Jul
08
2023
Pros & Cons of Using a Debit Card Online_780x440

Pros & Cons of Using a Debit Card Online

By | Budgeting & Goals, money | Comments Off on Pros & Cons of Using a Debit Card Online

You are probably used to tapping and swiping your debit card as you go through your day, whether to grab a salad for lunch or pay for a new bottle of shampoo. Debit cards are welcome at most of the places where you can use a credit card, and that includes online retailers as well. This can be a welcome way for some people to spend when shopping online as it can help with budgeting (you only spend what’s in your bank account) and allow you to avoid those credit card interest charges.

However, paying online by debit card isn’t exactly the same as using a credit card, and it’s important to understand the impact, both positive (avoiding a hefty credit card interest rate) and negative (you may not earn rewards nor have fraud protection).

Here, you’ll learn how to use your debit card safely and wisely when purchasing online.

Can You Use A Debit Card Online?

Generally, if a website accepts a credit card for online purchases, it also will accept a debit card.

You may not see debit cards listed specifically as a payment option on a merchant’s website. But if the front of your debit card has a credit network logo (such as Visa or Mastercard) and the business accepts credit cards from that network, you should be able to use it.

To use a debit card for an online purchase, you’ll want to check “credit card” as the payment method and then enter your debit card’s account number, expiration date, and three-digit security code (CCV) to make the purchase.

Unlike debit purchases you make in-person, you won’t need to provide your PIN when purchasing something online. The reason is that the transaction will be treated as a “credit” transaction, which means that the transaction is pending (meaning waiting to be authorized, cleared, and settled).

The money will be deducted from your checking account around two to four days later.

Before an online debit transaction clears, you may see a difference between your checking account’s “current” balance, which includes only deposits and deductions that have actually cleared, and your “available” balance, which includes authorized transactions that haven’t yet cleared.

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What Are Some Pros to Using a Debit Card Online?

There are a few advantages to using a debit card as opposed to a credit card for online purchases that consumers may want to consider. These include:

Reducing Credit Card Debt

Using a debit card to make online purchases may help reduce credit card use (and debt).

When you shop with a credit card vs. a debit card, you’re borrowing money you’ll have to pay back later. If you don’t pay the debt back within a designated period of time, the lender is going to charge interest.

And, if you only pay only the minimum required to carry your balance each month, that debt could grow into a hard-to-get-rid-of burden.

Sign-up bonuses, discounts, unlimited cash-back offers, and travel points can make it tempting to use a credit card for every purchase. But shoppers need to be careful about paying off those purchases on time, or they could end up spending more on interest payments than they receive in rewards.

When you use a debit card, you can’t spend more than you have at the moment. And because there’s no debt, there’s no interest to worry about.

Some Debit Cards Come with Rewards

While rewards and perks for spending are mostly associated with credit cards, many debit cards are now offering rewards programs as well, including cash back, points, or miles every time you swipe your card.

Lower Fees

Debit cards typically don’t have any associated fees unless users spend more than they have in their account and incur an overdraft charge.

By contrast, how credit cards work typically involves fees. Credit cards may come with an annual fee, over-limit fees (if a purchase pushes their account balance over their credit limit), and late-payment fees, in addition to monthly interest on the card’s outstanding balance.

There is also typically no fee for withdrawing cash using your debit card at your bank’s ATM. If you use a credit card to get cash, on the other hand, you may incur a significant cash advance fee. You may also have to pay interest on the advance amount, which often starts accruing the day of the advance, not at the end of the statement period as with regular charges.

Recommended: ATM Withdrawal Limits – What You Need To Know

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Is There a Downside to Using a Debit Card Online?

There are some advantages to using a credit card over a debit card. Here are a couple of things to consider when making the choice to use a debit card online.

Using a Debit Card Online Won’t Build Your Credit History

Have you ever heard someone complain that they couldn’t get a loan or credit card because they’ve never borrowed money? They thought they were being financially responsible, but the bank didn’t want to risk lending money to someone who didn’t have a history of making payments on a loan or line of credit.

That catch-22 extends to purchases made with a debit card. Even though your goal may be to stay fiscally responsible by making only debit (i.e., cash) purchases to avoid debt, you’re not helping your FICO® score, which represents how responsible you are with borrowed money.

And even though you may have marked the “credit” payment option when paying online, the money is still coming directly from your account, so it won’t directly impact your score.

Less Fraud Protection

You may have heard that it isn’t as safe to use a debit card online because federal laws don’t offer the same consumer protections that credit cards get.

It’s true that there is a difference.

Credit card use is covered by the Fair Credit Billing Act which provides a set procedure for settling “billing errors,” including unauthorized charges. If someone uses your stolen credit card account number to make online purchases, you generally aren’t responsible for those charges and can dispute those charges.

Debit card use is protected by the Electronic Fund Transfer Act , which also gives consumers the right to challenge fraudulent debit card charges. Your liability depends on how quickly you report the problem, though, so you need to act relatively fast to get that federal protection.

If someone makes unauthorized charges with your debit card number and you didn’t lose your card, you aren’t liable for those transactions as long as you report the charges within 60 days of receiving your statement.

You also could have zero liability if your card was lost or stolen and you report it before any unauthorized charges occur. If you report the lost or stolen card after it’s been used, the amount you owe will be determined by how quickly you report the loss. Within two days, your liability will be $50; within 60 days, $500.

However, if you wait more than 60 calendar days after you receive your statement to make a report, and the thief goes on a shopping spree, you could lose all the money in any account linked to your debit card.

Some debit card issuers now offer “zero liability” protections that go beyond what federal laws provide. If your debit card is backed by Visa or Mastercard, for example, you may find you have the same protections they offer their credit card users. (You may want to check with your financial institution to verify this coverage.)

