Financial Topics Archives | Page 747 of 816

Jan

2023

Understanding Stock Market Corrections

By Samuel Becker | Growing Wealth, Investing | No Comments

A stock market correction occurs when the market hits a new high, and then falls by at least 10%. A correction is similar to a dip or crash, but not as severe as a “bear market,” which is when the market sees a decline of 20%.

Stock market corrections are normal and it’s important to be aware of why they happen and what you might consider doing the next time the market sees a correction.

What Is a Market Correction?

A stock market correction happens when the market reaches a new interim high and then falls by 10%. Some other stock market terms for market downturns include dips or crashes, which may be temporary or quick drops in the market that don’t see the market fall past 10%.

Corrections vs Bear Markets

A bear market is a longer decline in the stock market, and refers to the market after it declines 20% from a previous high. These terms can also apply to individual stocks (“Stock X is in correction territory,” for example), but individual stocks can see much more volatility than the overall market.

The most severe stock market correction in history, in terms of points, happened in 2018, when the Dow declined 1,175 points in a single day. Previously the record had been a 777-point decline. However, the 2018 4.6% drop wasn’t the biggest decline in terms of percentage. In 1987, on a day called Black Monday, the Dow dropped by 22%. That would be equivalent to 5,300 points in today’s market.

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The Nature and Frequency of Market Corrections

Stock market corrections happen every once in a while. They are, in fact, a normal part of the market cycle — that’s important for investors to keep in mind, as it’s not unusual at all for the market to experience a correction.

How Common Are Market Corrections?

Dating back to the mid-1900s, stock market corrections have typically happened three to four times every year. Although it’s nerve-wracking every time, these corrections are a normal part of the market cycle, as mentioned.

Duration and Impact of Corrections

When a correction occurs, you will likely see the media speculate whether it’s a crash or a correction, how long the correction will last, and perhaps, if the economy is going into a recession. This speculation is just that — here is no way of knowing exactly how big a correction will be or how long it will last.

A stock market correction is not typically the cause of a recession, nor is it a predictor of a coming recession. Stock market corrections can be stressful for investors and companies, but they are not necessarily signs of a poor economy.

Although there is no way of predicting how long a market correction will last, you can look to past data as some indicator of possible trends. For example, since the 2008–09 financial crisis, the past four corrections have had an average decline of 15.3% over a time period of three and a half months.

Navigating Through Market Corrections

Given that market corrections are common, investors would do well to know how to handle them. That may or may not involve making any changes to your portfolio.

Preparing Your Investments for a Correction

Unless you exclusively own stocks in an S&P 500 index fund, your portfolio will perform differently from the overall market. When a stock market correction occurs, the percentage drop is generally referring to the performance of the S&P 500 index. This is an index of the largest U.S. companies in the stock market.

The stocks in your portfolio may fall in value more or less than the overall market. Some of your stocks may even go up in value. It’s important to remember that if your portfolio drops by a certain percentage, it will need to go up more than that percentage to recoup your losses.

Strategies for Investing During Corrections

Generally, a good rule of thumb is to stay invested through a market correction — or, stick to a buy-and-hold strategy. If, for example, someone sells off their stocks during a panic, they could see them go back up in value again in a few days or weeks. If anything, depending on your strategy and goals, you may want to consider buying stocks during a market correction, because prices will have lowered.

You could consider whether you have available funds you’d like to invest during a downturn, and decide if you want to purchase more shares of stocks you already own or if you want to find new stocks to buy. Diversifying the stocks in your portfolio may help you weather the storm of a market correction.

If you do choose to purchase stocks during a market correction, be aware that their value may continue to decline before it recovers again. There’s also no guarantee that it will.

Also remember that the market has bounced back from some severe corrections and crashes over the years. Corrections happen every year and can be healthy for the market.

💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

Identifying Causes and Signs of Market Corrections

There can be numerous reasons that the market experiences a correction. And they typically can’t be predicted with any real sense of accuracy.

Key Factors Leading to Corrections

Since so many things could potentially lead to a market correction, it’s hard to say with any certainty what, exactly, is or was the catalyst. But generally, things like rising prices (inflation), slow economic growth, bad or disappointing corporate earnings reports, or even surprising news — say, a war breaks out, or some sort of political upheaval takes place — can cause the market to see a steep decline into correction territory.

Can Market Corrections Be Predicted?

As mentioned, market corrections can’t really be predicted. While it’s almost certain that there will be corrections in the future, discerning when, exactly, they’ll happen is nearly impossible — nobody has a crystal ball.

Coping With Market Corrections as an Investor

Market corrections are going to happen — it’s a near certainty. But that doesn’t mean investors need to panic every time the market has a hiccup.

What to Do During a Market Correction

The first step in knowing what to do during a stock market correction is to find out why it’s happening — if possible. Next, look into your individual portfolio and see how it’s being affected by the correction. This will help you decide whether to buy, sell, or hold on to the stocks in your portfolio.

Remember that stock market corrections are normal. If you have a long-term investing strategy, you will likely see market corrections, bear markets, and recessions during your years of investing. Try to stay calm and reconsider decisions that might be made based on fear or panic. It may not help to obsess over the value of your portfolio on any particular day.

