returns.

3. Mutual Funds

A mutual fund is an investment managed by a professional. Funds often focus on an asset class, industry or region, and investors pay fees to the fund manager to choose investments and buy and sell them at favorable prices.

Index Funds

While mutual funds offer certain advantages to investors, those interested in a more passive approach may prefer index funds. Index funds are a form of passive investment, which means they’re not actively-managed, and instead, aim to track a market index, or portion of the market, such as the S&P 500 or something similar.

Pros and Cons of Investing in Mutual Funds

Here are some of the pros and cons of investing in mutual funds:

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Pros:

• Mutual funds are easy and convenient to buy.

• Since they offer portfolio diversification, they may carry less risk than individual stocks.

• A professional manager chooses the investments for you.

• You earn money when the assets in the mutual fund rise in value.

• There is potential dividend reinvestment, meaning dividends can be used to buy additional shares in the fund, which could help your investment grow.

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Cons:

• There is typically a minimum investment you need to make.

• Mutual funds typically require an annual fee called an expense ratio and some funds may also have sales charges.

• Trades are executed only once per day at the close of the market, which means you can’t buy or sell mutual funds in real time.

• The management team could be poor or make bad decisions.

• You will generally owe taxes on distributions from the fund.

Why Invest in Mutual Funds?

Investors may be interested in mutual funds because they offer a sort of out-of-the-box diversification, with exposure to many different types of securities or assets in one package. They’re also managed by a professional, which some investors may find attractive. On the other hand, they may have higher fees, and it’s always important to remember that past performance isn’t indicative of future performance, either.

4. ETFs

Exchange traded funds, or ETFs, are in some ways similar to a mutual fund, but there are key differences. One of the main differences is that ETFs can be traded on a stock exchange, giving investors the flexibility to buy and sell throughout the day. In addition, ETFs tend to be passive investments that track an underlying index. They also come in a range of asset mixes.

Pros and Cons of ETFs

Here’s a quick breakdown of the pros and cons of investing in ETFs:

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Pros:

• ETFs are easy to buy and sell on the stock market.

• They often have lower annual expense ratios (annual fees) than mutual funds.

• ETFs can help diversify your portfolio.

• They are more liquid than mutual funds.

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Cons:

• The ease of trading ETFs might tempt an investor to sell an investment they should hold onto.

• A brokerage may charge commission for ETF trades.This could be in addition to fund management fees.

• May provide a lower yield on asset gains (as opposed to investing directly in the asset).

Why Invest in ETFs?

ETFs may be an attractive choice for some investors because they may offer built-in diversification, tons of choices, and typically have lower costs or associated fees than similar products, such as mutual funds. But they’re also subject to many of the same risks as other investments.

5. Annuities

An annuity is an insurance contract that an individual purchases upfront and, in turn, receives set payments. There are fixed annuities, which guarantee a set payment, and variable annuities, which put people’s payments into investment options and pay out down the road at set intervals. There are also immediate annuities that begin making regular payments to investors right away. (Note that SoFi Invest does not offer annuities to its members.)

Pros and Cons of Investing in Annuities

Here are some of the pros and cons of annuity investments:

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Pros:

• Annuities are generally low risk investments.

• They offer regular payments.

• Some types offer guaranteed rates of return.

• May provide a supplemental investment for retirement.

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Cons:

• Annuities typically offer lower returns compared to stocks and bonds.

• They typically have high fees.

• Annuities can be complex and difficult to understand.

• It can be challenging to get out of an annuities contract.

Why Invest in Annuities?

Investors may like that there are so many different types of annuities to invest in, and the fact that they can offer guaranteed and predictable payments, tax-deferred growth, and low-stress management. However, they do often have lower interest payments compared to bonds, there can be penalties for early withdrawals, and associated fees.

6. Derivatives

There are several types of derivatives, but two popular ones are futures and options. Futures contracts are agreements to buy or sell something (a security or a commodity) at a fixed price in the future.

Meanwhile, in options trading, buyers have the right, but not the obligation, to buy or sell an asset at a set price. A derivatives trading guide can be helpful to learn more about how these investments work.

Pros and Cons of Options Trading

Here are some of the pros and cons to derivative investments:

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Pros:

• Derivatives allow investors to lock in a price on a security or commodity.

• They can be helpful for mitigating risk with certain assets.

• They have the potential to provide returns when an investor sells them.

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Cons:

• Derivatives can be very risky and are best left to traders who have experience with them.

• Trading derivatives is very complex.

• Because they expire on a certain date, the timing might not work in your favor.

Why Investors Trade Options

Trading options is a fairly high-level investment activity — it’s not for everyone. There can be significant risks, and options trading strategies can be complex. That said, trading options has the potential to be profitable for experienced investors.

7. Commodities

A commodity is a raw material — such as oil, gold, corn, or coffee. Trading commodities has a reputation for being risky and volatile. That’s because they’re heavily driven by supply and demand forces. Say for instance, there’s a bad harvest of coffee beans one year. That might help push up prices. But on the other hand, if a country discovers a major oil field, that could dramatically depress prices of the fuel.

Pros and Cons of Commodity Trading

Here are some pros and cons of commodity trading:

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Pros:

• Commodities can diversify an investor’s portfolio.

• Commodities tend to be more protected from the volatility of the stock market than stocks and bonds.

• Prices of commodities are driven by supply and demand instead of the market, which can make them more resilient.

• Investing in commodities can help hedge against inflation because commodities prices tend to rise when consumer prices do.