Less Purchase Protection

Many credit cards offer purchase or damage protection, which means that if the item you buy is damaged or stolen within a specified period of time, you can get your money refunded. Credit cards may also offer extended warranties on electronic purchases, as well as travel perks, such as rental car insurance.

Debit cards are less likely to offer these perks.

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How to Use Your Debit Card Safely Online

To protect your identity while shopping online with your debit card, you may want to follow these simple precautions.

•   Looking for the lock. When making purchases with your debit card online, it’s a good idea to make sure you’re shopping with a reputable company and on a secure website, especially when it’s time to enter your card number. A good safeguard is to look for the locked padlock icon in your browser. It can also be a good habit to log out of a site as soon as you finish shopping.

•   Monitoring your statements. It can be wise to regularly check your checking account and scan for any debit charges you don’t recognize. That’s because the faster you report a problem, the less trouble you should have recovering from any fraudulent activity.

•   Using a secured network at home. You may want to avoid shopping or paying bills when you’re using public WiFi. Even secured public networks have some risk. And you never know who might be watching over your shoulder when you enter a password or other personal information.

•   Keeping your card, and your account number, to yourself. Giving your card or account number to a friend or family member could lead to trouble down the road, including charges you didn’t expect. And, it may be difficult to recover any lost funds because the usage may not be considered unauthorized. If you want to allow someone you trust to use your account on a regular basis, consider adding them officially as an authorized user.

The Takeaway

Debit cards can be used online for most purchases and can be a great way to manage your spending.

Debit cards generally don’t come with the annual fee and other fees found with some credit cards. Plus, they don’t allow you to rack up debt because you aren’t offered a credit limit that’s higher than your checking account balance.

However, credit cards often come with more perks and purchase protections than debit cards. And, responsible use of a credit card can be a good way to build your credit score.

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


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As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

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SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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Jul
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Money Managers Explained

By | Growing Wealth, invest, Investing | Comments Off on Money Managers Explained

Money managers can help individuals set financial goals, plot and implement investment strategies, and more. You may not think you need one, either, but an experienced, trustworthy, and savvy guide can be a tremendous help when trying to wrangle your finances. Amid the sea of financial professionals are money managers, who can take a hands-on approach with an investment portfolio.

Before hiring a money manager, however, it’s important to understand what they do, how they get paid, and how they may differ from other financial professionals.

What Is a Money Manager?

Money managers are also known as portfolio, asset, or investment managers. They are people or companies that provide individualized advice about building a portfolio. They buy and sell securities on behalf of their clients, provide updates, and make suggestions for changes as market conditions shift. Clients include individuals and institutional investors like universities and nonprofit organizations.

Money managers have a fiduciary duty to their clients: They are obligated by law to put their clients’ best interests first. This may seem like a no-brainer, but it is not necessarily true of all financial professionals.

Investment advice must advance a client’s goals, not because it is more profitable for the advisor. For example, a money manager could not suggest a particular investment to a client just because the manager would receive higher compensation.

Fiduciary rules mean that advice must be as accurate as possible based on the information that is available. A fiduciary (from the Latin “fidere,” meaning “to trust”) is to take into account cost and efficiency when making investments on behalf of clients, and alert clients to any potential conflicts of interest.

💡 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.

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What Makes Money Managers Different?

As you search for someone who can help you invest, you may encounter any number of titles, from asset manager to financial advisor, wealth manager to registered investment advisor. To make matters more confusing, “financial planner” covers a broad range of possible professions. They could be investment advisors, brokers, insurance agents, or accountants.

A potential client can check the registration status and background of a professional or firm on Investor.gov, the SEC’s Investment Adviser Public Disclosure website, FINRA’s BrokerCheck, and/or individual state securities regulators.

Here’s a look at some of the most common financial professionals you may encounter and what may make money managers different.

Registered Investment Advisors

Registered investment advisors, as the name suggests, provide investment advice to clients. They must register with the Securities and Exchange Commission or a state authority, and they have a fiduciary duty to hold a client’s interests above their own. They can manage client portfolios, making trades and offering advice on investment strategies.

Registering as an investment advisor means disclosing investment styles and strategies, total assets under management, and fee structure. RIAs must also disclose past disciplinary action and conflicts of interest.

Broker-dealer

A broker-dealer is an individual or company licensed to buy and sell securities. Brokers act as middlemen, buying and selling stocks and other securities for other people. When they are buying for their own accounts they are functioning as dealers.

Stockbrokers usually work at brokerage firms and earn their money by charging a fee for transactions they make.

Brokers register with the Financial Industry Regulatory Authority, an industry group. FINRA has enforced a “suitability” rule for them, meaning they needed to have reasonable grounds to believe that a recommended transaction or investment strategy involving a security or securities was suitable for the customer.

Now the SEC is enforcing a new rule, Regulation Best Interest, that establishes a “best interest” standard for broker-dealers. It requires them to stop referring to themselves as advisors if they aren’t working under a fiduciary standard.

Certified Financial Planners

Financial professionals who carry the CFP® credential have gone through the rigorous training and experience requirements required by the CFP® board. They must also pass a six-hour exam.

They have a fiduciary duty to their clients but can offer services that don’t require regulation. They can help with general financial planning, such as putting together a retirement plan or a debt reduction plan. They may make recommendations about asset allocation, investment accounts, and tax planning.

Money Managers

Money managers may offer a combination of the services mentioned above. They chiefly manage people’s investment portfolios, but they may also offer other forms of financial planning. They likely give investment advice, which means they must be registered as an RIA.

Fiduciary?

 Offer advice?

 Area of focus
Money Managers Yes Yes Portfolio management
Certified Financial Planners Yes Yes Financial planning (retirement, etc.)
Broker-dealers Sometimes Sometimes Facilitating transactions
Registered Investment Advisors Yes Yes Investment advice

Pros and Cons of Hiring a Money Manager

HIring a money manager, like any other financial professional, can have its pros and cons.

