A trust fund can help shelter your assets and determine how they are managed now or in the future. Generally a part of estate planning, trust funds can help minimize estate taxes, provide financial support to your loved ones, or even donate money to your favorite charitable cause.
There are numerous types of trust funds out there, and there likely isn’t a one-size-fits-all option. The trust you select will depend on your goals and unique circumstances, so it’s important to know the ins and outs of trust funds before deciding which option is right for you.
🛈 SoFi currently does not offer trust funds.
Trust Fund Definition
A trust fund is a legal tool or arrangement in which individuals can choose to place assets of various types into a special account. They’re often used to hold those assets, like stocks or real estate, for a beneficiary, like a family member, or even a company.
The purpose of a trust is to hold assets for the beneficiary without giving them direct control over the funds or property — the control remains with a third party designated by the individual creating the trust.
As an example, say a high-net-worth philanthropist desires to leave a legacy to his favorite cause when he dies. He creates a charitable trust that will add the charity as a beneficiary when he passes away. At that time, the predetermined assets move into the trust. A third party, otherwise known as the trustee, will manage the money or assets in the trust and make distributions to the charity following the trust’s terms.
How Do Trust Funds Work?
There are a few key parties involved in a trust fund agreement. They include:
• Grantor. This person is the creator of the trust. The grantor outlines the trust guidelines, designating the funds or other assets that will go into a trust as well as the rules that govern it.
• Trustee. The grantor will name a third party the trustee. This person is responsible for managing trust assets, completing any trust obligations such as distributions, and upholding the fiduciary standard (employed by fiduciary advisors), or, always acting in the best interest of all beneficiaries. A trustee is anyone the grantor deems appropriate for handling the terms of the trust.
• Beneficiary. The beneficiary is the one who will reap the benefits of the assets or property in the trust.
The grantor determines the terms of the trust, choosing how and when the resources are given to the beneficiary.
Say, for example, a grantor wants to establish a trust fund for their grandchild with the stipulation that the funds can only go toward college expenses. In this case, the grantor can write the trust’s terms to reflect these wishes rather than let the beneficiary spend a financial windfall however they please.
Through use of the “spendthrift clause,” a grantor can also prevent a beneficiary from spending the trust’s assets in a particular manner, such as to pay off credit card debt.
Additionally, when the grantor passes away, trust assets are often guarded against creditors, and can bypass the extensive and sometimes costly probate process. Of course, whether that happens depends on the type of trust the grantor sets up.
Different Types of Trust Funds
The needs of the grantor will determine which trust is suitable for their situation. A financial professional or attorney can help outline the features of each trust and help find a suitable solution for the grantor’s trust needs. Some of the most common types of trust funds include:
• Irrevocable trust: Once established, this trust cannot be changed or revoked in any way — not even by the grantor.
• Revocable trusts: Also known as living trusts, revocable trusts permit the grantor to make modifications at will or cancel the trust altogether.
• Charitable trust: Grantors can establish a trust with a charitable organization as the beneficiary. Typically, charitable trusts can help minimize the grantor’s tax obligation, such as reducing estate taxes.
• Constructive trust: This type of trust is an indirect trust that the court creates, believing that there was intention on the part of a property owner to disperse it in a precise manner.
• Special needs trust: Those who have children with special needs may use this type of trust to create support for their child well after their passing. Any asset transferred to the trust will not prohibit the beneficiary from any government funding or benefits they would receive otherwise.
How to Establish a Trust Fund
When creating a trust, it’s important to seek knowledgeable and responsible people or professionals to help create and manage it. For starters, even though it’s not technically necessary to hire a trust attorney, it’s probably a good idea to do so to ensure all legal requirements are upheld and the terms of the trust are solidified.
A trust attorney should be able to identify different trusts that can meet the unique needs of the grantor. From lowering a tax bill to securing assets, trust attorneys understand the intricacies of each type of trust’s advantages, which can help the grantor meet their trust fund objectives.
Depending on the grantor’s circumstances and state of residence, attorney fees can amount to several thousand dollars. To find a trusted attorney, you can start by asking friends and family members for referrals. You can also browse the internet for reviews and cost estimates.
It’s also essential to select a responsible trustee to manage the funds. Since it’s the trustee’s responsibility to manage and distribute the assets, they must be trustworthy and understand the magnitude of the role. After all, the grantor is putting their hard-earned money into the hands of someone else. Using a third-party trustee may help the family avoid scuffles about how assets are divided up.
Why Set Up a Trust Fund?
