Financial Topics Archives | Page 643 of 791

Mar

2023

Setting Up a Retirement Account for Your Child

By Rebecca Lake | invest, Investing, Preparing for Retirement | Comments Off

Opening a tax-advantaged individual retirement account (IRA) for minors becomes possible once they start earning income. Even babysitting or lawn-mowing money counts.

A custodial IRA offers certain advantages: It can jump start a child’s interest in investing, and possibly help build their future nest egg. But there are annual contribution limits and other potential drawbacks to consider, such as the child’s eligibility for college financial aid.

How to Open a Retirement Account for Your Child

Opening a retirement fund for a child means opening a custodial IRA. Generally speaking, a custodial account is one that’s owned by an adult — a parent, grandparent, or legal guardian — on behalf of a minor.

The adult does the investment planning for their child, and manages the money in the account until the child reaches the age of majority (it varies by state). At that point, all the money in the account belongs to the child.

Steps to Opening a Retirement Account for a Child

Here’s how opening a retirement account for minors typically works.

Step 1: Choose a Brokerage

Custodial IRAs are offered by many brokerages, so you’ll need to choose where to open yours. This could be the brokerage where you currently have your investment accounts or a different one.

When deciding on a custodial IRA, consider the range of investments offered, the fees you’re likely to pay, and how easy it is overall to open and manage new accounts. For example, some brokerages let you set up an IRA for a child online, while others require you to fill out and mail in the necessary paperwork.

Step 2: Complete the Application

On the application for a custodial IRA, the brokerage will typically ask for specific information, including:

• Contact information (e.g., your phone number, email address, and mailing address)

• Personal information about yourself, including your name, date of birth, and Social Security number

• Personal information about your minor child, including their name, date of birth, and Social Security number

• Employment information, if applicable

You’ll also need to share routing information and the account number for the bank account you plan to use to make contributions. If you’re moving money from another brokerage firm, you’ll be asked to provide the account number and type.

Step 3: Choose an IRA Type

Should you choose a traditional or a Roth IRA for your child? Both offer tax benefits and both have the same annual contribution limits for kids. For minors, a Roth IRA typically works better. One reason is that the child’s tax rate is typically quite low, and likely much lower than their tax rate will be upon retirement.

Step 4: Fund the Account and Choose Investments

Once you’ve opened a retirement account for a child, you can fund the account using your linked bank account and then make your investment selections. As the custodian, you choose how the money in the IRA is invested, though you might want to talk to your kids first to get their feedback. Generally, custodial IRAs can offer the same investment selections as IRAs for adults, which can mean stocks, mutual funds, exchange-traded funds (ETFs), bonds and other securities.

¹Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

Different Types of IRAs for Children

As mentioned earlier, there are two main types of IRAs you can open for a minor child: traditional and Roth. The main difference lies in their tax treatment. The IRS regulates contributions to and withdrawals from each type of IRA.

Traditional IRA

A traditional IRA is funded with pre-tax dollars. The IRS allows eligible taxpayers to claim a deduction for contributions. When you take money out in retirement, you pay taxes on the earnings.

Traditional IRAs can make sense for people who can benefit from tax-deductible contributions. That might be less valuable to your child than the tax benefits that a Roth IRA could yield.

Roth IRA

You start a Roth IRA using after-tax dollars, so you get no tax deductions on your contributions. But they can offer something else: tax-free qualified distributions. This means no matter what tax bracket your child is in when they retire, they can withdraw their money from a Roth IRA tax-free.

Roth IRA withdrawal rules also allow contributions to be withdrawn at any time, tax- and penalty-free.

Funding a Child’s Retirement Account

Both traditional and Roth IRAs have annual contribution limits, and you have to contribute earned income. For 2023, the IRA contribution limit is $6,500. If you’re 50 or older, you can add another $1,000 to help you catch up for retirement.

The same rules apply to custodial IRAs. In 2023, kids can contribute an amount equal to their earnings for the year or the $6,500 limit, whichever is lower. So if your child makes $5,000 by babysitting and mowing lawns, the most they’d be able to add to their IRA is $5,000.

Again, it’s important to remember that kids need to have income (specifically, taxable compensation) to open and contribute to a traditional or Roth IRA. According to the IRS, that includes:

• Wages

• Salaries

• Commissions

• Tips

• Bonuses

• Net income from self-employment

Investment income, including interest and dividend income, doesn’t count as income that can be contributed to the child’s IRA, under IRS guidelines.

Can a Parent Contribute to a Child’s IRA?

A parent can contribute to a child’s IRA only if that child has earned income of their own for the year.

Again, contributions to a child’s IRA must not exceed their allowed limit for the year. Going back to the previous example, in which your child earned $5,000, they could technically put all of that money into their IRA. Or you could offer to split the difference and let them put in $2,500 while contributing the remaining $2,500 yourself.

Keeping careful records of your child’s earnings for the year can help you avoid contributing too much to their IRA. Also, offering to put in an equivalent amount (without breaching the limit) can be a good motivator for kids to invest in their IRA.

Benefits of a Child Opening a Retirement Account

Opening up a Roth IRA for a child can benefit them in several ways.

• Kids can get an early taste of what it means to invest money rather than saving it. The IRA can be a teaching tool to help a child learn how the market works and the importance of setting long-term financial goals.

• Kids who start saving for retirement at an early age have the ability to take full advantage of the power of compounding interest. A child who contributes $5,000 each year starting at age 14 and earns a 7% annual return, for example, could have $2.3 million saved for retirement by age 65. Running the numbers using a Roth IRA calculator can give you an idea of how much of a head start on growing wealth you might be able to give your child by opening a minor IRA.