Pros of Having a Money Manager

The advantages of having a money manager are rather obvious: You get expertise and experience in helping you make financial decisions. This can save you a ton of resources–such as time–when trying to decide your next moves. It could, potentially, save you money, too, in saving missteps that need to be rectified (rebalancing your portfolio, for instance). In short, though, the pros of hiring a professional are that you have a professional guiding hand helping you out.

At the end of the day, a money manager is theoretically better at managing money than the average person.

💡 Looking for a DIY approach? Check out our Money Management Guide for Beginners.

Cons of Having a Money Manager

Likely the biggest drawback, in most people’s minds, to hiring a money manager is that you need to pay for their service. Some people may also like to make their own decisions as it relates to their money, and have trouble handing over the reins, so to speak. There’s also the chance that a money manager has a conflict of interest or is not acting in your best interests — something to be aware of when looking to make the right hire.

How Do Money Managers Get Paid?

Money managers typically charge a management fee equal to a percentage of a client’s portfolio each year. On average, advisors charge between 1% and 2% of clients’ assets under management. But there are a lot of variables to consider.

A manager’s fees may be assessed quarterly, which could mean the amount you pay at the end of the year may be a bit more or less than if you were to pay annually.

An asset manager’s fees may also decrease depending on the size of an account. For example, fees on very large accounts may be smaller so that single clients don’t end up paying exorbitant amounts.

Asset managers and other financial advisors may also charge an hourly rate, especially if they are doing any consulting or working on a special project. They may also charge fixed fees for certain services. Some advisors and managers may earn a commission when purchases or trades are made. And there may be performance-based fees if a portfolio performs beyond an established benchmark.

Fee-only advisors earn their money only from the fees they charge clients. They do not earn commissions. This fact makes them distinct from fee-based advisors, who may earn money from fees and commissions.

💡 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.

Should You Hire a Money Manager?

Managing your money can take a lot of time and effort, especially if you have multiple investment accounts or you’re juggling a lot of assets.

Money managers typically have many advantages when it comes to choosing investments. Not only are they trained to make investment decisions but they typically have access to a lot of information — including analytical data, research reports, financial statements, and sophisticated modeling software—that the average person doesn’t have. So they may be better equipped to make informed decisions.

For investors who have struggled to understand how to best put their money to work in order to meet financial goals, a money manager may be able to help. A large portfolio isn’t necessary. Even those who are just starting out may be able to benefit from working with one.

Even if you’re just starting to invest, it may be worth it to look into hiring one.

3 Tips on Choosing a Money Manager

You can review some money management tips, but additionally, here are a few things to keep in mind when choosing a money manager.

1. Know What You’re Looking For

Before hiring a money manager, figure out what type of financial help you need. If you’re just starting out, you may want to hire someone who can help you put together a long-term financial plan, for example.

2. Check Credentials

An online check with one or more of the aforementioned official websites will show how long an advisor has been registered, where they have worked, and what licenses they hold.

3. Interview

After narrowing the search, it’s a good idea to speak to a few candidates to get an idea of how they communicate, how they typically work with clients, and how they are compensated. If an advisor is cagey about answering the latter question, that’s a red flag.

The Takeaway

With so many titles and options, from financial planner to broker and money manager, it might be hard to choose a guide to handle your finances. A money manager is a strategist who specializes in managing investment portfolios and has a fiduciary duty to clients.

There are a slew of different types of advisors, planners, and managers in the financial world, so it’s important to know the differences. It’s also important to keep in mind that hiring a money manager can have pros and cons. Bringing in professional help may not be the best route for everyone.

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 difference between a money manager and a financial advisor?

A money manager is a sort of subset of financial advisors, often with more specialized services offered to clients. The differences likely lie in the specific services and expertise offered.

Is it worth it to use a money manager?

If you value expertise and a guiding hand in the market, hiring a money manager may be worth it to you. Be aware, though, that there are costs to hiring a money manager, and the costs may not always outweigh the benefits for everyone.

Is it better to have a financial advisor or a financial planner?

Depending on your individual circumstances, goals, and needs, whether a financial advisor or planner is better will vary. Each may offer different services, so know what you’re looking for before hiring either.

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

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A Guide to Ethical Shopping

By | Budgeting & Goals, money | Comments Off on A Guide to Ethical Shopping

Many people these days want to put their money where their beliefs are and shop more ethically. That might mean supporting brands and retailers that do less harm environmentally or are actively promoting a healthier planet. It could mean having transparency about the fairness of their labor practices or the charitable efforts their company undertakes. Just how popular is ethical shopping? In a 2023 report, consumer insights platform TalkWalker and Khoros found that 82% of consumers want companies to put people and the planet before profits.

Finding out which businesses are doing the right thing and which aren’t, however, isn’t always easy. Plus, many people may worry that ethical consumerism just isn’t affordable.

Here’s help and reassurance. Read on for guidance on how to be a more conscious consumer, as well as how it may even save you some cash.

What Ethical Shopping Really Means

The term “ethical shopping” essentially boils down to people becoming more aware of the goods they are buying.

What’s “ethical” is subjective to each person, but finding out how each product is made, if the company supports fair labor and other socially responsible practices, and if the product is environmentally-friendly is a great place to start.

Money has a lot of power, so if people choose ethically-sourced and ethically-produced products more often, more companies may want to jump aboard the ethical and sustainable shopping train.

Since ethical consumerism is all about where our money goes, investing in companies that you believe are doing good in the world can also play an important part in consuming ethically.

Recommended: What Is Socially Responsible Investing?

Issues You May Want to Consider

Many companies — particularly clothing producers — have been called out for their outsize impact on the environment. According to the United Nations (UN), the fashion industry is considered to be the second most polluting industry in the world.

Indeed, clothing production is responsible for more carbon emissions than all international flights and maritime shipping combined, points out the U.N. The garment industry is also one of the top consumers of water in the world: It takes nearly 2,000 gallons of water to make a typical pair of jeans.