With the benefits trust funds provide, there are many reasons why a trust fund may make sense for your estate-planning efforts. When asking “Is a trust fund right me?“, consider a few topics:
• Tax reduction. Depending on the size of an estate, some states may levy an estate or inheritance tax. For 2023, an estate tax return is required for estates that exceed $12,920,000. To avoid taxation, a trust may make sense.
• Control over asset distribution. A trust gives a grantor greater power over their wealth, since they can set the terms for how the trustee manages the assets.
• Bypassing probate. When someone passes away, by law, their will must complete the probate process. The creation of a trust can help the estate owner bypass this often costly and extensive process.
• Safeguarding assets. Depending on the trust, assets can be guarded against creditors and/or asset misuse by the beneficiaries. A trust can also protect a beneficiary with special needs so that they can continue to receive both the financial support from the trust and any other government benefits after their caretaker passes away.
• Philanthropic efforts. Trusts give individuals who are passionate about a cause a way to support the mission long after they are gone.
Trusts are worth considering for those concerned with how their assets, property, or life insurance benefits will be managed after their passing. Although everyone has a unique situation that may require an array of estate planning tools, a trust fund can be a valuable addition to the mix if the creator can capitalize on trust benefits.
The Takeaway
A trust fund is a special legal arrangement that allows for the protection of certain assets for beneficiaries. Creating a trust may be advantageous for people who have built some wealth and want to control what happens to it once they are gone. There are a number of different types of trusts, each tailored to the needs of the grantor, and sometimes the beneficiary as well.
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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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Candlestick charts are one of many popular tools used for technical stock analysis. They are also called Japanese candlestick charts or patterns, because they were first invented in Japan in the 1700s to track the prices of rice. Today, candlestick patterns reveal patterns in stock prices.
They are also one of multiple types of charts that traders use to analyze stock prices, and there are some general patterns that are helpful to know and understand if you’re participating in the markets.
What Is a Candlestick Pattern?
A candlestick pattern is a sequence of price changes that can be identified as a formation on a chart. Each candlestick in a chart represents stock price increases or decreases within a specified time frame. Watching out for particular candlestick patterns in charts is a popular day trading strategy, and one that involves trying to predict whether a stock will go up or down in value, and make trades based on those predictions.
Again, this is a form of technical analysis, as opposed to fundamental stock analysis, which is different.
Candlestick patterns are also useful for specifically timing entry and exit points for trades. Based on how stock price movements have repeatedly occurred in the past following a pattern, traders can decide whether to put faith in them moving in a similar way again. The reason these patterns form is that human perceptions, actions, and reactions to stock price movements repeat.
Past events are not predictions of the future — no candlestick pattern is perfect, and it’s important to remember that there are always risks when trading stocks. But they can be useful guidelines and one more piece of information for those looking to make informed trading decisions.
Reading Single Candlesticks
Even a single candlestick chart can provide valuable insight into where stock prices may head. Each candlestick is composed of four parts:
• The top “wick” or shadow of a candlestick marks the highest price the stock traded within the specified time period.
• The bottom wick marks the lowest price the stock traded. If a candlestick wick is long, this means the highest or lowest trading price is significantly different from the opening or closing price. A shorter wick means the high or low trade was close to the opening or closing price. The difference between the top and bottom of the candlestick wicks is called the range.
• In a red candlestick, the top of the thicker body of the candlestick, called the “real body,” marks the opening price of the stock within the specified time period, and the bottom marks the closing price. Red candlesticks mean the price has decreased.
• In a green candlestick, the bottom marks the opening price, and the top marks the closing price. Green candlesticks show that the price has increased.
Candlesticks can represent different time frames. One popular time frame is a single day, so each candlestick on a chart will show the price change of one day. A one-month chart would have approximately 30 candlesticks.
Trending Candles vs Non-Trending Candles
If a candle continues an ongoing price trend, this is called a trending candle. Candles that go against the trend are non-trending candles.
Candles that don’t have an upper or lower wick can also show that there is a strong trend, support, or resistance in either direction. This means the opening or closing price was close to the high or low trade. And vice versa — a long wick can be an indicator that high or low prices aren’t holding.
Doji Candles
When a candle’s opening and closing price are almost the same, this forms a doji candle, which looks like a black cross or plus sign. The wicks of doji candles can vary in length.
A doji can either be a sign of a reversal or a continuation. It shows equal forces from buyers and sellers, with no gain in either direction.
Long Shadow Candles
Candles with a long wick or shadow can be a strong indicator. A candle with a long upper shadow can indicate a continuation of a bullish trend or reversal towards one, while long lower shadows can indicate a bearish trend or reversal.
