Apr
14
2023
What Is IntraFi Network Deposits?

What Is IntraFi Network Deposits?

By | Budgeting & Goals, Financial Independence, money | Comments Off on What Is IntraFi Network Deposits?

IntraFi Network Deposits is a banking network that allows customers to deposit more than $250,000 and have the funds be FDIC-insured. The FDIC (or Federal Deposit Insurance Corporation) offers $250,000 of deposit insurance for most bank customers in the event that the bank fails. This applies per depositor, per institution, per ownership category.

While this may be more than enough for many people, individuals with very high net worths or businesses may have the need for additional FDIC insurance on larger sums. For those in that situation, there are an array of strategies to get the insurance coverage needed for peace of mind.

One option is to use IntraFi Network Deposits. This allows you to work with one bank which facilitates your money being spread between multiple institutions to make sure that you remain under the FDIC limit. Here, learn more about this process by diving into:

•   How does IntraFi Work?

•   What steps do you take to use IntraFi?

•   What are alternatives to IntraFi?

How Does IntraFi Work?

IntraFi Network Deposits (previously known as CDARS or ICS) is a network that links many of the largest banks and financial institutions in a shared network. If you have more than $250,000 in savings accounts or certificates of deposit in an investment plan, you might want to consider using the IntraFi network. It can help you bank your money while maintaining FDIC insurance.

You create an account with one custodial bank in the network. Think of that bank as managing your relationship with others, because they spread your total deposit amount out over multiple different financial institutions.

Your funds are split up into multiple accounts of $250,000 or less, each fully FDIC-insured, at various institutions, with IntraFi Network acting as your hub. This can be a valuable solution for high net-worth individuals as well as businesses.

Think about the big picture: Most investors want to make sure that they are investing in safe accounts; ones that are unlikely to lose value. There are, of course, various ways to accomplish this. Security is one reason you might look at how CDs compare to bonds, for example. IntraFi Network Deposits is an avenue for those who appreciate a consolidated approach to investing large sums of money and enjoying FDIC insurance.

FDIC Limits

The FDIC is an independent agency of the United States government, tasked with insuring bank depositors against a bank failure. FDIC deposit insurance guarantees that money up to $250,000 per depositor.

If you have more than that to invest, you might consider spreading out your money to different institutions. This will help make sure that all of your money is protected. You can also look into another option: Some banks participate in programs that extend the FDIC insurance to cover millions1.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


Using IntraFi Deposits

IntraFi Network Deposits can be thought of as your one-stop shop for dividing your money into separate, fully insured accounts. Read on to learn how exactly this organization functions to help make this process easier for you.

Participating Banks

The first thing that you will want to do to use IntraFi Deposits is to find a participating bank. Most of the largest banks in the country belong to the IntraFi network, including 84% of the largest banks in the country. You shouldn’t have a problem finding a network bank that will fit your needs. Check with your current bank or other ones in your area, if you like, or use a search engine to locate one. Found one you are ready to bank with? This is called your custodial bank.

Deposit Funds

Once you’ve found a participating bank, the next step is to complete the required paperwork and then deposit funds (say, by transferring money from another bank account). Even though your funds will be spread throughout several different financial institutions, you will always work directly with your custodial bank. You will deposit funds through that one bank, and they will set the interest rate that you’ll earn on all your funds across the network.

Your custodial bank will be responsible for separating your money into FDIC-insured accounts, each of $250,000 or less, and managing them.

Track Your Funds

Your custodial bank is responsible for verifying your identity, accepting your deposits, and handling all communication with you. How certificates of deposit work with IntraFi is similar to how it would work if you only had an account with one bank. You will receive regular statements from your custodial bank, just as if you had an account directly and only with them.

If you have questions about which financial institutions your money is invested in, you can track that information through your custodial bank and the bank statements they issue.

Is IntraFi Safe?

