Jul
27
2023
Preferred Stock vs. Common Stock
Before you start trading on the market, read our guide to understand the pros and cons of common vs. preferred stock.
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SoFi
Student Loan Consolidation and Refinancing
Jul
27
2023
What Types of Stocks Do Well During Volatility?
Volatility is a measure of how much and how often a security’s price or a market index moves up or down over time. Higher volatility can mean higher risk, but it also has the potential to generate bigger rewards for investors. Meanwhile, lower volatility is typically correlated with lower risk and lower returns.
Developing a volatility investing strategy can make it easier to maximize returns while managing risk as the market moves from bullish to bearish and back again. Understanding the various stock market sectors and how they react to volatility is a good place to start. This can help with building a portfolio that’s designed to withstand occasional market dips or in the worst-case scenario, a recession.
What Causes Volatility in the Stock Market?
To implement a volatility investing plan it helps to first understand what causes fluctuations in stock prices to begin with. Stock market volatility can ebb and flow over time, and how high or low it is can depend on a number of factors. Some of the things that can push volatility levels higher include:
• Political events, such as elections
• Release of quarterly earnings reports
• Natural disasters
• The bursting of a stock market bubble
• Crises that in foreign countries
• Federal Reserve adjustments to interest rate policy
• News of a merger or acquisition
• Changes to fiscal policy
• Initial Public Offerings (IPOs) hitting the market
• Excitement over meme stocks
A global pandemic can also spark volatility, as evidenced in the mini market crash that occurred early in 2020. Coronavirus fears prompted the end of the longest bull market in history, sending stocks into a bear market.
The downturn was significant enough that the National Bureau of Economic Research Business Cycle Dating Committee dubbed it a recession. It was, however, the shortest on record, lasting just two months. (By comparison, it took 18 months for the stock market to go from peak to trough during the Great Recession).
Predicting volatility can be difficult, though there is a tool that attempts it. The Cboe Volatility Index (VIX) is a market index designed to measure expected volatility in the stock market. The VIX uses real-time stock quotes to calculate projected volatility over the coming 30 days. The VIX is one factor that goes into the Fear and Greed Index, which measures the emotions driving the stock market.
💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.
Market Sectors and Volatility
The stock market is effectively a pie with 11 different slices called sectors. These sectors represent the various segments of the market, based on the industries and companies they represent. The 11 sectors identified by the Global Industry Classification Standard (GICS) are:
• Information technology
• Health care
• Financials
• Consumer discretionary
• Consumer staples
• Communication services
• Industrials
• Materials
• Energy
• Utilities
• Real estate
Some of these sectors include more volatile industries than others, and the share of stocks in those industries within a given portfolio can impact how the portfolio reacts during times of volatility.
Stocks that tend to bear up under the pressure of a downturn or recession are generally categorized as defensive. You may also hear the terms “cyclical” and “non cyclical” used in reference to different market sectors. A cyclical sector or stock is one that’s volatile and tends to follow economic trends at any given time. Non Cyclical sectors or stocks, on the other hand, may outperform when the market experiences a downturn.
What Stock Sectors Do Best During Market Volatility?
Defensive stock market sectors tend to do better when the market is in decline for one reason: they represent things that consumers still need to spend money on, even when the economy is weakening. That means they may be of interest if you’re investing during a recession.
The following sectors tend to do the best during times of volatility:
• Utilities
• Consumer staples
• Health care
Here’s a closer look at how each sector works.
Utilities
The utilities sector represents companies and industries that provide utility services. That includes gas, electric, and water utilities. It can also include power producers, energy traders, and companies related to renewable energy production or distribution.
Since people still need running water, electricity and heat during a recession, utilities stocks tend to be a safe defensive bet.
Consumer Staples
The consumer staples sector covers companies and industries that are less sensitive to a changing economic or business cycle. That includes things like food and beverage manufacturers and distributors, food and drug retailing companies, tobacco producers, companies that produce household or personal care items and consumer super centers.
In simpler terms, the consumer staples sector means things like grocery stores, drugstores, and the manufacturers of everyday products. Since people still need to buy food and basic household or personal care items in a recession, stocks from these sectors can do well when volatility is high.
Health care
The health care sector includes health care service providers, companies that manufacture health care equipment, distributors of that equipment, health care technology companies, research and development companies and pharmaceutical companies.
Health care is a defensive sector since a recession usually doesn’t disrupt the need for medical care or medications.
💡 Quick Tip: It’s smart to invest in a range of assets so that you’re not overly reliant on any one company or market to do well. For example, by investing in different sectors you can add diversification to your portfolio, which may help mitigate some risk factors over time.