Types of Candlestick Patterns
Candlestick patterns are used to help predict stock price action. There are dozens of candlestick patterns that some traders use to help recognize trading opportunities and better time their entries and exits, but there are four distinct ways to define potential outcomes of candlestick patterns:
1. Bullish candlestick patterns show that a stock’s price is dominated by buyers and the price is likely to increase.
2. Bearish patterns show that the stock is dominated by sellers, and the price is likely to decrease.
3. Reversal candlestick patterns predict that the price trend of a stock is going to reverse.
4. Continuation patterns predict that the price will continue to head in the direction it’s currently going.
It’s important to remember that some patterns are a signal not to trade. Knowing when not to buy or sell is just as important as knowing when to take action.
Bullish Candlestick Patterns
A bullish candlestick pattern can either be an indication of a continued bullish trend, or it could be a reversal from a bearish trend. There are a number of popular bullish candlestick patterns, each of which can tell a trader something different.
Morning Star: The Morning Star is a three-candlestick pattern indicating a reversal towards a bullish trend, so named because it gives traders hope of a reversal during a bearish trend. The first candle is long-bodied and red. The second candle opens lower and has a short body, it can be either red or green but its body doesn’t overlap with the body of the first candle. The third candle is green and closes at or above the center of the first candle body.
Morning Star Doji: This three-candlestick pattern tends to be a reversal from a bearish trend. The first candle has a long body showing a downtrend. The second candle opens at a lower price and trades within a narrow price range, then the third candle reverses in a bullish direction, closing at or above the center of the first candle body.
Bullish Engulfing: In this two-candle pattern, the first candle is bearish and the second is bullish. The body of the first candle fits completely within the body of the second candle, “engulfing” it. Although both candles are important, the higher the high of the second candle’s body, the stronger the indication of a reversal.
Three Line Strike: A four-candlestick bullish pattern that consists of three red candles followed by a long green candle. The red candles all fit inside the body of the green candle.
Hammer: This single-candle pattern can occur during or at the end of a bearish trend. The hammer candle looks like a hammer, with a short red candle body and a long lower shadow. This indicates that the low of the day is significantly lower than the close of the day, which can be a sign that the bearish trend is ending. However, it’s important for traders to wait and see if the reversal happens, because sometimes the hammer occurs during a continuing downtrend.
Bullish Harami: This reversal pattern happens during a downtrend and can indicate a switch toward upward price movement. It looks like a short green candlestick that follows several red candlesticks. The green candlestick body fits within the body of the previous red candlestick.
Abandoned Baby: This reversal pattern is made up of three candles. The middle candle is a doji which gaps up from the bottom of the previous red candle. The third candle is green and gaps up from the doji. The first and third candles have relatively long bodies. It’s so named because the gaps have space between the doji candle’s wick and both wicks of the first and third candle.
Dragonfly Doji: This is a strong indicator of a reversal. In this pattern, a doji candle opens and closes at or near the highest trade of the day. The lower shadow tends to be long, but it can vary in length.
Hanging Man: This is a single candlestick pattern which can indicate a coming bullish trend. The candle has a long lower wick and a short candle body.
Piercing Line: In this two-candle pattern, the first candle is long and red, followed by a green candle that opens at a new low but closes higher than the midpoint of the first candle. This can indicate a reversal away from a bearish trend.
Candlestick Sandwich: This is a three-candle pattern which consists of a long green candle sandwiched between two long red candles. The closing prices of the two red candles are similar, creating support that indicates a coming bullish trend.
Three Green Soldiers: A three-candle pattern that looks like a staircase towards higher prices. It consists of three green candles, each of which opens at a higher price than the previous day.
Bearish Candlestick Patterns
Bearish candlestick patterns may indicate an ongoing bearish trend, or they may indicate a reversal from a bullish trend. These are some common bearish candlestick patterns.
Evening Star: This three-candle pattern is the opposite of the Morning Star, indicating that a bullish trend is reversing into a bearish one. The first candle is long and green. The second candle opens higher and has a short body. The body can be either red or green but doesn’t overlap with the body of the previous candle. This shows that buying interest is coming to an end. The third candle is red and closes at or below the center of the first candle body.
Evening Star Doji: This three-candle pattern is the opposite of the Morning Star Doji. It indicates a possible reversal towards a bearish trend. The first candle is a long green candle. The second candle is a doji or very narrow and opens at a higher price. The third candle is red and closes at or below the center point of the first candle body.
Inverted Hammer: The inverse of the hammer pattern, this is a single-candle pattern which can indicate the end of a downtrend and reversal towards a bullish price movement. This candle has a short green body and a long upper shadow, making it look like an upside down hammer.
