May
30
2023
What Are Convertible Bonds?: Convertible bonds are a form of corporate debt that also offers the opportunity to own the company’s stock.

What Are Convertible Bonds?

By | Financial Independence, Growing Wealth, invest, Investing, Terminology | Comments Off on What Are Convertible Bonds?

Convertible bonds are a form of corporate debt that also offers the opportunity to own the company’s stock. Like regular bonds, they offer regular interest payments. But they also allow investors to convert the bonds into stock according to a fixed ratio. As such, they’re often referred to as “hybrid securities.”

Most convertible bonds give investors a choice. They can hold the bond until maturity, or convert it to stock. This structure protects investors if the price of the stock falls below the level when the convertible bond was issued, because the investor can choose to simply hold onto the bond and collect the interest.

How Do Convertible Bonds Work?

Companies will often choose to issue convertible bonds to raise capital in order to not alienate their existing shareholders. That’s because shareholders often react badly when a company issues new shares, as it can drive down the price of existing shares, often through a process called stock dilution.

Convertible bonds are also attractive to issue for companies because the coupon — or interest payments — on them tend to be lower than for regular bonds. This can be helpful for companies who are looking to borrow money more cheaply.

Every convertible bond has its own conversion ratio. For instance, a bond with a conversion ratio of 5:1 ratio would allow the holder of one bond to convert that security into five shares of the company’s common stock.

Every convertible bond also comes with its own conversion price, which is set when the conversion ratio is decided. That information can be found in the bond indenture of convertible bonds.

Convertible bonds can come with a wide range of terms. For instance, with mandatory convertible bonds, investors must convert these bonds at a pre-set price conversion ratio. There are also reverse convertible bonds, which give the company — not the investor or bondholder — the choice of when to convert the bond to equity shares, or to keep the bond in place until maturity.

But it also allows the investor to convert the bond to stock when they’d make money by converting the bond to shares of stock when the share price is higher than the value of the bond, plus the remaining interest payments.

How Big Is the Convertible Bond Market?

In 2022, the size of the global convertible bond market was estimated to be about $375 billion. Securities have been issued by hundreds of companies. But note that these numbers are miniscule compared to the U.S. equity market, which has trillions in value and thousands of stocks.

The total size of the convertible bond market does expand and contract, though, often with the cycling of the economy. As such, it’s likely that the market could be bigger or smaller a year from now.

Reasons to Invest in Convertible Bonds

Why have investors turned to convertible bonds? One reason is that convertible bonds can offer a degree of downside protection from the bond component during stock volatility. The companies behind convertibles are obligated to pay back the principal and interest.

Meanwhile, they can also offer attractive upside, since if the stock market looks like it’ll be rising, investors have the option to convert their bonds into shares. Traditionally, when stocks win big, convertibles can deliver solid returns and outpace the yields offered by the broader bond market. However, when stocks retreat, convertibles tend to deliver short-term losses.

For example, In 2020, the U.S. convertibles market returned a blockbuster 43%, making it one of the top performing global asset classes. The convertibles market also did well in 2009, just as the global economy was recovering from the financial crisis, when it returned 49%.

Downsides of Convertible Bonds

One of the biggest disadvantages of convertible bonds is that they usually come with a lower interest payment than what the company would offer on an ordinary bond. And the chance to save on debt service is a big reason that companies issue convertibles. So for investors who are primarily interested in income, convertibles may not be the best fit.

There are also risks. Different companies issue convertible debt for different reasons, and they’re not always good. Convertible financing is sometimes labeled “death spiral financing.”

The death spiral is when convertible bonds drive the creation of an increasing number of shares of stock, which drives down the price of all the shares on the market. The death spiral tends to occur when a convertible allows buyers with a large premium to convert into shares at a fixed conversion ratio in which the buyer has a large premium.

This can happen when a bond’s face value is lower than the convertible value. That can lead to a mass conversion to stock, followed by quick sales, which drives the price down further.