Savvy investors are concerned with which investments have the lowest level of risk. While no investment is 100% safe in all situations, the IntraFi Network has been tested with billions of dollars over its lifetime. In addition, it has been endorsed by the American Bankers Association.

How Much Does the IntraFi Service Cost?

IntraFi Network Deposits does not charge a fee directly to consumers who take advantage of the service. You will choose a product and a rate directly with the custodial bank that you elect to sign up with. That rate and product will determine your total return on investment (ROI).

How Many Banks Participate in the IntraFi Network?

Nearly all of the biggest banks in the United States participate in the IntraFi network. The IntraFi network includes more than 3,000 financial institutions, representing around 50% of the total banks in the country. Of the banks in the network, 95% are community banks, and 66% of minority-owned banks are members. This means it should be fairly simple to find a participating bank that works for you.

Alternatives to IntraFi Network Deposits

Of course, there’s the possibility that IntraFi Network Deposits doesn’t align perfectly with your needs and goals. If you have more than $250,000 in funds that you want to deposit so it’s FDIC-insured, there are other options to consider, listed here.

Open an account with a bank that offers higher insurance limits

As briefly noted above, some banks participate in programs that extend coverage to millions. This can be a convenient option for some individuals.

Open accounts with multiple banks

One alternative to using the IntraFi Network Deposits program is to just open accounts with multiple banks yourself. You would just need to keep the total amount at less than $250,000 per ownership category, per institution.

While this does give you more control, it also increases potential headaches as you try to track all of your money manually. Another possible negative is that you may not be able to get the highest rates with every financial institution. Deciding how many bank accounts to have is a personal decision, depending on your money style and your goals.

Open different types of accounts

FDIC insurance covers up to $250,000 per depositor, per FDIC-insured bank, per ownership category. One way to enjoy that FDIC coverage when you have more than $250,000 to deposit is by opening up different categories of accounts. There are a number of different types of account ownership categories, including such options as:

•   Single accounts

•   Joint accounts

•   Revocable trust accounts

•   Irrevocable trust accounts

•   Certain retirement accounts

•   Employee benefit plan accounts

Check with your financial institution to see if this might work for you as an IntraFi alternative.

Accept the risk of bank failure

You do also have the option to keep all of your money in one bank account, even above the $250,000 FDIC limit. This can involve taking on a substantial risk however. If that bank fails, you may lose any money held by the bank above the FDIC limit. This really boils down to a matter of your personal comfort level.

The Takeaway

If you have more than $250,000 in funds that you want to invest in a savings, money market, or certificate of deposit account, you may want to spread your money out to make sure that it is all FDIC-insured. FDIC insurance will cover $250,000, but beyond that, you may well need a solution. One way to do this is through the IntraFi Network Deposits program, which will divide your money into separate accounts that are fully insured. They can simplify this money management process for you and help you enjoy more peace of mind.

If you are looking for a bank that is a member of the IntraFi Network, SoFi can help. What’s more, SoFi recently announced that deposits may be insured up to $2 million through participation in the SoFi Insured Deposit Program. But even if you have much less money to stash, online banking with SoFi can also be a great choice. When you set up our Checking and Savings with direct deposit, you’ll enjoy a competitive APY and you’ll pay no account fees.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Are IntraFi accounts safe?

While no investment can be guaranteed as 100% safe in all situations, the IntraFi Network Deposits program has been tested with thousands of depositors and billions of dollars over the years.

How do you use IntraFi?

Whether you are creating an investment plan for a child or want to invest a large amount of money for another reason, using IntraFi is very straightforward. First, find a participating bank and complete the required paperwork. Then, you will make your deposits, and your funds will be placed into CDs or deposit accounts with other banks in the network. Your custodial bank will send you periodic statements with the details of your activity.

What is the interest rate for IntraFi?