What Sectors and Stocks Are More Volatile?
When a recession sets in, defensive sector stocks can be a good buy. The period before a recession begins is often marked by increased volatility and declining stock prices. The impacts of that volatility may be more deeply felt in these sectors:
• Consumer discretionary
• Financials
• Communication services
• Energy
• Information technology
• Commodities
• Industrials
• Materials
These sectors represent more volatile industries that are more likely to be affected by large-scale market trends. For example, the financial sector suffered a serious blow leading up to the Great Recession. A decline in home prices paired with faulty lending practices prompted widespread defaults on mortgage-backed securities, leading a number of financial institutions to seek government bailout funding.
On the other hand, some of these same sectors do well when the economy is coming out of a recession and entering the early stage of the business cycle. For example, the consumer discretionary sector, which includes things like travel and entertainment, typically rebounds as consumers ease their purse strings and start spending on “fun” again. The industrials and materials sectors may also pick up if there’s an increase in manufacturing and production activity.
Understanding the relationships between individual sectors and the business cycle can make it easier to implement a sector investing approach. With sector investing, you’re adjusting your asset allocation over time to try and stay ahead of the economic cycle.
If you suspect a recession might be coming, for example, a sector investing strategy would dictate shifting some of your assets to defensive stocks. On the other hand, if you believe a recession is about to end and stocks are set to bounce back, you may shift your allocation to include more volatile industries that tend to do better in the early stages of the business cycle.
Recommended: Why You Need to Invest When the Market Is Down
Volatility and Business Cycles
Identifying volatile industries generally means considering which sectors or stocks are most sensitive to changes in the economic cycle. Aside from recessionary periods, the business cycle has three other stages:
Early Stage
The early stage of the business cycle typically represents the initial recovery period following a recession. Consumers may begin spending more money on non essentials as the economy begins to strengthen. This is also called the expansion phase, and it may coincide with periods of inflation.
Mid Stage
During the mid stage, the economy begins to hit a peak or plateau with growth leveling off. People are still spending money but the pace may begin slowing down.
Late Stage
The late stage is also called the contraction stage, as economic growth lags. The late stage of the business cycle is usually a precursor to the trough or recession stage.
The Takeaway
Volatility is unavoidable but there are things investors can do to minimize the impact to their portfolio. Diversifying with stocks, exchange-traded funds (ETFs), or IPOs could help create volatility hedges.
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).
Photo credit: iStock/Serdarbayraktar
SoFi Invest® INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
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.
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.
SOIN0723032
Read moreJul
27
2023
How to Invest in Gold: Tips for 1st Time Gold Investors
As you build your investing portfolio, you might wonder: Is gold a good investment? While some investors may be interested in it as a hedge against inflation or market downturns, or to further diversify their portfolio, it’s important to know that investing in gold isn’t simple, especially for first-time investors. One reason is that there are so many ways to invest in gold, each with their own pros and cons.
Why Investors Like Gold
Historically, investors have turned to gold as a way to hedge against the possibility of inflation or events that could negatively impact the equity markets. And while it can be just as volatile as stocks in the short term, gold has historically held its value well over the long term. Even investors who are not particularly concerned about inflation or about calamities affecting the broader market, may turn to gold as a way to diversify a portfolio.
5 Ways to Invest in Gold
For anyone considering investing in this precious metal, it can be helpful to familiarize yourself with the different ways one can invest in gold.
Buy Physical Gold
When thinking of ways to invest in gold, the first image that may come to mind is piles of gold bars in a place like Fort Knox. Those bars are also known as bullion, and it comes in bars that can be as small as a few grams, or as large as 400 ounces. The most common denominations of gold bullion are one- and 10-ounce bars.
For many investors, even the one-ounce bars can be too expensive — roughly $2,200 per ounce in mid 2023. And because the bullion is a physical item, there’s no easy way to own a fraction of a bar. But if you do want to own bullion directly, the first order of business is to find a reputable dealer to buy from, and then look into the costs of delivery and insurance for the asset. Another option if you buy bullion is to pay for storage, either in a large vault or in a safety deposit box at a bank.
Buy Gold Coins
Gold coins offer another way to directly own the shiny yellow metal, in a variety of denominations including half-ounce and quarter-ounce. Well-known gold coins include South African Krugerrands, Canadian Maple Leafs, and American Gold Eagles, which have been known to sell at a premium to their actual gold content among collectors.
