Aug
17
2023

What Is the Ebitda Formula?

By | Growing Wealth, Investing, Terminology | Comments Off on What Is the Ebitda Formula?

EBITDA is an acronym that stands for earnings before interest, taxes, depreciation, and amortization. The EBITDA formula is a common way for companies to assess their performance. By looking at earnings without deducting taxes, interest, or other expenses, it’s easier to assess business results and compare them to other companies in the same industry.

The EBITDA formula can also be useful for investors. When investing in the stock market, it’s important to research companies before buying shares of their stock, and EBITDA is a basic measure of profitability that can help investors gauge an organization’s performance.

What Is EBITDA, and How Is EBITDA calculated?

The EBITDA formula is a way of considering a company’s net income — without deducting costs like interest, taxes, depreciation, and amortization. The idea is to create a more apples-to-apples view of how different companies’ perform. Two similar companies in the same industry could have very different tax rates or different capital structures (which can impact debt, and therefore interest paid), making it hard to compare one to the other.

By not deducting certain expenses that aren’t related to performance, EBITDA helps level the playing field and help investors evaluate companies.

EBITDA is also relatively easy to calculate. The information can be found on a company’s balance sheet and income statement. Here’s a quick breakdown of each letter of the acronym, and why it matters in the EBITDA formula:

Earnings

Earnings are a company’s net income over a specific period of time like a fiscal year or a quarter. This number can be found on the company’s income statement; it’s essentially the bottom line, after subtracting all expenses from total revenue.

Interest

This refers to any interest that the company pays on loans and debts. In some cases interest might include interest income, in which case you’d use the total interest amount (interest income – interest paid). Interest is added back to total earnings in the EBITDA formula because the amount of interest paid depends on the types of loans and funding a company has. This number can muddy the waters, when trying to compare two companies that might have very different financing situations.

Taxes

Federal, state, and local taxes are also added back because tax rates depend on where a company is based geographically, and where they conduct business. Thus, taxes aren’t something that a company has much control over, so they aren’t an indicator of performance.

Depreciation & Amortization

Depreciation calculates the decreasing value of tangible physical assets or capital expenditures over time (e.g., equipment, vehicles, buildings, etc.). Amortization is a way to account for the expenses of non-tangible assets like intellectual property, like patents and copyrights.

Depreciation and amortization are added back to earnings because they are non-cash expenses. As such, they don’t necessarily reflect on a company’s overall performance or profitability.


💡 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.

EBITDA Formula and Calculation

EBITDA can be calculated simply by adding a company’s interest, taxes, depreciation, and amortization to net income. Another method is to add a company’s operating income — or Earnings Before Interest and Taxes (EBIT) to its non-cash expenses of depreciation and amortization.

Earnings, or net income, can be calculated as follows:

Net income = Revenue – Cost of Goods Sold – Expenses

How to calculate EBITDA

EBITDA = Net Income + Taxes + Interest Expense + Depreciation & Amortization

Or

EBITDA = Operating income (EBIT) + Depreciation & Amortization

For example, if a company has $4,500,000 in revenue and $500,000 in expenses, their operating income (EBIT) is $4,000,000.

If the company’s assets have depreciated by $100,000 and they have an amortization amount of $75,000, the calculation would be as follows:

EBITDA = $4,000,000 (EBIT) + $100,000 (D) + $75,000 (A)

EBITDA = $4,175,000

It’s possible for EBITDA to be negative if a company has significant losses within a particular quarter or year.

A more specific EBITDA formula is LTM EBITDA, or Last Twelve Months EBITDA, also called Trailing Twelve Months EBITDA (TTM). This calculation finds EBITDA for only the past year.

How Does EBITDA Differ From Other Measurements of Income?

There are a number of different ways to view an organization’s income, each with their pros and cons. Depending on which lens you use, or which formula, one metric can provide insights into a company’s performance that another won’t. Here are a few common measurements of company income:

•   Cash Flow is an analysis of the amount of money coming into a business versus the amount of money going out. Because of timing issues with sales, you can be profitable without being cash flow positive and vice versa.

•   EBIT is also known as operating income, as discussed above. EBIT adds back the expenses related to interest and taxes, but keeps deductions for depreciation and amortization to give a clearer picture of a company’s earnings inclusive of actual operating costs.

•   EBT is another variation on EBIT. It allows for interest expenses, but eliminates the impact of taxes — since a company’s tax burden has nothing to do with its performance.

•   Net Income appears at the bottom of an income statement, after subtracting all business expenses (including interest, taxes, depreciation, and amortization) from total revenue.