Those sales, along with the dilution of the share price can, in turn, cause more bondholders to convert, given that the lower share price will grant them yet more shares at conversion. Being one of the shareholders who makes something out of such a catastrophe can be a matter of close study and good timing.

How to Invest in Convertible Bonds

Most convertibles are sold through private placements to institutional investors, so retail or individual investors may find it difficult to buy them.

But individual investors who want to jump into the convertibles market can turn to a host of mutual funds and exchange-traded funds (ETFs) to choose from. But because convertibles, as hybrid securities, are each so individual when it comes to their pricing, yields, structure and terms, each manager approaches them differently. And it can pay to research the fund closely before investing.

For investors, one major advantage of professionally managed convertible bonds funds is that the managers of those funds know how to optimize features like embedded options, which many investors could overlook. Managers of larger funds can also trade in the convertible markets at lower costs and influence the structure and price of new deals to their advantage.

Recommended: How to Trade Options

The Takeaway

Convertible bonds are debt securities that can be converted to common stock shares. These hybrid securities offer interest payments, along with the chance to convert bonds into stock.

While convertible bonds are complex instruments that may not be suitable for all investors, they can offer diversification, particularly during volatile periods in the equity market. Investors can gain exposure to convertible bonds by putting money into mutual funds or ETFs that specialize in them.

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.

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.

Probability of Member receiving $1,000 is a probability of 0.028%.

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May
30
2023

Value vs Growth Stocks

By | Growing Wealth, invest, Investing | Comments Off on Value vs Growth Stocks

Generally speaking, value stocks are shares of companies that have fallen out of favor and are valued less than their actual worth. Growth stocks are shares of companies that demonstrate a strong potential to increase revenue or earnings thereby ramping up their stock price. The terms value and growth refer to both two categories of stocks and two investment “styles” or approaches of investing in stock.

Each style has pros and cons. When value investing, investors can buy shares or fractional shares of a company that has strong fundamentals at bargain prices. However, investors must be careful not to fall in a “value trap”—buying stocks that appear cheap, but are actually trading at a discount due to poor fundamentals.

What Are Value Stocks?

When investors hunt for value stocks, they are looking for stocks that are relatively cheap, unfashionable, or that they believe aren’t receiving a fair market valuation. Value investors try to identify value stocks by examining quarterly and annual financial statements and comparing what they see to the price the stock is getting on the market.

Investors will also look at a number of valuation metrics to determine whether the stock is cheap relative to its own trading history, its industry, and other benchmarks, such as the S&P 500 index.

For example, investors often look at price-to-earnings (P/E) ratio, which is the ratio of price per share over earnings per share. Some experts say that a value stock’s P/E should be 40% less than the stock’s highest P/E in the previous five years.

Investors may also look at price-to-book, which is the price per share over book value per share. A stock’s book value is a company’s total assets minus its liability and provides an estimate of a company’s value if it were liquidated.

Value investors are hoping to buy a quality stock when its price is in a temporary lull, holding it until the market corrects and the stock price goes up to a point that better reflects the underlying value of the company.

What Could Make a Stock Undervalued?

There are a number of reasons that a stock could be undervalued.

•   A stock could be cyclical, meaning it’s tied to the movements of the market. While the company itself might be strong, market fluctuations may temporarily cause its price to dip.

Recommended: Cyclical vs Non Cyclical Stocks

•   An entire sector of the market could be out of favor, causing the price of a specific stock to dip. For example, a pharmaceutical company with an effective new drug might be priced low if the health care sector is generally on the outs with investors.

•   Bad press could cause share prices to drop.

•   Companies can simply be overlooked by investors looking in a different direction.

What Are Growth Stocks?

Growth stocks are shares of companies that demonstrate the potential for high earnings or sales, often rising faster than the rest of the market. These companies tend to reinvest their earnings back into their business to continue their company’s growth spurt, as opposed to paying out dividends to shareholders. Growth investors are betting that a company that’s growing fast now, will continue to grow quickly in the future.