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Cons:

• Commodities are considered high-risk investments because the commodities market can fluctuate based on factors like the weather. Prices could plummet suddenly.

• Commodities trading is often best left to investors experienced in trading in them.

• Commodities offer no dividends.

• An investor could end up having to take physical possession of a commodity if they don’t close out the position, and/or having to sell it.

Why Invest in Commodities?

Investors have several ways they can gain exposure to commodities. They can directly hold the physical commodity, although this option is very rare for individual investors (Imagine having to store barrels and barrels of oil).

So, many investors wager on commodity markets via derivatives — financial contracts whose prices are tied to the underlying raw material. For instance, instead of buying physical bars of precious metals to invest in them, a trader might use futures contracts to make speculative trades on gold or silver. Another way that retail investors may get exposure to commodities is through exchanged-traded funds (ETFs) that track prices of raw materials.

That said, there are risks associated with commodities trading, and investors may want to ensure that it aligns with their investment strategy and goals before getting started.

8. Real Estate

Owning real estate, either directly or as part of real estate investment trust (REIT) investing or limited partnerships, gives you a tangible asset that may increase in value over time. If you become invested in real estate outside of your own home, rent payments can be a regular source of income. However, real estate can also be risky and labor-intensive.

Pros and Cons of Investing in Real Estate

Consider these pros and cons of investing in real estate (REITs, in particular):

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Pros:

• Real estate is a tangible asset that tends to appreciate in value.

• There are typically tax deductions and benefits, depending on what you own.

• Investing in real estate, such as through a REIT, can help diversify your portfolio.

• By law, REITs must pay 90% of their income in dividends.

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Cons:

• Real estate is typically illiquid, although REIT investments offer more liquidity than property.

• There are constant ongoing expenses and work needed to maintain a property.

• REITs are generally very sensitive to changes in interest rates, especially rising rates.

• With a REIT, dividends are taxed at a rate that’s usually higher than the rate for many other investments.

Why Invest in Real Estate?

Investing in real estate may help diversify a portfolio, generate recurring cash flow (from rent, or dividends), or enable ownership of a tangible asset that may increase in value over time. However, investments may be subject to changes in the real estate market, such as rising and falling interest rates and regulatory changes, and are often better suited for longer-term investments.

9. Private Companies

Only public companies sell shares of stock, however private companies do also look for investment at times — it typically comes in the form of private rounds of direct funding. If the company you invest in ends up increasing in value, that can pay off, but it can also be risky.

Pros and Cons of Investing in Private Companies

Here are some pros and cons of investing in private companies:

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Pros:

• Potential for good returns on your investment.

• Lets investors get in early with promising startups and/or innovative technology or products.

• Investing in private companies can help diversify your portfolio.

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Cons:

• You could lose your money if the company fails.

• The value of your shares in the company could be reduced if the company issues new shares or chooses to raise additional capital. Your shares may then be worth less (this is known as dilution).

• Investing in a private company is illiquid, and it can be very difficult to sell your assets.

• Dividends are rarely paid by private companies.

• There could be potential for fraud since private company investment tends to be less regulated than other investments.

Tips for Investing in IPOs

Investing in companies that are going public for the first time via an IPO can be attractive to investors who think the company has potential — IPO investing is fairly popular, but can be risky. With that in mind, if you do want to invest in companies going public, you’ll want to do your homework, and review filings and disclosures the company has filed with regulators, and anything else you might come across that could help inform your decision.

And remember, too, that IPO investing is generally considered high risk – a hot new stock can lose steam just as easily as it can gain it.

Investment Account Options

An investor can put money into different types of investment accounts, each with their own benefits. The type of account can impact what kinds of returns an investor sees, as well as when and how they can withdraw their money.

401(k)

A 401(k) plan is a retirement account provided by your employer. You can often put money into a 401(k) account via a simple payroll deduction, and in a traditional 401(k), your contribution isn’t taxed as income. Many employers will also match your contributions to a certain point. The IRS puts caps on how much you can contribute to a 401(k) annually.

Pros and Cons of 401(k)s

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Pros:

• Contributions you make to a 401(k) can reduce your taxable income. The money is not taxed until you withdraw it when you retire.

• Contributions can be automatically deducted from your paycheck.

• Your employer may provide matching funds up to a certain limit.

• You can roll over a 401(k) if you leave your job.

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Cons:

• There is a cap on how much you can contribute each year.

• Most withdrawals before age 59 ½ will incur a 10% penalty.

• You must take required minimum distributions (RMDs) from traditional 401(k) plans when you reach a certain age. (Roth 401(k)s are not subject to RMDs during the account holder’s lifetime.)

• You may have limited investment options.

IRA

IRA stands for “individual retirement account” — so it isn’t tied to an employer. There are IRS guidelines for IRAs, but, essentially, they’re retirement accounts for individuals. IRAs allow people to set aside money for retirement without needing an employer-backed 401(k).

With a traditional IRA, individuals contribute pre-tax dollars to the account, up to the annual limit. Those contributions are tax-deferred, meaning you don’t need to pay taxes on those funds (and their earnings) until they’re withdrawn in retirement. With a Roth IRA, however, you can contribute after-tax dollars up to the annual limit. Those funds and their earnings are not subject to taxes when qualified withdrawals are made.

Pros and Cons of IRAs

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Pros:

• IRA accounts are tax advantaged: Earnings grow tax-deferred for traditional IRAs and tax-free free for Roth IRAs.

• You can choose how the money is invested, giving you more control.

• Those aged 50 and over can contribute an extra $1,000 in catch-up contributions.

