Jun
12
2023

Pros & Cons of Buying Mid-Cap Stocks

By | Growing Wealth, invest, Investing, Terminology | Comments Off on Pros & Cons of Buying Mid-Cap Stocks

Mid-cap stocks are shares of publicly traded companies with market capitalizations of about $2 billion to $10 billion. The range also indicates where they fall in the spectrum of valuation between small-cap and big-cap (sometimes called large-cap) companies.

Because the stocks are approximations based on a company’s current value, their classification might change over time. There are also pros and cons to investing in mid-cap stocks — as there are when investing in stocks of all types and sizes.

Market Capitalization Investing

Market capitalization is a company’s total value: the number of outstanding shares a company has multiplied by the current price per share. For example, a company with 40 million shares selling at $100 a share would have a market cap of $4 billion.

When investing, the case can be made for including small-, mid-, and big-cap stocks in your portfolio. But when thinking about the numbers involved — small-cap companies have a value of less than $2 billion, and large-cap companies have a value of over $10 billion — understand that the values also govern potential growth.

In other words, small-cap stocks might grow into mid-cap stocks. But a large-cap stock can only stay a large-cap stock unless the value goes down. (Investors have informally come up with valuation categories for nano cap stocks, micro-cap stocks, and mega-cap stocks, but there isn’t a broad consensus about their cutoff values.)

Either way, when investing, the hope is generally for stocks to increase in value or appreciate — and the prevailing wisdom is that small- and mid-cap stocks are appealing because they have room to grow.


💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

Market Cap As a Basic Investor Tool

Knowing the market cap of a company can help investors compare the company to others of similar size. An investor choosing auto-manufacturing stocks could look at mid-cap companies in that particular market sector and compare how they are doing against one another.

To dig even deeper into the basics, it’s good to understand the difference between stocks and bonds. Bonds are a type of debt instrument, whereas stocks represent ownership in a company. Generally, stocks have the potential to offer the highest gains, while bonds are generally safer.

Investing In Mid-Cap Stocks

Finding an investment strategy that makes sense for you is largely about understanding the trade-offs involved. There’s really no such thing as a sure thing in finance, and probably the only way to think about the “best” mid-cap stocks is to look for ones that will offer a return on investment — and ideally a large one, sooner rather than later.

Beyond that, here’s a look at a couple of possible advantages and disadvantages of investing in mid-cap stocks.

Growth, Earnings, Capital

Pro: Whether mid-cap stocks are the sole investments being targeted for a portfolio or they’re part of a more diverse selection, a good argument for them is that they are often companies that are trying to expand.

These are established companies in industries that are experiencing rapid growth, or are expected to. And thanks to that growth, the average mid-cap company’s earnings often grow at a faster rate than the average small cap, and with less stock volatility and risk.

Most mid-cap companies are small caps that have burgeoned, and some are on their way to becoming large-cap businesses. Growth eases the ability to access financing to fuel expansion, so mid-caps typically have an easier time obtaining financing than small caps do.

Investing in mid-cap stocks can be the happy medium between small-cap growth and large-cap stability.

Con: Mid-cap stocks can be more vulnerable than large-cap ones. Being middle tier, by definition, means such companies don’t have as much capital to sustain them through market downturns as big-cap companies do.

And because they are also not massive companies like large-cap companies with a value over $10 billion, it also means they are not as diversified as bigger-cap companies. If the market for that company disappears, the company is also at risk.

Performance

Pro: Because $2 billion to $10 billion is a sizable range of valuations, it means that mid-cap stocks often outperform large- and small-cap stocks just because it’s a markedly wide net of stocks. There are no guarantees that that will happen, of course, which is very important to keep in mind. And, naturally, historical performance is not necessarily an indicator of what will happen in the future.

Con: Investment risk is risk, and even those who don’t dabble in investing likely know that something that seems low risk isn’t the same as something that is not a risk. It doesn’t matter how many reports you read — there are always exceptions. It’s still a good idea to read up on different strategies and try to develop a sense of why some investments are riskier than others.


💡 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.