To spot growth stocks, investors look for companies that are not only expanding rapidly but may be leaders in their industry. For example, a company may have developed a new technology that gives it a competitive edge over similar companies.

There are also a number of metrics growth investors may examine to help them identify growth stocks. First, investors may look at price-to-sales (P/S), or price per share over sales per share. Not all growth companies are profitable, and P/S allows investors to see how quickly a company is expanding without factoring in its costs.

Investors may also look at price-to-earnings growth (PEG), which is P/E over projected earnings growth. A PEG of 1 or more typically suggests that investors are overvaluing a stock, while PEG of less than one may mean the stock is relatively cheap. PEG is a useful metric for investors who want to consider both value and growth investing.

Investors jumping into growth stocks may be buying a stock that is already valued relatively high. In doing so, they run the risk of losing a potentially significant amount of money if an unforeseen event causes prices to tumble in the future.

How Are Growth and Value Strategies Similar?

While growth and value investing are two different investment strategies, distinctions between the two are not hard and fast — there can be quite a bit of overlap. Investors may see that stocks listed in a growth fund are also listed in a value fund depending on the criteria used to choose the stock.

What’s more, growth stocks may evolve into value stocks, and value stocks can become growth stocks. For example, say a small technology company develops a new product that attracts a lot of investor attention and it starts to use that capital to grow its business more quickly, shifting from value to growth.

Investors practicing growth and value strategies also have the same end goal in mind: They want to buy stocks when they are relatively cheap and sell them again when prices have gone up. Value investors are simply looking to do this with companies that are already on solid financial footing, and hopefully, see stock price appreciation should rise as a result. And growth investors are looking for companies with a lot of potential whose stock price will hopefully jump in the future.

Using Growth and Value Strategies Together

The stock market goes through natural cycles during which either growth or value stocks will be up. Investors who want to capture the potential benefits of each may choose to employ both strategies over the long term. Doing so may add diversity to an investor’s portfolio and head off the temptation to chase trends if one style pulls ahead of the other.

Investors who don’t want to analyze individual stocks for growth or value potential can access these strategies through growth or value funds. Because of the cyclical nature of growth and value investing, investors may want to keep a close eye on their portfolios to ensure they stay balanced — and consider rebalancing their portfolio if market cycles shift their asset allocation.

The Takeaway

Growth and value are different strategies for investing in stocks. Investing in growth stocks is considered a bit riskier, though it also may provide potentially higher returns than value investing. That said, growth stocks have not always outperformed value stocks.

As a result, some investors may choose to build a diversified portfolio that includes each style so they have a better chance of reaping benefits when one is outperforming the other.

Ready to invest in your goals? It’s easy to get started when you open an Active Invest account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), 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.

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.

Probability of Member receiving $1,000 is a probability of 0.028%.

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May
30
2023
Why Index Fund Returns Vary from Fund to Fund

Why Index Fund Returns Vary from Fund to Fund

By | Growing Wealth, invest, Investing | Comments Off on Why Index Fund Returns Vary from Fund to Fund

The performance of index funds can vary based on which index the fund tracks and how the stock market performs as a whole. Index funds can offer a simplified approach to portfolio building when the primary goal is to meet, rather than beat, the market’s performance.

In simple terms, these mutual funds or exchange-traded funds (ETFs) seek to track the performance of a particular stock market index or benchmark. While these funds can offer some insulation against volatility, it’s important to understand which factors drive index funds returns.

What are Index Funds, Exactly?

An index fund is a type of mutual fund that’s designed to track the performance of a stock market index, by investing in some or all of the securities tracked by that particular index.

An index represents a collection of securities, which may include stocks, bonds, and other assets. Stock indexes can cover one particular sector of the market or a select grouping of companies. Examples of well-known stock indices include the S&P 500 Index and the Russell 2000 Index.