Long-term Strategies for Handling Market Volatility

In terms of handling market volatility over the long term, here are some things and overarching principles investors can try to incorporate into their investment strategy.

• Have a plan: Blindly buying stocks and then getting upset when they fall in value isn’t ideal. Know what your goals are and plan for them. Even when the market corrects, you can still reach your goals for the year if you plan properly. If you’re investing money to use in just a few months versus for your retirement, your strategy may look very different.

• Diversify: One way to protect yourself from significant market crashes is to spread out investments over different types of assets. This is called diversifying your portfolio, and this tactic may help lower your risk of losses while still exposing yourself to potential gains. You can diversify into many different types of investments, including bonds, real estate, commodities, and simply by holding cash.

• Consider cashing out: Investors can be afraid to cash out of a particular stock because it may continue to rise in value. If you own a stock which has gone up significantly, you may want to cash out some of the investment and diversify it into other investments.

• Keep risk tolerance in mind: If you are growing your portfolio for long-term use, you can likely handle a few ups and downs in the market cycle. However, if it causes you too much stress to see your portfolio go down in value a lot in one day, perhaps it’s better not having so much invested in stocks.

• Don’t try to time the market: On the same note, selling off your investments because you think the market is going south may not be a great strategy. The stocks you’re holding may continue to go up in value, and even if they do crash, trying to time your reentry can be just as challenging as timing your exit.

• Think long term: Day trading and short-term investing are risky. If you build a diversified portfolio which you plan to keep invested for a long time before using it, it may be able to withstand cycles in the market and still continue to grow.

Real-World Examples of Market Corrections

As noted, corrections are common. In fact, the S&P 500 entered correction territory three times during 2022. It also happened more than once in 2023, and as of writing, the most recent market correction occurred during October 2023, as the market slid for a few months after topping out at a previous high in July 2023.

In December 2023, the market rebounded, and was near all-time highs.

The Takeaway

Stock market corrections are when the market falls 10% from a previous high, and they’re common parts of the market cycle. As you build your portfolio and mentally prepare for the next stock market correction, remember that you are not alone. Market crashes, dips, and corrections are stressful for everyone, and there are tools and specialists to help you navigate them.

Working with an investment advisor may help you stay calm throughout economic cycles. Planning your portfolio for diversification and long-term growth may also help you ride the waves of the market.

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FAQ

What happens in a stock market correction?

During a stock market correction, the market slides at least 10% from a previous high due to any number of factors.

Are corrections good for the stock market?

Corrections can be good for the stock market in a similar way that a wildfire can be good for a forest — they can serve as a reset to valuations that may have gotten too high, and lower security prices for investors looking to deploy capital.

How long do stock market corrections last?

There’s no telling how long a correction could last, but it’s important to keep in mind that historically, the market has always bounced back given enough time.

What is the biggest stock market correction of all time?

The biggest drop in the S&P 500 in a single day was in October 1987, when the index fell more than 20% into a bear market.

How often should you expect a stock market correction?

Since the 1950s, the S&P 500 has experienced dozens of market corrections, and that means that one occurs less than every two years, on average.

How many corrections have there been throughout history?

In the modern era, since World War II, the stock market has experienced 24 market corrections, with an average market drop of more than 14%.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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

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Jan

2023

Do I Need a Financial Advisor? Essential Considerations

By Samuel Becker | Growing Wealth, Investing | No Comments

Financial advisors can help their clients to define their financial goals, prioritize them, and develop a plan to achieve them. But depending on the specific individual, a relationship or level of engagement with a financial advisor can vary, as different investors have different needs.

Generally, deciding whether you need a financial advisor will come down to whether you feel you need some advice or a guiding hand in handling your finances. There are important considerations to make, too, as financial advisors don’t typically work for free — but they can help with a variety of finance-related issues.

Understanding the Role of Financial Advisors

Financial advisors can offer many services, but broadly, they’ll dissect a client’s financial picture, discuss their goals with them, and create a plan as to how to move forward.

What Financial Advisors Do

Financial advisors can help clients zero-in on specific financial goals, put together plans for investing or getting out of debt, and more.

An advisor can provide financially based education, which can help their clients identify whether they’re on track for achieving their goals. They can also help clients determine whether their habits are causing problems for their overall financial wellness.

Further, financial advisors can guide their clients through paying off debt, saving for the future, investing in a diversified portfolio, and aligning an investment approach with specific goals, timelines, and risk-tolerance levels.

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Assessing Your Need and Readiness for a Financial Advisor

There are numerous things to consider when trying to determine if you’re ready or in need of a financial advisor and their services.

When to Consider Hiring a Financial Advisor

As clients make their decision about whether to use a financial advisor or not — and, if so, which one will offer what they want and need — here are some items they could consider:

• What type of help is needed from an advisor? Education? Coaching? Management?

• What services can the financial advisors provide?

• How well does this match up with your specific needs?

• How does the advisor charge? In other words, how does your advisor get paid?

• What context can be provided about fees? How does a percentage translate into real dollars, both today and in the future?