•   Revenue is also called gross income. It specifically refers to the money a company earns from sales. As such, it’s really only a window into one aspect of the business’s performance.

Understanding company performance can be a complex endeavor, and it’s best to use a combination of metrics that are most meaningful for that company or industry.

Why Is EBITDA Important?

The EBITDA formula is useful because it provides a view of company profitability, without the impact of capital expenditures and financing. By using the EBITDA formula, analysts can compare companies within an industry and investors can quickly use a technical analysis to evaluate companies they might want to invest in.

In that way, EBITDA can also be a tool used by financial advisors to help their clients make investment decisions.

It’s also useful for business owners to calculate their EBITDA each year to see how their company is performing. This is especially important if they are looking to take out a loan or seek investment. Business owners can use the EBITDA formula to gain insight into operating performance, how their company stands in relation to others in the same industry, and the company’s ability to meet its obligations and grow.

What Makes a Good EBITDA?

EBITDA is a measure of a company’s performance, so higher EBITDA is better than lower EBITDA when comparing two or more organizations in the same sector. This is important, because companies that vary in size or operate in different sectors can, of course, also vary widely in their financial performance. So one way to determine whether a company has “good” EBIDTA is to compare it to others of a similar size in the same industry.

Here are two other ways to gauge whether a company’s EBIDTA is good or not.

The EBITDA Coverage Ratio

To add more helpful information to the EBITDA calculation, the EBITDA Coverage Ratio compares EBITDA to debt and lease payments.

The EBITDA coverage ratio calculates a company’s ability to pay off lease payments, debts, and other liabilities.

The calculation for the EBITDA coverage ratio is:

EBITDA Coverage Ratio = (EBITDA + Lease Payments) / (Interest Payments + Principal Payments + Lease Payments)

A ratio equal to or greater than 1 indicates that a company will have a better ability to pay off liabilities. If the ratio is lower, a company may not be able to pay off its debts. The higher the ratio, the more solvent a company is. The current average coverage ratio is 2.


💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

EBITDA Margins

Another EBITDA calculation investors can do to learn about a company’s performance is the EBITDA Margin calculation. This formula compares annual cash profits to sales. It’s a useful indicator to find out if a company’s EBITDA is ‘good’ or not. The EBITDA Margin calculation is:

EBITDA Margin = EBITDA / Total Revenue

The resulting number is a percentage that shows what portion of revenue was able to be converted into profit within a year. The higher this percentage is, the better a company is performing because it means their expenses aren’t eating into their profits. In general, an EBITDA margin of 60% or higher is considered a good number.

Downsides of the EBITDA Formula

Although the EBITDA formula is a useful tool for investors, it also has some drawbacks. For example: EBIDTA is considered a “non-GAAP” measure, meaning it doesn’t fall under generally accepted accounting principles (a set of rules issued by the Financial Accounting Standards Board and procedures commonly followed by many businesses). This also means that the way EBIDTA is calculated isn’t wholly standardized.

Thus, companies also may not include the same information in each report, and they aren’t required to record all information that may be relevant to the equation. For these reasons, it’s best to calculate EBITDA along with other types of evaluations, such as net income and debt payments.

Companies with a low net income may use the EBITDA formula to make themselves look better since the EBITDA number will likely be higher than their income.

Or, because EBITDA tends to obscure the impact of debt and capital investments, a company that’s spending heavily on development costs, or has incurred a lot of debt, may look more robust than it is.

Also, the formula doesn’t work well with certain types of companies, such as companies that have a need to constantly upgrade their equipment.

The Takeaway

Comparing companies you may want to invest in can take a lot of time and technical analysis. If you’re choosing your first stocks, the amount of information and choices can be overwhelming.

EBITDA is one measure of company performance that can be useful, because it takes net income and then removes certain factors that can be confounding: interest paid or earned; federal, state, and local taxes; the impact of capital depreciation and amortization.

For investors interested in learning more about specific companies and building a stock portfolio, opening an online brokerage account can be a good way to get started with investing.

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).


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

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.

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.

SOIN0823018

Read more
Aug
16
2023
What Is Modern Monetary Theory (MMT)?

Modern Monetary Theory, Explained

By | Financial Independence, Growing Wealth, invest, Investing | Comments Off on Modern Monetary Theory, Explained

Money Monetary Theory or MMT is an alternative economic theory which says that governments that create and control their own currency should be able to do so without limits. More specifically, the heterodox theory argues that these governments shouldn’t fear incurring debt to further economic growth because they can not run out of money.

MMT emphasizes the creation of more money to meet a variety of economic needs, such as improving infrastructure, improving the quality of government-funded education, or expanding access to healthcare. While that may sound appealing, critics of the theory believe it could lead to an increase in inflation and skyrocketing national debt.