What Determines Index Fund Returns?

Even though they tend to have a similar purpose and function inside a portfolio, the return on index funds isn’t identical from one fund to the next. Some index funds can lose money, too. Factors that can influence index funds’ returns include:

•   Which specific index they track

•   Whether that index is:

◦   Cap-weighted, in which each security is weighted by the total market value of their shares.

◦   Price-weighted, in which the per share price of each security in the index determines its value.

◦   Equal-weighted, in which all of the securities being tracked are assigned an equal weight for determining value.

•   Number of securities held by the fund

•   Geographic classification of fund securities

•   Expense ratio and fees

•   Overall market conditions

•   Tracking error

Together, these factors can influence how well one index fund performs versus another.

Index Tracking

First, consider which benchmark an index fund tracks. There can be significant differences in the makeup of various indexes. For instance, the S&P 500 covers the 500 largest publicly traded companies while the Russell 2000 Index includes 2000 small-cap U.S. companies.

Large-cap stocks can perform very differently from small-cap stocks, which translates to differences in index fund returns. Between the two, large-cap companies tend to be viewed as more stable while smaller-cap companies are seen as riskier. Large-cap companies may fare better during periods of increased market volatility but in an extended downturn, small-cap companies may outperform their larger counterparts.

Index Weighting

Cap-weighted, price-weighted, and equal-weighted indexes all have the potential to perform differently, because each company’s stock may have different weight in each of these types of funds. For example, if a stock in an equal-weighted index filled with 500 stocks performs poorly, those shares represent 1/500th of performance. On the other hand, if the same stock performs poorly in a cap-weighted fund and it happens to have a very high market cap, it may represent a larger percentage of performance.

For these reasons, it’s also important to know how many securities are held by the fund. The more financial securities in a given fund, the greater the likelihood that a poorly performing one will be balanced by others.

Geographic Classification

Even when two index funds both follow the same formula with regard to market capitalization, returns can still differ if each fund offers a different geographic exposure. For example, a fund that tracks a global market index and includes a mix of international and domestic stocks may not yield the same results as an index fund that focuses exclusively on U.S. companies.

Funds that track global indexes can also differ when it comes to how they characterize certain markets. For instance, what one fund considers to be a developed country may be another index fund’s emerging market. That in turn can influence index fund returns.

Expense Ratio and Fees

Index funds are generally passive, rather than active, since the turnover of assets inside the fund is typically low. This allows for lower expense ratios, which represent the annual cost of owning a mutual fund or ETF each year, expressed as a percentage of fund assets. Generally, index funds carry lower expense ratios compared to actively managed funds but they aren’t all the same in terms of where they land on the pricing spectrum.

The industry average expense ratio for index funds tends to be a bit more than 0.5%, though it’s possible to find index funds with expense ratios well below that mark. The higher the expense ratio, the more you’ll hand back in various fees to own that index fund each year, reducing your overall returns.

In terms of fees, some of the costs you might pay include:

•   Sales loads

•   Redemption fees

•   Exchange fees

•   Account fees

•   Purchase fees

When comparing index fund costs, it’s important to keep the expense ratio, fees, and historical performance in mind. Finding an index fund with an exceptionally low expense ratio, for instance, may not be that much of a bargain if it comes with high sales load fees. But a fund that charges a higher expense ratio may be justifiable if it’s consistently outperformed similar index funds year over year.

Tracking Error

Tracking errors can significantly impact your return on index funds. This occurs when an index fund doesn’t accurately track the performance of its underlying index or benchmark.

Tracking errors are often tied to issues with the fund, rather than its index. For example, if a fund’s composition doesn’t accurately reflect the composition of the index it tracks then performance results are more likely to be skewed. Excessive fees or a too-high expense ratio can also throw a fund’s tracking off.

What Are Good Index Fund Returns?