IntraFi does not set the interest rate on deposits. Instead, it is your custodial bank that sets the interest rate for the total amount deposited. Whether you have a no penalty certificate of deposit or any other type of account, the interest rate will be up to your custodial bank. You will also receive your statements and other correspondence from the bank where you made your initial deposits.

Photo credit: iStock/fizkes

1SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by banks in the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at SoFi.com/banking/fdic/terms. See list of participating banks at SoFi.com/banking/fdic/receivingbanks.

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.

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

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

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

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

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

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

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

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

SOBK0423002U

Read more
Apr
13
2023
What Are Countercyclical Stocks?

What Are Countercyclical Stocks?

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Are Countercyclical Stocks?

Countercyclical stocks tend to perform relatively well during economic downturns and underperform during periods of economic expansion. These stocks are typically associated with industries or sectors that provide essential goods or services in demand, even during periods of economic hardship. Examples of countercyclical sectors include consumer staples, utilities, and healthcare.

Countercyclical stocks can be a vital component of a well-diversified investment portfolio. As the economy experiences ups and downs, these stocks can help to provide stability and even generate profits during difficult times. Understanding countercyclical stocks and how they can benefit your portfolio is crucial for investors looking to maximize their returns and minimize risk.

How Countercyclical Stocks Work

Countercyclical stocks — sometimes called non-cyclical or defensive stocks — work by providing stability to an investment portfolio during economic downturns. Investors can use these stocks in a defensive investment strategy, as they tend to perform well even during economic hardship when other stocks are underperforming. This can help increase diversification and reduce the risk in an investment portfolio.

In contrast to countercyclical stocks, cyclical stocks tend to follow the broader economic cycle, with returns correlated to fluctuations in the market.

💡 Recommended: Cyclical vs Non-Cyclical Stocks: Investing Around Economic Cycles

Countercyclical stocks are closely related to specific industries or sectors. Industries such as consumer staples, utilities, and healthcare provide products and services considered necessities, so they tend to be less sensitive to changes in the economy. This means that even during tough times, people will still need to buy these products and services, providing a stable source of income for the companies that produce them.

For example, during a recession, people may cut back on discretionary spending, such as dining out or buying expensive clothes. However, they will still need to buy groceries, pay for utilities, and seek medical care. As a result, companies in these sectors may see stable sales and profits, which can drive up the value of their stocks even during a bear market.

It is important to note that not all stocks within a countercyclical industry will necessarily follow the countercyclical trend. Factors such as changes in government policies, technological innovations, and shifts in consumer behavior can impact the performance of these stocks.

Additionally, some countercyclical stocks may underperform during economic expansions when the demand for their products and services is lower.

It is essential to conduct thorough research and analysis before making any investment decisions, including investing in countercyclical stocks. Research may include reviewing the company’s financial performance, analyzing industry trends, and considering the political and economic environment. By taking these steps, you can identify the best countercyclical stocks to add to your portfolio and potentially generate profits even during difficult economic times.

Examples of Countercyclical Businesses

As noted above, countercyclical businesses tend to perform well during economic downturns and underperform during periods of economic expansion. Investors tend to add countercyclical stocks to their portfolios when investing with the business cycle.

Here are some examples of countercyclical industries and the types of companies that can be considered countercyclical:

•   Consumer staples, such as food, beverage, and household products, provide products and services that are considered necessities, so they tend to be less sensitive to changes in the economy. This means that even during tough times, people will still need to buy these products, providing a stable source of income for the companies that produce them. Examples of businesses in this industry include grocery stores, packaged food manufacturers, and beverage companies.

•   Utilities, such as water, electricity, and gas, provide essential services that people cannot do without. As a result, these companies tend to be less affected by changes in the economy and can even benefit from them as people continue to use these services even when they are cutting back on discretionary spending. Examples of firms in this industry include utility companies, water treatment facilities, and energy providers.