What Is MMT?

Modern Monetary Theory is an economic theory often associated with investment fund manager Warren Mosler, author of “The 7 Deadly Innocent Frauds of Economic Policy.” In the 2010 book, Mosler suggests governments that control their own currency can never run out of money or go bankrupt, since they can simply print more money.

Modern Monetary Theory challenges the idea that governments should pay for spending with taxes. Instead, the theory holds that taxes are a means of controlling inflation amid rising prices rather than funding the government’s spending initiatives. MMT can be seen as an extension of quantitative easing, in which a government’s central bank purchases long-term securities in order to boost the money supply.

Both seek to put more money into circulation, though Modern Monetary Theory doesn’t necessarily support the idea of resorting to negative interest rates to stimulate spending, which can occur with quantitative easing.


💡 Quick Tip: The best stock trading app? That’s a personal preference, of course. Generally speaking, though, a great app is one with an intuitive interface and powerful features to help make trades quickly and easily.

Traditional Economics vs Modern Monetary Theory

In terms of its application, MMT economics is quite different from traditional economic theory. Specifically, it challenges the idea that printing more money to fund spending is inherently bad. Traditional economists view printing money as a less-than-ideal way to manage fiscal policy, since doing so can lead to rising inflation or a devaluation of currency.

Here’s a closer look at how traditional economic theories and modern economic theory compare.

Traditional Monetary Theory Explained: Key Concepts

•   When the economy is struggling, the government can give it a boost using monetary and fiscal stimulus, or quantitative easing.

•   Governments rely on interest rate policy to control inflation and the stability of currency values.

•   Interest rate policy can also be used to stimulate spending during recessionary environments by encouraging borrowing while rates are low.

•   Taxes and debt insurance are the two primary means by which governments fund their spending.

•   Unlimited government spending and debt can lead to economic destabilization.

Modern Monetary Theory Explained: Key Concepts

•   Governments that control their own currency effectively have access to unlimited spending, as they can always print more money.

•   A country that follows MMT cannot go bankrupt or become insolvent unless it’s by political choice.

•   Unlimited spending fuels economic growth and reduces unemployment.

•   Taxes can curb inflation but they’re not their primary source of government funding.

•   If a government incurs national debt, it can print more money to meet those obligations without fear of runaway inflation, deflation, or devaluing its currency.

In terms of inflation theory, MMT says the biggest risk is a government outspending its available supply of resources, such as raw materials or workers. But this scenario is rare, since it would require full employment or a shortage of supplies. If it did occur, MMT would dictate that the government could use taxation to manage inflation.

Modern Monetary Theory also states that governments don’t need to sell bonds to raise funds, since they can print their own money. Under this theory, the bond market becomes optional, rather than a requirement for maintaining government cash flows.

Modern Monetary Theory: Potential Benefits

While MMT is considered a radical theory in some circles, it has a simplistic appeal. If governments that control their currency can simply print more money as needed, then they have endless resources to promote economic growth. Deficits don’t disappear under this type of modern economic theory, rather they may grow.

From a taxpayer perspective, Modern Monetary Theory also has benefits, since it may mean fewer tax hikes to pay for government funding initiatives. Just like deficits, taxes wouldn’t disappear. But there’d be less fear of the government introducing new tax measures solely as a means of managing its own spending or debt.


💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

Modern Monetary Theory Flaws

While MMT has many vocal supporters, it’s also drawn plenty of critics, including Federal Reserve Chair Jerome Powell and Kenneth Rogoff, former Chief Economist and Director of Research at the International Monetary Fund. The consensus, for the most part, is that Modern Monetary Theory poses too great of a risk to national economies. Specifically, critics raise these arguments:

•   Unlimited spending is not a catch-all solution. While MMT gives governments leeway to print money as needed, doing so is not necessarily a foolproof solution for tackling problems like unemployment or rising inflation. Again, if there’s a scarcity of resources or full employment, governments still have to rely on taxation to bring inflation under control.

•   Unchecked debt is problematic. When an economy experiences a boom cycle, the national deficit may receive less attention. But it can become a very real financial problem governments have to deal with when the economy enters a recession and printing more money may not be a realistic solution.

•   Rising rates could trigger hyperinflation. If rising deficits are accompanied by rising interest rates, the scales could tip from inflation to hyperinflation. This means rapid, out-of-control price increases and steep declines in currency values. Both of those can contribute to an economic crisis or collapse.