What is a good return on investment for an index fund? Given that the return on index funds can vary, the simplest answer may be to look at the stock market’s historical performance as a whole.

The S&P 500 Index is often used as a primary market benchmark for measuring returns year over year. The average annualized return for the S&P 500 Index since its inception — including dividends and adjusted for inflation — is 8.7%. Following that logic, a good return on investment for an index fund would be around the same.

You could also use the fund’s individual index as a means of measuring its performance. Comparing the fund’s performance to the index’s performance month to month or year over year can give you an idea of whether it’s living up to its expected return potential.

Are Index Funds a Good Investment?

Index funds may appeal to one type of investor more than another, which is why it’s always important to do your research before determining what will be a good fit for your portfolio.

Investors who prefer a low-cost, passive approach may lean toward index investing for growing potential for wealth long-term. Index funds can offer several advantages, including simplified diversification and consistent returns over time.

For example, if your investment goals include keeping costs low while producing consistent returns with lower fees, then index investing maybe a good choice. You may also appreciate how easy it is to buy index funds or ETFs and use them to create a diversified portfolio.

Index funds can help with pursuing a goals-based investing approach, which focuses on investing to meet specific goals rather than attempting to beat the market. When comparing index funds, pay attention to the fund makeup, its costs, historical performance, turnover ratio and the potential for tracking errors.

The Takeaway

A number of factors helps explain why different index funds have different returns — including, but not limited to, which index they track and how it’s weighted, the geographic classification of the fund securities, expense ratios, and overall market conditions.

But keep in mind: Unless you have a crystal ball, there’s no way to predict exactly how an index fund will perform. But getting to know what differentiates one index fund or ETF from the next can help with making more informed decisions about which ones to buy.

Ready to invest in your goals? It’s easy to get started when you open an Active Invest account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), 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.

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.

Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

Probability of Member receiving $1,000 is a probability of 0.028%.

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May
30
2023
aerial traffic view

7 Ways to Save Money on Commuting to Work

By | Budgeting & Goals, Building Your Career, Life & Career, money | Comments Off on 7 Ways to Save Money on Commuting to Work

Many people are back into the full-time commuting groove again and finding that it can be a major cost. And by cost, it can mean the impact it has on both money and mood.

Some people spend 30 minutes commuting each way; others two or three times that. Some get on an express train while others drive their own car and deal with traffic woes and gas prices.

One way to lessen the burden of commuting (beyond listening to terrific podcasts while en route) is to lower the cost. Here, learn smart ways to do just that.

How Much Does It Cost To Commute?

First, there’s the per-mile cost of gasoline. Commuting to work is a major portion of all driving in the United States. But a hidden cost of driving is depreciation, a car’s loss in value over time. It’s the largest annual cost of car ownership, according to AAA, accounting for more than a third of the average annual cost. Add increased maintenance and repair costs of cars as they age and are driven more frequently.

AAA pegged maintenance and repair costs at almost 9.68 cents per mile and fuel costs at 17.99 cents per mile, meaning that beyond fixed costs of car ownership, a 15-mile one-way commute would cost about $8.30 a day and, at around 250 days of work a year, $2,075.25 annually, before expenses like auto depreciation, tolls, and insurance.

The easiest way to reduce these costs is to minimize or eliminate a commute to work.

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1. Aiming for a ‘Remote First’ Culture

Working remotely part- or full-time is a surefire way to cut commuting time and costs. The easiest way to maximize working from home is to find a job at a company where it’s standard. This option has become popular since the pandemic.

If your work makes it possible to work from home sometimes, you may want to try to make it a regular occurrence. That way you can more easily optimize your time spent in the office and save tasks best for home for the day you regularly work from home.

If you work from home regularly, it also means you can get better at it, from setting up a home office that truly works to figuring out how working at home can make you more productive than working in the office, not merely save you the time and money of a long commute — although that’s important, too. There are also possible home office tax deductions.