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Cons:

• Relatively low annual contribution limits ($7,000 in both 2024 and 2025).

• There is a 10% penalty for most early withdrawals before age 59 ½.

Brokerage Accounts

A brokerage account is a taxed account through which you can buy most of the investments discussed here: stocks, bonds, ETFs. Some brokerage firms charge fees on the trades you make, while others offer free trading but send your orders to third parties to execute — a practice known as payment for order flow. Investors can be taxed on any realized gains.

You might also consider enlisting the help of a wealth manager or financial advisor who can provide financial planning and advice, and then manage your portfolio and wealth. Typically, these advisors are paid a fee based on the assets they manage.

There are even a number of investment options out there not listed here — like buying into a venture capital firm if you’re a high-net-worth individual or putting funding into your own business.

Pros and Cons of Brokerage Accounts

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Pros:

• Offer flexibility to invest in a wide range of assets.

• Brokerage accounts provide the potential for growth, depending on your investments. However, all investments come with risks that include the potential for loss.

• You can contribute as much as you like to a brokerage account.

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Cons:

• You must pay taxes on your investment income and capital gains in the year they are received.

• Investments in brokerage accounts are not tax deductible.

• There is a risk that you could lose the money you invested.

The Takeaway

It might still seem overwhelming to figure out what kinds of investments will help you achieve your goals. There are different investment strategies and finding the right one can depend on where you are in your career, what your financial goals are and how far away retirement is. Options such as index funds and ETFs may help provide immediate diversification, while a financial professional can help advise you on how you might build your portfolio so that it aligns with your objectives.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

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

FAQ

What is the most common investment type?

Stocks are one of the most common and well-known types of investments. A stock gives an investor fractional ownership of a public company in units known as shares.

How do I decide when to invest?

Some prime times to start investing include when you have a retirement fund at work that you can contribute to and that your employer may contribute matching funds to (up to a certain amount); you have an emergency fund of three to six months’ worth of money already set aside and you have additional money to invest for your future; there are financial goals you’re ready to save up for, such as buying a house, saving for your kids’ college funds, or investing for retirement. Please remember you need to consider your investment objectives and risk tolerance when deciding the “right” time to start investing.

Should I use multiple investment types?

Yes. It’s wise to diversify your portfolio. That way, you’ll have different types of assets which will increase the chances that some of them will do well even when others don’t. This will also help reduce your risk of losing money on one single type of investment. In short, having a diverse mix of assets helps you balance risk with return. However, diversification does not eliminate all risk.

SoFi Invest®

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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.
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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.

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

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

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
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.
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Feb

2025

What Is a Good 401(k) Expense Ratio?

By David Wolinsky | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

A 401(k) plan doesn’t have an expense ratio, per se, but the overall cost of the plan includes the expense ratios of the funds in an investor’s account, as well as other charges like plan administration fees and the like.

With that in mind, generally, the lower the fees for the plan the better, including the expense ratios of the investments in the account, because fees can lower portfolio growth substantially over time. While investors don’t have control over the basic costs of their 401(k) plan, they can opt to choose investments with lower expense ratios, e.g. under 0.50% if possible. On average, 401(k) participants were paying roughly 0.5% of plan assets as of 2021, according to some of the most recent available data as of early 2025.

Key Points

• Understanding and managing 401(k) expense ratios is essential for enhancing retirement savings growth.

• Actively managed funds have higher expense ratios, while passively managed funds have lower ratios.

• Strategies to reduce 401(k) expenses include reading disclosures and evaluating fund options.

• A good 401(k) expense ratio is generally under 0.50%, particularly for passive funds.

• Consider a rollover IRA for potentially lower fees and a broader range of investment options.

What Are Reasonable Fees for a 401(k)?

In passively managed funds (where a portfolio mirrors a market index like the S&P 500), the expense ratio is typically lower as compared to actively managed funds, which might charge between 0.5% and 1.0% or more. Actively managed funds have a fund manager who employs different buying and selling strategies. Generally, this is because more work is being done on the manager’s part in an active strategy vs. a passive strategy.

As noted, 0.5% is more or less an average cost for many participants.

Note, too, that passive strategies generally have expense ratios under 0.50%. Exchange-traded funds (ETFs) usually follow a passive strategy and can have expense ratios under 0.25%.

Expense ratios can vary among plans for a variety of reasons, including how the 401(k) account is managed, the administrative fees, the record-keeping costs, and so on. While investors don’t have any say over the built-in costs of the 401(k) plan — that’s set by the plan administrator and/or your employer — investors can manage their own investment costs.

To determine the amount you’re paying for a 401(k) plan, divide the total plan cost (usually available on your 401(k) statement) by your total investment.

Note that active investing can refer to individual investors, but the philosophy of making trades with the objective of exceeding market returns also drives actively managed funds.

Why Fees Matter

Over time, just one or even half a percentage point could potentially make an impact on a retirement account. That impact could in turn mean the difference between retiring when planned, vs. working a few more years until the overall investment grows. A lower expense ratio could help an investor retain more of the value of their 401(k).

For example, a well-known Government Accountability Office analysis from 2006 found that someone who invests $20,000 every year for 20 years in a 401(k) plan that costs 1.5% per year to operate is likely to end up with 17% less than someone whose plan costs just 0.50%. The analysis concluded that after 20 years, that half a percentage point meant the difference of more than $10,000. Similar studies on the impact of fees have found similar results.

Until relatively recently 401(k) expense ratio information wasn’t public, and even now it can be somewhat difficult to locate.

How to Reduce Your Expense Ratio

Before an investor can attempt to reduce their expense ratio, they need to be familiar with what it is.