Evaluating Net Worth, Earnings, Spending, and Financial Goals

It’s important to note that not everyone’s financial situation will warrant professional financial advice. As such, you’ll want to take some time to try and evaluate your net worth, earnings, and goals — do you feel that you can keep a grasp on those aspects of your financial picture? Or do you feel like you’re in over your head?

If you feel like you could use some advice, then it may be a good idea to reach out to a financial professional and see how they may be able to help.

Life Events and SituationsThat Warrant Professional Advice

Also keep in mind that your situation will change over time. You may get a new job, a big promotion, or a big raise — all of which can drastically change your financial situation. In such cases, if the change is significant enough, it could be a good idea to reach out for guidance.

Types of Financial Advisors and Their Services

“Financial advisor” is a broad term that describes several different specialties. Accordingly, it can be helpful to understand the different types of financial advisors out there.

Different Financial Advisor Specializations

Here are some (but not all) of the different types of advisors:

• Certified professional planners (CFP®): CFPs are advisors who’ve earned a specific designation, and that can help people with a large range of financial services.

• Wealth managers: Wealth managers take a broad approach to helping individuals with their finances, and typically offer a range of services.

• Investment advisors: Investment advisors focus on providing advice and management related to investment portfolios.

• Retirement planners: Like investment advisors, retirement planners tend to focus on a specific area of a person’s financial picture: Retirement.

Choosing the Right Type of Advisor for Your Needs

The specific type of financial advisor that is a good particular fit for any individual will vary depending on the person’s specific situation. As such, there’s no “one-size-fits-all” for financial advisors, and you’ll likely be best off giving some serious thought as to your needs, and how an advisor can help you.

It may be worth speaking with several different advisors to get a better sense of how they could help, and then making a decision as to which, if any, to work with.

Understanding Advisor Fees and Payment Structures

There are many types of fees and payment structures that may apply to financial advisors.

Commissions

When advisors are compensated on a commission basis, they receive pay based on the products they sell. The amount of commission paid can vary widely depending upon the product and the company.

Multiple arrangements can exist for advisors paid on commission, including receiving a percentage of a client’s assets before money is invested or being paid by the financial institution involved after a transaction takes place. Or, the client might be charged each time that stocks are bought or sold.

Advisory Fees

When an advisory fee is charged by the advisor, the general charge for the client is a percentage of the assets they manage. It’s reasonable to expect that an advisor can explain the reasoning behind the fee being charged, given a client’s specific circumstances — and if it’s higher than expected, it’s also reasonable to ask what added value the client is receiving.

Perhaps, for example, the advisor also helps with tax planning, or estate planning. They may be investigating a client’s financial vulnerabilities or otherwise going beyond standard money management services.

Actively managed portfolios may come with a higher fee because the advisor may charge more for putting more effort into getting the best value for their client.

Planning Fees

With this type of fee, the advisor would charge an upfront fee, or a subscription-based one, to provide either a financial plan or ongoing advice. As a potential client considers financial advisors, they may find themselves talking to someone who charges a fixed planning fee to create an initial plan and then uses a different fee structure to actually manage the portfolio. What’s most important is to be clear about what will be charged, and how.

Hourly Fees

In this case, the financial advisor charges a straight hourly fee for their services. On the one hand, having an advisor charge an annual fee means that a client may not need to worry as much that their advisor is recommending products because of the income the advisor would earn off of that recommendation.

Choosing a financial advisor that charges per hour can be costly, though, especially if more investigation needs to be done to find a product that fits a client’s needs. This may or may not be a huge concern, but if resources are limited these fees can potentially be hefty.

How to Choose the Right Financial Advisor

There’s no “right” financial advisor for everyone, but there can be some who may be better fits for your specific situation than others.

Tips for Finding and Selecting an Advisor

Starting broadly, it can be helpful to try and discern what types of services you need, or what type of advice you think would be most beneficial. From there, you’ll want to winnow down the types of advisors you’re looking for — you can review the short list above, or dig even deeper — and think about how those types of advisors can address your needs.

Then, consider the fees and costs, also as discussed. Some may not necessarily be worth the cost of retaining their services — but again, it’ll depend on the individual.

You can also look at, or search for advisors through various trade groups — there are many for financial professionals. It can be helpful to narrow down your search to a few selections, meet or interview them, and then make a decision.

Red Flags and Key Factors to Consider

A few things to look out for when you’re shopping around for financial advisors or planning services: Conflicts of interest, a lack of credentials or qualifications, and high-pressure sales tactics. While these aren’t necessarily deal-killers, they can be things to look out for. And remember, if you feel uncomfortable, you can always move on and talk to other advisors – there are hundreds of thousands of them in the U.S.!

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Working with a Financial Advisor

Working with a financial advisor should be a rewarding experience. Here’s what to expect.

What to Expect in the Relationship

You should anticipate that your relationship with your advisor will be close — but not too close. They’ll take a hard look at your finances, consider your goals, and (hopefully) do their best to give you actionable advice and guidance. They may not want to get too personable, though, as emotion can enter the picture and make the process a bit murkier.

You should be ready to share fairly detailed aspects of your financial life, your career, family and personal goals, and more. That may be uncomfortable for some, but it’s important for an advisor to get the whole picture and map out a way to help you reach your goals.