Researching Mid-Cap Stocks

Many mid-cap companies are household names, and you’d likely recognize a whole host of them. Even so, it’s best for anyone interested in investing in mid-cap stocks to do their homework — look at who’s running the company, who’s already invested, and what the stated goals in earnings and annual reports are.

And it might be smart to consult a financial professional if you need guidance.

It’s tempting to think of a “hot tip” as something you must rush to get in on, but it’s worth taking a breath and considering what you might be overlooking by fixating on something that seems lucrative but also requires urgent action. Again, do your homework.

The Takeaway

Market capitalization is a way for investors to understand the value of different companies and compare their performance and outlook, and mid-cap stocks — which can be seen as lying between small-cap growth and big-cap stability — are one investment strategy to consider.

But there are pros and cons to investing in mid-cap stocks, as there are when investing in other types of stocks. It’s always best to do as much research as you deem necessary before making decisions, and even consider consulting 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.

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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Jun
10
2023
Why your debt-to-income ratio matters

Why Your Debt to Income Ratio Matters

By | Credit, Debt Payoff, personal_loan, Terminology | No Comments

Imagine you’re a lender, and a wellness entrepreneur comes to you to borrow thousands or hundreds of thousands of dollars. The loan seeker is the picture of health, drives a Tesla S, and lives in a solar-powered manse. But what if the would-be borrower is overextended, and not in a yoga-like way?

You’re going to want to compare their current income to their debts to help gauge how likely you are to be paid back.

Makes sense, right? A debt-to-income ratio helps to determine whether someone qualifies for a loan, credit card, or line of credit and at what interest rate.

A low DTI ratio demonstrates that there is probably sufficient income to pay debts and take on more. But what’s “low” or “good” in most lenders’ eyes?

First, a Debt to Income Ratio Refresher

In case you don’t know how to calculate the percentage or have forgotten, here’s how it works:

DTI = monthly debts / gross monthly income

Let’s say monthly debt payments are as follows:

•   Auto loan: $400

•   Student loans: $300

•   Credit cards: $300

•   Mortgage payment: $1,300

That’s $2,300 in monthly obligations. Now let’s say gross monthly income is $7,000.

$2,300 / $7,000 = 0.328

Multiply the result by 100 for a DTI ratio of nearly 33%, meaning 33% of this person’s gross monthly income goes toward debt repayment.

What Is Considered a Good DTI?

The federal Consumer Financial Protection Bureau advises homeowners to consider maintaining a DTI ratio of 36% or less and for renters to consider keeping a DTI ratio of 15% to 20% or less (rent is not included in this ratio).

In general, mortgage lenders like to see a DTI ratio of no more than 36%, though that is not necessarily the maximum.

For instance, DTI limits can change based on whether or not you are considering a qualified or nonqualified mortgage. A qualified mortgage is a home loan with more stable features and without risky features like interest-only payments. Qualified mortgages limit how high your DTI ratio can be.

A nonqualified mortgage loan is not inherently high-risk or subprime. It is simply a loan that doesn’t fit into the complex rules associated with a qualified mortgage.

Nonqualified mortgages can be helpful for borrowers in unusual circumstances, such as having been self-employed for less than two years. A lender may make an exception if you have a high DTI ratio as long as, for example, you have a lot of cash reserves.

In general, borrowers looking for a qualified mortgage can expect lenders to require a DTI of 43% or less.

Under certain criteria, a maximum allowable DTI ratio can be as high as 50%. Fannie Mae’s maximum DTI ratio is 36% for manually underwritten loans, but the affordable-lending promoter will allow a 45% DTI ratio if a borrower meets credit score and reserve requirements, and up to 50% for loans issued through automated underwriting.

In the market for a personal loan? Some lenders may allow a high DTI ratio because a common use of personal loans is credit card debt consolidation. But most lenders will want to be sure that you are gainfully employed and have sufficient income to repay the loan.

Front End vs Back End

Some mortgage lenders like to break a number into front-end and back-end DTI (28/36, for instance). The top number represents the front-end ratio, and the bottom number is the back-end ratio.

A front-end ratio, also known as the housing ratio, takes into account housing costs or potential housing costs.

A back-end ratio is more comprehensive. It includes all current recurring debt payments and housing expenses.