Until relatively recently 401(k) expense ratio information was not public, and even now it can be somewhat difficult to locate. In 2007, the Securities and Exchange Commission (SEC) approved an amendment requiring the disclosure of these fees and expenses in mutual fund performance and sales materials.

Today, there are a few ways to get the information — and take action:

• Read the fine print. Look closely at 401(k) participant fee disclosure notices, which participants should receive at least annually with any plan. Or look for the current information in a funder’s prospectus on their website. Building on the 2007 amendment, the DOL introduced a rule in 2012 to improve transparency around the fees and expenses to workers in 401(k) retirement plans.

• Ask outright. Investors seeking more information might also choose to call their fund’s client services number directly to get the most up-to-date information on plan costs. Investors who work with a financial advisor can also ask their advisor for this information, as well as their opinions on these expenses.

◦ Evaluate your funds. It can also be helpful to look at the funds being offered by an employer, provider, or broker to see if there is a similar fund that comes with lower expenses. Investors may be able to find the investments they want at a cheaper price, even within their current 401(k) plan.

For investors whose 401(k) plan is not through a current full-time employer — a common situation when people change jobs — they may want to consider a rollover IRA in order to pay lower fees and gain access to a wider array of investments.

The Takeaway

There’s no magic number that indicates a 401(k) expense ratio is too high or just right, and all plans are different. Under federal law, employers have a fiduciary duty to offer reasonably priced options and to monitor the quality of the 401(k) plan they offer. The more an investor knows about their current plan, the better equipped they are to make compelling arguments for how to improve their plan.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Help build your nest egg with a SoFi IRA.

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

SOIN-Q125-030

Feb

2025

How to Keep Track of Your Student Loans

By Julia Califano | Fresh Out of School, Student Loans, student_loan | No Comments

More than 50% of students who earn a bachelor’s degree graduate college with some debt. The average student loan debt, including federal and private loans, is $38,375. The key to paying down that debt quickly is to stay organized. If you have a mix of federal and private loans (with different payment plans, interest rates, and due dates), however, that’s easier said than done.

Unfortunately, one late payment can tarnish your credit history. Before you get into any trouble, it is a good idea to put together a system and a plan for making payments and keeping track of your loans. The following tips and strategies can help.

Key Points

• Establishing a system to organize and manage your student loans can help borrowers stay on track with repayment.

• Create a spreadsheet to track loan balances, payments, and due dates for better management.

• Sign up for autopay to ensure timely payments and potentially receive interest rate reductions.

• Securely organize log-in details for all loan servicers to save time and avoid frustration.

• Consider refinancing to lower interest rates and monthly payments, but weigh the loss of federal benefits.

Understanding Your Student Loans

If you’re like many borrowers, you may have a combination of different types of student loans. Each type has different benefits and features, so it’s important to understand how federal and private student loans work, and to take note of each loan’s amount, interest rate, and payment requirements.

If you’re not sure what type of federal student loans you have, you can log on to StudentAid.gov and select “My Aid” in the dropdown menu under your name. There you can find:

• Your student loan amounts and balances

• Your loan servicer(s) and their contact information

• Your interest rates

• Your current loan status (e.g., repayment, in default, etc.)

The government’s database won’t tell you about private loans, though. For that, you can get details from the bank or lender where you obtained the loan. If you completely lost track of what private loans you have, you can check your credit report. You can get a free credit report at AnnualCreditReport.com.

Understand Loan Repayment Options

Federal student loans offer multiple payment options. If you don’t choose a specific plan, you’ll automatically be placed on the 10-year standard repayment plan, which could be a good choice if you’re looking to save on interest. Other options include the Extended Payment Plan and Graduated Repayment Plan.

If you want lower monthly payments and student loan forgiveness, you might want to apply for an income-driven repayment plan. With these plans, your payment amount is a percentage of your discretionary income (typically 10% to 20%). After making payments for 20 or 25 years, any remaining loan balance is forgiven.

Private student loans generally offer less flexibility, but you likely had a choice of a few different repayment plans when you initially borrowed the loan. Typically, lenders will let you choose a loan term between five and 20 years when you first sign for a student loan. If you’re not happy with the terms, you may want to consider student loan refinancing, which could potentially help you get a new loan with a lower interest rate and more favorable terms.

Organizing Your Loan Information

If you’re feeling overwhelmed by your student loans, these tips can help you get organized and make the repayment process simpler and less stressful.

Gather Your Documents

An important first step toward keeping track of your student loans is to gather all of your documents and keep them in one place (such as a three-ring binder or file folders). These documents may include:

• Financial aid award letters

• Promissory notes (legal contracts detailing the terms that you received when you originally signed for your student loans)

• Disclosure documents (which include information about rates, fees, disbursement dates, and amounts)

• Monthly billing statements and emails from your loan servicers
As any mail comes in regarding your loans, be sure to add it to your binder or file system.

Create a Spreadsheet

A spreadsheet allows you to have all of the details of your student loans summarized in one place. You could use something like Microsoft Excel or Google Sheets, or just a regular computer document. Details you may want to include in your master spreadsheet:

• Name of the federal loan and whether it is subsidized or unsubsidized

• Name of the private lender (if applicable)

• Name and contact details of the lender or loan servicer

• Total amount borrowed

• Term of the loan

• Interest rate (this can help you decide which loans you should pay off first)

• Payment due date

• Current loan balance (this will go down as you update your spreadsheet)

With all your loan details in one place, you’ll likely find it easier to stay on top of your student loans. It’s also a good idea to take a few minutes every month to update the columns to reflect the latest status of every loan.