💡 Quick Tip: Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.

But thinking about ethical shopping can also go deeper than figuring out how a product is produced.

It may also be important to you to consider who is making that product and how that worker is being treated. Are the workers at the factories working in safe conditions? Are they being paid fairly? Seeking out companies with fair labor practices, including fair pay and benefits, can be important to many consumers.

You may also want to consider how well a company treats its suppliers. For example, does your favorite coffee shop pay its farmers a fair amount for their beans?

For some consumers, how a company treats animals is also an important consideration.

Ethical Shopping Made Easier

Once you know what to look for, you can research your favorite brands to learn how they measure up on ethics and sustainability.

You can find out a fair amount about what your favorite companies stand for by going to their websites and digging in their About Us, FAQ, and Info pages to judge for yourself. Generally, the more detail they provide, the better.

Do you see a step-by-step explanation of their supply chain? Do they proudly say that employees have paid sick leave? Or, even better, do they have any ethical certifications (more on that below)?

There are also a number of groups and organizations that are dedicated to making social and environmental data available to consumers who are interested in ethical shopping.

In other words, they’ve done the vetting for you. Here are a couple to check out.

Better World Shopper

This public research project rates over 2,000 companies based on their track records on human rights, the environment, animal protection, community involvement, and social justice.

The Ethical Fashion Directory

Produced by the organization Dressmember, this database can help you find clothing you can not feel good about but also fits your budget. You use the search bar to sort through the list of ethical brands by price and category.

💡Quick Tip: If you’re creating a budget, try the 50/30/20 budget rule. Allocate 50% of your after-tax income to the “needs” of life, like living expenses and debt. Spend 30% on wants, and then save the remaining 20% toward saving for your long-term goals.

Understanding Labels and Certifications

To become a more ethical shopper, it helps to understand which terms are meaningful and which terms aren’t worth much.

Companies are increasingly using the word “sustainable” to describe their products or the process of making them. However, that term can mean just about anything the retailer wants it to, since the word’s use is not regulated with any oversight (unlike the word “organic,” which comes with more stringent guidelines for use).

“Natural” can be confusing, too. Many natural fibers tend to have a lower carbon footprint than synthetic fibers because they do not use as many chemicals during the production process.

But just because something is “natural” doesn’t mean it’s more eco-friendly. Remember the aforementioned jeans? Those were likely made, at least in part, of cotton, which takes up a lot more water to produce than other fabrics.

Fortunately, there are labels, or certifications, that do carry weight. You may want to keep an eye out for the common ones below.

•  B-Corp. B Lab’s B-Corporation certification signifies a company’s commitment to upholding high human rights and environmental standards, and is based on a rigorous assessment.

•  GOTS Organic. A textile product carrying the Global Organic Textile Standard (GOTS) label must contain a minimum of 70% certified organic fiber. Organic fibers are grown without the use of synthetic pesticides, insecticides, or herbicides and GMOs (Genetic Modified Organisms). Organic agriculture is a production process that sustains the health of ecosystems, soils and people.

•  Made in the USA. To use this label all, or virtually all, of the product has to be made in America. Products produced in the U.S. must comply with U.S. laws for workplace safety, pollution, and health. Also, the carbon footprint of these products is likely to be lower because they don’t have to be shipped from overseas.

•  Fair Trade. When you see a product with the Fair Trade Certified seal , you can be confident it was made according to rigorous social, environmental, and economic standards. Also the farmers, workers, and fisherman behind the product earn additional money from your purchase to help uplift their communities.

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Think Globally, Shop Locally

One simple way to shop more ethically is to shop locally. You can often find unique and interesting products by shopping with local, independent retailers.

People can also make a big difference by spending their dollars at mom-and-pop shops around them. For one reason, independent businesses are more likely to have localized supply chains. So shopping at one local store could potentially help bolster not just that store but also more of the local economy.

Local shopping also helps reduce carbon emissions, since a consumer may end up driving less. And if a shopper buys food grown near them, the product will not need to be shipped via air or sea, meaning its carbon footprint will be lower. As a bonus, buying local produce could also mean it’s fresher too, potentially making for tastier (and more ethical) meals.

Although local goods may be slightly more expensive, businesses may offer coupons to entice consumers to buy from them.

Consider Buying Second Hand

It’s nice to think about buying a shiny new thing, but before you pull the trigger, you may want to consider, does this need to be purchased new?

•  Buying second-hand can be more economical, as well as more environmentally-conscious. Yes, it keeps older items from ending up in landfills, and, unlike buying a brand new product, no new item needs to be produced to directly replace it.

  If you’re thinking about buying a new bike, for example, you might get just as much pleasure from getting a gently used bike through an online second-hand marketplace.

  The same holds for clothing. Gently-used garments are one of the greenest clothing choices you can make because they require no additional resources to produce and they reduce the amount of textile waste going into landfills.

•  Plus you can often score some great finds at thrift stores, garage sales, and online marketplaces where people sell their unwanted stuff. Another option is to organize a clothing swap with a group of friends.

•  Second-hand pieces typically cost less than new clothes bought on sale. In addition, they may feel much more unique, as fewer people around town will likely be sporting the same exact item.

Do You Really Need the Product at All?

Ethical shopping also means thinking about if you really need to shop at all.

Sometimes it’s okay to just say “no” to buying the latest and greatest. Sure, there’s a new phone on the market that’s cool, but do you really need it?

Becoming an ethical shopper means asking yourself this question a lot. It’s easy to give in to society’s pressure to buy new and buy often, but part of becoming a more conscious consumer is to start thinking in a different way.

One way to nip unnecessary buying in the bud is to employ the 30-day purchase rule. If a person finds an item they like but doesn’t need immediately, they agree to walk away for 30 days.