Those who suggest MMT is problematic may point to countries like Venezuela and Zimbabwe as examples of how it can go wrong. Though neither country specifically subscribed to Modern Monetary Theory, both relied on the printing of currency to navigate economic troubles. In both cases, the end result was severe hyperinflation and financial crises.

The Takeaway

Money Monetary Theory (MMT) says that governments that create and control their own currency should be able to do so without limits. If applied to the U.S. economy, Modern Monetary Theory could potentially impact your investments in different ways. So it’s important to keep this theory in mind when building a portfolio.

For example, it’s important to consider how inflation might affect the value of your investments. If inflation rises or the government has to impose tax increases to fund spending, that could affect the profitability and spending of the companies you invest in. Investing in companies that are more inflation- or recession-proof may help to insulate your portfolio against those risks.

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.

Photo credit: iStock/ferrantraite

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.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN0623018

Read more
Aug
16
2023
Relative Strength Index (RSI) Explained

Relative Strength Index (RSI) Explained

By | Growing Wealth, invest, Investing | Comments Off on Relative Strength Index (RSI) Explained

Relative Strength Index, or RSI, is a momentum indicator used to measure a stock’s price relative to itself and its past performance. Developed by technical analyst J. Welles Wilder, the Relative Strength Index focuses purely on individual stock price movements to identify trading trends for a specific security, based on the speed and direction of those price changes.

RSI allows swing investors to compare the price of something to itself, without factoring in the performance of other stocks or the market as a whole. Investors use RSI to pinpoint positive or negative divergences in price for a security or to determine whether a stock is overbought or oversold.

The RSI indicator is useful in technical analysis, which revolves around finding trends in stock movements to determine optimal entry and exit points. Understanding what the Relative Strength Index measures and how it works is central to a technical trading strategy.

What Is RSI in Stocks?

The Relative Strength Index is a rate of change or momentum oscillator that tracks stock price movements. You can visualize it as a line graph that moves up or down, based on a stock’s price at any given time. The Relative Strength Index operates on a scale from 0-100. Where the RSI indicator is within this range can suggest whether a stock has reached an overbought level or if it’s oversold.

RSI is not the same thing as Relative Strength analysis. When using a Relative Strength Comparison (RSC), you’re comparing two securities or market indexes to one another to measure their relative performance.


💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

How Does the RSI Indicator Work?

The Relative Strength Index operates on a range from 0-100. As stock prices fluctuate over time, the index can move up or down accordingly. Traders typically use the RSI to track price movements over 14 periods (i.e. trading days), though some may use shorter or longer windows of time.

When the RSI indicator reaches 70 or above, it could mean the underlying asset being measured is overbought. An RSI reading of 30 or below, on the other hand, suggests that the asset is oversold. The length of time a stock remains in overbought or oversold territory depends largely on the strength of the underlying trend that’s driving price movements.

The Relative Strength Index can throw off different patterns, depending on whether stocks are in a bull market or bear market. Investors compare the movements of the RSI indicator with actual price movements to determine whether a defined pricing trend actually exists and, if so, in which direction it might be heading. Analyzing moving averages for the stock can help determine the presence of a clear pricing trend.

Recommended: 5 Bullish Indicators for a Stock

RSI Formula

Here’s what the Relative Strength Index formula looks like:

RSI = 100 – (100 / (1 + RS))

In this formula, RS represents the ratio of the moving average of the tracking period’s gains divided by the absolute value of the moving average of the tracking period’s losses.

Here’s another way you might see the Relative Strength Index formula displayed:

RSI = 100 – [100 / ( 1 + (Average of Upward Price Change / Average of Downward Price Change ) ) ]

The RSI formula assumes that you’re able to follow a stock’s pricing changes over your desired tracking period. More importantly than that, however, is knowing how to make sense of Relative Strength Index calculations, which investors often display via a stock oscillator.

Interpreting RSI Results

Reading the Relative Strength Index isn’t that difficult when you understand how the different ranges work. Depending on where the RSI indicator is for a particular stock or market index, it can tell you whether the market is bullish or bearish. You can also use the RSI, along with other technical analysis indicators, to determine the best time to buy or sell.

Above 70

An RSI reading of 70 or higher could indicate that a stock is overbought and that its price might move back down. This could happen through a reversal of the current price movement trend or as part of a broader correction. It’s not unusual for stocks to have an RSI in this range during bull market environments when prices are rising. If you believe that the stock’s price has reached or is approaching an unsustainable level, an RSI of 70 or higher could suggest it’s time to exit.

Below 30

When a stock’s RSI reading is 30 or below, it typically means that it’s oversold or undervalued by the broader market. This could signal a buying opportunity for value investors but it could also indicate the market is turning bearish. It’s more common to see RSI readings of 30 or below during downtrends when stock prices may be in decline across the board.