Sign Up for Autopay

If you have a job with a steady income, you may want to set up autopay for all of your loan payments. Since your payments will be automatically taken from your bank account, you won’t have to worry about missing a payment or getting hit with a late fee. Plus, you’ll receive a 0.25% interest rate deduction on your federal loans. Many private lenders will also lower your interest rate by .25% to .50% when you enroll in autopay. This can add up to substantial savings over the life of your loan.

You’ll want to be careful, however, that you have sufficient funds in your bank account. If you don’t, you will have to manually adjust your payment amount accordingly.

Organize Your Login Details

Organizing your login details for each student loan website can save you a lot of time and frustration in the coming years. It also makes it quick and easy to check in on your loans and track your repayment progress.

You can go old school and simply write down all of your usernames and passwords on a piece of paper and store the document in a secure place. Or, you might choose to go more high-tech and use a password manager app or website (such as Dashlane or 1Password) or a built-in manager like Apple’s Keychain. This can save you the headache of repeatedly trying — and failing — to access your accounts.

Utilize Online Tools and Apps

There are free websites and online student loan trackers that can help you stay on top of your student loans. There are also apps that specialize in managing and paying off loans easily. Some you might want to check out:

• Undebt.it This free app can help you eliminate all debt, not just student loans. Once you enter your loan information, you can see how quickly you can pay them off using the debt snowball or debt avalanche strategy, as well as the amount that you’ll save on interest over the life of each loan.

• Debt Payoff Assistant This free iPhone app lets you view all of your debts in one place. Simply enter your loan information and the dashboard will break down your different types of debts and your total amount of debt. You can then use the app to see how much you’ll save using the debt snowball payoff method.

• Changed You link your credit or debit card to the app and every time you make a purchase, the app rounds it up to the nearest dollar and puts the change into your Changed account. Once you reach a certain threshold, that money gets deposited to your student loan provider. The app also offers a dashboard that lets you see all your loans in one place. (There is a fee starting at $4 a month.)

Simplify Your Loans by Refinancing

When you refinance your student loans, you combine your federal and/or private loans into one private loan with a single monthly payment. This can simplify repayment and might be a smart move if your credit score and income can qualify you for lower interest rates.

With a refinance, you can also change your repayment terms. You might choose a shorter term to pay off your student loans faster. Or, you might go with a longer repayment term to lower your monthly payments (note: you may pay more interest over the life of the loan if you refinance with an extended term).

If you’re considering a refinance, keep in mind that refinancing federal loans with a private lender disqualifies you from government benefits and protections, such as income-driven repayment plans and generous forbearance and deferment programs.

The Takeaway

When it comes to paying off your student loans, knowledge is power. So a great first step is to take inventory of all the loans you have, noting the loan amounts, interest rates, payment amounts, and due dates. Other ways to stay organized include: storing all of your loan paperwork and mail in one place, creating a master student loan spreadsheet, and using technology (like apps and loan platforms) to help you track your progress and pay off your loans faster.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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.

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.

SOSLR-Q125-004

Feb

2025

Are Robo-Advisors Worth It? Are They Safe?

By AJ Smith | Growing Wealth, invest, Investing | Comments Off

Automated portfolios have become a common option offered by financial companies, providing many people with a cost-efficient way to invest for retirement and other goals — while helping to manage certain market and behavioral risks via automated features.

Because robo-advisors typically rely on sophisticated computer algorithms to help investors set up and manage a diversified portfolio, some have questioned whether technology alone can address the range of needs that investors may have — beyond basic portfolio management. Others note that the lower fees and lower minimum balance requirements typical of most robo-advisors, in addition to certain automated features, may provide a much-needed option for new investors.

Key Points

• Robo-advisors offer cost efficiency and automation, reducing fees and providing features like automatic rebalancing and tax optimization.

• Robo-advisors are well-suited for long-term goals like retirement, managing risks and maintaining diversified portfolios.

• A key limitation may be limited investment options, sometimes restricted to pre-set portfolios of low-cost index ETFs.

• Personal advice is generally limited, focusing on automated portfolio management based on initial client inputs.

• The industry has grown rapidly, adding more sophisticated features and a broader range of investment options, appealing to a wider audience.

Is a Robo-Advisor Right for You?

Robo-advisors typically use artificial intelligence to generate retirement and financial planning solutions that are tailored to people’s individual needs. Here are some questions to ask yourself, when deciding whether a robo-advisor is right for you.

How Does a Robo-Advisor Pick Investments?

While the term robo-advisor can mean different things depending on the company that offers the service, investors usually fill out an online questionnaire about their financial goals, risk tolerance, and investment time frames. On the back end, a computer algorithm then suggests a portfolio of different securities based on those parameters.

For example one person may be investing for retirement, another saving for the purchase of a home. Depending on each person’s preferences, the robo-advisor generates an asset allocation that aligns with the person’s goals in the form of a pre-set portfolio.

A portfolio for someone nearing retirement age would typically have a different allocation versus a portfolio for someone in their 20s, for example. Depending on these details, the service might automatically rebalance the portfolio over time, execute trades, and may even conduct tax-loss harvesting. SoFi’s automated portfolio does offer automatic rebalancing, but not automatic tax-loss harvesting.

Can I Choose My Own Investments?

A robo-advisor typically has a range of investments they offer investors. Usually these are low-cost index exchange-traded funds (ETFs), but the offerings can vary from company to company. In most cases, though, your investment options are confined to those available through the robo-advisor, and typically you’re offered a selection of pre-set portfolios with limited or no ability to change the securities in that portfolio.