While you may be able to buy gold coins at a discount from local collectors or pawn shops, most investors will likely opt for a reputable dealer. As with bullion, it is important to protect this hard asset, either through insurance, or with a vault or safe deposit box.
Buy Gold Jewelry
If you don’t want your gold investment to just sit in a vault, then gold jewelry may be appealing. But it comes with its own considerations. The first is that gold jewelry may not have as much actual gold content as the jeweler claims. Verifying the authenticity of a piece not only protects you, but it will also help when it comes time to sell the piece. One way to do this is to only buy jewelry from reputable dealers, who can also deliver documentation about the piece.
Another point to remember is that a piece of jewelry will also come with a markup from the company that made it, which can make the piece cost as much as three times the value of its metal. And jewelry typically isn’t 100% pure gold — or 24 karats — so it’s important to know the purity and melt value of the jewelry before you buy.
Buy the Stocks of Gold Mining Companies
One way to take advantage of growth in the value of gold with your existing brokerage account that you might want to consider is to buy the stocks of companies in the gold business, including miners and refiners.
While gold stocks tend to go up and down with the price of gold, they may also experience price changes based on the company’s own prospects.
💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.
Buy Gold ETFs and Mutual Funds
If the risks or individual mining and refining companies are too much, you may want to consider a gold exchange-traded fund (ETF) or mutual fund. These vehicles — which are available through one’s brokerage account — invest in gold in different ways.
Buy Gold Futures and Options
Experienced investors with some familiarity trading derivatives may consider investing in the gold market through futures and options. These contracts allow the investor to buy or sell gold for an agreed-upon price by a fixed date. To trade these contracts, an investor needs a brokerage account that offers the ability to trade them.
An investment in gold options or futures contracts, however, requires active monitoring. These contracts expire on a regular basis, so investors have to be ready to sell, roll over, or exercise them as gold prices change, and as the contracts reach their expiration dates.
💡 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 Will Gold Be Worth in 2030?
Predicting the future price of an idiosyncratic and volatile commodity like gold is all but impossible. For instance, back in 2020, gold increased in value by 24.6% in U.S. dollars, and reached all-time highs in a number of currencies, in anticipation of a coming wave of inflation.
In its 2023 In Gold We Trust report, asset manager Incrementum predicted a “showdown in gold prices” and increased demand due to inflation and a possible recession, stating that “investment demand from gold ETFs could tip the gold prices scales.”
One reason why gold investors believe the precious metal may have strong prospects is that the broader economy has been in an inflationary period. One measure of this is the consumer price index (CPI). The latest CPI data in mid-2023 showed that inflation is slowing, but it’s still a concern for consumers and for investors.
The Takeaway
Investors interested in gold typically gravitate toward it as a hedge against inflation or as a means of diversifying their portfolios. Those who want access to this precious metal have some choices: They can buy bullion, coins, jewelry, mining stocks, ETFs, mutual funds, futures, and options.
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).
Image credit: iStock/LeonidKos INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest®
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
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.
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.
SOIN0723025
Read moreJul
26
2023
Stakeholder vs Shareholder: What’s the Difference?
Shareholders and stakeholders both have an interest in a company’s operations, but their priorities may differ.
Read moreJul
26
2023
What Is a Federal Direct Subsidized Loan?
A Direct Subsidized Loan is a type of federal student loan available to students who demonstrate financial need. The federal government subsidizes this type of loan by paying the interest that accrues while the student is enrolled in school at least half-time and during qualifying periods of deferment, such as the grace period.
The Direct Subsidized loan is one of three federal student loans available to student borrowers. The others are the Direct Unsubsidized Loan, Direct PLUS Loan, and Direct Consolidation Loan. Read on for more information about the benefits of Direct Subsidized loans and details about other types of student loans available to eligible students.
What Are the Benefits of a Federal Direct Subsidized Loan?
Like other types of student loans, you will be responsible for paying back your Federal Direct Subsidized Loan after you finish school. Unlike many other student loans, however, having a Direct Subsidized loan means you won’t be responsible for paying interest while you are in school or during a six-month grace period after graduation (or during other deferment periods). The U.S. Department of Education subsidizes this type of loan by paying the interest on your behalf during those periods.
Since the government is paying the interest that accrues while you are in school and during the grace period, no interest will be added to your balance before you begin repayment. This might sound like a minor detail, but not having to pay interest while you are in school and for six months after you graduate can significantly reduce the overall cost of your loan.
Like an Unsubsidized Direct loan, you’re not obligated to make payments during school — and the interest rate is relatively low. For the 2023-24 academic school year the interest rate for a Subsidized or Unsubsidized Direct Loan is 5.50%.