• The money in a Roth IRA for a child is tax-free when they take qualified distributions. This can result in substantial tax savings if they’re in a higher tax bracket when they retire.

Cons of a Child Opening a Retirement Account

Before you open a traditional or Roth IRA for a child, there are some drawbacks to consider.

• While contributing to a Roth IRA may offer some long-term benefits, there are no guarantees, and the money is then locked up until your child turns 59 ½ (although early withdrawals are possible, and might incur a penalty).

• A Roth IRA might affect your college-bound child’s financial aid eligibility. Just having money in a Roth IRA won’t cause any snags if your child is applying for federal student aid. But if they withdraw contributions from their Roth IRA for any reason — including paying for college expenses — that money is counted as income, which may affect eligibility for need-based aid.

• Investments within a custodial IRA entail some level of risk, as with all investments.

Pros	Cons
An IRA can be a good way to teach kids about investing and the stock market.	Funds in an IRA are typically restricted (although Roth contributions can be withdrawn at any time, penalty-free).
Starting an IRA for a child at a young age means they have more time to benefit from compounding interest.	Withdrawal of contributions from a Roth IRA could affect a child’s financial aid eligibility.
Qualified distributions are tax-free in retirement.	Investments within a custodial IRA entail some level of risk.

Open a Retirement Account Today With SoFi

IRAs can be a valuable addition to a retirement savings strategy if you’re interested in investment planning for children or for yourself. If you haven’t started saving for the future yet or your child is starting to earn income of their own, there’s no time like the present to consider opening an IRA.

When investing for retirement with SoFi, you can set up a traditional IRA, Roth IRA, or SEP IRA. The SEP IRA is designed for people who are self-employed. All three can offer tax benefits while helping you get closer to your retirement goals.

Easily manage your retirement savings with a SoFi IRA.

FAQ

How do I set up a retirement account for a minor?

To get started, find out which brokerages allow you to open custodial IRAs for minor children. Then you need to choose a brokerage and IRA type, fill out the appropriate paperwork, and make a deposit or transfer to fund the IRA.

How do I give my kids an IRA?

You can open an IRA for your child once they have earned income of their own. This would be a custodial account: You own it until the child reaches adulthood, at which point it belongs to them. The other way to give an IRA to your kids is to name them as your IRA beneficiary when you pass away. If the child is a minor when they inherit the IRA, they would need a custodian to manage it for them.

When can I start a 401(k) for my child?

You can’t start a 401(k) for a child, unless you run a business that offers a 401(k) to its employees and your child works for you. You can, however, open an IRA for a minor child who has earned income, and make contributions to it on their behalf, as long as the total contributions don’t surpass the amount earned by the child that year.

Photo credit: iStock/VioletaStoimenova

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
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Mar

2023

FDIC Insurance: What It Is And How It Works

By Kim Franke-Folstad | Budgeting & Goals, money, Terminology | Comments Off

With the Federal Deposit Insurance Corporation (FDIC) recently in the news, many people are wondering what the FDIC is, exactly, and what it does.

The Federal Deposit Insurance Corporation, or FDIC, is an independent agency of the U.S. government. In the unlikely event of a bank failure, it protects you and reimburses your deposits, typically up to $250,000 per depositor, per insured bank, per account ownership category.

People often take the FDIC guarantee for granted now, but it was created from a very real need and has kept many people and their money safe.

Here, you’ll learn more about this important aspect of banking, including:

• What the FDIC is

• What the FDIC does

• How does the FDIC work

• Which accounts are and are not eligible for FDIC protection

What Is the FDIC?

The FDIC is the shorthand way of referring to the Federal Deposit Insurance Corporation. It is an independent agency created by Congress in 1933, after the Great Depression, when thousands of banks failed. The goal was to shore up confidence in the U.S. financial system and protect Americans from losing their cash if their bank failed.

In January 1934, the FDIC began insuring deposits, covering them up to $2,500. That number has increased through the years, of course, most recently with the Emergency Economic Stabilization Act of 2008. President George W. Bush signed the act to temporarily raise FDIC insurance coverage from $100,000 to $250,000 per depositor during the financial crisis. President Barack Obama made the coverage hike permanent in 2010 with the signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

It’s important to note how this insurance works: The standard coverage is $250,000 per depositor, per insured bank, for each account ownership category. Joint accounts may be covered up to $500,000.

What Does the FDIC Do?

Since its creation, no depositor has lost any money from an FDIC-insured deposit. This means that, unlike your great-grandparents, you can put your money into an eligible financial institution, whether a savings vs. checking account or other qualifying account, and know it’s more secure than stuffing it under your mattress. (Yes, that used to be a thing for many savers.)

Also of note: Though it’s the customers’ money that’s covered by the FDIC, the agency is funded by premiums paid by the banks and from earnings on investments in U.S. Treasury securities. Customers do not pay for this insurance; they are automatically covered when they open an FDIC-insured account.

There are rules and limits you should know about, however, if you want to make the most of the FDIC’s coverage.

Types of Accounts Insured by the FDIC

The FDIC insures all deposit accounts at insured banks and savings associations up to the FDIC’s limits, including:

• Checking accounts

• Savings accounts

• Money market accounts

• Certificates of deposit (CDs)

• Prepaid cards when the underlying funds are deposited in an insured bank (these funds are only insured in the instance of bank failure, not loss or theft)

• Certain retirement savings accounts, but only when placed in certain types of investments and in accordance with all FDIC requirements.