The Takeaway

Financial advisors help individuals reach their financial goals by offering advice and guidance. There are many different types of financial advisors, and many different ways in which they are paid or charge for their services. As such, there’s no catch-all “financial advisor,” and not every type of advisor will be right for each individual.

For that reason, it’s important that you take the time to figure out your needs, and determine what type of advisor, if any, is the best fit for your situation. It may take some time to figure it out, but if you want the most bang for your buck, it could be worth it down the road.

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FAQ

Is it really worth having a financial advisor?

It can be worth having a financial advisor, but it’ll ultimately depend on each individual. Some people may not feel that an advisor is worth it, while others will say the opposite – there’s no clear, one-size-fits-all answer.

Does the average person need a financial advisor?

Whether someone needs a financial advisor depends on several factors, and while many “average” people feel they can handle their finances perfectly fine without a professional, others might not.

Do I need a financial advisor for my 401(k)?

You don’t necessarily need a financial advisor for a 401(k), but they may be helpful if you want to add an element of active management into the mix. That said, not everyone will feel that they need an advisor to oversee or help manage one retirement account.

Why don’t people use financial advisors?

Some people may not want to use financial advisors because they don’t feel that they have enough money or wealth to warrant it, and because they want to avoid the fees and costs associated with professional advice.

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INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

Dec

2022

What Is Cash Settlement in Options?

By Mike Zaccardi, CMT, CFA | Growing Wealth, invest, Investing, Terminology | Comments Off

Cash settlement in options is a method where the buyer of an option contract can exercise their right to receive the underlying asset, such as a stock or commodity, in the form of cash rather than the physical delivery of the asset. This means that instead of receiving the stock or commodity, the option holder will receive an amount of cash equal to the value of the underlying asset when the option is exercised.

Cash settlement may be used in options trading because it allows traders to speculate on the price movement of securities without actually having to own or hold the underlying assets. This can be particularly useful for traders looking to hedge their positions or who want to avoid the risks associated with holding the underlying assets.

What Is Cash settlement?

As noted above, cash settlement refers to a settlement method where the buyer of an option contract receives the cash difference between the strike price and the current market price of the underlying security. This is in contrast to the more traditional method of physical settlement, where the buyer of the option contract would receive the underlying security upon exercise.

When trading options, there are two primary methods for settling the contract: physical delivery and cash settlement. In physical delivery, the buyer of the option receives the underlying asset, such as a stock or commodity, when the option is exercised. Most listed equity options contracts are settled with the actual delivery of shares.

On the other hand, cash settlement allows the buyer of an option to receive the value of the underlying asset in the form of cash when the option is exercised. This means that the buyer does not receive the stock or commodity but receives an amount of cash equal to the value of the underlying asset when the option is exercised. Often, equity index and binary options are cash-settled.

How Does Cash Settlement Work?

The cash settlement process in options works like this:

When an options contract is exercised, the buyer has the right — but not always the obligation — to buy or sell the underlying security at the agreed-upon price (called the strike price). In a cash settlement, the buyer of the option is not required to purchase or sell the underlying security. Instead, they receive a cash payout based on the difference between the strike price and the current market price of the underlying security.

💡 Recommended: 10 Options Trading Strategies for Beginners

Example of Cash Settlement

Suppose an investor buys a call option on stock ABC with a strike price of $50. This means that the investor has the right to buy the stock at $50 per share at any time before the option expires if the stock’s price is above the strike price. If the stock’s market price rises above $50, the option becomes “in the money,” and the investor can exercise their right to buy the stock at $50, even if the market price is higher.

Suppose that, when the option expires, the stock’s market price is $55 per share. If the option is cash-settled, the investor can exercise their right to buy the stock at $50 per share and receive a cash payment of $5 per share (the difference between the strike price and the market price) multiplied by the number of options contracts that are exercised. This means the investor would receive a total cash payment of $500 (assuming they exercised a standard options contract of 100 shares).

Alternatively, if the stock’s market price is below $50 when the option expires, the option becomes “out of the money,” and the investor will not exercise their right to buy the stock. In this case, the option would expire worthless, and the investor would not receive any cash payment.

💡 Recommended: In the Money vs Out of the Money Options

Pros and Cons of Cash Settlement

Pros	Cons
Improves liquidity across derivatives markets	Prices have a risk of manipulation
Does not require cumbersome delivery coordination and costs in commodities markets or delivery of shares in options trading	Only available on European-style options
Allows parties to hedge and speculate financially on products that cannot be physically delivered	Commodities producers and consumers might prefer physical delivery when the product is needed for use

Advantages of Cash Settlement

There are several advantages to using cash settlement in options trading. First, it can be more convenient for the buyer, as they do not have to worry about physically receiving and storing the underlying asset. Cash settlement can be beneficial for traders who cannot hold the underlying asset, such as those who are trading options on futures contracts of commodities.

Another advantage of cash settlement is that it can be more cost-effective. Since the buyer does not have to take possession of the underlying asset, they do not have to pay any additional fees or expenses associated with holding an asset like gold, oil, wheat, or other commodities. This can help to reduce the overall cost of trading options and make them more accessible to a broader range of investors.