•   Healthcare companies provide medical services and products. During economic downturns, people may cut back on discretionary spending but still need to pay for medical care and other essential health services. This means that healthcare companies can provide a stable source of income even during difficult times. Examples of businesses in this industry include hospitals, pharmaceutical companies, and medical equipment manufacturers.

Risks of Countercyclical Investments

Investing in countercyclical stocks may provide stability to an investment portfolio during economic downturns, but several risks are also associated with these types of investments.

Here are some of the risks to consider:

Market Volatility

The stock market can be volatile and unpredictable, and market fluctuations can impact even countercyclical stocks. For example, during a recession, even the most stable countercyclical industries can experience a decline in demand for their products and services.

Company Specific Risks

Not all companies within a countercyclical industry will perform equally well, even during difficult economic times. It is important to conduct thorough research and fundamental analysis to identify companies with strong financials and a history of stable performance.

Dependence on Government Policies

Countercyclical industries like healthcare and utilities may depend heavily on government policies and regulations. Changes to these policies can impact the performance of these companies and the industries in which they operate.

Interest Rates

Interest rates can impact the overall stock market’s performance, including countercyclical stocks. When interest rates are low, investors may be more likely to invest in stocks, which can drive up stock prices. Conversely, when interest rates are high, investors may shift their investments to bonds or other fixed-income investments, which can drive down stock prices.

💡 Recommended: How Do Interest Rates Impact Stocks?

The Takeaway

Investing in countercyclical stocks can provide several benefits to your portfolio. These stocks can help to provide stability during tough economic times and can even generate profits — through dividends and price appreciation — when other stocks are underperforming. By diversifying your portfolio to include countercyclical stocks, you can reduce your overall risk and potentially maximize your returns.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

Photo credit: iStock/Eoneren

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.

SOIN0123027

Read more
Apr
13
2023
woman on smartphone

Are Robo-Advisors Safe and Worth It?

By | Growing Wealth, invest, Investing | Comments Off on Are Robo-Advisors Safe and Worth It?

Automated portfolios have become a common option offered by financial companies, providing many people with a cost-efficient way to invest for retirement and other goals — while helping to manage certain market and behavioral risks via automated features.

Because robo-advisors typically rely on sophisticated computer algorithms to help investors set up and manage a diversified portfolio, some have questioned whether technology alone can address the range of needs that investors may have — beyond basic portfolio management.

Others note that the lower fees and lower minimum balance requirements typical of most robo-advisors, in addition to certain automated features, may provide a much-needed option for new investors.

Is a Robo-Advisor Right for You?

Robo-advisors typically use artificial intelligence to generate retirement and financial planning solutions that are tailored to people’s individual needs. Here are some questions to ask yourself, when deciding whether a robo-advisor is right for you.

How Does a Robo-Advisor Pick Investments?

While the term robo-advisor can mean different things depending on the company that offers the service, investors usually fill out an online questionnaire about their financial goals, risk tolerance, and investment time frames. On the back end, a computer algorithm then suggests a portfolio of different securities based on those parameters.

For example one person may be investing for retirement, another saving for the purchase of a home. Depending on each person’s preferences, the robo-advisor generates an asset allocation that aligns with the person’s goals in the form of a pre-set portfolio.

A portfolio for someone nearing retirement age would typically have a different allocation versus a portfolio for someone in their 20s, for example. Depending on these details, the service might automatically rebalance the portfolio over time, execute trades, and may even conduct tax-loss harvesting. SoFi’s automated portfolio does offer automatic rebalancing, but not automatic tax-loss harvesting.

Can I Choose My Own Investments?

A robo advisor typically has a range of investments they offer investors. Usually these are low-cost index exchange-traded funds (ETFs), but the offerings can vary from company to company. In most cases, though, your investment options are confined to those available through the robo-advisor, and typically you’re offered a selection of pre-set portfolios with limited or no ability to change the securities in that portfolio.