Deposit accounts, such as checking and savings accounts, money market deposit accounts, and certificates of deposit, can all be held in traditional IRAs and Roth IRAs and are eligible for FDIC insurance.

How to Tell if Your Money Is FDIC-Insured

How can you tell for sure if your account is covered? While the FDIC insures deposits in most banks and savings associations, not all of them are protected. Every FDIC-insured depository institution must display an official sign at each teller window or teller station, so that’s an easy way to check if you bank at a brick-and-mortar location.

If you’re using an online bank or a mobile-first financial product, the company’s website should contain information about its coverage.

Or you can find out if your deposits are insured by using the FDIC BankFind tool .

Types of Accounts Not Insured by the FDIC

Now, here are the kinds of funds not covered by FDIC insurance. Money held in these ways, even if purchased from an insured financial institution, is not protected:

• Stocks

• Bonds

• Annuities

• Mutual funds

• Municipal securities

• Life insurance policies

• The contents of a safety deposit box

This is an important point to note as you think about your financial security.

Also, you may wonder about the FDIC vs. NCUA in terms of protecting your finances. The National Credit Union Administration (NCUA), created by Congress in 1970, covers federally insured credit unions in much the same way as the FDIC covers banks, including deposits up to $250,000. If your funds are held at a credit union, you may want to make sure it has NCUA coverage. The FDIC will not be protecting you, but it’s likely the NCUA is.

How FDIC Insurance Works

Here’s more important intel if you’re wondering, How does the FDIC work?

The FDIC covers your holdings in certain accounts, as listed above. What amount of money is insured in a bank account? Usually, the limit is $250,000. It is calculated to cover both principal and interest earned by the depositor. If you have an account that has $200,000 in it and has accrued $20,000 in interest, you will be covered in the amount of $220,000.

As mentioned above, there is a standard $250,000 cap on FDIC insurance. If you have high net worth, this coverage may not be enough. As a result, you may want to keep in mind that by having money in excess of that amount in one bank or one account, you may be putting yourself at risk.

Because the $250,000 applies to each bank where you have an account, one way you may be able to increase the FDIC insurance coverage available to you is by using multiple banks.

Another option is to structure your accounts properly within a single bank. If you have any concerns about your coverage, it can be a good idea to discuss them with a representative at your bank.

Quick Money Tip: Most savings accounts only earn a fraction of a percentage in interest. Not at SoFi. Our high-yield savings account can help you make meaningful progress towards your financial goals.

What Happens if a Bank Fails?

If a bank were to fail, the FDIC would intervene in two ways:

• The FDIC would pay depositors up to the insurance limit to cover their losses. So, if you had $10,500 in an insured account and the bank failed, you would be reimbursed for that amount. Typically, this happens within a few days after a bank closes.

• The FDIC also takes responsibility for collecting the assets of the failed bank and settling its debts. As assets are sold, depositors who had more than the $250,000 limit in an insured account may receive payments on their claim.

How to Recover Your Money if a Bank Fails

Because of the FDIC safety net, you won’t likely see fearful customers lining up to get their money the way they did before deposit insurance was established.

Still, when a bank closes, it can cause depositors to worry and wonder how to get their money. Typically, there are one of two scenarios when a bank fails:

• Most commonly, you would become a depositor at a healthy, FDIC-insured bank. You would have access to your insured funds at this new bank and could likely choose to keep your accounts there if you like.

• If there is not a healthy, FDIC-insured bank that can step in quickly, the FDIC will likely pay the insured depositor by check within as little as a few days after the bank closes.

As for immediate next steps if you learn your bank is closing, the FDIC aims to post information as promptly as possible, or you can contact the agency at 877-ASK-FDIC or visit the FDIC Support Center website .

The Takeaway

Though it’s quite a rare occurrence, a bank can fail when it takes on too much risk or, as was the case recently, was exposed to interest rate risk. If your bank is covered by FDIC insurance you can receive reimbursement up to $250,000, meaning your funds aren’t lost for good. FDIC insurance covers checking, savings, money market accounts, CDs, and other deposit accounts.

The FDIC does not cover some of the other financial products or services offered by banks, including stocks, bonds, mutual funds, annuities, and securities.

Putting your money in a brick-and-mortar financial institution isn’t the only way to make sure it’s protected. SoFi Checking and Savings is a mobile-first online bank account that keeps your hard-earned dollars safe; all accounts receive FDIC insurance of up to $250,000 per member.

What’s more, we offer an array of great features that can make managing your money easier, such as spending and saving in one convenient place and using savings tools such as Vaults and Roundups. Plus, you’ll earn a competitive annual percentage yield (APY) and pay no account fees, both of which can help your money grow faster.

Want security, convenience, and no account fees? Bank smarter with SoFi.

FAQ

How often does a bank fail?

Currently, banks fail very rarely. In the past two years, no banks failed in the United States. However, the FDIC was created in response to thousands of bank failures around the time of the Great Depression.

How does the FDIC differ from the NCUA?

FDIC insurance applies to qualifying accounts at banks. NCUA insurance covers qualifying accounts at credit unions.

How many banks are FDIC insured?

As of September 2022, the FDIC insured a total of 4,746 institutions. Of these, 4,157 were commercial banks, and 589 were savings institutions.

Are credit unions FDIC-insured?

Credit unions don’t qualify for FDIC insurance. Instead, they may be covered by the National Credit Union Administration, or NCUA, insurance.