Lenders typically look for a front-end ratio of 28% tops, and a back-end ratio no higher than 36%, though they may accept higher ratios if a credit score, savings, and down payment are robust.

How Can I Lower My Debt-to-Income Ratio?

So what do you do if the number you’ve calculated isn’t your ideal? There are two ways to lower your DTI ratio: Increase your income or decrease your debt.

Working overtime, starting a side hustle, getting a new job, or asking for a raise are all good options to boost income.

Strangely enough, if you choose to tackle your debt by only increasing your payments each month, it can have a negative effect on your DTI ratio. Instead, it can be a good idea to consider ways to reduce your outstanding debt altogether.

The best-known debt management plans are likely the snowball and avalanche methods, but there’s also the fireball method, which combines both strategies.

Instead of canceling a credit card, it might be better to cut it up or hide it. In the world of credit, established credit in good standing is looked upon more favorably than new.

The Takeaway

Your debt-to-income ratio matters because it affects your ability to borrow money and the interest rate for doing so. In general, lenders look at a lower DTI ratio as favorable, but sometimes there’s wiggle room.

If you’re struggling with student loan debt, refinancing might be a good option if you can lower your interest rate. And if you’re trying to pay off high-interest credit card debt, one method is to consolidate the debt with a fixed-rate personal loan. This can lower your monthly payment, thus changing your DTI ratio.

Check your rate on SoFi’s student loan refinancing and personal loans.

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

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.


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

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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Jun
09
2023

IRA Basis: Guide to Tracking It for Traditional and Roth IRAs

By | invest, Investing, Preparing for Retirement | Comments Off on IRA Basis: Guide to Tracking It for Traditional and Roth IRAs

Investing money in an individual retirement account (IRA) can be an important part of saving for retirement. Among the types of IRAs you may have are Traditional IRAs and Roth IRAs. With a Traditional IRA, you can often deduct your contributions in the year you make them and pay tax on your withdrawals. A Roth IRA works in the opposite way — contributions are generally not tax-deductible and your earnings and withdrawals can be tax-free.

Because of the way that withdrawals from IRAs can be tax-free, it’s important to be aware of your IRA basis. When you withdraw money from a Traditional or Roth IRA, you may only need to pay tax on withdrawals that exceed your basis.

What Is a Roth IRA Basis?

The total amount that you’ve contributed to your Roth IRA over the years is considered your Roth IRA basis. Because Roth IRA contributions are not deductible in the year that you contribute them, you can withdraw your contributions at any time without tax or penalty.

Is a Roth IRA Basis Different From a Traditional IRA Basis?

Calculating your Traditional IRA basis is a bit different than calculating your Roth IRA basis. Understanding these differences in large part comes down to understanding what an IRA is and how various types of IRAs work.

When calculating your Roth IRA basis, you add up all of the contributions you make. This is because no Roth IRA contributions are tax-deductible.

With a Traditional IRA, on the other hand, some contributions are deductible in the year that you make them. So your Traditional IRA basis only includes contributions that were not tax-deductible in the year that you made them.

What Are the Rules of a Roth IRA Basis?

Contributing to a Roth IRA can be a great way to invest and save for retirement, because your earnings and withdrawals are tax-free, as long as you make qualified distributions. Your Roth IRA basis is easy to calculate, since it’s the net total of any contributions that you make, minus any distributions.

What Are the Rules of a Traditional IRA Basis?

If you open a Traditional IRA, you’ll want to make sure that you’re familiar with the rules of a Traditional IRA basis. Your basis in a Traditional IRA is the total of all of any non-deductible contributions you made, as well as any non-taxable amounts included in rollovers, minus all of your non-taxable distributions.

How Is IRA Basis Calculated?

When you start saving for retirement, you’ll want to make sure that you are accurately calculating your IRA basis. The exact formula for calculating your IRA basis varies slightly based on whether you have a Traditional or Roth IRA.

💡 Recommended: When Should You Start Saving for Retirement?

Roth IRA Basis Formula

Contributions to a Roth IRA are never tax-deductible. That means that you will use the sum of all of your contributions to calculate your Roth IRA basis.