In addition to these advantages, cash settlement can provide greater flexibility for options traders. With physical delivery, the buyer must take possession of the underlying asset when the option is exercised, which can limit their ability to trade the asset in the future. With cash settlement, the buyer can use the funds received from the option to buy or sell the underlying asset in the market, allowing them to take advantage of changing market conditions.

Furthermore, cash settlement allows for a more efficient transaction in the overall derivatives markets — which includes options — adding to its liquidity.

Drawbacks of Cash Settlement

However, there are some drawbacks to cash settlement compared to physical settlement. For example, some investors may prefer the security and control that comes with physically owning and holding the underlying asset rather than receiving a cash payment. This is because cash can be more easily lost, stolen, or subject to inflation, whereas physical assets may provide a more tangible form of wealth. Also, physical settlement is not usually subject to manipulation by either party involved in the options contract because the activity is monitored by the broker and clearing exchange.

Other cash settlement drawbacks include that it is usually only available to European-style options, where the option holder can only exercise the contract at expiration rather than early like American-style options. Also, physical settlement may be preferred by traders who need the underlying asset for use.

Cash Settlement vs Physical Settlement

There are several important differences between cash settlement and physical settlement.

Definitional Differences

Cash settlement of options is a financial reconciliation. Physical settlement reconciles a contract with the underlying asset. A common physical delivery example is a commodity, but it can also be shares of an underlying financial asset such as stock.

Mode of Payment

Option cash settlement payments are made instantly by parties. It is a straightforward financial account transfer of the difference between the underlying asset’s spot price and the options contract or strike price.

Physical settlement’s mode of payment is a full payment of the underlying asset — the option contract’s underlying asset is physically delivered to the buyer.

Level of Liquidity

Liquidity is better in markets with a cash settlement option versus those with physical settlement only. More market traders — hedgers and speculators — can participate in cash-settled derivative markets since there can be lower capital requirements. Options traders also can engage in rolling options instead of exercising them.

Time Taken

Option cash settlement can be done with instantaneous financial transactions. Physical delivery involves potentially lengthy delivery times of an underlying commodity.

Level of Risk

Another upshot in markets with a cash settlement option is market risks are lower. Physical settlement often involves transfer certificates and other documents that could be susceptible to manipulation, loss, and theft.

Convenience

It is hard to argue with the convenience of cash settlement. Two parties square up using straightforward price differences rather than figuring out the logistics of the physical delivery of an asset. With equity index options, taking delivery of all the shares of a stock index can also be unwanted by the buyer. There can also be fewer fees with cash settlement, resulting in fewer trades.

Practicality, costs, and simplicity make cash settlement easier than physical settlement.

Practicality

Due to lower costs and quick payments, option cash settlement is more practical than physical settlement.

Costs Involved

Trades with cash settlements have low or even zero cost until settlement when the buyer and seller reconcile with a payment. With physical delivery, there are several costs, such as transportation costs, delivery expenses, and broker fees.

Simplicity

A final aspect that makes cash settlement advantageous versus physical settlement is the pure simplicity of cash settlement. Cash settlement is a netted payment from one party to the other.

Popularity

Cash Settlement	Physical Settlement
Popular with retail traders who might not want to take large physical deliveries	Popular with commodities firms that use the underlying asset
Popular with exchanges since more traders can transact, leading to more commissions and better liquidity	Popular with large exchanges since a single exchange can become the primary exchange for a certain asset
Popular with large traders since they can quickly settle contracts with low cost	Popular with listed stock options traders if they want to take delivery of shares

The Takeaway

Cash settlement in options trading may provide a convenient and cost-effective way for buyers of options contracts to exercise their rights to the underlying asset. By receiving the asset’s value in cash, traders can avoid the costs and complications associated with physical delivery while still maintaining the flexibility to trade the underlying asset in the market. However, investors should be aware that most equity options are not cash-settled but are settled with the delivery of underlying shares of stock.

If you’re ready to try your hand at options trading, SoFi can help. You can trade options from the SoFi mobile app or through the web platform. And if you have any questions come up along the way, SoFi offers educational resources about options to learn more.

Trade options with low fees through SoFi.

FAQ

What is the difference between a physical and cash settlement?

Cash settlement is a financial payment for the value of a stock or commodity underlying an options or futures contract when the holder exercises. Physical settlement entails the actual delivery of the underlying asset. In commodities markets, that means the commodity is delivered to the buyer. With equity options, physical delivery happens when the buyer receives shares of the underlying asset specified in the options contract.

Can you trade with unsettled cash?

Yes. You can use the proceeds from a sale to make another purchase in a cash account while your funds remain unsettled. Unsettled cash from a day trade cannot be used for another purchase until the settlement date

Which futures are cash settled?

According to the CME Group, equity indexes and interest rate futures are the most common cash-settled markets. Some precious metals and foreign exchange markets also settle in cash, along with agricultural products. In the options market, cash-settled options include digital options, binary options, and plain-vanilla index options.

Photo credit: iStock/FreshSplash

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.
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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.