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

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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Mar

2023

What Is an ESG Index? 5 ESG Indexes to Know

By Kenny Zhu | Growing Wealth, invest, Investing, Terminology | Comments Off

An index is a group of companies that reflect the performance of a certain sector. Thus an ESG index includes companies that meet certain criteria for environmental, social, and governance standards and reflect that sector.

Just as a large-cap equity index like the S&P 500 can be used as a performance benchmark for the performance of large-cap U.S. stocks, different ESG indexes can be used as benchmarks for sectors focused on sustainable or socially responsible investing (sometimes called SRI) practices.

Some indexes may also include or exclude companies as a form of risk mitigation.

The challenge is that the criteria for what constitutes sustainable investing, in any form, is inconsistent throughout the industry.

Nonetheless, recent industry research suggests that ESG investing strategies perform similarly to, and sometimes better than conventional strategies. By knowing some of the top ESG indexes, then, it’s possible to invest in funds that capture the performance of that index, and put your money toward companies whose aim is to focus on positive environmental, social, and corporate governance outcomes.

What Are ESG Indexes?

There are a number of ESG indexes maintained by major data providers which track the performance of firms that embrace ESG or SRI criteria. Why are environmental, social, and governance factors considered important enough to be the foundation of dozens of industry indexes?

Some investors believe in investing their money in the stocks of companies (or other securities) that reflect certain proactive values regarding the planet, society, and fair and ethical corporate structures. At the same time, adherence to ESG factors is increasingly considered by many stakeholders as a form of risk management. For example, investors might choose to assess a company’s ESG scores or ratings to gauge its risk exposure (as well as possible future financial performance). Consumers might want to know about a company’s environmental and social practices to inform their purchasing decisions.

While you cannot invest in an index, investors can gain exposure to ESG companies in an index by purchasing an index mutual fund or exchange-traded fund (ETF) that seeks to replicate the performance of that index (aka passive investing).

Just as there are many different flavors of equity indexes — from large cap to small cap, domestic to international, and so on — there are numerous ESG indexes. These exist in many forms, depending on the underlying metrics used to construct them, and there are hundreds of ESG index funds and ETFs that investors can access.

Recommended: How to Invest in ESG Stocks

New Growth in the ESG Sector

According to Deloitte, some 149 ESG-related funds were launched in 2021 alone, making up 22% of all funds launched by managers in that year.

The number of ESG-related funds on the market continues to grow, roughly a third of them passively managed index funds or ETFs. In 2021, socially responsible U.S. mutual funds saw record inflows of some $70 billion — a 36% increase over 2020. However, ESG funds saw substantial outflows through 2021 and most of 2022. But sustainable funds still managed to outperform non-sustainable funds through Q3 of 2022, despite challenging market conditions, according to Morningstar research as of September 30, 2022.

ESG vs Socially Responsible Investing: What’s the Difference?

There are various terms for investing according to a certain set of values — including impact investing and socially responsible investing (SRI) — and not all of them refer to green investing strategies. Some terms may be used interchangeably, but there are some key differences to understand.

• Impact investing is a broad term that encompasses investors who seek measurable outcomes. Impact investing may or may not have anything to do with environmental or social factors.

• Socially responsible investing is also a broader label, typically used to reflect progressive values of protecting the planet and natural resources, treating people equitably, and emphasizing corporate responsibility.

• Securities that embrace ESG principles, though, may be required to adhere to specific standards for protecting aspects of the environment (e.g. clean energy, water, and air); supporting social good (e.g. human rights, safe working conditions, equal opportunities); and corporate accountability (e.g. fighting corruption, balancing executive pay, and so on).

ESG Investing Standards

That said, there isn’t one universally observed set of criteria that define an ESG investment or an ESG index. Rather, each ESG index and corresponding index fund is typically based on proprietary metrics of qualitative and quantitative factors relating to environmental, social, and governance factors.

These metrics may be formulated internally by investment managers/research teams, based on metrics established by popularly accepted ESG frameworks, or a combination of both.

While it’s clear where the money’s been trending with regards to ESG investments, prudent investors should still remain selective when it comes to picking an ESG fund, as how these indexes are constructed can sometimes be based on opaque methodologies.

5 Commonly Used ESG Indexes

Following is an overview of five ESG indexes commonly used as benchmarks for some of the largest ESG funds, and the manner in which they’re constructed.

1. S&P 500 ESG Index

The S&P 500 ESG Index consists of 307 domestic investments across the broader market. All firms included in the index must meet specified ESG criteria established by S&P Dow Jones Indices.

ESG Criteria: According to S&P, the index uses an exclusionary methodology to filter out firms within the S&P 500 that partake in undesirable business activities, defined as follows:

• Firms operating within the thermo coal, tobacco, and controversial weapons industries.

• Companies that score within the bottom 5% of the United Nations Global Compact (UNGC).

• Companies that score within the bottom 25% of ESG scores within each global GICs industry group.

2. Nasdaq-100 ESG Index

The Nasdaq-100 ESG Index consists of 96 separate securities that meet ESG criteria established by Nasdaq. The parent index includes 100 of the largest domestic and international non-financial firms that trade on the Nasdaq exchange.

ESG Criteria: Firms must meet the following requirements, at a minimum, to qualify under the index:

• “An issuer must not be involved in certain specific business activities, such as alcohol, cannabis, controversial weapons, gambling, military weapons, nuclear power, oil & gas, and tobacco.”

• “…an issuer must be deemed compliant with the United Nations Global Compact principles, meet business controversy level requirements.”

• “…have an ESG Risk Rating Score that meets the requirements for inclusion in the Index.”