Traditional IRA Basis Formula

Calculating your Traditional IRA basis works in a slightly different fashion. Because many contributions to Traditional IRAs are tax-deductible in the year you make them, you don’t include all of your contributions when calculating your basis. Instead, you will only use the contributions that are NOT tax-deductible when calculating your Traditional IRA basis. If all of your Traditional IRA contributions are tax-deductible, then your basis will be $0.

Why Is Knowing Your IRA Basis Important?

Not knowing your IRA basis is a retirement mistake you can easily avoid. You want to know what your IRA basis is, because it represents the amount of money that you can withdraw from your IRA without tax or penalty.

Generally, any withdrawals up to your tax basis are tax and penalty-free, while withdrawals above your tax basis may be subject to income tax and/or a 10% penalty. While it is usually not a good idea to withdraw money from your retirement accounts, knowing your basis can help you make an informed decision.

💡 Recommended: How to Open an IRA: A Beginner’s Guide

Starting an IRA With SoFi

Understanding your IRA basis is an important part of investing and planning for your retirement. At its simplest, you can calculate your IRA basis by adding up all of your non-tax-deductible contributions and subtracting any previous distributions. For your Roth IRA basis, you can use all of your contributions, while for Traditional IRAs you can only use the value of any contributions that you did not deduct from your taxes. Your IRA basis is the amount that you can typically withdraw from your account without having to pay income tax and/or a penalty.

Opening an IRA online with SoFi can be a great way to start saving for retirement. Starting a Traditional IRA may allow you to lower your taxable income this year, while contributing to a Roth IRA your retirement by allowing your retirement contributions to grow tax-free. It can be a smart financial decision to use one of these accounts to make sure you have enough money put aside for your retirement.

Help grow your nest egg with a SoFi IRA.

FAQ

Do I have an IRA basis?

Everyone with an IRA has an IRA basis, although it’s possible that your IRA basis is $0. Your IRA basis is the net total of your non-tax-deductible contributions minus any distributions. For a Roth IRA, you use the value of all your contributions, while with a Traditional IRA, it’s only the contributions that were not tax-deductible.

How do I find my IRA basis?

Your IRA basis is the sum of any non-tax-deductible contributions that you make to an IRA minus any distributions that you take from your account. Your IRA basis is not generally reported anywhere. So if you don’t know your basis, you will need to calculate it based on your historical contributions and distribution amounts.

Who keeps track of your IRA basis?

The IRS does not generally keep track of your IRA basis — you are responsible for making sure your IRA basis is accurately calculated. If you use an accountant, they may calculate and track your IRA basis. You’ll want to make sure that you are accurately tracking your basis so that you can correctly pay any taxes you owe on IRA distributions.

Photo credit: iStock/Eva-Katalin

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.

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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Jun
09
2023

Long Put Option Guide

By | Growing Wealth, invest, Investing | Comments Off on Long Put Option Guide

The simplest options strategies, and safest for beginners, include purchasing calls and/or puts — typically called “going long.” For the bearish investor who believes an asset will see price declines over a well-defined period of time, the simplest strategy is to purchase puts on those assets, i.e., pursue a long put strategy.

What Is a Long Put?

The term “Long Put” describes the strategy of buying put options as well as the options contract itself. The investor who purchases a put has purchased the right to sell an underlying security at a specific price over a specific time period. Being the buyer and holder of any options makes you “long” that option contract.

Because the contract in question is a put, the investor is long the put and bullish on the put option as they expect the put options price to rise. The put option holder is bearish on the underlying asset as they expect its price of the asset to go down.

Since the investor has not sold the underlying asset or its options, the investor does not hold a short position.

💡 Recommended: Options Trading Strategies for Beginners

Maximum Loss

In comparison to other options strategies, long puts are low risk due to their limited and well-defined downside. The maximum amount an investor can lose is the premium paid at the initiation of the transaction.

Maximum Loss = Premium Paid

Because different trading platforms have different commission structures, (some may even provide commission-free trading) commissions are typically omitted from profit and loss calculations.