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Dec

2022

How To Replace Windshield Wiper Blades On Your Car Or Truck in 2023

How To Change Windshield Wipers on Your Car or Truck

By Kelly Boyer Sagert | Budgeting & Goals | Comments Off

Changing your windshield wipers helps keep you and others safe in low-visibility conditions, from rain and snow to dust and mud. It can also save you money on a service-station visit.

We’ll walk you through how and when to change your windshield wipers, and the types of wipers that are standard on older and newer cars.

Can Anyone Replace Windshield Wipers?

Changing your windshield wipers may be one of the easiest DIY car-maintenance tasks. All you need is a needle-nose pliers and an old towel to protect the windshield. And wiper blades can be pretty inexpensive — as little as $12 per set.

Types of Wiper Blades

There are three main types of wiper blades to choose from, each with a different price point.

Standard

The most common type of wiper blades is the standard, where a rubber squeegee is held by a metal frame. The frame pivots to keep the squeegee angled properly against the windshield. You’ll find affordable standard wipers on most older cars.

Beam

The newer beam design features a solid piece of rubber serving as frame and squeegee. Instead of pivoting, the wiper is curved to maintain contact with the windshield. Without a metal frame, this wiper is less likely to get clogged with leaves or ice.

Beam wipers are more efficient and last longer. However, they’re also more expensive. Luxury vehicles tend to feature beam-style wipers because they’re seen as more sleek and modern.

Hybrid

This style of wiper has nothing to do with hybrid cars. The hybrid wiper has a metal frame, like the standard, but an updated blade design that’s more efficient. These wipers are priced between the low-cost standard and the higher-cost beam.

While some drivers may choose their wipers based on how much their car is worth (cheap car = cheap wipers), remember that safety is the most important factor.

Recommended: Insurance Tips for First-time Drivers

Getting Ready To Change Wiper Blades

The prep work is pretty simple, but we’ll break it down anyway.

If this type of project is up your alley, check out other ways to save on car maintenance.

Know Which Part of the Blade To Change

Standard windshield wipers contain three main parts: a lower wiper arm, a blade that connects to the arm, and a rubber liner that wipes off your windshield. It’s the rubber refill that typically needs to be changed. Beam-style wipers have only two parts: the arm and the rubber blade.

Measure the Blade You Have

Measure both of your wiper blades — the driver’s side and the passenger’s side may not be the same length.

Buy Replacement Blades

Many auto-parts store websites feature parts-finder tools that allow you to match the type of wiper to your make and model of car. At the auto-parts store, measure the replacements to make sure you’re getting the exact same size as what you currently have.

By the way, windshield wiper replacements aren’t covered by car insurance, nor do they count toward your insurance deductible.

Recommended: How To Lower Your Car Insurance

Installing New Wiper Blades

All it takes is three steps to remove the old wipers and insert the new ones.

Unhook the Old Wiper Blade

For standard wipers, gently pull the arm of the wiper away from the windshield glass. You may want to place a folded towel against the glass just in case you accidentally let the wiper go. Flip the rubber blade so it goes bottoms-up. Find the retaining clips near the end of the blade. Use pliers to pinch them together so you can slide out the blade.

Another style of connector is the J-hook, named for the J shape at the end of the blade. J-hooks have a tab that must be lifted or pushed to release the blade. Once released, pull the wiper down toward the base to remove it.

Insert the New Wiper

Slide the replacement blade into the same place where you just removed the old one. Make sure that the replacement blade is between the clips so they won’t scratch your windshield. Then make sure that the last clip clicks into place. Gently turn the arm back to its normal position, and release the arm of the blade.

Make sure to test your blades while parked. You don’t want an improperly attached blade flying off on a rainy day!

When To Change Wipers

There are a few reasons you might want to replace your windshield wipers. Consider keeping a pair of replacement blades in your trunk or garage so that you have them when you need them.

It’s recommended that you change both wipers at the same time, even if only one is giving you trouble. Now is a good time to check your wiper fluid as well.

How Often To Change Wipers

Experts recommend changing wiper blades every year. But it depends on what type you have and how hard they have to work. Inexpensive standard wipers should be replaced every six months. Beam-style blades last twice as long.

In regions with long, icy winters and/or dry, dusty summers, you may need to replace your blades more frequently. In balmier climates, every two years might be sufficient. To be on the safe side, you can proactively change them at predetermined intervals — possibly at the same time as your personal insurance planning check-in.

Cracked Wipers

Periodically check the wipers for cracks or tears, even if you haven’t noticed any problems. Also check to see if any small chunks are missing. You don’t want to wait till you’re driving in the rain to discover a problem.

Wipers Leaving Streaks

If your blades leave streaks, this likely means that they’ve outlived their useful life. If in doubt, change your blades.

The Takeaway

Changing out windshield wipers is an easy maintenance task that anyone can handle. However, some auto-parts stores will install wipers for free with their purchase. Older cars tend to feature standard wipers, which have a metal frame holding a rubber blade. Newer cars commonly have one-piece, “beam-style” wipers. Beam wipers are more efficient and last longer, but are also more expensive. Standard wipers are less expensive but don’t last as long. It’s a good idea to change your wipers every six to 12 months — more if you live in an area with extreme winters.