3. MSCI KLD 400 Social Index

Established in 1990, the MSCI KLD 400 Social Index is one of the first and oldest socially responsible investing (SRI) indexes, making it a popular standard for evaluating long-term ESG performance.

The KLD 400 Social index comprises 402 U.S. securities that meet the ESG standards set by the MSCI ESG Research team.

ESG Criteria: MSCI uses the following methodology to determine eligibility and inclusion within the index.

• Companies involved in nuclear power, tobacco, alcohol, gambling, military weapons, civilian firearms, GMOs, and adult entertainment are excluded.

• Must have an MSCI ESG rating above “BB.”

• Must have an MSCI Controversies score above “2.”

4. MSCI USA Extended ESG Focus Index

The MSCI USA Extended ESG Focus Index includes securities across the U.S. equity markets, but selects constituents from the MSCI USA parent index using an optimization process that targets companies with high ESG ratings in each sector. Companies related to segments such as tobacco, controversial weapons, producers of or ties with civilian firearms, thermal coal and oil sands are excluded.

The MSCI USA Index has 628 constituents while the MSCI USA Extended ESG Focus Index has around 321, which means an exclusion close to 49%.

5. FTSE US All Cap Choice Index

The FTSE U.S. All Cap Choice Index is part of the FTSE Global Choice Index Series. It’s designed to help investors align their investment choices with their values, by selecting companies based on the impact of their products and conduct on society and the environment., but excludes companies involved in:

• Vice-related industries (e.g. alcohol, tobacco, gambling, adult entertainment)

• Non-renewable energy (e.g. fossil fuels, nuclear power)

• Weapons (conventional military weapons, controversial military weapons, civilian firearms)

• Companies are also excluded based on controversial conduct and diversity practices

Risks and Drawbacks of ESG Indexes

As with all investments, the risks of choosing ESG-linked investments is that they may not necessarily outperform over your target timeframe. There are also unique ESG-linked issues that come with evaluating these indexes.

Diversification Risk

The primary risk of using an ESG-based strategy is the risk of underperformance and the risk of reduced diversification relative to cheaper, broader-market index funds.

This isn’t a surprise, as many of the top ESG indexes are market capitalization (“cap”) weighted, which means that the largest firms in the index bear the greatest responsibility for changes in index values.

Given that some of most popular ESG investments also track the performance of the broader-market indexes, this makes these particular indexes less attractive as part of a diversifying strategy.

Higher Costs

Another issue of concern is that some ESG funds charge higher fees and expense ratios relative to conventional funds.

While these fees aren’t necessarily head and shoulders above broader-market index funds, they can get progressively more expensive depending on how nuanced the fund’s investing strategy is. This is because ESG is a factor-based investment strategy which entails more complexity than traditional broader-market indexing.

Typically, the longer the time frame for comparison, the greater the risk for underperformance becomes, net of fees.

Inconsistency of ESG Standards

Perhaps the biggest drawback of ESG-investing is the inconsistent reporting among industry firms, and the desire for more uniformity among which ESG frameworks are applied.

In other words, the ESG criteria established at one institution for their index or funds has little or no bearing on the ESG criteria employed by another firm.

Because sustainable investing has grown over the past decade, there has been an industry-wide movement towards greater consistency in ESG criteria and reporting. The Securities and Exchange Commission (SEC) has even recently undertaken efforts to codify aspects of financial reporting when it comes to ESG-related investments.

Nevertheless, these efforts remain in their early stages, and investors should continue to be discerning when it comes to picking ESG-linked investments.

Relevance of ESG Criteria

Existing ESG frameworks run the gamut when it comes to which metrics they choose to apply; whether these metrics are actually relevant to the underlying investments can be debated. For example, metrics related to carbon emissions may be relevant to heavy industry, but how relevant would those metrics be to the financial or technology sectors?

To address the issue of relevance, some ESG-linked funds have introduced an additional factor to correctly weight relevance of certain criteria. However, individual investors would do well to identify and assess when these solutions are applied.

Finally, expect to encounter data consistency issues when trying to quantify information that is naturally qualitative, particularly when management at each firm has wide discretion over how they choose to represent those metrics.

The Takeaway

There’s no doubt that enthusiasm for ESG investing has grown over the past decade, and continues to gain traction. Understanding ESG indexes and how they apply sustainability rules and criteria to the companies in the index can help investors understand the corresponding index mutual funds and ETFs they may want to invest in.

Due to the sheer number of ESG-centric investments available to date, it’s a good idea to be selective when reviewing the underlying strategy of each fund, and understanding the underlying methodology of how each index constructs its portfolio.

Exploring and incorporating sustainable strategies in your portfolio can be easy when you open an online brokerage account with SoFi Invest. The app allows you to buy and sell shares of stocks, ETFs, fractional shares, IPO shares, and more. Even better, SoFi members have complimentary access to advice from professionals, who can answer any questions you may have.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

Photo credit: iStock/StefaNikolic

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.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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

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

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14

2023

Small Account Options Trading: Can You Make a Profit?

By Mike Zaccardi, CMT, CFA | Growing Wealth, invest, Investing | Comments Off on Small Account Options Trading: Can You Make a Profit?

When investors begin trading options, one of the issues they face is how to effectively put limited funds, typically defined as $5,000 to $20,000, to work in a volatile and risky marketplace.

Compared to stocks, options prices tend to move more quickly, not so much on a dollar to dollar basis, although that’s possible, but more so in percentage terms. It’s not uncommon to see a stock move 1% while at-the-money options move 10% or more.

With these issues in mind, the small account investor should utilize specific strategies to increase the possibility of early success.

What Are Options?