As the industry grows and becomes increasingly sophisticated, more companies are finding ways to offer investors new options like themed ETFs, stocks from different market sectors, socially responsible or ESG investing options, and more.

Who Manages the Portfolio?

Part of the appeal for some investors is that these portfolios are automated and thus require less hands-on involvement. This may be useful for people who are new to the process of setting up and managing a diversified portfolio, or who don’t feel comfortable doing so on their own.

In some cases, a robo-advisor service may also offer a consultation with a live human advisor. But again, in most cases the investor has limited control over the automated portfolio.

Recommended: Robo-Advisors vs. Financial Advisors

Are There Risks Involved in Using a Robo-Advisor?

Investment always involves some exposure to market risks. But robo-advisors may help manage behavioral risk. Many studies have shown that investors can be impulsive or emotional when making investment choices — often with less than optimal results.

By reducing the potential for human error through the use of automation, a robo-advisor may help limit potential losses.

What Do Robo-Advisors Cost?

While there are some robo-advisor services that have higher minimum balance requirements or investment fees, the majority of these services are cost efficient.

In some cases there are very low or no minimums required to set up a portfolio. And the management fees are typically lower than what you’d pay for a human advisor (although there are typically brokerage fees and expense ratios associated with the investments in the portfolio).

Pros and Cons of Robo-Advisors

Hopefully, the questions above have clarified the way a robo-advisor works and shed some light on whether a robo service would be right for you. In addition, there are some pros and cons to keep in mind.

Pros of Robo-Advisors

Saving for Retirement

It’s true that you can use a robo-advisor for almost any short- or long-term goal — you could use a robo-advisor to save for an emergency or another savings goal, for example. But in many ways these services are well-suited to a long-term goal like retirement. Indeed, most robo-services offer traditional retirement accounts like regular IRAs, Roth IRAs, SEP IRAs.

The reason a robo-advisor service can be useful for retirement is that the costs might be lower than some other investment options, which can help you keep more of your returns over time. And the automated features, like portfolio rebalancing and tax optimization (if available), can offer additional benefits over the years.

Typically, many robo-portfolios require you to set up automated deposits. This can also help your portfolio grow over time — and the effect of dollar-cost averaging may offer long-term benefits as well.

Diversification

Achieving a well-diversified portfolio can be challenging for some people, research has shown, particularly those who are new to investing. Robo-advisors take the mystery and hassle out of the picture because the algorithm is designed to create a diversified portfolio of assets from the outset; you don’t have to do anything.

In addition, the automatic rebalancing feature helps to maintain that diversification over time — which can be an important tool to help minimize risks. (That said, diversification itself is no guarantee that you can avoid potential risks completely.)

Automatic Rebalancing

Similarly, many investors (even those who are experienced) may find the task of rebalancing their portfolio somewhat challenging — or tedious. The automatic rebalancing feature of most robo-advisors takes that chore off your plate as well, so that your portfolio adheres to your desired allocation until you choose to change it.

Tax Optimization

Some robo-advisors offer tax-loss harvesting, where investment losses are applied to gains in order to minimize taxes. This is another investment task that can be difficult for even experienced investors, so having it taken care of automatically can be highly useful — especially when considering the potential cost of taxes over time.

That said, automatic tax-loss harvesting has its pros and cons as well, and it’s unclear whether the long-term benefits help make a portfolio more tax efficient.

Want to start investing?

Our robo-advisor service can offer a portfolio to suit
your needs and risk level.

Cons of Robo-Advisors

Limited Investment Options

Most automated portfolios are similar to a prix fixe menu at a restaurant: With option A, you can get X, Y, Z investment choices. With option B, you can get a different selection, and so on. Typically, the securities available are low-cost index ETFs. It’s difficult to customize a robo account; even when there are other investments available through the financial company that offers the robo service, you wouldn’t have access to those.

In some cases, investors with higher balances may have access to a greater range of securities and are able to make their portfolios more personalized.

Little or No Personal Advice

The term “robo-advisor” can be misleading, as many have noted: These services generally don’t involve advice-giving robots. And while some services may allow you to speak to a live professional, they aren’t there to help you make a detailed financial plan, or to answer complex personal questions or dilemmas.

Again, for investors with higher balances, more options may be available. But for the most part robo-advisors only cover the basics of portfolio management. It’s up to each individual to monitor their personal situation and make financial decisions accordingly.

Performance

Robo-advisors have become commonplace, and they are considered reliable methods of investing, but that doesn’t mean they guarantee positive returns.

Robo-Advisor Industry

Robo-advisors have grown quickly since the first companies launched in 2008-09, during and after the financial crisis. Prior to that, financial advisors and investment firms made use of similar technology to generate investment options for private clients, but independent robo advisor platforms made these automated portfolios widely available to retail investors.

The idea was to democratize the wealth-management industry by creating a cost-efficient investing alternative to the accounts and products offered by traditional firms.

Assets under management in the U.S. robo-advisor market amount to hundreds of billions of dollars, with the expectation that that will grow in the years ahead. While this market is small compared to the $100 trillion in the global asset-management industry, robo-advisors are seen as potential game-changers that could revolutionize the world of financial advice.

While this market is small compared to the $100 trillion in the global asset-management industry, robo-advisors are seen as potential game-changers that could revolutionize the world of financial advice.

Because they are direct-to-consumer and digital only, robo-advisors are available around the clock, making them more accessible. Their online presence has meant that the clientele of robo-advisors has tended to skew younger.