Of course, the easiest way to save money commuting to work is not to do it at all. This not only spares the cost of gas, maintenance, subway tickets, or bus fare, but it also saves precious time.

The money that would have been spent on a commute to work can be put in a savings account to hit other savings goals.

Recommended: Making Working From Home Actually Work

2. Living Closer to the Job

One of the most obvious ways to reduce commute time is to make it so your car is less expensive.

There are roughly two ways to do this: Drive less or drive less expensively.

The easiest way to drive less is to live closer to work. While that may save money on gas and maintenance, it could end up being more expensive to live closer to work, especially in a large city.

One of the main amenities people seek when deciding where to live is distance from their job. If you work near where a lot of other people work, trying to live near that job is likely to be pricey as the cost of living may be higher.

So how to make driving less expensive if you can’t reduce the amount of driving necessary to get work? Get someone else to drive, at least some of the time, or drive cheaply.

💡 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% towards saving for your long-term goals.

3. Giving Carpooling a Spin

Carpooling means a shared ride to and from work, typically with someone who works in the same area or nearby.

Carpooling doesn’t magically get rid of the costs of commuting to work, but it can distribute them among riders or reduce them. Gas costs can be split, and maintenance costs can be reduced as the car is operated less frequently.

Even if you’re the one driving, you can often get access to high-occupancy-vehicle lanes, which means less time on the road and less time stalled in traffic.

4. Getting a Cheaper Car

Let’s say you have no choice about how far you have to drive and how frequently you have to do it. That may be a bummer, but it doesn’t mean you’re out of options for saving money. Some cars are cheaper to operate than others, and there are wide variations between them. Basically, smaller is better.

For new cars, according to AAA, a small sedan is the cheapest to own, costing $54.56 per mile, even less than hybrids (64.61 cents) and electric (60.32 cents) vehicles.

More numbers to know: the costs for small SUVs (62.17 cents per mile) and medium sedans (69.01 cents).

There are, of course, other ways to get around besides a car.

Recommended: Do You Have Sound Money Values?

5. Taking Public Transportation

About 5% of commuters are straphangers, bus riders, and other transit users, according to U.S. Census data. While a mass-transit commute to work is not costless, it can certainly save money on a per-trip basis.

Even if you own a car, using mass transit (or driving to a transit stop) won’t spare you from insurance, the cost of a new car, or depreciation, but the costs of car ownership associated with actual driving (gas, maintenance, etc.) will go down.

The only downside is that the ability to commute to work by public transit is often largely determined by locale. Someone who works in an area with a public transit system that serves the office can choose to live somewhere with efficient access to that system.

This will likely be in or near a large city, where the share of commuters who use public transit is far higher than the 5% national average.

If you work in a city like New York, Chicago, Washington, Boston, Philadelphia, San Francisco, Seattle, or Baltimore, public transit might be an efficient commuting option.

And although public transit may not entirely remove the need for a car, it could make it so a household with two adults only needs a single car, vastly reducing the cost of car ownership.

Finally, some companies offer commuter benefits, such as pretax income to be spent on costs related to the commute.

💡 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.

6. Doing the Legwork

Often the most affordable way to get to work is without a car; that means by foot, bicycle, or some other non-internal-combustion vehicle. Biking may be impractical or stressful in many parts of the country.

Still, some commuters are up for the challenge. Cycling provides an aerobic workout and triggers the release of endorphins, builds muscle, and increases bone density.

Rolling road warriors may want to invest in a variety of gear (safety and comfort can be enhanced), whose price tags are mitigated by a lack of car-related bills.

Recommended: Reasons to Switch Bank Accounts

7. Tracking Expenses

To reduce costs, commuters have to first get a handle on their spending, whether for gas, maintenance, or mass transit — or even coffees, snacks, and lunches on the job. Creating a budget and accounting for where your money goes is an important step.

This can help you see where your money is spent and make adjustments to maximize your buying and saving power. For instance, you might decide it’s worthwhile to buy your gas from a lower-priced gas station or apply for a gas credit card.