Stocks are securities that typically represent partial ownership of corporations, and are primarily traded via brokerages.

Options differ from stocks in that they are derivatives that give the holder the right, but not always the obligation, to buy or sell an underlying asset like shares of stock, exchange-traded funds (ETFs), or other securities.

How Do Options Work?

Calls and puts are the two types of options.

Call options give the holder the right, but not the obligation to purchase an underlying asset at a specified price on or before a specified date.

Put options give the holder the right, but not the obligation to sell an underlying asset at a specified price on or before a specified date.

A call buyer is bullish on the underlying security, while the owner of puts is bearish.

Options can be traded individually, i.e., simply buy calls or puts, or in combinations that include buying and selling calls and puts as part of a bigger, more complex strategy.

Investors learn more about options trading for beginners guide to understand the basics.

What Is Considered a Small Account for Trading Options?

There is no clear-cut definition of a small options trading account. Some might say a $20,000 account size is small, while others would describe a $5,000 account as small.

An individual can trade options with just a few thousand dollars or even less. Trading with a small account does not mean you cannot perform complex strategies or even make large profits.

Advantages of Trading Options With a Small Account

A small options account size still lets traders manage large positions by using leverage. An options contract typically covers 100 shares of the underlying security, so a trader can put down a small sum of money to benefit from material positions.

Another advantage for small options trading accounts is that an investor can get exposure to stocks with very high share prices by owning lower-priced options. For example, maybe you want to buy shares of a company with a stock price above $1,000, but you only have $800 in your account. You can buy an options contract that might cost just a few hundred dollars (or less), yet you will have exposure to large amounts of the stock.

A final advantage is that you can also make bearish bets on the stock or even non-directional wagers using combinations of calls and puts — even when trading options with a small account.

Recommended: Margin vs. Options Trading

Risk Management Strategies for Trading With a Small Account

Even small option trading accounts can have effective risk management strategies. It’s important to understand how position sizing plays a role in your portfolio. An investor should set parameters to control risk.

A common risk management rule of thumb is to risk no more than a set percentage of the portfolio’s value (e.g. 5%).

Position Sizing Example

There are no hard and fast rules regarding position sizing. The investor needs to trade off position size against number of positions. If the overall account has $1,000 in it, the positions may approach the 10% range allowing you to hold 10 positions of $100 each.

As your account increases in size, you might lower the position size. Therefore a $20,000 portfolio might have positions in the 5% range or 20 positions of $1,000 each. It’s entirely up to you and your risk tolerance. Eventually, you’ll want to settle in on a fixed percentage position size you’re comfortable with.

Today’s trading landscape offers more to traders with a small options account. It used to be that trading with such a small dollar amount meant that commissions and bid-ask spreads would make trading uneconomical. Now, however, commissions may be small to even non-existent.

Finally, user-friendly options trading is here.^*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the OCC Options Disclosure Document.

7 Small Account Trading Strategies: Trade Management

Let’s review seven common options strategies for small accounts.

1. Scalping

Scalp trading describes short-term methods to produce frequent, small profit trades. Using liquid options is important when scalping since a large bid-ask spread can cause a small profit to turn into a loss.

Scalping can work best with at-the-money or in-the-money options since options that drift too far out of the money might move slower due to a lower delta.

2. Strangling

More sophisticated strategies like long strangle options are risk defined strategies betting on a large movement on the underlying asset. The trade is made at a net debit, so the most you can lose is the premium paid. If the stock indeed moves up or down in a big way, a long strangle reaps rewards.

Iron condors and butterflies can be used instead of short straddles to help define risk for credit spreads.

3. Profit Target

Defining a profit target helps determine when to exit winning trades. For example, if your account size is $1,000 and your position size is 10%, then a $100 trade might target a 50%, or $50, gain before exiting.

It’s wise to be mindful of your profit target in dollar amounts since commissions and slippage might eat too far into a profit target that is too low.

4. Stop Loss

On the downside, defining a stop loss helps to exit trades systematically. You might also want your stop loss to be well shy of a single trade’s maximum loss potential. A percentage of your maximum loss can make sense, perhaps 30% or 40%.

5. Time-Based Exit

A time-based exit strategy defines how long you hold an option. If the position has not moved in your favor after two weeks, as an example, then your rule could be to exit the trade and move on to other opportunities. Be wary of attempting to time the market, though.

Another idea is to end the trade if you have achieved a specific percentage of your profit target in a brief period.

6. Delta-Based Exit

Delta is one of the “Option Greeks” and it measures an option’s sensitivity to price changes in the underlying asset.

A delta-based exit is used when an option’s delta gets too high. For example, when a delta jumps from 10 to 30, a small move in the stock will move the option in a big way. Hence, your position size should drop, or it might be prudent to simply exit the trade altogether.

The same logic works if the delta gets too low — it then takes too large of a move in the underlying asset to materially move the option price.

7. Time Decay

The time value of an option decays at an accelerating rate as expiration nears. The upshot is that options nearing expiration can exhibit big moves up or down. Trading with a small options account can take advantage of enhanced volatility with short-term options — such as weeklies — but a lower-risk strategy would be to close out options trades before expiration week.

Tips for Small Account Options Trading

There are several strategies for trading small sized options accounts. These tips can go a long way toward building a successful options trading process.

1. Be Constant

Methodical actions and ways of thinking may promote successful and disciplined trading. Not having a set of guidelines that works for you might cause you to trade haphazardly, leading to emotional trading which can be destructive to growing your account size. Your position size as a percentage of your portfolio should be constant as your portfolio balance changes.