If, after the waiting period, they feel they still really want the product and can afford it, they can then choose to go back and buy it. However, the odds are fairly good that a little bit of time and space will prove that a nonessential item is just that.

Tracking Spending Can Help

One way to become a more conscious and ethical shopper is to start tracking your spending as part of whatever budget method you choose.

Looking over your checking account and credit card statements each month can help people see exactly where they are spending their money (and where they may want to cut back), while also pointing out vendors and shops they may no longer want to patronize (such as an out of the way mega-grocery store).

💡 Quick Tip: If you’re faced with debt and wondering which kind to pay off first, it can be smart to prioritize high-interest debt first. For many people, this means their credit card debt; rates have recently been climbing into the double-digit range, so try to eliminate that ASAP.

The Takeaway

Whether it’s clothing, food, or tech, many of the products we love to buy are associated with unethical practices, from human rights abuses to environmental harm.

Ethical shopping is about supporting companies that put in the work to make things better for people, as well as the planet. It’s also about choosing not to buy from brands that violate your code of ethics. While the process may seem intimidating, it’s easy to start buying more ethically with the right tools and information, plus a little research time. It may help you shave down your spending too.

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As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

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.

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How to Use a Trailing Stop Loss Properly

How to Use a Trailing Stop-Loss Properly

By | Growing Wealth, invest, Investing, Terminology | Comments Off on How to Use a Trailing Stop-Loss Properly

A trailing stop loss allows investors to create a built-in safety mechanism to insulate themselves against downward pricing trends. It’s an important exit strategy that day traders can use to manage their risk.

Understanding how a trailing stop order works and how to use it properly can help cap potential losses when day trading investments.

What Is a Trailing Stop-Loss?

A trailing stop-loss offers a flexible approach to minimizing investment losses. A trailing stop order trails the price of the underlying investment by a percentage or a specific dollar amount. So, if an investor buys shares at $50 each, they might impose a trailing stop limit of 10%. If the stock’s share price dipped by 10% they’d be sold automatically.

To understand trailing stop-loss, it helps to have a basic understanding of how limit orders and stop orders work.

A limit order is an order to buy or sell a security once it reaches a specific price. If the order is to buy, it only gets triggered at or below the limit price. If the order is to sell, the order can only get executed at or above the limit price. Limit orders are typically filled on a first-come, first-served basis in the market.

A stop order, also referred to as a stop-loss order (yet another of the stock order types), is also an order to buy or sell a particular investment. The difference is that the transaction occurs once a security’s market price reaches a certain point. For example, if you buy shares of stock for $50 each, you might create a stop order to sell those shares if the price dips to $40. Once a stop or limit order is executed, it becomes a market order.

Stop orders help you either lock in a set purchase price for an investment or cap the amount of losses you incur when you sell if the security’s price drops. While you can use them to manage investment risk, stop orders are fixed at a certain share price.

💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

How a Trailing Stop Order Works

Using a trailing stop to manage investments can help you capitalize on stock market movements and momentum. You determine a preset price at which you want to sell a stock, based on how a particular investment is trending, rather than pinpointing an exact dollar amount.

You can decide where to set a trailing stop limit, based on your risk tolerance and what you expect an investment to do over time. What remains consistent is the percentage by which you can control losses as the investment’s price changes.

Example

So, assume that you purchase 100 shares of stock at $50 each. You set a trailing stop order at 10%. If the share price dips to $45, which reflects a 10% loss, those shares would be sold automatically capping your total loss on the investment at $500.

Now, assume that the stock takes off instead and the share price doubles to $100 with the same 10% trailing stop in place. Your stop order would only be triggered if the stock’s price falls to $90. If you had set a regular stop order at $40 instead, there’d be a much wider margin for losses since the stock’s price has further to fall before shares would be sold. Thus, trailing stops enhanced downside protection compared to a regular stop order.

3 Advantages of Using a Trailing Stop Order

There are several benefits that come with using a trailing stop limit to manage your investments.

1. Tandem Movements

First, trailing stops move in tandem with stock pricing. As a stock’s per share price increases, the trailing stop follows. In the previous example, when the stock’s price doubled from $50 to $90, the trailing stop price moved from $45 to $90. In effect, it’s a hands-off tool — which can be great for some investors.

2. Confidence

Implementing a trailing stop limit strategy can offer reassurance since you know shares will be sold automatically if the stop order is triggered. That can offer investors some confidence in what may be a chaotic market environment. That, for many, can be very valuable.

3. Take Emotion Out of the Equation

Trailing stop limits rely on math rather than emotions when making decisions. That can also help you avoid the temptation to try to time the market and either sell too quickly or hold on to a stock too long, impacting your profit potential.


💡 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.

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How Do You Set up a Trailing Stop Order?

If you’re day trading online, it’s relatively simple to set up a trailing stop loss order for individual securities. Because the orders are flexible, you can choose where you want to set the baseline percentage at which stocks should be sold. For example, if you’re less comfortable with risk you might set a trailing stop at 5% or less. But if you’re a more aggressive portfolio, you may bump the order up to 20% or 30%.

You can also control whether you want buy or sell actions to happen automatically or whether you want to place trades manually. Automating ensures that the trades happen as quickly as possible, but performing them manually may be preferable if you’re more of a hands-on trader.

Example of a Trailing Stop-Loss Order

Though we’ve already given some quick examples of how a trailing stop-loss order might work in a practical sense, let’s run through it again.

Say that you buy 100 shares of Company A stock for $10. You set up a trailing stop-loss order at 10%, meaning that if Company A stock falls to $9 or below, a sell order will automatically be executed. The next week, Company A stock’s value rises to $12 — the trailing stop loss order follows. The week after, Company A’s stock loses 15% of its value, falling from $12 to $10.20.

The stop-loss order kicked in when the stock lost 10%, so your shares were sold at $10.80, saving you $0.60 per share, for a total of $60.