The Takeaway

By better understanding the cost of commuting, you can make wise decisions about lowering your costs and saving money on this often-daily expense. From working from home when possible to carpooling and beyond, there are ways to keep your costs down.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% 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 4.20% 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 10/31/2024. 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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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May
30
2023

How to Save Big with Senior Discounts

By | Budgeting & Goals, money | Comments Off on How to Save Big with Senior Discounts

Did you know that you can start taking advantage of what are known as senior discounts well before retirement age? In fact, you can often save money when you are as young as 55 and in some cases even 50.

In fact many “senior” discounts can be accessed through membership in the AARP (the American Association of Retired Persons). Anyone age 50 or older can join (membership runs $16 a year, though discounts may be offered).

And, the sooner you start working those senior discounts, the more you could potentially put into retirement savings, which could lead to a more significant nest egg when you really do reach retirement age.

Read on to learn about some smart ways you might start saving as a senior or soon-to-be senior.

Travel Senior Discounts

Many major airlines, hotel chains, cruise lines, and rental car companies offer senior discounts, sometimes as much as 30 percent off, which can help bring down vacation costs.

These deals aren’t always obvious, however. You may have to track them down on company websites or simply call directly and ask.

💡 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.

Here are some different ways you may be able to score senior deals on travel.

Airline Senior Discounts

You may not always find a code or a drop-down menu when booking online, but you can often get good discounts on air travel if you call the airline directly.

Some airline discounts to look for:

•   Delta offers senior discounts in certain markets, but not online.

•   United Airlines may offer senior fares to selected travel destinations for customers who are 65 and older (when booking online or over the phone).

•   British Airways offers exclusive AARP Member offers, including up to $200 off.

Car Rentals

AARP membership can get you some significant discounts on car rentals and there are some companies that offer independent discounts. Some to look for:

•   Alamo provides deals through its Senior Circle program.

•   Avis gives AARP Members up to 30% off Avis base rates.

•   Budget offers AARP members up to 30% off, and sometimes also a free upgrade and other exclusive benefits.

•   Hertz offers travelers 50 and up to 20% off base rates, and they can also take advantage of additional program benefits.

Cruises

Cruise lines, such as Carnival, Norwegian Cruise Line, Celebrity Cruises, and Royal Caribbean, commonly offer discounts to those travelers that are 55 and older.

It’s best to call the cruise line before booking to see what is currently available, as some won’t advertise specific deals on their websites, yet may have special senior offers.

Another savvy savings tip is to wait to get the best deal available to you, and then ask to apply your senior discount on top.

Hotels

Senior discounts are available at many hotel chains, but are not always advertised.

Again, many of the programs are aligned with AARP membership, but there are plenty of others that offer their own independent discount.

A few deals to keep an eye out for:

•   Cambria Suites offers up to 10% off with advance reservations to those 60 or older, as well as to AARP members (50+).

•   Travel Lodge gives guests age 60 and older special savings off the best available room rate when booking online or over the phone (ask for the “senior rate”).

•   Choice Hotels gives those who are 60+, or an AARP member, up to 10 percent with advance reservations.

•   Motel 6 offers adults 60+ a discount of 8% off of their best available nightly rates at each of their 1,400+ locations across the United States and Canada.

•   Hilton Hotels & Resorts gives adults 50+ 10 to 25 percent when booking online through Hilton’s AARP page .

National Parks

For just $80, those age 62 or over can get a lifetime pass to the National Parks , which also includes access to more than 2,000 other federal sites.

An annual pass to all of these parks is just $20.

Applicants must provide documentation of age and United States residency or citizenship.

💡 Quick Tip: When you feel the urge to buy something that isn’t in your budget, try the 30-day rule. Make a note of the item in your calendar for 30 days into the future. When the date rolls around, there’s a good chance the “gotta have it” feeling will have subsided.