As the industry grows and becomes increasingly sophisticated, more companies are finding ways to offer investors new options like themed ETFs, stocks from different market sectors, socially responsible or ESG investing options, and more.

Who Manages the Portfolio?

Part of the appeal for some investors is that these portfolios are automated and thus require less hands-on involvement. This may be useful for people who are new to the process of setting up and managing a diversified portfolio, or who don’t feel comfortable doing so on their own.

In some cases, a robo-advisor service may also offer a consultation with a live human advisor. But again, in most cases the investor has limited control over the automated portfolio.

💡 Recommended: Robo Advisors vs. Financial Advisors

Are There Risks Involved in Using a Robo-Advisor?

Investment always involves some exposure to market risks. But robo-advisors may help manage behavioral risk. Many studies have shown that investors can be impulsive or emotional when making investment choices — often with less than optimal results.

By reducing the potential for human error through the use of automation, a robo-advisor may help limit potential losses.

What Do Robo-Advisors Cost?

While there are some robo-advisor services that have higher minimum balance requirements or investment fees, the majority of these services are cost efficient.

In some cases there are very low or no minimums required to set up a portfolio. And the management fees are typically lower than what you’d pay for a human advisor (although there are typically brokerage fees and expense ratios associated with the investments in the portfolio).

Pros and Cons of Robo Advisors

Hopefully, the questions above have clarified the way a robo-advisor works and shed some light on whether a robo service would be right for you. In addition, there are some pros and cons to keep in mind.

Pros of Robo Advisors

Saving for Retirement

It’s true that you can use a robo-advisor for almost any short- or long-term goal — you could use a robo advisor to save for an emergency or another savings goal, for example. But in many ways these services are well-suited to a long-term goal like retirement. Indeed, most robo services offer traditional retirement accounts like regular IRAs, Roth IRAs, SEP IRAs.

The reason a robo-advisor service can be useful for retirement is that the costs might be lower than some other investment options, which can help you keep more of your returns over time. And the automated features, like portfolio rebalancing and tax optimization (if available), can offer additional benefits over the years.

Typically, many robo portfolios require you to set up automated deposits. This can also help your portfolio grow over time — and the effect of dollar-cost averaging may offer long-term benefits as well.

Diversification

Achieving a well-diversified portfolio can be challenging for some people, research has shown, particularly those who are new to investing. Robo-advisors take the mystery and hassle out of the picture because the algorithm is designed to create a diversified portfolio of assets from the outset; you don’t have to do anything.

In addition, the automatic rebalancing feature helps to maintain that diversification over time — which can be an important tool to help minimize risks. (That said, diversification itself is no guarantee that you can avoid potential risks completely.)

Automatic Rebalancing

Similarly, many investors (even those who are experienced) may find the task of rebalancing their portfolio somewhat challenging — or tedious. The automatic rebalancing feature of most robo-advisors takes that chore off your plate as well, so that your portfolio adheres to your desired allocation until you choose to change it.

Tax Optimization

Some robo-advisors offer tax-loss harvesting, where investment losses are applied to gains in order to minimize taxes. This is another investment task that can be difficult for even experienced investors, so having it taken care of automatically can be highly useful — especially when considering the potential cost of taxes over time.

That said, automatic tax-loss harvesting has its pros and cons as well, and it’s unclear whether the long-term benefits help make a portfolio more tax efficient.

Want to start investing?

Our robo-advisor service can offer a portfolio to suit
your needs and risk level – with no SoFi advisory fees!

Cons of Robo-Advisors

Limited Investment Options

Most automated portfolios are similar to a prix fixe menu at a restaurant: With option A, you can get X, Y, Z investment choices. With option B, you can get a different selection, and so on. Typically, the securities available are low-cost index ETFs. It’s difficult to customize a robo account; even when there are other investments available through the financial company that offers the robo service, you wouldn’t have access to those.

In some cases, investors with higher balances may have access to a greater range of securities and are able to make their portfolios more personalized.