40 to 90 Range

During bull markets, it’s not uncommon to see the Relative Strength Index for a stock linger somewhere in the 40 to 90 range. It’s less common to see the RSI dip to 30 or below when prices are steadily moving up. An RSI reading of 40 to 50, roughly the middle of the 0-100 scale can indicate support for an upward trend.

10 to 60 Range

In bear markets, or those filled with fear, uncertainty, and doubt, it’s more common to see the Relative Strength Index hover somewhere in the 10 to 60 range. It’s not unusual for stocks to reach 30 or below when the market is already in a downward trend. The middle point of the RSI can act as a support point, though the range shifts slightly to between 50 and 60.

Common RSI Indicators

Relative Strength Index indicators can help investors spot pricing trends. That includes identifying up and down trends, as well as sideways trends when pricing levels consolidate. The reliability of these indicators often hinges on the current phase of a stock or the market as a whole. When reading RSI indicators, it’s important to understand divergence and swing rejections.

Divergence

A divergence represents a variation or disagreement between the movement of the RSI indicator and the price movements on a stock chart. For example, a bullish divergence means the indicator is making higher lows while the price movement is establishing lower lows. This type of divergence can hint at increasing bullish momentum with a particular stock or the greater market.

A bearish divergence, on the other hand, happens when the indicator is making lower highs while prices are establishing higher highs. This could indicate that investor sentiment is becoming less bullish.

Swing Rejections

A swing rejection is a specific trading technique that involves analyzing RSI movements when pushing above 30 or below 70. Swing rejections can be bullish in nature or bearish.

For example, a bullish swing rejection has four parts or steps:

•   RSI is at an oversold level

•   RSI moves above 30

•   A dip is recorded without rating as oversold

•   RSI passes its recent high

Meanwhile, a bearish swing rejection also has four parts or steps:

•   RSI reaches an overbought level

•   RSI drops below 70

•   RSI hits new highs without dropping back to overbought levels

•   RSI passes recent lows

Swing rejections make it possible to utilize divergence indicators to spot bullish or bearish trends in their earliest stages.


💡 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.

Is RSI a Good Indicator to Use?

Yes, in certain circumstances. Relative Strength Index can be a good indicator to use in technical analysis, as it can make it easier to detect when a stock or the broader market is overbought or oversold. Understanding how to interpret RSI and its correlation to price movements could help you spot buy or sell signals and detect bull market or bear market trends.

That said, RSI also has some limitations. For example, the RSI can produce false positives or false negatives when bullish or bearish trends don’t align with the way a stock’s price is moving. Like other technical analysis indicators, it’s not an exact way to gauge the market’s momentum. So if stocks are hovering somewhere in the 40 to 60 range, it may be difficult to decipher whether the mood is bearish or bullish.

When using RSI, it’s helpful to incorporate other technical analysis indicators to create a comprehensive picture of the market. Exponential moving average (EMA), for example, is a type of moving average that uses the weighted average of recent pricing data to draw conclusions about the market.

Traders often use RSI in conjunction with other trend indicators, such as the Moving Average Convergence Divergence, the Stochastic Oscillator, or the Volume-Weighted Average Price.

RSI vs MACD

Moving Average Convergence Divergence (MACD) is a technical analysis indicator that investors may use alongside RSI. This indicator can help them determine when to buy or sell, based on the correlation between two moving averages for the same security.

Specifically, it requires looking at a 12-period moving average and a 26-period moving average. To find the MACD line, you’d subtract the 26-period from the 12-period, resulting in a main line. The next step is creating a trigger line, which is the nine-period exponential moving average of the main line. The interactions between these two lines can generate trading signals.

For example, when prices are strongly trending in a similar direction the main line and trigger line tend to move further apart. When prices are consolidating, the lines move closer together. If the main line crosses the trigger line from below, that can produce a buy signal. If the main line crosses the trigger line from above, that can be construed as a signal to sell.

While RSI and MACD are both trend indicators, there are some differences. Relative Strength Index measures the distance between pricing highs and lows. So you’re looking at the average gain or loss for a security over time, which again usually means 14 periods. The MACD, on the other hand, focuses on the relationship between moving averages for a security. It’s a trend-following signal that, like RSI, can indicate momentum.

RSI vs Stochastic Oscillator

The stochastic oscillator is a momentum indicator for technical analysis that shows where a stock’s closing price is relative to its high/low pricing range over a set period of time. The stochastic oscillator can also be used to track pricing for a market index.