Again, this can be helpful if investors want to “lock in” their gains and cash out stocks with a positive return.

Are There Any Downsides of Using a Trailing Stop?

Investing is risky by nature, and no strategy is foolproof. While trailing stops can help minimize losses without placing a cap on profits, there are some downsides to consider.

Accessibility

Depending on which brokerage account you’re using, you may face limits on which investments you can use trailing stop loss strategy with. Some online brokerages don’t allow any type of stop loss trading at all.

Potential to Lock-in Losses

If a stock you own experiences a two-day slide in price, your stop loss order might require your shares be sold. If on the third day, the stock rebounds with a 20% price increase, you’ve missed out on those gains and locked in your losses. If you want to repurchase the stock you’ll now have to do so at a higher price point, and you’ve missed your chance to buy the dip.

Velocity Challenges

If share prices drop too quickly there may be some lag time before your trailing stop order can be fulfilled. In that scenario, you might end up incurring bigger losses than expected, regardless of where you placed your stop price limit.

No Market for the Security

It’s possible an investor finds themselves holding a stock that nobody wants — meaning that it has no liquidity, and can’t be traded. This is unlikely, but in this case, a stop-loss order couldn’t execute as there’s no one to trade with.

Market Closure

If you’ve set up trailing stop-loss orders, they can’t and won’t execute when the market is closed. Security prices can go up and down after-hours, but market orders can only be executed during normal operating hours for stock exchanges.

Using a market-on-open order may be another tool to consider if investors are concerned about this scenario.

Gaps

On the same note as market closures, pricing gaps — which may occur due to after-hours pricing movements, for instance — can and do occur. A stop-loss order may not help in those cases, and investors may lose more than anticipated as a result.

How to Use a Trailing Stop-Loss Strategy

Using trailing stops is better suited as part of a short-term trading strategy, rather than long-term investing. Buy-and-hold investors focused on value don’t need to worry as much about day-to-day price movements.

With that in mind, there are a few things to consider before putting trailing stop orders to work. A good starting point is your personal risk tolerance and the level of loss you’d be comfortable accepting in your portfolio. This can help determine where to set your trailing stop loss limit.

Again, if you’re a more conservative investor then it might make sense to set the percentage threshold lower. But if you have a larger appetite for risk, you could go higher. You can also tailor thresholds to individual investments to balance out your overall risk exposure.

Technical Indicators

Becoming familiar with technical indicators could help you become more adept at reading the market so you can better gauge where to set trailing limits. Unlike fundamental analysis, technical analysis primarily focuses on decoding market signals regarding trends, momentum, volatility and trading volume.

This means taking a closer look at a security’s price movements and understanding how it’s trending. One indicator you might rely on is the Average True Range (ATR). The ATR measures how much a security moves up or down in price on any given day. This number can tell you where to set your trailing loss limit based on whether price momentum is moving in your favor.

In addition to ATR you might also study moving averages and standard deviation to understand where a stock’s price may be headed. Moving averages reflect the average price of a security over time while standard deviation measures volatility. Considering these variables, along with your risk tolerance and overall investment goals, can help you use trailing losses in your portfolio correctly.

Applying Your Stock Trading Knowledge With SoFi

Whether you plan to use trailing stop strategies in your portfolio or not, making sure you’re working with the right brokerage matters. Ideally, you’re using an online brokerage that offers access to the type of securities you want to invest in with minimal fees so you can keep more of your portfolio gains.

Keep in mind, though, that utilizing stop-loss orders isn’t foolproof, and that there can be pros and cons to doing so. It’s also a somewhat advanced tool to incorporate into your strategy — if you don’t feel like you fully understand it, it may be worth discussing with a financial professional.

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

How does a trailing stop-loss work?

A trailing stop-loss is a built-in mechanism that automatically sells an investor’s holdings when certain market conditions are met — specifically, when a stock loses a predetermined amount of value.

What is a disadvantage of a trailing stop-loss?

There are several potential disadvantages to using trailing stop-losses, including the fact that they won’t execute during market closures. Securities may lose value during that time, and traders could experience a pricing gap as a result.

What is a good trailing stop-loss percentage?

A good stop-loss percentage will depend on the individual investor’s risk tolerances, but many investors would likely be comfortable with a 5% or 10% trailing stop-loss.

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

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Where Should I Invest My Money?

By | Growing Wealth, invest, Investing | Comments Off on Where Should I Invest My Money?

At any given time, there are numerous places and ways to invest your money, ranging from the stock market to real estate. But how and where you invest your money also brings up numerous potential risks and potential outcomes — for that reason, it can be difficult to decide what to do.

And while investors are right to wonder what investments make sense given the current economic and political climates, they may be surprised to hear that other, longer-term factors are just as important. As such, you may find it useful to learn the behavior of the available investment types, and then compare those patterns to whatever it is that you’re trying to accomplish, and along what timeline.

Learning About Investment Options

If you’re wondering “where should I invest my money right now?” there are several different potential answers and investment opportunities out there. But before you do anything, you’ll need to make some key decisions.

The first is to make a decision by investment type, which involves deciding to invest in certain asset classes or asset types. Your portfolio mix will be your asset allocation, which is covered below.

Stocks, bonds, cash, and money market funds, and real estate are just a few of the asset classes available to investors. Generally, the first order of business is to determine which is most appropriate for the financial goals an investor has. In order to determine this, it’s important to understand how each investment type earns a return.


💡 Quick Tip: If you’re opening a brokerage account for the first time, consider starting with an amount of money you’re prepared to lose. Investing always includes the risk of loss, and until you’ve gained some experience, it’s probably wise to start small.

Where to Invest Money

As noted, there are many different assets that investors can utilize or add to their portfolio. Here’s a rundown.