2. Highly Liquid Options on Highly Liquid Stocks

Be sure to pay attention to bid-ask spreads of the underlying assets you are trading. It’s wise to only trade options that have narrow spreads. Stocks and ETFs with thinly traded options often have wide differences between prices at which you can buy and sell, so trading an illiquid security effectively costs more money because of slippage.

The term slippage describes when your trade’s execution price is far away from the bid-ask midpoint. Slippage refers to losses that occur when trading large amounts of an asset with low liquidity. The lower the slippage, the more competitive pricing you’ll receive.

Options on large-cap stocks and the biggest ETFs, including index options, usually feature more liquidity. Also, high-volume securities might be good candidates for options trading. Volatility can increase bid-ask spreads, so simply trading options on the most volatile securities might not be the best move.

3. Risk-Defined Trades

Risk-defined trades are those where you know how much you can lose at the onset of the trade.

Naked strategies, on the other hand, feature possible losses that exceed your account size. These losses would be incurred if the market moves against you and options you have sold get assigned and exercised. For now, stick to buying and selling calls, alone or in combination.

Net debit purchases on combinations define your risk since you cannot lose more than what you paid for the trade.

The Takeaway

It takes a disciplined approach to manage and grow a small options trading account. Defining risk objectives and setting rules can go a long way toward taking your account size to the next level.

It’s not about getting rich overnight — patience and a systemic focus on strategies that control risk may help you build your account value.

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

And if you have any questions, SoFi offers educational resources about options so you can 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/FG Trade

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.
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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Mar

14

2023

Guide to Risk Neutral Probability

By Kenny Zhu | Growing Wealth, invest, Investing, Terminology | Comments Off on Guide to Risk Neutral Probability

“Risk neutral,” in the context of investing, means that an investor focuses on the expected gains of a potential investment rather than its accompanying risks. This concept comes up frequently in options trading, as it’s one of the core tenets in how options are valued.

Risk neutrality is more of a conceptual focus for valuation than a strategy that’s applied on a daily basis. It’s often used as a conceptual framework for the valuation of options and other complex derivatives by sophisticated investment firms.

What Is Risk Neutral?

Risk-neutral investors are solely concerned with the expected returns of an investment, regardless of its underlying risks. When confronted with a gamble versus a sure thing, risk neutral investors are indifferent as long as the expected value of both options balance out.

Risk Neutral vs Risk Averse

Contrast risk neutrality with “risk aversion,” which does consider risk and strongly prefers certainty when comparing investment alternatives. While risk averse investors consider expected value, they will also demand a “risk premium,” or additional benefit, for taking on any additional risk in a transaction. This is what leads to their preference for the more “certain” option, even when the mathematical expected value of two alternative investments is the same.

Risk neutral investors are indifferent between investment options with the same expected values, regardless of the accompanying risk factors. The concept of risk does not play into a risk-neutral investor’s decision-making process, and no risk premium is demanded for uncertain outcomes with equal expected values.

In reality, most retail investors are risk averse, e.g. they have a low risk tolerance, rather than risk neutral. It’s easy to spot this investor preference, given the incessant focus of financial firms on mitigating risk. Terms like “risk-adjusted returns” are frequently used, and entire doctrines in behavioral economics and game theory are built around the cornerstones of loss or risk-aversion.

The difference between risk-neutral vs. risk-averse investors can be illustrated using an example comparing separate sets of probabilities.

Example of Risk Neutrality

To illustrate risk neutrality, consider a hypothetical situation with two investment options: one which involves a guaranteed payoff of $100, while the other involves a gamble, with a 50% chance of a $200 payoff and a 50% chance you receive nothing.

In our hypothetical scenario, the risk neutral investor would be indifferent between the two options, as the expected value (EV) in both cases equals $100.

1. EV = 100% probability X $100 = $100

2. EV = (50% probability X $200) + (50% probability X $0) = $100 + 0 = $100

However, a risk averse investor would introduce the added variable of risk into their decision, thereby unbalancing the alternatives above. Given that the 2nd option involves uncertainty, and therefore risk, the risk averse investor would demand an added payoff to justify taking on any added risk.

Reframing the problem above, the risk averse investor would choose option 1, given a) both options return the same expected value, and b) option 1 involves the greatest certainty.

On the other hand, the risk neutral investor would remain indifferent, as risk does not factor into their decision-making process.

Finally, user-friendly options trading is here.^*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the OCC Options Disclosure Document.

Risk Neutral Pricing and Valuation

Conceptually, risk neutrality is used extensively in valuing derivative securities because it establishes a theoretical basis for finding the equilibrium price between buyers and sellers in any transaction. It’s therefore an important aspect of options trading strategies.

Given that risk-averse investors demand a premium for taking on additional risk, while each individual investor’s risk tolerance can differ. This risk premium can present a problem from an analytical perspective; it introduces “noise” and analytical complexity which can complicate the pricing of derivatives and other investments.

Conceptually, the value of an investment is calculated as the present value of all its current and future cash flows. Future cash flows are discounted using its expected rate of return, which factors in the risk-neutral rate of return along with any added risk premia.

While the risk-neutral rate of return can be assumed to be the same for a given set of investments, the risk premium can vary according to the risk tolerance of individual investors, which complicates the present value calculation, additionally it often skews the calculated value of a security below what the expected future benefit might imply.

To adjust for this complexity in derivatives trading, mathematicians and financial professionals often find it useful to apply risk-neutral measures when pricing derivatives.