Central to the use of the stochastic oscillator is the idea that as a stock’s price increases, the closing price inches closer to the highest point over time. When the stock’s price decreases, the closing price lands closer to the lowest low. Investors use this indicator to determine entry and exit points when making trades.

However, investors interpret RSI and stochastic oscillator readings differently. For example, with a stochastic oscillator, a reading of 20 or below generally means a stock is oversold, versus the 30 or below range for RSI readings. When used together, Relative Strength Index and stochastic oscillators can help with timing trades to maximize profit potential while minimizing the risk of losses.

Can You Use RSI to Time the Crypto Market?

Stocks are not the only asset class for which investors use the RSI. Investors also use the Relative Strength Index to assess conditions in the crypto markets and whether it’s time to sell or continue to HODL.

Cryptocurrency traders may use RSI to gauge momentum for individual currencies. Again, they’re looking at the highs and lows to get a sense of which way prices are moving at any given time. The RSI indicator can help with choosing when to buy or sell, based on previous price movements.

The same rules apply to crypto that apply to stocks: An RSI reading of 70 or above means overbought while a reading of 30 or below means oversold. Likewise, a reading above 50 signals a bullish trend while a reading below 50 can signal a bearish trend. Investors can also use a bearish divergence or bullish divergence to spot a pullback or an upward push.

As with stocks, however, it’s important to remember that RSI is not 100% accurate.

Recommended: Crypto Technical Analysis: What It Is & How to Do One

The Takeaway

RSI can be used to pinpoint positive or negative divergences in price for a stock or to determine whether it’s overbought or oversold. If you’re interested in technical analysis and trending trading, RSI can be a useful metric for making investment decisions.

The RSI is just one tool that you can use to devise a strategy for your portfolio. There are other less technical tools you can use as well when you’re starting to build a portfolio.

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).


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

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.

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.

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.

SOIN0823017

Read more
Aug
16
2023
woman on laptop with notebook

Tips for Taking Online Classes Successfully

By | Going to College, Student Loans, student_loan | Comments Off on Tips for Taking Online Classes Successfully

Online college college classes give you the flexibility to study from anywhere — your bedroom, home office, or even a coffee shop. Having the option to take some (or all) of your classes online can also make it easier to balance school with other commitments, such as a full-time job or family responsibilities.

However, online learning also comes with some challenges. It can be difficult to focus if you’re not in an actual classroom. Plus, virtual learning can make it harder to make connections with professors and other students at the school.

Read on for a closer look at how online classes work, their pros and cons, and how to make the most of virtual learning.

Types of Online Classes

There are two main types of online classes. Here’s a closer look at each.

Hybrid Approach

A hybrid course is a mix of in-person instruction and remote learning. The exact schedule will vary by school, class, and instructor, but may include several hours of live or prerecorded virtual learning per week with one in-person session. For example, a chemistry course could include virtual learning and in-person lab work.

Hybrid courses offer the benefits of remote learning without fully abandoning in-person instruction, making it a prime choice for students concerned that online classes may not meet their needs.

Exclusively Virtual

Classes that are all virtual never meet in person. Instruction is given through live webinars, prerecorded video, and physical or digital material.

Depending on the format of the course, students can fit sessions into their schedule as they see fit, an option not provided by a hybrid or traditional class.


💡 Quick Tip: Fund your education with a low-rate, no-fee SoFi private student loan that covers all school-certified costs.

Benefits and Potential Pitfalls of Virtual Courses

While virtual learning is ideal for some students, it may be frustrating for others. Here’s a look at some of the pros and cons of taking college courses online.

Pros of Online Courses

Flexibility: The ability to learn whenever and wherever can be a huge advantage for a student with a hectic schedule. Though there are still deadlines and due dates to abide by, learning can typically take place around work, social commitments, and personal preferences. While some courses may include live remote sessions, they’re typically recorded and available for students to view at a later time.

Real-life experience: Online courses tend to put more responsibility on the student. Learning how to prioritize instruction in a flexible schedule can help prepare students for careers.

Potential savings: If a course was designed to be taught in person but has recently been adapted for online instruction, a discount may not be available. But for courses originally built for virtual learning, students often find they can save on the average credit cost. An online degree might also have a condensed schedule. allowing you to get your degree faster.

There are other savings to consider. With online instruction, students generally don’t have to worry about paying for parking, gas, or lunch on the go. Plus virtual learning can allow you to pursue an education while working full or part time, an option not always available to in-person students.

Recommended: How to Pay for Online College

Potential Cons of Online Courses

Minimal social benefits: One potential downside to taking a class online is lack of personal interaction. You might find it harder to ask the teacher questions and make connections with fellow students. And, some students simply respond better to in-person vs. online learning, and might struggle to concentrate when learning virtually.