Little or No Personal Advice

The term “robo-advisor” can be misleading, as many have noted: These services don’t involve advice-giving robots. And while some services may allow you to speak to a live professional, they aren’t there to help you make a detailed financial plan, or to answer complex personal questions or dilemmas.

Again, for investors with higher balances, more options may be available. But for the most part robo-advisors only cover the basics of portfolio management. It’s up to each individual to monitor their personal situation and make financial decisions accordingly.

Performance

Robo-advisors have become commonplace, and they are considered reliable methods of investing, but that doesn’t mean they guarantee higher returns — or any returns. We discuss robo advisor performance in the section below.

Robo-Advisor Industry

Robo-advisors have grown quickly since the first companies launched in 2008-09, during and after the financial crisis. Prior to that, financial advisors and investment firms made use of similar technology to generate investment options for private clients, but independent robo advisor platforms made these automated portfolios widely available to retail investors.

The idea was to democratize the wealth-management industry by creating a cost-efficient investing alternative to the accounts and products offered by traditional firms.

Assets under management in the U.S. robo-advisor market are projected to reach about $2.76 trillion in 2023, according to Statista (estimates vary). There are dozens of robo-advisors available — from independent companies like SoFi Invest®, Betterment, and Ally, as well as established brokerages like Charles Schwab, Vanguard, T. Rowe Price, and more.

While this market is small compared to the $100 trillion in the global asset-management industry, robo-advisors are seen as potential game-changers that could revolutionize the world of financial advice.

Because they are direct-to-consumer and digital only, robo-advisors are available around the clock, making them more accessible. Their online presence has meant that the clientele of robo-advisors has tended to skew younger.

Also, traditional asset management firms often have large minimum balance requirements. At the high end, private wealth managers could require minimums of $5 million or more.

The cost of having a human financial advisor can also drive up fees north of 1% annually, versus the 0.25% of assets that robo-advisors typically charge (depending on assets on deposit). Note that this 0.25% is an annual management fee, and does not include the expense ratios of the underlying securities, which can add on another 5 or even 50 basis points, depending on the company and the portfolio.

How Have Robo-Advisors Performed in the Past?

Like any other type of investment — whether a mutual fund, ETF, stock, or bond — the performance of robo-advisors varies over time, and past performance is no guarantee of future returns.

Research from BackEnd Benchmarking, which publishes the Robo Report, a quarterly report on the robo-advisor industry, analyzed the performance of 30 U.S.-based robo-advisors. As of Dec. 31, 2022, the 5-year total portfolio returns, annualized and based on a 60-40 allocation, ranged from 2.84% to 5.12%. (Data not available for all 30 firms.)

💡 Recommended: How to Track Robo-Advisor Returns

The Takeaway

Despite being relative newcomers in finance, robo-advisors have become an established part of the asset management industry. These automated investment portfolios offer a reliable, cost-efficient investment option for investors who may not have access to accounts with traditional firms. They offer automated features that newer or less experienced investors may not have the skills to address.

Robo advisors don’t take the place of human financial advisors, but they can automate certain tasks that are challenging for ordinary or newbie investors: selecting a diversified group of investments that align with an individual’s goals; automatically rebalancing the portfolio over time; using tax-optimization strategies that may help reduce portfolio costs.

Curious to explore whether a robo-advisor is right for you? When you open an account with SoFi Invest®, it’s easy to use the automated investing feature. Even better, SoFi members have complimentary access to financial professionals who can answer any questions you might have.

Open an automated investing account and start investing for your future with as little as $1.

Advisory services provided by SoFi Wealth LLC, an SEC-registered investment advisor.
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.

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.

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.

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

SOIN0423003

Read more
Apr
12
2023
toy robot mobile

Guide to Automatic Investment Plans

By | Budgeting & Goals, Financial Independence | No Comments

An automatic investment plan is pretty much what it sounds like: It’s an account, app, or platform that enables you to make regular investments, automatically.