Shooting Star: This is a single-candle pattern in which there is a green candle with a short body, very little or no lower shadow, and a long upper shadow. The shooting star can mark the top of an upcycle and signal a reversal.
Dark Cloud Cover: A three-candlestick pattern that occurs when a red candle has an opening price that’s higher than the closing price of the previous day’s candle, and a closing price below the middle of the previous one. The first candle is green. To complete the pattern, the third candle is bearish.
Bearish Harami Cross: A trend-reversal pattern consisting of a series of green candlesticks followed by a doji, this pattern indicates that the uptrend may be losing momentum and preparing for a reversal.
Falling Tree: This is a five-candlestick pattern which signals a possible interruption of a bearish trend, with a continuing downtrend. The first is a long red candle, followed by three small green candles, which all stay within the range of the first candle. The last candle is another long red one. This pattern shows that bulls are unable to reverse a downtrend.
Two Black Gapping: This pattern happens when there is a new high in an uptrend, followed by two red candles that gap down. This can be a good indicator of a coming bearish trend.
Gravestone Doji: This is an inverted dragonfly pattern, in which the opening and closing price are at or near the low of the day. The upper candle shadow tends to be long, but can vary in length. It can indicate either a reversal towards a bearish trend, or an ongoing bearish trend.
Three Black Crows: In this pattern, a new high is followed by three long red candlesticks that each close with lower lows.
Reversal Patterns
The Harami Cross can indicate a reversal in either a bullish or a bearish trend. It’s a two-candlestick pattern in which the first candle opens or closes at a new high or low. The second candle is a doji which is inside the range of the previous candle’s body.
Other Patterns
These two patterns don’t fit into the bullish, bearish, reversal, or continuation categories.
Spinning Top: A short-bodied candlestick with equal top and bottom wicks that looks like a spinning top. This is an indication of indecision in the market. After the spinning top the market will likely move quickly one way or another, so if there’s a pattern prior to the top that may be an indicator of which way the spinning top will fall.
Supernova: If there’s a high volume stock with low float that experiences a price explosion, followed by a significant price drop, this is a supernova. There can be trading opportunities on the way up, and then opportunities to short sell on the way down as well.
The Takeaway
Candlestick charts are a stock analysis tool, and traders who can identify patterns within them may gain trend insights and try to predict security price movements. It can help them make a decision of when or if to buy, sell, or stand pat. There are numerous types of candlestick patterns, though it’s important to remember that patterns do not always lead to the predicted outcome.
Reading stock charts is only one small part of the investing world, and a rather complicated part, too. There are simpler, less-intensive ways to participate in the markets, too.
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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.
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. 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.
Thematic ETfs are a subset of funds that allow investors to make targeted bets on a specific trend. ETF providers have used them to cover a wide range of themes in recent years, allowing investors to use them to gain exposure to themes as wide-ranging as the gig economy, renewable energy, gender equality, and even pet care.
But some market observers warn that thematic ETFs tend to be too narrow in their focus and have a history of underperforming the broader market. Here’s a deeper dive into thematic ETFs and the pros and cons of including them in an investor’s portfolio.
What’s a Thematic ETF?
ETFs, or exchange-traded funds, bundle many assets into one product, so when an investor purchases a share of an ETF, it gives them exposure to all the holdings in that fund. They’re similar to mutual funds, but ETFs are listed on an exchange so they can be bought or sold at any time of day. Thematic ETFs, then, invest in securities that focus on a single theme, concept, or industry.
Over the years, interest in thematic ETFs has increased as more retail investors have entered the stock market and gravitated towards niche sectors that represent technological or societal shifts.
This flexibility is one of the benefits of ETFs, along with the ability to diversify at a low cost. Traditional ETFs tend to be inexpensive and track some of the broadest, well-known benchmarks in the world, like the S&P 500.
In contrast, thematic ETF tend to group stocks in a much more targeted way, grouping similar companies together, for example, to give investors exposure to a more narrow subset of the overall market.
Why Invest in Thematic ETFs?
Thematic ETFs allow an investor to gain exposure to emerging technologies, like cloud computing, electric vehicles, artificial intelligence, blockchain tech, or even robotics. It’s perhaps the wide range of options that makes thematic ETFs attractive to some investors.
But the basic vehicle of an ETF can also have some big advantages for investors. That is, ETFs have a built-in degree of diversification, which can help many investors get an out-of-the-box element of risk mitigation in their portfolios — though ETFs are far from a risk-free or safe investment. ETFs are also relatively easy to trade, and can be purchased or sold on the stock market similar to shares of a company.