Stocks

A stock represents a share of ownership in a company. When an investor buys a share in a company, they own a small proportion of that company. Shareholders may even receive voting rights. This is why stocks are sometimes referred to as equities; investors now own equity in that company.

A stock can earn money in two ways. The first way is through the value of shares appreciating over time; this is called capital appreciation. The second is through periodic cash payments made to shareholders, called dividends.

Stock prices can be influenced by both internal and external factors, such as a new product launch or broader national or global events like a political event or natural disaster. Because the nature of business is highly unpredictable, stock prices can be volatile.

Bonds

A bond, on the other hand, is an investment in the debt of a company or government. The bondholder earns a rate of return by collecting a rate of interest on that debt for a predetermined amount of time, such as 10 or 20 years. Because the terms are stated upon purchase, bond values generally tend to be less volatile than stocks, but have more modest returns. That said, bonds are not completely without risk, and it is possible for bonds to lose value.

When interest rates are low, overall, bonds will likely pay out a lower rate of interest. Interest rates can change, and quickly, sometimes, which is something investors may want to take into account.

Typically, stocks are considered to have a higher potential for returns over time, but that comes with the price of volatility — the possibility of an investment losing value, especially in the short-term. Bonds are often considered a safer, more stable investment that may be more appropriate for investors who aren’t as comfortable with the volatility of the stock market.

A big part of deciding where to invest has to do with determining your relative comfort level with each of the different asset classes.

Mutual Funds

Investing directly in stocks isn’t the only option available to investors. Mutual funds present another way to invest in the stock market. Think of funds as baskets that hold an assortment of some other investment type, such as those mentioned above — stocks, bonds, and real estate holdings. Funds provide investors an easy way to access diversified exposure to many investments at once, but they are not an asset class in and of themselves.

Investment funds can be an affordable and quick way to get (and stay) invested, which makes them popular with both new and seasoned investors. But even if you decide to use funds as the device for which you invest in different markets, the first order of business is to understand the fund’s underlying asset class.

For example, someone who purchases a mutual fund that holds 500 stocks, is invested in those 500 stocks — and very much invested in the stock market. If you buy a mutual fund comprising 1,000 bond holdings, then you are invested in those bonds. If you buy a fund with real estate holdings, well, you get the idea.

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Options

Options are a form of derivative, and are “higher-level” investments than, say, stocks or bonds. Options can be difficult to understand, but fairly easy to trade — you’d likely want to discuss options trading or investing with a financial professional before you get into it.

That said, investors can invest their money in various forms of options, but they’ll need to keep an eye on their portfolios. Options trading is an active form of investing, as there are strike prices and dates that they’ll need to be aware of.

Exchange-Traded Funds (ETFs)

Exchange-traded funds, or ETFs, are very similar to mutual funds in that they’re effectively a basket of different investments, all compiled into one security. There are tons of different types of ETFs, encompassing all sorts of different market indexes, sectors, and asset classes. Odds are, if you’re looking for a specific type of ETF, there’s likely one out there that fits the bill — or that comes close to it.

Retirement Plans

A retirement plan or account is another place that investors can put their money to work. There are various types of retirement plans — the list includes individual retirement accounts (IRAs), 401(k) plans, and the Roth variations of each. Not all investors may have access to each type, so, see what’s available to you, and which type of plan best fits your investing strategy.

Index Funds

As discussed, index funds offer yet another investment vehicle. These are investment funds that track an index, which is usually a specific part of the broader market. For example, there are index funds that track the S&P 500, or there are index funds that track the tech sector.

Investing in an index fund allows investors to gain exposure to their preferred market segment, and there are numerous options out there, too.

Real Estate

Real estate investing can include physical property — houses, commercial buildings, etc. — or, it comprises purchasing certain real estate-oriented investment vehicles. While many investors may not have the capital laying around to buy a house for investing purposes, they can buy real estate stocks, or even look at REITs, or real estate investment trusts, to get real estate exposure into their portfolios.

Certificates of Deposit (CDs)

Certificates of deposit, often called CDs, should also be on investors’ radar. CDs are somewhat like savings accounts, in which investors “lock up” their funds for a predetermined period of time in exchange for interest rate payments. Functionally, they’re similar to bonds, but there can be fees if you need to pull your money out of a CD before it matures.

Options for Cash

In some instances, it may make the most sense to keep the money for a particular goal in cash. It is helpful to understand what options are available for cash savings.

Savings accounts at a traditional bank or credit union: This is likely the most familiar option. Traditional and commercial banks remain popular for their large geographical footprint. Note that many traditional banks tend to pay a relatively low rate of interest on any cash holdings.

Online-only checking and savings accounts: A newer option for bankers, online-only banks and banking platforms may offer a slightly higher yield than a savings account at a commercial bank. Additionally, many do not require minimums or charge monthly maintenance or account fees.

Money market funds: Often found in brokerage accounts, a money market fund is a fund that holds cash and or other “very liquid investments,” like short-term government securities.

Certificate of deposit (CD): As discussed previously, certificate of deposit is a savings account that holds money for a fixed amount of time, like one year or three years. A fixed rate of return is paid out during that period. Generally, there is a penalty to cash out a CD prior to expiration.

When considering cash as an asset class, consider the risk and reward tradeoff, just as one would for any other investment type. Although cash might not be risky when considered in terms of volatility, it does not come without risk. Cash carries the risk of losing value over the long-term due to the effects of inflation, or prices rising over time.

Beginner-Friendly Places to Invest

If you’re a beginner investor looking for places to put your money, it may be beneficial to revisit some basic investing rules or guidelines. For instance, you’ll likely want to build an emergency savings fund before focusing on your stock portfolio.

But assuming you’re ready to put your money in the market or otherwise start building your investment portfolio, many beginners begin with some basic investment funds. ETFs are a popular choice, as are mutual funds — but note that there are some differences to be aware of.

If you’re not sure where to turn or what to do, consider speaking with a financial professional for advice.