Automatic investment plans (sometimes called AIPs) can be an excellent way to save and invest steadily over time, because you can set up your plan in advance and then leave it more or less to run on its own — until your needs or goals require a change.

What Is an Automatic Investment Plan?

An automatic investment plan might include a workplace retirement plan like a 401(k), a robo advisor or automated portfolio, a dividend reinvestment plan, as well as other options. What these programs have in common is they give investors the ability to choose an amount they want deposited, the timing of the deposits (e.g. weekly, quarterly), and in many cases which types of investments to fund.

The rise of sophisticated technology and algorithms have helped make automatic investment plans more accessible and secure, as well as more customizable. Investors can direct money to be withdrawn from their paycheck or from a personal account on a biweekly basis, for example, and invested in a retirement portfolio. It’s part of the growing trend around automating your personal finances.

Types of Automatic Investment Plans

While using automatic investment plans for retirement is a common scenario, there are others — including the option to choose more- or less-automated types of investment products or preset portfolios.

Among the different types of automatic investment accounts, or accounts that can be funded automatically:

•   Automatic transfers to a 401(k), 403(b), or personal IRA accounts

•   Automatic transfers to a 529 college savings plan

•   Using a payment app that rounds up certain transaction amounts and deposits the difference into an investment portfolio automatically

•   A dividend-reinvestment plan (DRIP) which helps investors reinvest their cash dividends automatically

Types of Automated Investment Products

There are also different types of funds or automated portfolios (sometimes called robo advisors) which investors can use as part of an automatic investment plan.

•   Target date funds can provide investors with a long-term retirement or college savings portfolio. These funds are typically based on an allocation of different asset classes that adjust automatically to become more conservative over time, until the person needs to withdraw the funds.

•   A robo advisor, or automated portfolio, is a preset portfolio typically of low-cost exchange-traded funds (ETFs). Investors use an online platform to fill out a questionnaire about their preferences, goals, risk tolerance and time horizon. The securities and the allocation in each portfolio are generally fixed, but investors can typically choose from different portfolios that match their risk tolerance and time horizon.

How Does an Automatic Investment Plan Work?

The “automatic” part of an automatic investment plan can refer to the automated deposit of funds, usually on a regular schedule. But it’s not just a way to automate your savings. It can also refer to stock dividends being reinvested automatically, or automated mutual funds (like target-date funds), or robo portfolios, as noted above.

If you consider automated investing 101, the foundation of almost all automatic investment plans is the use of technology to ensure the regular deposit of funds in a portfolio that reflects an investor’s needs and goals. While some people might view these options as “hands-off” or “set it and forget it” — and they can simplify a number of investment choices for investors — using an AIP doesn’t mean your money is on autopilot.

Investors will always need to pay some attention to any kind of investment plan, but that said many AIPs do offer investors some advantages.

Benefits of an Automatic Investment Plan

Most brokerages and workplace plans offer some kind of automated options for investors these days. The reason being that behavioral research has repeatedly shown that investors are prone to make emotional choices under certain circumstances (for example, when the market is volatile).

Automated plans provide basic guardrails that can help keep investors on track, investing steadily over time, rather than reacting impulsively to trends or headlines and trying to time the market.

Dollar Cost Averaging

Another benefit of automated plans is that they are designed so that you invest the same amount at regular intervals. This strategy, known as dollar cost averaging, is important for a couple of reasons:

•   Automating deposits may help build wealth over time, because you’re less likely to spend that money once it’s invested.

•   Dollar cost averaging is the practice of investing consistently over time, whether the market is up or down, which can lower the average cost of your investments.

Time Savings

Another advantage of using an AIP is that it can save you time and energy, especially if researching or managing investments is not your strong suit.