With that in mind, there are still pros and cons to thematic ETFs for investors to consider.
Pros of Investing In Thematic ETFs
There can be benefits to investing in thematic ETFs:
• Buying a thematic ETF can make it convenient to invest in a specific sector or trend an investor is interested in. For instance, instead of buying a number of companies in a niche space that appears to be growing, an investor can simply buy an ETF.
• Thematic ETFs can capture interesting societal or technological trends, giving investors quick access to a group of companies representing such changes.
Cons of Investing In Thematic ETFs
However, there can be downsides of thematic ETFs too:
• Thematic ETFs can be very narrow and small in assets. And many may be relatively new to the market, meaning they don’t have much of a track record. This makes it more likely that they could close as well.
• Part of the reason many of these thematic ETFs end up performing poorly is because sometimes by the time the ETF hits the market, the theme has already experienced its 15 minutes of fame.
• There’s evidence that thematic ETFs tend to underperform the broader market.
• Costs for thematic ETFs may also be higher, so investors might pay higher fees.
How to Choose a Thematic ETF
It can be very helpful to users to read the ETF prospectuses to make sure they understand the products they are putting money into. Investors can also do more research into the specific companies the ETF is invested in.
Timely themes, which might tap into current market movements, often start out strong but may drop off (and fast). Typically, the ETF that lands on the market first can have a big first-mover advantage — and end up being the go-to ETF for that theme.
Investors often consider the costs of the fund and what kinds of returns it’s had. Past performance is not necessarily a good predictor of future returns, but it may still provide a sense of its volatility.
The Takeaway
Thematic ETFs move away from the original tenets of index investing, which focused on providing very broad exposure to an asset class or sector. Instead, thematic funds instead allow investors to wager on niche, trendy market sectors. They’ve been popular because they allow for very targeted wagers on technological or societal trends people see around them.
They do have risks, though. Trends can lose steam, for instance, and these funds also tend to be more expensive than traditional ETFs and have a history of underperforming the broader market. They can, however, make for an additional option for investors building a portfolio.
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.
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. 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.
Renting out part, or all, of your home on a rental platform can be a lucrative sideline. Just keep in mind that it can take an investment of time, effort, and money to create and maintain a welcoming space for guests. And, the plan could potentially backfire if you side-step some key legal and insurance steps.
To help ensure your venture is a success, here are some things you may want to consider before you start renting on Airbnb or a similar site.
1. Understanding Local Rental Laws
Before listing your home on a home-sharing site, it’s a good idea to research and make sure you fully understand local laws regarding renting out your home.
Laws that govern home shares vary around the country. In some cities, for instance, it’s illegal to rent a home as an Airbnb unless it’s your primary residence. In others, hosts can only rent out a portion of their home, and must be present during the guests’ stay. Laws about short-term rentals are also constantly changing.
If you own a condo or belong to a HOA, there may be other legal hoops to jump through, since you will likely need to get permission before opening your doors.
2. Checking With Your Landlord (if You’re Renting)
Looking to rent out a room in your home you rent? It can be wise to first carefully read through your own rental agreement.
Leases and agreements can contain language barring renters from subletting the home outright or without the express consent of the landlord. If you’re unsure even after reading the fine print, you may want to have a conversation about it with your landlord.
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3. Talking to Your Neighbors
While neighbors can’t tell you what you can and can’t do on your own property, they can make things difficult for you.
Prior to renting out your home, you may want to do the neighborly thing and pop in or give them a call to let them know what you are planning and do your best to ease any of their concerns. Who knows — they might even end up keeping an eye on the property for you while you’re away.
4. Being Prepared to Pay Taxes
Sure, renting your home on Airbnb may bring in a nice source of passive income. Like all income, however, this may be subject to state and federal taxes.
Generally, if you rent all or part of your home for more than 14 days in a year, you will need to pay taxes on the income. Vacation rental host sites typically send a Form 1099-K to hosts who had more than 200 reservations, earned over $20,000 in a year, or had taxes withheld from their payouts.
5. Considering All the Expenses Involved in Renting
While it may be more fun to think about the extra income that could result from your home rental, it can also be important to think about all the expenses involved.
For example, you may have to purchase items to get the space ready, along with any amenities you will offer guests (like toiletries or coffee), and cleaning supplies (or, pay for a cleaning service), and more.
You may want to make a list of all your potential expenses and consider how it will affect your potential profits.
💡 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.
6. Finding a House Manager if You’d Rather Not do all the Work
Does managing your listing, bookings, and maintaining your rental property sound like a lot? You might consider hiring a manager to do it for you.