Here’s another way to protect yourself behind the wheel: getting the right auto insurance. SoFi has partnered with Experian to use a blend of technology and human interaction to provide you with multiple insurance quotes from top insurers in just minutes.

Real rates, with no bait and switch.

FAQ

Can you replace a windshield wiper yourself?

This is one of the easiest car maintenance tasks, so yes. You can replace them yourself with just a pair of needle-nose pliers and a towel to protect your windshield.

Is it cheaper to replace windshield wipers yourself?

It can be. If you buy windshield blades online, they can be as low as $12-16 per set. In an auto-parts store, they can go for $23-38 per set or more — though some stores will install them for you free.

Is it easy to install wiper blades?

Fortunately, there are just a couple of simple steps involved to remove the blades and put new ones on. Although everyone defines “easy” differently, this is one of the more straightforward car maintenance tasks.

Photo credit: iStock/hxyume

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

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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Dec

2022

Average Cost of Liability-Only Car Insurance

By Sarah Li Cain | Budgeting & Goals, Financial Independence | Comments Off

Many drivers choose liability-only car insurance to save money. The average annual premium is $1,070, according to the Insurance Information Institute. However, this type of coverage is not a good fit for everyone.

We’ll discuss exactly what liability-only insurance is, what it covers, and whether it’s the right choice for your needs.

What Is Liability Car Insurance?

Liability-only car insurance is a type of policy that provides the minimum protection that’s legally required by your state. More specifically, it covers the cost of bodily injury and property damage for other drivers and vehicles, up to a set limit, if you’re found at fault in a car accident. A liability-only policy is usually the most affordable car insurance you can get.

What Does Liability Car Insurance Cover?

There are two kinds of protection for liability-only car insurance: property damage and bodily injury coverage:

• Property damage: Pays for others’ medical bills, lost wages, and expenses due to pain and suffering if the policyholder is found at fault. It can also cover legal bills if you’re sued over the accident, also up to the policy limit. (Find out how much car insurance goes up after an accident.)

• Bodily injury: Pays for damages to another person’s vehicle and property if the policyholder is found at fault.

How Does Liability Car Insurance Work?

Liability car insurance will pay up to a certain dollar limit. If damages or bills exceed that limit, you’re responsible for the remainder. While it’ll cover things like medical bills and car repairs for others, this type of policy won’t pay for repairs to your own vehicle or your medical bills.

Recommended: Insurance Tips for First-Time Drivers

Liability Car Insurance Coverage Requirements by State

Most states require car insurance, though the minimum coverage requirements vary. See below for a state by state breakdown.

State	Minimum Coverage Requirements
State	Minimum Bodily injury per person	Minimum bodily injury per accident	Minimum property damage per accident
Alabama	$25,000	$50,000	$25,000
Alaska	$50,000	$100,000	$25,000
Arizona	$25,000	$50,000	$15,000
Arkansas	$25,000	$50,000	$25,000
California	$15,000	$30,000	$5,000
Colorado	$25,000	$50,000	$15,000
Connecticut	$20,000	$50,000	$25,000
Delaware	$25,000	$50,000	$10,000
District of Columbia	$25,000	$50,000	$10,000
Florida	N/A	N/A	$10,000
Georgia	$25,000	$50,000	$25,000
Hawaii	$20,000	$40,000	$10,000
Idaho	$20,000	$50,000	$15,000
Illinois	$25,000	$50,000	$20,000
Indiana	$25,000	$50,000	$10,000
Iowa	$20,000	$40,000	$15,000
Kansas	$25,000	$50,000	$10,000
Kentucky	$25,000	$50,000	$10,000
Louisiana	$15,000	$30,000	$25,000
Maine	$50,000	$100,000	$25,000
Maryland	$30,000	$60,000	$15,000
Massachusetts	$20,000	$40,000	$5,000
Michigan	$20,000	$40,000	$10,000
Minnesota	$30,000	$60,000	$10,000
Mississippi	$25,000	$50,000	$25,000
Missouri	$25,000	$50,000	$25,000
Montana	$25,000	$50,000	$10,000
Nebraska	$25,000	$50,000	$25,000
Nevada	$25,000	$50,000	$20,000
New Hampshire	$25,000	$50,000	$25,000
New Jersey	$15,000	$30,000	$5,000
New Mexico	$25,000	$50,000	$10,000
New York	$25,000	$50,000	$10,000
North Carolina	$30,000	$60,000	$25,000
North Dakota	$25,000	$50,000	$25,000
Ohio	$25,000	$50,000	$25,000
Oklahoma	$25,000	$50,000	$25,000
Oregon	$25,000	$50,000	$20,000
Pennsylvania	$15,000	$30,000	$5,000
Rhode Island	$25,000	$50,000	$25,000
South Carolina	$25,000	$50,000	$25,000
South Dakota	$25,000	$50,000	$25,000
Tennessee	$25,000	$50,000	$15,000
Texas	$30,000	$60,000	$25,000
Utah	$25,000	$65,000	$15,000
Vermont	$25,000	$50,000	$10,000
Virginia	$30,000	$60,000	$20,000
Washington	$25,000	$50,000	$10,000
West Virginia	$25,000	$50,000	$25,000
Wisconsin	$25,000	$50,000	$10,000
Wyoming	$25,000	$50,000	$20,000