Types of Investments to Automate

These days automatic investment plans are available for a range of goals. As discussed earlier, you can choose to automate your retirement savings, your personal investment portfolio in a taxable account, a 529 plan, stock dividends, and likely other options as well.

These kinds of AIPs can compliment other aspects of financial automation that you may already be using: from budgeting and saving to paying bills.

The financial landscape is evolving rapidly, as anyone who follows crypto or DeFi (decentralized finance) knows. The types of investments you can automate today will no doubt expand tomorrow.

Is Automated Financial Planning Right for You?

In general, automatic investment plans may work for people who want to be on top of their finances, but may not have the time or the inclination for detailed investment management.

In that way, the convenience and lower cost of most automated investment plans and robo platforms can help newer investors (or less involved investors) get started. Investors who aren’t comfortable with relying on technology may not want to invest using automated systems.

That said, automated investing isn’t a strategy for avoiding money management or financial planning completely. Most investors’ portfolios and financial plans include details or circumstances that require human insight or input. Estate planning, owning a small business, or prioritizing among multiple goals, for example, can get complicated quickly.

Although it can be simpler to automate some parts of the investing or financial planning process, a human advisor can help ensure that you aren’t missing anything. Also, investors who use automated portfolios have less control over their investments.

Fortunately, automation here can also work in your favor: You can set alerts to remind you when certain withdrawals are being made.

Starting an Automatic Investment Plan

Starting an automatic investment plan is pretty straightforward. You first want to identify the primary goal for using an automated platform.

•   Do you want to save for retirement at work, or is this a personal retirement account?

•   Do you want an automated investment portfolio that’s preset, like a robo advisor? Or do you want to set up your own portfolio?

•   Do you own dividend stocks, and does it make sense to set up a dividend reinvestment plan?

Then, as you explore a few different options, you want to consider the following:

•   Is it a reputable platform, account, or app? Hint: Most online brokerages and financial firms offer a few automated options, so it may be possible to stay with your current provider.

•   Is the platform easy to use?

•   What are the fees?

Using an Automatic Investing Plan

Using an AIP is generally self-explanatory because generally these programs were created for investors who want a streamlined experience. Once your account is open, you typically set up a direct deposit of funds, and select the investments you want in your plan.

If you’re working with a financial advisor, they can help insure that the platform you choose will support the rest of your financial plan. If you’re flying solo, you can begin to do research into how your automatic investment plan works together with other goals.

Automated Investing With SoFi

One of the best things about automated financial planning is that you can be as hands-off (or hands-on) as you choose. Using an automatic investment plan these days provides a number of options, including active investing, retirement, and robo advisor options.

With SoFi’s automated investing platform, we help you explore your risk tolerance, and from there you can select a portfolio that matches your needs. Whether you’re saving for retirement, a down payment, or just investing for later, you can make a plan to tackle multiple goals.

See why SoFi is this year’s top-ranked robo advisor.

FAQ

How do you automate an investment strategy?

You can find an automatic investment plan (AIP) that will match your goals and help you set up or fund a portfolio. That said, you can’t automate your entire investment strategy: Ideally, an AIP would be a tactical piece that fits into your overall strategy.

How often should I auto-invest?

You want to keep up a steady cadence of deposits to make progress toward your goals, and to reap the benefits of dollar cost averaging. You might consider auto investing once a month to start and see how it goes.

What are the benefits of starting an automatic investment plan?

There are a number of advantages to using an automatic investment plan, including the fact that it can help keep your investment plan on track, even if you’re tempted to make changes when markets fluctuate. In addition, an AIP can save time and may help lessen the impact of market volatility.

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.

SOIN0423002

Read more

CATEGORIES

  • All
  • No categories
Close modal

See what SoFi can do for you and your finances.

Select a product below and get your rate in just minutes.

Student Loan
Refinancing

Personal
Loans

Online
Investments

Other

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

©2024 Social Finance, LLC All rights reserved.
TLS 1.2 Encrypted
Equal Housing Lender