Maximum Profit

The maximum gain for a long put strategy occurs when the underlying asset drops to zero. While this gain is also limited and defined, it is typically far greater than the potential downside. The maximum gain on a long put strategy is defined as the strike price of the put less the premium paid.

Maximum Profit = Strike Price – Premium Paid

Breakeven Price

The breakeven price on a long put strategy occurs at the strike price less the premium. Note that the formula for the maximum gain and the breakeven price is the same but the two formulas are measuring different things.

The breakeven price is the point at which the investor begins to make a profit. As the price drops past breakeven toward zero, hopefully, the investor can realize the maximum gain possible.

Breakeven Price = Strike Price – Premium Paid

Why Investors Use Long Puts

Investors utilize a long put strategy for three main reasons:

•   Speculation: The investor identifies an asset they believe will decrease in price over a defined time period. Buying a long put allows the investor to profit from this forecasted price decrease if it happens.

•   Hedging: Sometimes an investor already holds an asset like a stock or exchange-traded fund (ETF) and is concerned that the price of the asset may drop in the short term, but still wants to hold the asset for the long term.

By purchasing a long put, the investor can offset any short-term losses through gains on the put and keep control of the underlying asset. For most assets, this hedging strategy provides cheap insurance.

•   Combination strategies: For experienced investors, long puts can be part of complicated multi-leg strategies involving the sale or purchase of other options, both calls and puts, to pursue different investment objectives.

Long Put vs Short Put

In contrast, a short put options strategy occurs when the investor sells a put. Being the seller of a put means the options contract seller is obligated by the options contract to sell shares in an underlying security to the option buyer at the buyer’s discretion.

Everything about short puts is the opposite to long puts:

Long Puts

 Short Puts
Investor role Buyer Seller
Investor responsibility Right/Discretion Obligation
Investor outlook — Asset Bearish Neutral to Bullish
Risk Premium (Strike Price – Premium)
Reward (Strike Price – Premium) Premium

Long Put Option Example

An investor has been watching XYZ stock, which is trading at $100 per share. The investor believes the $100 share price for XYZ is excessive and believes the share price will fall over the next 30 days.

The investor purchases a long put with a strike price of $95 per share for a premium of $5 and an expiration date of 60 days from today. Because options contracts are sold based on 100 share lots, the price for this contract will be $5 x 100 = $500.

The options contract gives the investor the right to sell 100 shares of XYZ at $95 for the next 60 days.

The breakeven price on this investment is:

Breakeven Price = Strike Price – Premium Paid

Breakeven Price = $95 – $5 = $90

Should XYZ be trading below $90 at expiration, the option trade will be profitable.

If XYZ stock should fall to $0 at expiration, the investor will realize their maximum possible profit:

Maximum Profit = Strike Price – Premium Paid

Maximum Profit = $95 – $5 = $90 profit per share or $9,000 per put option

However, if XYZ stock should stay above $90 at expiration, the investor will realize their maximum possible loss and the option will expire worthless:

Maximum Loss = Premium Paid

Maximum Loss = $5 per share or $500 per put option

Even if XYZ rose above the $100 price at purchase, the investor’s loss would still be limited to $500.

The Takeaway

Long put options provide an excellent entry point for newly minted options investors to dip their toes into the market. The trading strategy offers significant profit potential if investors make the right call on the underlying security’s future performance while providing limited downside risk.

If you’re ready to try your hand at options trading, You can set up an Active Invest account and trade options online from the SoFi mobile app or through the web platform.

And if you have any questions, SoFi offers educational resources about options to learn more. SoFi doesn’t charge commissions, and members have access to complimentary financial advice from a professional.

With SoFi, user-friendly options trading is finally here.

Photo credit: iStock/Paul Bradbury

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.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
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Jun
09
2023
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How to Plan a Wedding

By | Life & Career | No Comments

You’ve popped the champagne, called your relatives with the big news, and posted pictures of the engagement ring to Instagram. Now it’s time to make your special day a reality.

A wedding to-do list may seem never-ending, but when you have a clear idea of what steps to take, you can organize the process and make planning the biggest event of your life much easier. Here’s how.