Also, traditional asset management firms often have large minimum balance requirements. At the high end, private wealth managers could require minimums of $5 million or more.

The cost of having a human financial advisor can also drive up fees north of 1% annually, versus the 0.25% of assets that robo-advisors typically charge (depending on assets on deposit). Note that this 0.25% is an annual management fee, and does not include the expense ratios of the underlying securities, which can add on another 5 or even 50 basis points, depending on the company and the portfolio.

Recommended: How to Track Robo-Advisor Returns

The Takeaway

Despite being relative newcomers in finance, robo-advisors have become an established part of the asset management industry. These automated investment portfolios offer a reliable, cost-efficient investment option for investors.

Robo advisors don’t take the place of human financial advisors, but they can automate certain tasks such as selecting a diversified group of investments that align with an individual’s goals; automatically rebalancing the portfolio over time; using tax-optimization strategies that may help reduce portfolio costs.

Ready to start investing for your goals, but want some help? You might want to consider opening an automated investing account with SoFi. With SoFi Invest® automated investing, we provide a short questionnaire to learn about your goals and risk tolerance. Based on your replies, we then suggest a couple of portfolio options with a different mix of ETFs that might suit you.

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SoFi Invest®

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

SOIN-Q125-026

Feb

2025

What Is Automated Investing?

By Inyoung Hwang | Growing Wealth, invest, Investing, Terminology | No Comments

Automated investing is a type of investing that uses computer algorithms to recommend investment portfolios to an individual based on their goals, time horizon, and risk profile. Automated investing platforms, also known as robo-advisors, tend to feature lower fees, lower minimum balances, digital applications, and a more hands-off approach to investing.

Because automated investing can be done with little or no direct human effort, it can be an ideal option for investors just starting their wealth-building journey. Automated investing may reduce the learning curve for some investors entering the financial markets, helping them start building and managing a portfolio to achieve their financial goals.

Key Points

• Automated investing uses algorithms to provide tailored financial planning and retirement advice.

• Lower fees and minimum balances make automated investing accessible for beginners.

• Platforms collect data on financial situations, risk tolerance, and goals to manage a diversified portfolio.

• Automated platforms handle tasks like portfolio rebalancing and tax-loss harvesting.

• Drawbacks include limited human interaction and potential exposure to market volatility.

Automated Investing: A Primer

There are several reasons why investors choose automated investing tools to help them manage an investment portfolio.

Automated investing uses computer algorithms to select and trade stocks, exchange-traded funds (ETFs), or other assets without the need for oversight by a human financial advisor.

Automated investing has changed the financial advisory game in fundamental ways. Like so much else that has happened during the digital revolution, automated investing has eliminated the middle man and is delivering a service directly to the client – you, the investor.

Investors who sign up for an automated investing platform usually start by filling out a questionnaire, which collects information about the investor’s financial situation, risk tolerance, and goals. The automated investing advisor then uses this data to recommend investments to the client that may help them meet their financial goals. Based on the investor’s input, the automated investing platform will recommend and manage a pre-determined portfolio for the investor using computer algorithms and other data.

Automated investing advisors may also handle portfolio rebalancing and tax-loss harvesting if the client chooses these services. (SoFi’s automated portfolio includes the above features, but not automated tax-loss harvesting.)

Most automated advisors use Modern Portfolio Theory (MPT) to create and manage a portfolio’s asset allocation. The idea is to decrease risk by diversifying a portfolio into many assets and not “put all your eggs in one basket.”

Automated Investing vs Robo Advisors

Automated investing tools are sometimes referred to as robo advisors. Investors may see the terms automated investing and robo-advisors used interchangeably to describe digital tools that use computer algorithms to manage a financial portfolio.

In reality, though, automated investing is a broader term that can refer to several aspects of today’s financial products and features.

• Using automatic transfers and contributions to investment portfolios and retirement plans is a form of automated investing.

• Target date funds, a type of mutual fund that rebalances over time to become less conservatively invested, uses a form of automated investing known as a glide path.

Want to start investing?

Our robo-advisor service can offer a portfolio to suit
your needs and risk level.

Why People Choose an Automated Investing Strategy

There are several reasons why investors choose automated investing tools to help them manage an investment portfolio.

Low-Cost Process

Automated investing advising generally costs less than traditional financial advisors. The reason the cost of automated advising is lower is because it relies on an algorithm, while the guidance of a live person can cost more. In other words: A human touch comes with a premium price.

Automated investment fees are usually a percentage of the assets under management (AUM). Typical fees are less than 0.5% of AUM annually. So if an investor puts $10,000 into an automated investing service, they generally pay less than $50 per year.

By comparison, a reasonable rate for a human financial advisor would be a 1% investment fee. On a $ 10,000 investment, that’s $100 per year just for the advisory fee. Investors may also have to pay fees on their investments and commissions for products the financial advisor sells.

However, automated investing services have additional fees as well. Robo-advisors charge a brokerage fee, and the ETFs themselves typically generate management fees, taxes, and other costs for which the consumer is responsible.

Like many investment costs, however, these fees can be hard to track as they may simply be deducted from investor returns. That’s why it’s important to look beneath the hood, so to say, of any investment product to learn the exact costs.

Recommended: How Much Does a Financial Advisor Cost?

More Affordable Initial Investment

Many automated investing platforms have low minimum account requirements. And some platforms have no minimum initial investment requirements.

In contrast, some human financial advisors won’t take on a client unless they have more than $100,000. At the high end, private wealth managers could require minimums of $5 million.