There are a number of property management companies around the country. that specialize in managing short-term home rentals.
These agencies will handle everything from writing (or boosting the exposure of) your listing to communicating with guests to cleaning and taking care of repairs. Some charge a commission (i.e., a percentage of bookings), while others charge a flat monthly service fee.
7. Making Space for Guests
Prior to accepting your first guests, it’s a good idea to make sure you have room for them — and that typically means more than just a clean, freshly made bed.
You may also want to offer some empty drawers so that guests can unpack their clothing, and possibly also a free shelf in the bathroom for their toiletries.
8. Putting Away Valuables
While it’s nice to think that everyone is trustworthy, that may not always be the case. It can be a good idea to safely stow away any valuables when you are opening your home to people you don’t know.
You can do this by getting a heavy-duty safe. Or, you might want to lock off one room of the home as an “owner’s closet” that guests cannot access.
9. Checking With Your Insurance Company
Airbnb offers its hosts its own insurance known as Host Protection . Though this covers a wide array of potential issues, including bodily injury to guests and any damage to the property, it may not cover everything. Plus, different home-rental platforms may offer different levels of insurance coverage.
It can be a good idea to also check in with your own homeowners or renters insurance to see what type of coverage these policies offer.
10. Writing a Detailed Description
Ready to list? When it’s time to write a description of your home, it’s a good idea to make your listing as detailed as possible, and even include the flaws of your home. A home need not be perfect to list on Airbnb. However, the company suggests that honesty is the best policy.
It can be a good idea to tell guests exactly what they’ll find when they arrive, as well as highlight your home’s special features, such as the location or unique amenities of your space. For more ways to make your listing stand out, you may want to check out Airbnb’s writing tips .
11. Taking High Quality Photos
Before taking photos of your space, you may want to spend some time arranging everything as if you were getting ready to welcome your first guest. This can help showcase your space to its best advantage, and also help set your guests’ expectations before they book.
It’s also a good idea to shoot in landscape format (photos in search results are typically displayed in landscape, so vertical photos won’t showcase your space as well), shoot in the middle of the day when there is plenty of light, and to highlight any unique features or amenities.
12. Creating an Information Binder
It can be helpful to make a packet of information for your guests which includes key information, such as the Wi-Fi password, your contact number, and house rules (such as check-out time and anything that guests need to take care of before they leave).
You may also want to include instructions on how to work on anything quirky, such as the television or coffee maker, as well as local entertainment and restaurant options.
13. Offering A Few Extra Amenities
There are millions of listings on Airbnb. If you’re hoping that your rental will make financial freedom a reality, you’ll want it to stand out from the crowd.
Throwing in some extras can help encourage guests to choose your home over others. Are you near a popular beach? You may want to consider keeping some beach chairs and sand toys stored in the garage for guests to use.
Simple add-ons, like the use of your bicycles or a parking tag, may not cost you much (or anything) to offer, yet significantly increase the popularity of your listing — along with your earnings.
14. Making a Decision about Pets or No Pets
Before you list your property it’s a good idea to decide if you want your home to be a space for pets or not.
This is a personal decision, but you may want to consider whether or not your space is well-suited for pets (a light suede couch, for example, might not last very long). If you do decide to make your home pet-friendly, you could add in an additional fee for cleaning.
15. Learning How to Price a Property Right
You may think your home looks and feels like a million bucks, but that doesn’t mean travelers will pay a premium.
To understand how to price an Airbnb listing correctly, it’s a good idea to comb through comparable listings in your area to get a sense of what other people are charging.
You can also use a free calculator like airDNA . You just need to input all your data, including home size, if it’s pet-friendly, location, etc., to get a recommended price for your listing.
💡 Quick Tip: An emergency fund or rainy day fund is an important financial safety net. Aim to have at least three to six months’ worth of basic living expenses saved in case you get a major unexpected bill or lose income.
16. Deciding How You Want to “Screen” Guests
It is against Airbnb’s nondiscrimination policy to decline a booking based on “race, color, ethnicity, national origin, religion, sexual orientation, gender identity, or marital status” or impose different standards for specific guests.
What hosts can screen for are people who may not be a good fit for their property by being as descriptive as possible in their listing. If your home is not a good fit for children, you may want to make that clear in your listing.
Do you want to limit the noise after specific hours to respect neighbors? You may want to be specific about that in your listing so you bring in the type of customer you are hoping to attract.
17. Learning About Enhanced Cleaning Standards
Airbnb, along with other rental platforms, now require hosts to use an enhanced five-step cleaning protocol to help curb the spread of Covid-19.