Talking about Your Budget

The median cost of a wedding is $10,000, according to a recent SoFi survey. Because of the expense involved, it’s helpful to decide on the budget before proceeding with anything else. What you can spend will guide the rest of your wedding plans.

Perhaps the most important part of this step is communication. Discuss how much you want to spend with your fiancé. Will the two of you be able to save up money for your dream wedding?

If someone else is paying for or contributing to your wedding costs, talk to them as well. You don’t want to plan a $15,000 wedding that you expect your parents to pay for, only to have them hand you a $5,000 check. Perhaps your parents might even consider the money a family loan that they expect you to pay back.

Maybe your dad is willing to cover the catering, but he expects you to invite 25 members of your extended family in return. Or your parents may assume you’ll be getting married in a church, and when they give you money, there’ll be some major resentment if you end up having the ceremony in a barn.

After pinpointing the budget, decide as a couple how you want to divvy up the funds for each aspect of the wedding. For instance, you might want to choose one or two things you’re willing to spend a lot of money on, then set lower limits for everything else.

What do you and your fiancé consider the most important parts of the wedding? Do you want the perfect dress? Maybe the photographer, venue, or floral arrangements matter most.

Some couples just don’t have enough money to have the wedding they really want. If that’s the case, you may consider taking out a wedding loan.

Deciding Who Will Be in Your Wedding Party

Choosing your wedding party can be stressful. Which family members and friends will walk down the aisle in front of you?

Keep in mind that as your wedding party gets larger, you may end up spending more money. However, it can depend on your approach.

For example, let’s say you want to mail a gift bag to each person you’re asking to be a bridesmaid. The more bridesmaids you have, of course, the more expensive that will be.

Many couples also like to give their wedding party thank you gifts, pay for hair and makeup for the group, and even cover additional expenses, like plane tickets or dresses. It’s a way of acknowledging that the cost of being in someone else’s wedding can add up. If you choose to do some or all of that, you’ll need to factor it into your budget.

Picking a Date and Time

A lot of considerations could go into this decision, such as whether you want a daytime or nighttime wedding, when your wedding party and family are available, and even the weather at your honeymoon location.

The date and time of your wedding day could affect your budget. Some venues offer discounts if you book during the off-season, for instance. Choosing a less busy time of year could be one way to tackle financial stress, or at least some of it, that comes with wedding planning.

When it comes to the time of day, think about how the celebration will play out. If your wedding is at 5 pm, the reception will take place during dinner time, so guests will likely be expecting appetizers, dinner, and alcohol.

You should also ask yourself, “How long does it take to plan a wedding?” You don’t want to book a venue date five months from now if the scale of your wedding will require at least eight months to plan.

Making Your Guest List

The easiest way to make a guest list is usually to decide as a couple on the number of guests, and then stick to it.

There are several ways you could go about making the actual guest list. For instance, each of you could draw up a list of your family, friends, and coworkers. Then you can count them all up to find out where you stand. Or you could divide the list into must-have guests and maybes, and see how close you are to your target number.

Remember that the number of guests will significantly impact how much money you spend. It will determine how many save-the-dates and invitations you have to print and mail, along with the cost of food you order from your caterer, how many chairs to order, the size of your cake, and maybe even which venue you can fit into.

Of course, not everyone will say yes. By some estimates, 60% to 85% of guests respond “yes” to a wedding invitation. If you can only fit 200 people into your venue, don’t stress too hard if you find yourself sending 230 invitations.

Recommended: Wedding Cost Calculator With Examples

Hiring a Wedding Planner (or Not)

You don’t have to hire a wedding planner, but carefully consider the reality of making every decision and arrangement yourself. If you’re willing to do that, then go for it!

Some people enjoy organizing all details of a wedding. Or you may choose to hire a partial wedding planner, an expert who typically joins you about a month before the big day to handle last-minute details. This could help you maximize your time and money.

You might skip a wedding planner completely but opt for a day-of coordinator. You can hire one or see if anyone you know would be willing to do it for free. You could ask a good friend of your family, for instance. This person could take care of details like sending everyone down the aisle at the right time and helping with logistics throughout the day. Then you can relax and enjoy yourself without worrying so much.