A lack of professional networking: Students often discover opportunities to build relationships with professors and assistants that can lead to careers. Virtual learning makes these relationships more difficult to find and develop.

Scheduling conflicts: While the flexibility of online classes can be appealing, it can create scheduling conflicts. If you are challenged by time management, you may find yourself procrastinating and struggling to manage your workload along with other everyday responsibilities.

Tips for Online Classes

Here are some words to the wise for taking online courses, for both newbies and experienced virtual students.

•   Respect the course. Do you suspect that an online course has less value than in-person instruction? The educational value is the same. It’s just being delivered in a different fashion.

•   Think about time management. Even experienced virtual students can often improve their time management skills. Review the syllabus at the start of the semester, note major assignments, and look for potential conflicts.

•   Try to avoid distractions. When taking online courses, it might be best not to set up in front of the TV, as tempting as it may be. Consider cobbling together a home office that blocks distractions and creates a productive environment.

•   Participate. While an online class can be an introvert’s dream, there are still opportunities to participate. Many online courses offer a forum for students and instructors to discuss course materials, comment on one another’s work, and ask questions as needed.


💡 Quick Tip: Need a private student loan to cover your school bills? Because approval for a private student loan is based on creditworthiness, a cosigner may help a student get loan approval and a lower rate.

Funding the Virtual Voyage

Even though some online classes and degree programs can be more affordable than their in-person counterparts, tuition costs may still come with sticker shock. Depending on the school and online program you’re looking to enroll in, however, you may have the following options to help fund your college education.

Paying à la Carte

Online courses are often designed to fit a working student’s schedule (though being employed certainly isn’t a requirement). In some cases, you may be able to pay for classes as you go. In others, the school may also offer a payment plan, allowing you to make monthly payments over time to cover the cost of your online degree.

Federal Loans

By filling out the Federal Application for Federal Student Aid (FAFSA), you will find out if you are eligible for federal student aid, including grants (which you don’t have to pay back) and loans (which you do).

With federal subsidized student loans, you won’t start accruing interest until six months after you graduate. With unsubsidized federal loans, interest begins to accrue as soon as the funds are dispersed (though you can defer making any payments until six months after you graduate). Federal student loans don’t require a credit check and come with a relatively low, fixed interest rate set by the government.

Private Loans

If there are still gaps in funding, you may also want to explore private student loans. These are available through private lenders, including banks, credit unions, and online lenders, and do require a credit check. If you don’t have much credit history or income, you will likely need a cosigner. Rates may be fixed or variable, and are set by the lender. Borrowers with excellent credit tend to qualify for the lowest rates.

A private loan can cover up to 100% of the cost of school-certified attendance, both for in-person and online courses. Keep in mind, though, that federal student loans offer benefits, like income-based repayment plans and Public Service Loan Forgiveness, that are not guaranteed by private lenders.

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.


Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

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.

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.

SOIS0823013

Read more
Aug
16
2023
student writing notes

5 Ways to Start Preparing For College

By | Student Loans, student_loan | No Comments

The process of getting into college actually starts long before you fill out your first application. In fact, soon after you start high school, it can be a good idea to start laying the groundwork for college, from choosing the right classes to thinking about where you might like to go to figuring out how you’re going to cover the cost.

What follows is a simple five-step, pre-college plan that can help you find, get into, and pay for your dream school.

Preparing For College: A 5-Part Checklist

For many things in life, preparation is the key to success. And this is certainly true when it comes to getting into college. Here are five steps that can help you set yourself up for a successful college experience.

1. Research Your Dream School

One of the first parts of preparing for college is deciding which college or university is right for you. The good news is that there is a school out there for just about everyone. The bad news is that you have so many options that you might be overwhelmed with choices.

Some students know right away that they want to go to the same school their parents went to, while others may be limited to choosing between a few in-state campuses. Regardless of your position, there are some questions you can ask yourself to help narrow down your college search:

What Type of Career Do You Want to Pursue?

One of the first things you might consider is what you hope to do with your degree. If you already know that you want to be an urban planner, then you may want to focus your college search on schools with stellar urban planning programs. Think your dream is too niche?

Whether you want to study auctioneering or Egyptology, there’s likely a program for you. If, on the other hand, you aren’t sure what you want to major in, you may want to look at bigger schools with many different programs where you will be able to take a wide variety of classes.


💡 Quick Tip: When shopping for a private student loan lender, look for benefits that help lower your monthly payment.

Where Do You Want to be Located?