The protocol includes special measures, such as using disinfectants approved by your local regulatory agencies for use against Covid-19 on all high-touch surfaces (and letting them stand for the amount of time specified on the label) and washing all dishes and laundry at the highest heat setting possible.
18. Thinking About Turnover Time
Before you rent all or part of your home on a rental platform you will want to think about not only when you want to rent your home out, but also how long it will take you to get it properly cleaned (using the five-step protocol) and ready for the next guests.
Will you need 24 hours between guests or can you get the home ready in just a couple of hours? This will determine exactly what dates you are able to accept guests, as well as what check-in time you want to put in your listing.
19. Testing Your Rental With Friends
When you’re getting close to listing your space, you may want to try testing out the system with a few friends.
Inviting people you know and trust to rent your space (free of charge or for a low fee) won’t do much to get that extra income stream flowing, but it can help you work out the kinks, as well as garner you some (hopefully positive!) reviews.
Friends can also tell you honestly what you might do differently or change to improve the rental experience. This way, you’ll feel confident once people you don’t know arrive.
20. Being Ready for Bookings Right Away
With millions of users all over the world, it may be a good idea to go into listing your property believing you’ll receive guests right away.
While this may not happen, it’s better to be prepared for visitors, than wait to see how your listing performs before readying your space for guests.
21. Looking At Your Reviews
After guests depart they may leave you a review of their stay. It’s a good idea to not only look at the reviews but to take them to heart. Reviews can make or break Airbnb rentals.
While it can be tough to digest criticism of your home, if guests complain about something that can be easily fixed, it can be in your best interest to fix it.
Reading positive reviews can be a good way to see your rental from an outsider’s perspective and make changes to improve your listing.
22. Accepting the Fact You Can’t Please Everyone
Sometimes, people are just difficult, or nitpicky, or just aren’t the right match for your listing and will leave a nasty review that feels unwarranted.
If you see a review that falls into that camp, it can be wise to just forget it and move on. This can often be a better approach than starting a fight in the comment section, which may only end up making you look bad to potential future guests.
23. Working Toward Superhost Status
Becoming an Airbnb superhost can increase your earnings by giving your more visibility and letting guests know that they can expect the best when staying with you.
Superhosts are featured in search results and get a Superhost badge on their profiles and listings to help them stand out. After each year as a Superhost, they’ll get a $100 travel coupon.
To become a Superhost, hosts must complete at least 10 stays in the past year (or 100 nights over at least three completed stays), have a 4.8 or higher average overall rating, respond to 90% of new messages within 24 hours, and cancel bookings less than 1% of the time.
24. Deciding If Airbnb Is the Only Platform for You
After deciding to list on Airbnb, it’s then time to decide if that’s enough. There are, after all, a number of other home rental platforms to choose from, including Vrbo, Booking.com , and Flipkey . It’s up to you how many different listings you’re willing to maintain.
25. Keeping Your Calendar Up to Date
Once you list your home on Airbnb (or any other rental platform), it can be wise to keep your rental calendar as up-to-date as possible. This way, guests don’t accidentally book a stay when you have your in-laws visiting or when you otherwise want to use your own space.
If a date looks to be free to a potential guest but you forgot to mark it as unavailable, it can become a frustrating experience for both parties.
The Takeaway
If you have an extra room, or your home is vacant for several months out of the year, you may be tempted to list it on a home rental site.
But before you start posting photos on Airbnb, there are several things you may want to think through — from legal and insurance issues to the time and expense involved in getting (and keeping) your space ready for guests.
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SoFi members with direct deposit activity can earn 4.00% 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.
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Stock share prices go up and down throughout each trading day, and on a basic level, share prices for stocks traded on public stock exchanges are determined through supply and demand. Demand is determined by expectations and emotions.
What this means is if there is less supply of a stock, there may be more demand for it since it’s more rare. In that situation, the price of the stock will rise. Conversely, if there is more supply and less demand, the stock price will decrease. If either of these trends continues for a lengthened period of time, it can lead to a bull or bear market in which there’s an ongoing trend of increasing or decreasing prices.
7 Factors That Determine Stock Price
Beyond the basic principles of supply and demand, there are other factors that contribute to changes in stock prices. Those include investor behavior, the news cycle and earnings data, and more.
Investor Behavior
A current stock price is based on a prediction of the future success of a company. Hypothetically, if investors have reason to believe that a company will be successful in the future, they will invest in the company, causing the price of shares to increase. Similarly, if the outlook for a company is negative, investors may sell off the shares they own, causing the price to decrease.