The average cost for a wedding planner is $1,900, according to The Knot’s 2022 Real Weddings Study. Of course, whether you choose a full wedding planner, partial planner, or day-of coordinator will greatly affect how much you pay.

Sending Save-the-Dates and Invitations

Not everyone chooses to send save-the-dates, but if you do, it’s a good idea to send them around six months before your wedding, followed up by invitations about two months before the big day. If you’re throwing a destination wedding, you may want to give guests even more time to plan and save for the event.

You can hire someone to design these for you, or you could design and print them yourself.

Recommended: How to Manage Your Money: 11 Tips To Do It Right

Creating a Gift Registry

There are several ways to handle a registry: You might register at stores, ask for money to help pay for the honeymoon or put a down payment on a house, or even request donations to your favorite charity. No two couples’ registries are the same.

You could mention your registry specifics on the save-the-dates you send out, or direct guests to a registry on your wedding website, if you’ve created one.

Choosing a Venue

When picking a wedding venue, it’s a good idea to tour a few places before deciding. Of course, there are exceptions to this rule, like if you want to reserve the church where your parents got married.

To decide what kind of venue you want, think about what’s important to you. Do you want a place that lets you serve alcohol? A venue that will let you set up the night before? A space that can hold 300 guests? You might not know exactly what you want until you’ve toured a few venues, and that’s okay.

The wedding venue can often take the biggest bite out of your wedding budget. You may be able to save money, and potentially avoid some common money fights with your partner-to-be, by choosing a place that can double as a ceremony and reception venue. On the other hand, a place like this might not allow you to have everything you want. For example, if you get married in a public park, you may not be allowed to serve alcohol if you have the reception there as well.

Buying the Wedding Attire

In addition to the wedding gown and tuxedo or suit for the bride and groom, you’ll also need to decide what clothes everyone will wear for the ceremony. If you aren’t picking out dresses and suits for the wedding party, be sure to communicate clearly to them what you expect, including the color, the length of the dress, suit vs. tux, and so on.

And remember your parents and grandparents as well. Give them any guidance they might need. It may be important to you that the mothers of the bride and/or groom not wear the same color as the bridesmaids, for instance. Having everyone on the same page can help prevent headaches down the road.

Contacting an Officiant

Choosing an officiant may be one of the simpler tasks on your to-do list. You could choose someone who knows you well, like a clergy member, friend, or relative.

Most officiants who know the couple personally will conduct the wedding for free, but it’s generally considered polite to pay for their hotel room and airfare if they’re traveling to the venue. You’ll also likely want to give them a small gift, such as a gift card to a favorite restaurant, as a thank you present.

Hiring a Photographer

Hiring a photographer is probably one of the most important wedding decisions you’ll make. Couples cherish wedding photos for the rest of their lives, and you want someone who will capture the day the way you envision.

Answering the following questions may help you find a photographer who’s right for you: How many hours do you want them taking photos? Do you want them to supply you with a book of pictures of your big day? Do you also want a wedding video? (You may have to hire a separate videographer for this.)

The average couple spent $2,600 on a wedding photographer in 2022, according to The Knot. If that’s out of your price range, you may be able to negotiate a wedding photo package for a lower fee. And if some services mean more to you than others, see if a photographer is willing to work with you. For example, if you skip the book of photos, might they work extra hours on your wedding day instead?

To help find the perfect photographer, figure out the style of wedding photos you’d like, look at the portfolios of photographers whose work matches the vibe you’re going for, and ask recently-married friends for recommendations.

Also, keep this in mind: If you hire a photographer who lives far away, you’re usually expected to pay for their transportation costs in addition to the original price.

Thinking about Food and Caterers

Your decisions regarding catering will likely be based on how many guests you have, as well as the season and time of day.

For example, if your wedding is in winter, you might want to serve some hot food. If your reception starts at 6 pm, it may be a good idea to serve dinner. On the other hand, if it runs from 2 pm to 5 pm, you could possibly get away with providing appetizers and snacks.

The average cost of wedding catering runs about $75 per person. This typically covers food, beverages, and servers.