💡 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.

Which Investments Provide the Highest Returns?

You’ve probably heard a certain phrase before: The higher the risk, the higher the reward. That largely holds true in the financial space, although not in every instance. It’s all to say that riskier investments tend to provide higher returns.

Assets like stocks are probably, by and large, going to provide higher or better returns than, say, bonds. Trading options can likewise be more profitable than buying and holding stocks, too. But there are significant risks involved in any strategy, and those risks can be magnified by the specific investments involved.

Again, if you’re looking for the highest possible return, it may be best to consult with a financial professional for guidance, or to give some thought to how each type of investment fits with your overall strategy.

Creating a Goals-Based Strategy

Contrary to how many new investors are encouraged to think about investing, it may not make sense to try and pick “hot” stocks right out of the gates.

Instead, take a step back and consider the bigger picture view, and ask whether stocks are even appropriate given your goals and investing timeline. This decision on which combination of asset classes to be invested in, and in what proportions, is called asset allocation.

To determine your asset allocation, start by thinking of each “bucket” or “pot” of money independently. For example, maybe someone has $1,000 set aside for retirement and another $1,000 that they’d like to use as a down payment for a home. Think about this intuitively; these are very different goals with different timelines and therefore, may require different investing strategies.

Next, consider the financial goals, risk tolerance, and investment time horizon for each bucket. This can sound pretty boring especially if you’ve been conditioned to believe that you should invest in whatever is currently the talk of the town.

Risk vs Reward

The asset allocation decision really boils down to an examination of an investment’s risk and reward characteristics in order to determine whether it’ll work on a personal level. Here’s what’s so important to understand: with investing, risk and reward are two sides of the same coin. Investors cannot have one without the other. For more reward potential, an investor will have to take more risk. There is no such thing as an investment that produces returns with no risk.

Let’s consider, again, the two hypothetical investment goals from above: $1,000 for a down payment and $1,000 for retirement. How do goals lead one down the path of where to invest?

First, the $1,000 for a down payment: If the money is designated for use in the next few years, the risk of losing any money in a volatile investment may outweigh the potential to earn investment returns. Therefore, it might be best to keep this money in a lower-risk investment or cash equivalent.

Next, the $1,000 for retirement. Many retirement investors have the goal of reasonable growth over the long-term. Because of this long time horizon, there should be enough time to grow beyond spates of short-term volatility. Therefore, it may be suitable to create a portfolio that is primarily invested in the stock market or a combination of stocks and bonds.

Retirement investors close to retiring may opt to consider some exposure to bonds for both diversification purposes and to lower the overall volatility of the portfolio. Ultimately, a person’s comfort level with the stock market will determine their specific stock and bond allocations. And it’s worth noting that an investing strategy isn’t stagnant. As a person ages, their goals and investing strategy will likely need to evolve, too.

Opening the Right Account

Here’s another way to answer the question, “where should I invest my money?” By doing so, in an appropriate account type, at a brokerage bank or on an investing platform.

Just as it makes sense to keep cash in a bank account, the same must be done with investments. But with investments, opening the right account can be a bit trickier.

It is not uncommon to hear someone refer to a 401(k) or a Roth IRA as if one of those is, in itself, an investment. But retirement accounts are not investments — they are accounts. Granted, they can hold investments, but they are still accounts.

Money is contributed to any investment account in cash, and then those proceeds are used to purchase investments, like stocks, mutual funds, and ETFs. (In a plan sponsored by a workplace plan, like a 401(k), the investing might happen automatically, hence the confusion about it being an investment itself.)

It is also possible to invest in an account that is not designated for retirement. At a brokerage firm, these are often simply referred to as brokerage accounts. If you use a trading platform, it may be referred to as an individual or a wealth account.

Retirement accounts offer some sort of tax benefit, like tax-free growth on your investments, which make them suitable vehicles for long-term goals. But because they offer a tax benefit, there are more rigid rules for use. For example, some retirement accounts, like 401(k) and Traditional IRAs, levy a 10% penalty on money withdrawn before retirement age (there are some exceptions to this withdrawal fee). Also, there are limits to how much money can be contributed annually to retirement accounts.

💡 Learn more: How to Open an IRA: Beginners Guide

Weighing Your Options

It all comes down to the individual. You’ll need to look at your risk tolerance, time horizon, and personal preferences to determine the most suitable investing path or accounts.

For short-term goals that require more flexibility, a non-retirement account may be a better choice. Because there are no special taxation benefits, there are generally no rules about when money can be withdrawn or how much can be contributed. Because of this, non-retirement accounts can also be a good place to invest for folks who have met their maximum contribution amount for the year in their retirement accounts.

Investing With SoFi

At any given time, there are a plethora of places or vehicles in which you can invest your money. You can invest in stocks, bonds, funds, real estate — the list is long. But each has its own considerations and risks that must be taken into account. Overall, an individual’s investing strategy is the most important thing to keep in mind.

As for where to open an account, new investors may want to focus on an institution or platform where they are able to keep costs low. There’s not a whole lot that investors can control, like investment performance, but how much they pay in fees is one of them. There are lots of options for investors.

SoFi Invest offers educational content as well as access to financial planners. The Active Investing platform lets investors choose from an array of stocks, ETFs or fractional shares, but restrictions apply.

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

Which investment gives the highest returns?

Higher-risk investments tend to give the highest returns, but can also give the highest losses. These can include certain stocks or investment funds, particularly those focused on market segments that are risky or volatile.

Where can you invest your money as a beginner?

Beginners can use any number of investment vehicles to invest their money. Some choices include investment funds like ETFs or mutual funds, or even retirement accounts or plans.

Where can you invest money to get good returns?

There are numerous investment vehicles that can provide good returns, but those returns can be thwarted by down markets. Stocks and more volatile investments tend to provide higher returns, but also tend to have higher risks than other investment types.

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.

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