You may also want to consider what type of location you’re looking for in a college experience. Maybe you want to get as far away from home as possible, or maybe you would be more comfortable on a campus within driving distance of your family. Some students choose to live at home and attend a local college in order to save money on living costs. Once you narrow down a location, you can start searching for schools in that area.

Recommended: Should I Go to Community College?

How Many Schools Will You Apply To?

It’s not a bad idea to apply to multiple schools even if you have your heart set on just one. Your dreams and goals can change through the college application process, and a different school may be a better match when it comes time to make a final decision. Plus, the application process can be competitive, and applying to more schools may give you more chance of success in your application.

Recommended: College vs University: What’s the Difference?

2. Plan For the SAT and ACT

Once you know where you want to apply, it is time to get down to business and start preparing for college entrance exams. Some schools require the Scholastic Aptitude Test, known as the SAT, and some schools require American College Testing, known as the ACT. Many schools will accept either one.

The key to working towards a killer score on either test is preparation, preparation, preparation. Whether you’re taking an after-school prep class or studying by yourself, there are lots of resources available online to help you succeed. Both the SAT and the ACT offer free practice tests, and Khan Academy offers a free SAT practice program .

Taking practice tests can help you not only learn the material but can help you get comfortable with the format of the test. This can help you stay calm and confident when test day rolls around.

Recommended: Do Your SAT Scores Really Matter for College?

3. Get Involved In Extracurriculars

In between all that studying, you may want to consider taking some time to get to work in your community. One thing many colleges look for are multi-faceted students who are interested in more than just academics.

That means that getting involved in the community could potentially help you write a strong college application, and it may also help you decide what you want to do with your life. Sports obsessed? You might consider taking up a new sport to round out your classes or volunteering to coach a local youth team.

More into classic literature than shooting hoops? Many schools have programs where you can volunteer to tutor younger students, which can not only help sharpen your skills, but may look great on an application. Whatever you’re into, don’t be afraid to branch out and try something new — you might discover you have a passion for marine biology after organizing a beach clean up day with your classmates.

Recommended: College Planning Checklist for Parents

4. Consider Taking AP Courses

Many schools offer Advanced Placement or “AP” courses. Taking these classes may help you get one step ahead when it comes to college. AP courses allow you to tackle college-level material while you’re still in high school, and at the end of the class (if you pass the AP exam), you could be rewarded with college credits. Why try to rack up college credits in high school?

The more credits you earn from AP classes in high school, the more intro classes you may be able to skip in college. So if you take AP English in high school, you may qualify to skip out on the freshman level English class once you’re at school.

Depending on the school, that may mean that you have more opportunity to take specialized classes in your major, or it could even lead to the opportunity to graduate early.

5. Figure Out Your Finances

There’s no denying that college can be expensive. For the 2022-2023 academic year, the average tuition at a public college was $11,744 for state residents and $21,928 for out-of-state students. The average tuition and fees for a private college was $27,796. Keep in mind: These numbers don’t include the cost of housing, food, text books and supplies.

According to the Sallie Mae How America Pays for College 2023 , parent income and savings covered 50% of college costs. So, even if you’ll get some help from your family, you may need more funding to cover some of the cost of college. Fortunately, there are many ways to finance your education.

A good place to start is by filling out the Free Application for Federal Student Aid (FAFSA), which will let you know if you are eligible for financial aid, including grants, scholarships, work study, and federal student loans. If those do not cover your costs, you may also consider private student loans.

Private student loans are available through private lenders, including banks, credit unions, and online lenders. Rates and terms vary, depending on the lender. Generally, borrowers (or cosigners) who have strong credit qualify for the lowest rates.

Keep in mind, though, that private loans may not offer the borrower protections — like income-based repayment plans and deferment or forbearance — that automatically come with federal student loans. But if you are looking for supplemental funding for your education, private student loans are an option.


💡 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.

The Takeaway

The college application process can be overwhelming. Breaking it down into smaller steps and goals can make it feel a little bit easier. Consider researching schools, making a plan for standardized testing, expanding your involvement in extracurriculars, and taking AP level courses. Getting into college is half the equation, however — the other half is paying for it.

When federal financial aid, scholarships, grants, and savings aren’t enough -– student loans may be one option to consider to help fill in the gaps.

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.


Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

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.

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.

SOIS0823014

Read more

CATEGORIES

  • All
  • No categories
Close modal

See what SoFi can do for you and your finances.

Select a product below and get your rate in just minutes.

Student Loan
Refinancing

Personal
Loans

Online
Investments

Other

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

©2024 Social Finance, LLC All rights reserved.
TLS 1.2 Encrypted
Equal Housing Lender