Of course, you don’t have to hire a professional caterer. However, if you’re serving a sit-down meal of elaborate food to a large group of people, using professionals might be your best — and easiest — option.

Deciding What to Do About Alcohol

First things first: What are your venue’s regulations, if any, concerning alcohol? Some venues don’t allow it, while others do as long as you have designated bartenders. Still others require you to use bartenders approved by the venue owners.

Liquor in large quantities is often significantly more expensive than beer and wine, so just serving those last two could be a nice compromise for your budget.

If you do serve alcohol, you’ll likely want to include a selection of non-alcoholic beverages as well.

Figuring Out Flowers and Florists

The average couple spends about $2,400 on flowers, The Knot found, but the cost can vary. Think about what types of flowers you’d like. Roses, carnations, and tulips might be a little more cost effective, while gardenias and orchids could take a hefty toll on your wallet. Generally, using flowers that are in season can help cut down on costs.

Then, consider making a list of where you want flowers at the ceremony and reception — this could help determine how many to buy. Besides wedding bouquets, do you also want floral decorations? Would you like them woven into a wedding arch, on guests’ tables at the reception, or lining the aisle? And are you envisioning corsages and boutonnieres for a number of family members? Think through the various scenarios to decide what makes the most sense for your day and your budget.

Choosing a Band or DJ

It’s the great debate: band or DJ? If you’re having trouble deciding, a few factors could help you make your decision.

How big is your venue? If it’s on the smaller side, a DJ may fit just fine, while a four-member band may make things a little crowded.

What kind of music do you want? If you’d like something people can dance to, a band might be the right choice, while if you crave the variety of Beyoncé, The Rolling Stones, and Miles Davis, a DJ could be a safer bet.

Cost may be the determining factor. A DJ is typically less expensive than a band, so if you’re on a strict budget, this is something to keep in mind. If you’re on a super tight budget, you may want to think about creating a playlist beforehand and having a member of the wedding party hook up their phone to a speaker.

Considering Where People Will Stay

It’s typically the responsibility of the couple to set aside blocks of rooms for guests at local hotels. First of all, you do this to ensure people will have places to stay. Second, if you block off a number of rooms, many places will give guests a group rate discount.

It’s helpful to make a rough estimate of how many people will be coming in from out of town before you set aside rooms. You should also think about guests’ budgets. You could set aside blocks of rooms at two or three hotels to help make sure that there’s a range of accommodations and price points.

Discussing Additional Events

A wedding isn’t just about the wedding. It’s about all the other events, too. Weddings come with a lot of optional supplementary get-togethers, so think about which ones you want and who should be in charge of planning each.

Here are some common wedding events and who (traditionally) plans each:

•   Engagement party for the couple (parents)

•   Bridal showers (close friends, wedding party, or parents)

•   Bachelor and bachelorette parties (maid/man of honor and best man/woman)

•   Bridal luncheon (sometimes the bride puts this on for the bridesmaids/bridesmen, sometimes they put it on for the bride)

•   Rehearsal dinner (parents)

•   Post-wedding brunch (parents)

You may choose to have all or none of these events. And of course, the person or people planning each can vary.

Taking Care of Miscellaneous Details

There are many other details to take care of, such as choosing a color scheme, buying decorations, purchasing wedding bands, and organizing transportation. And, of course, you’ll need to plan the honeymoon along with booking airline tickets and choosing the best hotel you can afford. Keep a list on your phone for miscellaneous tasks so you can add them to the list as soon as they pop into your brain.

Paying For Your Wedding

The longer your wedding to-do list gets, the more money you could potentially spend. The reality is that not everyone has enough money to throw the wedding they’ve been dreaming of, nor does every couple have family members who can contribute financially.

In these cases, you may consider taking out a wedding loan, which is a type of personal loan, for your big day. Personal loans can have lower interest rates than credit cards, so taking out a personal loan could save you money versus using your card.

SoFi can help you find the best loan for your wedding. You can apply quickly online, and find out within minutes how much you could be prequalified for. You can choose a fixed rate, and the funding is fast. You may even get your money the day you’re approved.

A SoFi personal loan can help you finance your venue, photographer, flowers, or any other part of your wedding.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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

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

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