Because of the lower initial investment required, younger consumers have turned to automated investing in planning for their financial future. Previously, high minimum balances had been headwinds to younger investors, preventing them from getting financial advice.

As younger investors, like Generation Z and millennials, start hitting life milestones like getting married and saving for a house, automated investing may be a good option for them to begin building wealth.

Efficient & Convenient Access

With traditional financial advisors, clients had limited access and had to work around the human advisor’s schedule. Automated advisors use digital platforms. This allows clients to ask questions and access help 24 hours, seven days a week, if needed.

Need to make a trade or a change? There is no need to call to schedule an appointment, fill out a physical form, meet with an advisor in person, or wait for office hours. Usually, a few button pushes can do the trick.

Lower fees and minimum balances have attracted younger investors to the automated investing industry. But the digital and mobile platforms these services offer have also made younger users turn to such automated services more.

Concerns About Automated Investing Services

Robo advisors do come with some downsides, however.

Limited Human Interaction

While some automated services may offer investors the ability to contact a live advisor or representative, not all of them do. And even when that’s available, your access may depend on how much money you have invested.

In any case, if you have pressing questions or an investing dilemma, it’s likely it will be up to you to figure out the right steps to take.

Not Fully Customizable

It’s true that a robo-advisor is designed to offer a range of pre-set portfolios, one of which will hopefully meet an investor’s needs. But automated platforms don’t have the flexibility to offer each person a fully customizable portfolio — for that they would need to craft their own or work with a professional.

By the same token, if your personal circumstances changed in such a way that your investment strategy also shifted, it’s unlikely that you’d be able to adjust an automated portfolio except in terms of its basic asset allocation.

Risks and Costs of ETFs

Most robo advisors use a mix of ETFs and low-cost index funds. ETFs hold a basket of stocks or bonds and the vast majority of these funds are passively managed, i.e. they are built to mirror an index, such as the S&P 500. ETFs differ from index mutual funds in that they are traded throughout the day on an exchange, similar to stocks.

ETFs come with certain risk factors. Because ETF shares are traded throughout the day, they’re bought and sold at the market price, which may or may not reflect the fund’s net asset value or NAV. Thus, an ETF’s performance is subject to market volatility. In addition there can be tax consequences, owing to the trading of shares.

What to Look for in an Automated Investment Platform

If you’re interested in opening an automated investing account, there are several factors you may want to consider before deciding if automating investing is right for you.

Automated Investing Fees

As mentioned above, automated investing fees are generally lower than traditional financial advisors. However, you still want to compare the fees of the various automated investing platforms on the market.

Some platforms charge a flat fee, while others charge a percentage of your assets under management. In addition, some platforms charge fees for specific services, such as tax preparation or additional investment advice.

Affordability

Some automated investment platforms require a minimum investment to open an account. You’ll want to understand any minimum investment requirements before opening an account. For example, some automated investing platforms may offer a $0 account minimum, but that might not include certain robo-advisory services you’re looking for.

Investment Options

The investment options offered by automated investment platforms vary. Some platforms offer a limited selection of investment options, while others offer a wide range of investments. You want to ensure the automated investing platform you choose offers investment options that meet your needs.

Usually, robo-advisors only invest in ETFs and mutual funds, so you’ll want to see if the services offer a range of funds, from international equities to domestic corporate bonds. Knowing what investment options a robo-advisor provides may help you ensure that you may end up with a diversified portfolio that aligns with your goals.

Investment Rebalancing

Generally, a robo-advisor will make automated investments based on your risk tolerance and financial goals. These services will create a portfolio of a certain percentage of stock ETFs and bonds ETFs based on risk tolerance. But you want to check that the automated investing services will rebalance your portfolio to maintain that percentage of stocks and bonds.

For example, an investor with a more aggressive risk tolerance may have a portfolio with an asset allocation of 80% stocks and 20% bonds. With time, the portfolio may change and knock that ratio off balance — too much of one and not enough of the other. An automated investor can automatically rebalance your account to its original 80/20 ratio. No human interaction is needed; the rebalance happens through the automated investing algorithm.

Human Interaction

Some automated investing services may give investors access to human financial professionals, which can be helpful for investors who need to ask questions, discuss goals, and plan for the future. Automated investing services might charge for this service, but it could be helpful to have this option.

Who Might Want to Consider Auto Investing?

Automated investing may be a good option for people who want to invest for the long term but do not want to manage their own portfolios or pay high fees for a traditional financial advisor. It can also be a good option for people who want to invest in various asset classes, but don’t have the time or expertise to do so themselves.

That doesn’t mean auto investing is right for everyone. For those who aren’t particularly tech savvy or comfortable with automated platforms, using a robo-advisor might not make sense. Again, it’s important to be comfortable with the investments offered in these pre-determined portfolios, as well as the risks and costs associated with these products.

As noted above, many younger investors have begun using robo-advisors to create portfolios and make automated investment decisions. This may allow younger investors to build up experience in the financial markets while using a pre-set portfolio. As they build wealth and expertise, younger investors may decide to make investment decisions on their own or hire a traditional financial advisor to help manage their financial goals.

The Takeaway

An automated investing platform can be ideal for many investors, particularly regarding affordability, convenience, and avoiding potential human errors. This investment tool allows investors to use a hands-off approach, which many people may prefer over the time-consuming research and management required for picking and choosing stocks, bonds, and other assets to build and manage a portfolio.

Open an automated investing account and start investing for your future with as little as $1.

Photo credit: iStock/gorodenkoff

SoFi Invest®

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

SOIN-Q125-017