Amtrak

If you like the idea of traveling by train, then you may want to look up the Amtrak senior discount–travelers 65 years of age and older are eligible to receive a 10% discount on most rail fares on most Amtrak trains.

Retail Discounts for Seniors

As a senior, you can often save big with many retailers. Some stores provide a senior discount on a specific day, such as every Wednesday or the first Tuesday of the month.

One of the best (and best known) is Kohl’s, which typically offers 15% off every single Wednesday for those 60 and older. The money you save could help build your retirement savings.

According to The Senior List, other major retailers that may offer discounts to those 55+ include:

•   TJMaxx

•   Belk

•   Ross Stores

•   Lenscrafters

•   Michael’s

Restaurant Deals for Seniors

This is probably one of the richest sources of discounts available to seniors.

Whether it’s on a certain day or during a specific block of time, many restaurants offer something, so it’s a good idea to ask around at your favorite places and to also check restaurant websites.

Many eateries also have senior menus that offer discounts to diners over a certain age.

Promotions vary according to location, but here are a few deals you may keep an eye out for.

•   Arby’s: 10% off purchases for seniors and a free drink at participating locations.

•   Denny’s: a 55-plus menu, which offers discounted prices for seniors.

•   McDonald’s: discounts on beverages and coffee at some locations.

•   IHOP: a 55-plus menu, which offers deals for seniors.

•   Outback Steakhouse: AARP cardholders can score 10% off.

•   Bubba Gump Shrimp Co:. 10% off for AARP cardholders.

Senior Discounts on Groceries

Many major grocery stores offer senior discounts on certain days. Some local independent grocery stores will offer small discounts too, so it never hurts to ask your go-to market about senior deals.

You may also want to look for these commonly offered discounts to save money on food:

•   Fred Meyer: 10% off on select items on the first Tuesday of every month for those 55 and older.

•   New Seasons: 10% off for seniors on Wednesdays on select items.

•   Hy-Vee: 5% off on Wednesdays for seniors at participating locations.

💡 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% towards saving for your long-term goals.

Senior Deals on Movie Tickets

Major movie chains often offer great discounts on tickets for seniors. Some deals are all day every day, while others require going on a specified day and/or block of time.

Regal, for instance, offers 20% off for AARP members purchasing tickets online, plus discounts on popcorn and other snacks.

Another example is Showcase Cinemas, which usually offers lower-priced tickets to adults 60 and over (as well as deals on popcorn and drinks) on Wednesdays.

Local, independent theaters also commonly offer discounted tickets to seniors, so it’s always worthwhile asking.

Senior Discounts at Drug Stores

Almost every pharmacy out there is interested in getting your business, and offers some sort of senior discount program.

Rite Aid, Costco, CVS, and Walgreens all commonly offer types of membership programs (and sometimes also special monthly discount days) for older adults with savings that can really add up.

It can also be wise to check for discounts with local, independent pharmacies for senior deals as well — they’re not always advertised.

Recommended: Ways to Cut Back on Spending

Senior Cell Phone Savings

T-Mobile, AT&T, and Verizon all typically offer cell phone plans with senior discounts.

If you’re 55 or older, you can very likely get a good deal on a plan.

Some smaller carriers also provide special services and more ways to save. For instance, Consumer Cellular, which already offers affordable, customizable, no-contract plans, has an established relationship with AARP, so there’s a discount on monthly service for any existing member.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.20% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


The Takeaway

You might not even think to look for, let alone ask for, a “senior discount” if you’re under age 65. But if you’re 50 or older, you may be missing out on a great way to cut back on spending.

Senior discounts are offered by many retailers, movie theaters, airlines, rental cars, cell phone carriers, restaurants and more.

Some are tied to AARP membership (available to those 50+ for a small annual fee), while others are offered independently, with varying age limitations. Whatever you save could help build your savings or help you make special purchases for less.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% 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 4.20% 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 10/31/2024. 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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