Understanding Risk Neutral Probability

The concept of risk neutrality is used to find objective pricing for derivatives; risk neutral probability therefore removes the noisy risk factor from calculations when finding fair value.

This differs from real-world risk-based pricing, which introduces any number of security-specific or market-based factors back into the calculation. The downside of this “real-world probability” is that it makes calculating value an exceedingly complex exercise, as you would need to make fine-tuning adjustments for almost every unique factor that might affect your investment.

Ultimately, risk-neutral probabilities allow you to apply a consistent single rate towards the valuation of all assets for which the expected payoff is known. This allows for ease and simplicity when approaching the valuation process.

However, that’s not to say that risk-aversion and other costs are not factored into calculations, as risk-averse investors would never choose to accept trades that don’t offer risk premiums over the long run.

Instead, risk-neutral probabilities represent the basis on which to build your investment valuation thesis, allowing you to selectively layer on any number of other risk factors later in the process.

Investing Today

Identifying what type of investor you are is important before diving in. If you’re a risk-neutral investor, choosing between risky and non-risky investments will be based on expected values.

If you are risk averse, your investment opportunities will need to be assessed based on whether you are receiving a risk premium commensurate with the risk you perceive.

If you want to learn more about risk and investing, SoFi Invest is a great place to get started. When you set up an online stock trading account, you have access to a range of self-directed options for both brokerage and retirement investing.

Remember that options trading is complex and can entail significant risk for new investors. It’s important to establish a solid investing foundation before moving onto more advanced trading strategies like options trading.

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

FAQ

Is risk neutral the same as risk free?

Risk neutral does not imply risk free. Risk neutral is simply a conceptual approach for evaluating trade offs without the impact of risk-factors.

Risk continues to exist in the context of each investment when evaluating tradeoffs; risk neutral simply suspends risk as a factor in the evaluation process.

What makes some companies risk neutral?

From a theoretical perspective, companies behave in a risk-neutral manner because firms have the means to hedge their risks away. They can do this by purchasing insurance, buying financial derivatives, or transferring their risk to other parties. This allows them to focus on expected outcomes rather than the risk-related costs of those decisions.

Conceptually, shareholders also want firms to make decisions in a risk-neutral manner, as individual investors can hedge risk exposure themselves by buying the shares of any number of other firms to diversify and offset these risk factors.

What is an example of risk neutral?

An example of risk neutral would be an individual who’s indifferent between 1) a 100% chance of receiving $1,000, versus 2) a 50% chance of receiving $2,000, and a 50% chance of receiving nothing.

In both cases, the expected value would be $1,000, after calculating for both probability and return. This expected value would be what risk-neutral investors would focus on. By contrast, a risk-averse individual would choose option 1, as the outcome has more certainty (and less risk).

Photo credit: iStock/Szepy

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.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
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Setting Up a Retirement Account for Your Child

How to Open a Retirement Account for Your Child

Steps to Opening a Retirement Account for a Child

Step 1: Choose a Brokerage

Step 2: Complete the Application

Step 3: Choose an IRA Type

Step 4: Fund the Account and Choose Investments

Get a 1% IRA match on rollovers and contributions.

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1

Different Types of IRAs for Children

Traditional IRA

Roth IRA

Funding a Child’s Retirement Account

Can a Parent Contribute to a Child’s IRA?

Benefits of a Child Opening a Retirement Account

Cons of a Child Opening a Retirement Account

Open a Retirement Account Today With SoFi

FAQ

How do I set up a retirement account for a minor?

How do I give my kids an IRA?

When can I start a 401(k) for my child?

FDIC Insurance: What It Is And How It Works

What Is the FDIC?

What Does the FDIC Do?

Types of Accounts Insured by the FDIC

How to Tell if Your Money Is FDIC-Insured

Get up to $300 when you bank with SoFi.

Types of Accounts Not Insured by the FDIC

How FDIC Insurance Works

What Happens if a Bank Fails?

How to Recover Your Money if a Bank Fails

The Takeaway

FAQ

How often does a bank fail?

How does the FDIC differ from the NCUA?

How many banks are FDIC insured?

Are credit unions FDIC-insured?

What Is an ESG Index? 5 ESG Indexes to Know

What Are ESG Indexes?

New Growth in the ESG Sector

ESG vs Socially Responsible Investing: What’s the Difference?

ESG Investing Standards

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, alternative investments, IRAs, and more. Get started in just a few minutes.

5 Commonly Used ESG Indexes

1. S&P 500 ESG Index

2. Nasdaq-100 ESG Index

3. MSCI KLD 400 Social Index

4. MSCI USA Extended ESG Focus Index

5. FTSE US All Cap Choice Index

Risks and Drawbacks of ESG Indexes

Diversification Risk

Higher Costs

Inconsistency of ESG Standards

Relevance of ESG Criteria

The Takeaway

Small Account Options Trading: Can You Make a Profit?

What Are Options?

How Do Options Work?

What Is Considered a Small Account for Trading Options?

Advantages of Trading Options With a Small Account

Risk Management Strategies for Trading With a Small Account

Position Sizing Example

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

7 Small Account Trading Strategies: Trade Management

1. Scalping

2. Strangling

3. Profit Target

4. Stop Loss

5. Time-Based Exit

6. Delta-Based Exit

7. Time Decay

Tips for Small Account Options Trading

1. Be Constant

2. Highly Liquid Options on Highly Liquid Stocks

3. Risk-Defined Trades

The Takeaway

Guide to Risk Neutral Probability

What Is Risk Neutral?

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.¹

Finally, user-friendly options trading is here.^*

Finally, user-friendly options trading is here.^*

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