Basically, if a few million people think that Company X is going to be successful in the near future and that shares of Company X will see price appreciation, that will lead them to buy the stock and its price will increase.
Emotions such as fear, panic, anxiety, greed, and hope can have a significant impact on investor behavior. This is the basis of the field of behavioral finance. There are a few different ways investors try to predict the future success of companies.
Company News and Data
You should know that stock price predictions can be made based on reading charts and making calculations, as well as looking at news stories, fundamental analysis like reading over company earnings and reports, and other information. News about changes in management, production, scandals, and other stories can cause share prices to quickly change.
World Events
Beyond news and outlooks specifically related to companies, outside factors can also influence investor behavior. For instance, a presidential election, a pandemic, political unrest, or signs of a recession can create panic in the market, influencing investors to sell off stock shares in order to protect from losses or put their money into safer investments.
Usually there is some up or down price movement in stock prices, and some stocks are more volatile than others. It’s rare for prices to completely stop moving or remain static. It’s also rare for prices to drastically increase or decrease suddenly, but this is what happens during a market crash.
A market crash can happen when many investors begin to sell, creating a snowball effect where more and more investors pull their money out of the stock market. At that point, the market could crash, resulting in actual losses that wouldn’t have occurred if people hadn’t sold.
Stock Buybacks
Another factor that can affect stock price is company buybacks of stocks. Companies will sometimes buy back their own stock from investors, thereby reducing the supply of shares to the public. They do this in an attempt to increase stock prices. If companies issue more shares of stock, they are then increasing the supply, which can cause the price to decrease.
Primary and Secondary Markets
When some companies first start selling stock to the public, they hold an IPO, or initial public offering. At the time of the IPO, an initial share price is set and investors can begin to buy the stock at that price. After the IPO ends, the stock gets listed on stock exchanges and the price starts to fluctuate as shares get bought and sold — and supply and demand begin to play a role in share price.
When companies don’t have an IPO, their shares get bought and sold privately, in which case share price is determined between the buyer and seller.
Stock Valuation
The valuation of a stock is made by looking at the company’s past and projected earnings, large trades made by institutional investors, overall market trends of the S&P 500, and ratios and calculations made by analysts.
Four ratios and calculations that are used to determine the valuation of a stock are price-to-earnings (P/E) ratio, price-to-book (P/B ratio), price-to-earnings-to-growth (PEG) ratio, and dividend yield. These calculations can help investors figure out whether a stock is currently under- or overvalued.
Bid and Ask Price
A share price ultimately gets determined through the bid, ask, and sale price on stock exchanges. The bid price is the maximum amount an investor will pay for shares of a stock, while the ask price is the lowest price a seller will accept. When the two prices match up, a sale is made, and that price sets the new price per share of the stock. Ultimately it gets down to what someone is willing to pay and if a stock owner is willing to sell to them at that price.
What someone is willing to pay or sell for is determined by psychological and market factors, as discussed. If a buyer thinks the stock is undervalued at the asking price, they will buy, and vice versa. Generally the difference between the bid and ask price isn’t very large, but if a stock doesn’t have a large trading volume it can be.
Companies that are a similar size or have a similar valuation can have very different share prices because the number of shares each company issues can differ greatly. Because of different market caps and numbers of liquid shares, the share price doesn’t say much about the actual value of the company, and one can’t use share prices to compare companies. However, the share price does reflect what investors currently think the stock of a company is worth.
How to Handle Changes in Stock Price
Attempting to time the market is extremely challenging, and can result in significant losses, not to mention anxiety. Once an investor sells a stock, they are then in the difficult position of trying to figure out when and whether to buy back into it at a lower price, if it even continues to decrease in value. Likewise, they could sell at what they think is the peak of the market, only to watch the price continue to rise.
Historically, the stock market has continued to rise over the long term, with plenty of ups and downs along the way. Although past trends are never a guarantee of future outcomes, it’s likely that investors with a longer time horizon, who are willing to hold onto their stocks throughout up and down cycles, will eventually see positive returns.
That said, market volatility can provide opportunities to invest when the stock market is down, or sell at higher prices, especially if they were already considering buying or selling a stock.
The Takeaway
Ultimately, supply and demand drive stock prices — which is informed by market conditions, world events, and investor behavior, among other influences. Although there is no way to look into the future to predict share prices, investors tend to look at past performance, charts, and market trends to attempt to predict price movements. In general, it’s best not to try and time the market, but to focus on building a solid long-term portfolio that will grow over time.
There are numerous investing strategies to explore, too, and some of them don’t involve investors worrying too much about stock prices in the immediate term.
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