Data courtesy of the Insurance Information Institute

How Much Is Liability Only Car Insurance by State

State	Average National Monthly Premium	Average National Annual Premium
Alabama	$43.93	$527.20
Alaska	$48.74	$584.90
Arizona	$51.88	$622.55
Arkansas	$40.36	$484.37
California	$51.89	$622.77
Colorado	$58.73	$704.82
Connecticut	$66.62	$799.45
Delaware	$74.82	$897.87
District of Columbia	$68.28	$819.36
Florida	$83.10	$997.20
Georgia	$83.10	$997.20
Hawaii	$39.90	$478.83
Idaho	$36.13	$433.66
Illinois	$43.42	$521.11
Indiana	$37.08	$444.98
Iowa	$29.19	$350.31
Kansas	$35.51	$426.14
Kentucky	$50.83	$609.98
Louisiana	$85.32	$1,023.91
Maine	$31.28	$375.40
Maryland	$62.43	$749.18
Massachusetts	$55.41	$664.92
Michigan	$81.62	$979.47
Minnesota	$41.86	$502.32
Mississippi	$45.37	$544.43
Missouri	$43.96	$527.59
Montana	$36.47	$437.69
Nebraska	$35.97	$431.71
Nevada	$77.14	$925.71
New Hampshire	$36.87	$442.52
New Jersey	$79.86	$958.31
New Mexico	$48.68	$584.25
New York	$77.70	$932.46
North Carolina	$32.67	$392.06
North Dakota	$26.02	$312.30
Ohio	$37.32	$447.86
Oklahoma	$42.06	$504.79
Oregon	$57.06	$684.81
Pennsylvania	$45.71	$548.58
Rhode Island	$76.52	$918.30
South Carolina	$59.60	$715.26
South Dakota	$28.09	$337.11
Tennessee	$39.95	$479.43
Texas	$54.18	$650.17
Utah	$51.26	$615.15
Vermont	$31.17	$374.06
Virginia	$40.96	$491.51
Washington	$58.76	$705.11
West Virginia	$42.93	$515.20
Wisconsin	$35.10	$421.21
Wyoming	$29.67	$356.08

Data courtesy of the Insurance Information Institute

Liability Car Insurance vs Full Coverage

How much auto insurance you need depends partly on whether you can afford to repair or replace your car. Full coverage will pay for your car repairs and medical bills after an accident, no matter who is at fault.

It also covers repairs or replacement of your vehicle for covered “perils” (an auto insurance term) like theft, fire, flood, collisions with animals, vandalism, and falling objects. Because of the additional features, full coverage car insurance tends to cost much more than liability insurance.

When To Drop Comprehensive and Collision Coverage

Because your insurance needs change over time, it makes sense to reevaluate those needs on a regular basis with a personal insurance planning session. In some cases, you may find that it makes sense to drop comprehensive and collision coverage:

• You’re not currently driving your vehicle: If your car is parked in a garage or at home and you don’t intend to drive it, comprehensive coverage doesn’t make sense. However, you may want to keep collision coverage because it protects against perils such as theft, fire, and vandalism.

• Your car has a low market value: If your car is worth less than a few thousand dollars, getting pricey repairs — after you pay your deductible — may not be worth it. (Learn about the different types of insurance deductibles.)

Recommended: How to Save Money on Car Maintenance

How To Shop for Liability-Only Car Insurance

The first step in getting car insurance is determining how much you need. You must purchase the minimum coverage required by your state. If you want more financial protection — especially if you’re worried about medical bills and car repairs for expensive vehicles — then consider a higher coverage limit to give you more peace of mind.

Then it’s time to shop around on online insurance sites to get a sense of the going rates. Factors to look for include what is a covered peril and the insurer’s customer reviews.

The Takeaway

Liability-only car insurance is best suited for drivers with low-value vehicles who want to save money. Keep in mind that liability policies don’t cover your own medical bills or vehicle after an accident. If you want this protection, you may be better off paying more and purchasing full coverage.

Shopping around is the best way to find a policy that suits your needs. SoFi makes it easy by helping you compare rates from top insurers in just minutes.

Real rates, with no bait and switch.

FAQ

Do I need liability insurance when renting a car?

You don’t need to have your own auto insurance policy when renting a car, as rental car companies typically have their own coverage. However, you can purchase collision or comprehensive insurance while renting a vehicle if you want additional coverage.

At what point is full coverage not worth it?

Full coverage auto insurance typically is not worth it if your vehicle has a low value or you don’t intend to drive your vehicle for a long period.

When should I go from full coverage to liability?

Going from full coverage to liability requires careful consideration. In most cases, if your vehicle is worth less than what your deductible will cost, it might be time to drop down to liability coverage.

Photo credit: iStock/Antonio_Diaz

Insurance not available in all states.
Gabi is a registered service mark of Gabi Personal Insurance Agency, Inc.
SoFi is compensated by Gabi for each customer who completes an application through the SoFi-Gabi partnership.

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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