💡 Quick Tip: You’ll make no payments on some private student loans for six months after graduation.
How Do You Apply for a Federal Direct Subsidized Loan?
To apply for a Federal Direct Subsidized Loan, you will need to complete the Free Application for Federal Student Aid (FAFSA). The FAFSA is available for free online, and contains questions about you and your family’s financial circumstances.
The information you submit through the FAFSA is transmitted to your school and then used to determine what types of aid (including federal loans, grants, scholarships, and work-study) you are eligible to receive. The FAFSA must be completed annually.
There is no credit check involved in applying for a Federal Direct Subsidized (or Unsubsidized) loan, and you don’t need to worry about having a certain credit score.
How Is Your Eligibility for a Federal Direct Subsidized Loan Determined?
After your FAFSA has been reviewed, your selected school will send you an award letter that tells you your total cost of attendance, the award money you’ve been given, and what federal aid programs and loans you qualify for based on your FAFSA information.
You school will determine exactly how much you are eligible to borrow in federal loans based on a number of factors, including the amount the federal government expects you and your family to contribute to your educational costs, your current enrollment status, the school’s cost of attendance, any other financial aid you receive, and whether you are a dependent or independent student.
However, there are limits on the amount you can borrow with a Direct Loan, regardless of your financial need. If you are a dependent student, you can borrow a total of $31,000 for your undergraduate education in federal loans, but no more than $23,000 of this amount may be in Direct Subsidized Loans. Graduate and professional students cannot borrow subsidized loans.
Beyond Subsidized Loans: Other Options Available to Student Borrowers
Since eligibility for Direct Subsidized Loans is based on borrower need, and there are annual borrowing limits, you may be interested in learning about other available loan options. There are three other types of federal loans, and some borrowers may also want to consider private student loans.
The three types of federal loans available outside of Direct Subsidized Loans are:
• Direct Unsubsidized Loans These loans are available to undergraduate and graduate students, and eligibility is not based on financial need. Unlike Direct Subsidized Loans, however, interest starts accruing as soon as the money is disbursed to your school. You may choose not to pay this interest while you’re in school and during your six-month grace period, but any unpaid interest that accumulates during this time will be added to your total balance. How much you can borrow with an unsubsidized loan depends on your year in school as well as if you’re a dependent or an independent student.
• Direct PLUS Loans PLUS Loans are options for graduate/professional students and parents of students who are interested in borrowing a loan to help their child pay for college. Eligibility for this type of loan is not based on need, but the application process does require a credit check. The terms of these loans are somewhat less favorable than Direct Loans, which is why families will want to look at Direct Unsubsidized and Subsidized loans first. The interest rate on PLUS loans for the 2023-24 academic year is 8.05%. These loans also have an origination fee of 4.228%.
💡 Quick Tip: Parents and sponsors with strong credit and income may find much lower rates on no-fee private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.
• Direct Consolidation Loan This federal loan isn’t awarded to borrowers as a part of their financial aid package. Instead, a Direct Consolidation Loan allows borrowers with multiple federal loans to combine (or consolidate) them into a single loan, usually after school. The loan’s new interest rate is the weighted average of the current interest rates on the student loans that will be consolidated, rounded up to the nearest one eighth of a percent.
Private student loans are available through private lenders, including banks, credit unions, and online lenders. They come with a variety of terms and can offer competitive interest rates for students (or parent cosigners) with good or excellent credit. Unlike federal student loans, which offer only fixed rates, private student loans can have fixed or variable interest rates.
Also unlike federal student loans, private student loans often don’t charge any fees, such as an origination fee. However, private student loans don’t come with the same protections, such as government-sponsored loan forgiveness and income-driven repayment plans, as federal loans. Because of this, you may want to consider private loans only after you’ve exhausted federal loan options like Direct Subsidized loans and other sources of federal aid.
To apply for private student loans, potential borrowers will need to fill out an application directly with the lender of their choice.
The Takeaway
Borrowers with Federal Direct Subsidized Loans are not responsible for the interest that accrues while they are enrolled in school at least half-time or during the grace period or other qualifying periods of deferment. The interest is subsidized by the U.S. government. To qualify for this type of federal student loan, borrowers must be qualifying undergraduate students who demonstrate financial need.
Other options for students looking to pay for college may include Federal Direct Unsubsidized loans and PLUS Loans, scholarships and grants, and federal work-study programs, and private student loans.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
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.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
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.
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.
SOIS0723013
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