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Q: What Is Financial Industry Regulatory Authority (FINRA)?

FINRA is a government authorized not-for-profit organization that oversees U.S. broker dealers. The organization’s purpose is to protect investors and uphold the integrity of financial markets to ensure the markets operate fairly.

Q: Does FINRA approve SEC rules?

No. In the line of hierarchy, the SEC is the oversight authority over FINRA.

Jun

2024

FINRA vs the SEC

By Paulina Likos | Growing Wealth, invest, Investing | Comments Off

The U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) are critical regulating entities for the financial services industry in the United States. They oversee financial markets to ensure that they are fair and orderly, and to protect investors. The role of financial regulators is to facilitate a sound financial services industry that consists of markets, exchanges, and firms that comply with their laws and regulations.

As regulators, the SEC and FINRA exist to keep market participants safe from financial fraud and to help participants to manage their investment risk. There are many reasons why investors should understand the roles and responsibilities of both the SEC and FINRA, as well as how these regulatory bodies differ.

What Is the Financial Industry Regulatory Authority (FINRA)?

FINRA is a government-authorized, not-for-profit organization that oversees U.S. broker-dealers. The organization’s purpose is to protect investors and uphold the integrity of financial markets to ensure they operate fairly. FINRA oversees hundreds of thousands of brokers throughout the U.S., and monitors billions of daily market events.

The SEC supervises FINRA in writing and enforcing investing rules that all registered broker-dealers in the U.S. must follow. FINRA makes sure that these firms comply with these rules, as it facilitates market transparency and educates investors.

💡 Quick Tip: One of the advantages of using a margin account, if you qualify, is that a margin loan gives you the ability to buy more securities. Be sure to understand the terms of the margin account, though, as buying on margin includes the risk of bigger losses.

FINRA Regulates Margin Accounts

FINRA also regulates margin accounts, which involve a customer borrowing funds from a firm to make trades. Under FINRA margin requirements, some securities cannot be purchased on margin, in which case a cash account must be used to deposit 100% of the purchase price.

FINRA rules require traders to have 25% or more of the current market value of securities in the account, otherwise they may be required to deposit more funds or securities to meet the 25% threshold. If this requirement is not met, the firm may need to liquidate the securities to bring the account to the required level.

What Is the Securities and Exchange Commission (SEC)?

The SEC is a market regulator whose purpose is to protect investors, maintain fair markets, and facilitate ways for businesses to access capital. This regulatory body consists of 11 regional offices and 6 divisions. It requires public companies, asset managers, and investment professionals to disclose important financial information, so investors are equipped to make the best investment decisions.

The SEC will also enforce federal securities laws to keep lawbreakers accountable in the name of protecting investors. In order to maintain fair and efficient markets, the SEC monitors the market and adjusts rules and regulations according to the evolving market environment.

💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

FINRA vs the SEC

Both institutions were created to protect investors against investment fraud and maintain the integrity of U.S. financial markets, but there are differences between these regulatory agencies.

How are FINRA and the SEC Different?

The SEC was created under the Securities Exchange Act of 1934 and one of its responsibilities is to oversee FINRA, which was created in 2007. FINRA is a self-regulatory organization that oversees and regulates its member’s actions. Unlike the SEC, FINRA is not mandated by the U.S. government. Rather, it’s a private, or self-regulatory organization (SRO) consisting of the registered broker-dealers that FINRA oversees.

The SEC, on the other hand, focuses more on protecting the individual investor. The SEC was born at the advent of the Great Depression in 1929 with the goal of restoring investors’ confidence in financial markets, as well as enforcing the rules. FINRA’s role is narrower. It revolves around regulating brokerage firms and handles the testing and licensing requirements, such as the series 7 exam. All broker dealers must be licensed and registered by FINRA.

How They Are Similar

Both FINRA and the SEC are responsible for protecting investors. Both organizations play important roles in upholding the integrity of the U.S. financial system and take action to protect the public from fraud and other financial bad practices. And both agencies offer tools and insights that help educate investors about how to secure their financial future.

The SEC is the ultimate regulatory watchdog of financial markets, and FINRA regulates the securities industry by overseeing stockbrokers. The work that comes out of the SEC and FINRA helps these agencies to function smoothly. The SEC reviews FINRA’s regulatory work — like managing required industry examinations and inspecting securities firms — which is vital to protecting investors and monitoring financial markets.

FINRA vs the SEC: A Quick Comparison

	FINRA	The SEC
What Is It?	A government-authorized not-for-profit that oversees U.S. broker dealers (BDs)	A U.S. government agency; ultimate regulatory watchdog of financial markets
What is it’s purpose?	Both uphold integrity of financial markets; maintain fair/ orderly markets; specific regulator for margin accounts	Focuses more on protecting individual investors; created to restore investors’ confidence in financial markets; helps firms to access capital
When was it created?	Created in 2007	Created with the Securities Exchange Act of 1934
Relationship with U.S. Government	Not mandated by U.S. government; a private SRO; consists of registered BDs	A U.S. government agency; born of Great Depression,1929
Function?	Enforces rules; but narrower role than SEC’s; regulates BDs; manages testing/ licensing requirements (e.g., series 7 exam); all BDs must be licensed by FINRA	Enforces rules; oversees FINRA; creates and enforces securities laws
Public resources?	Yes, offers tools and insights that help educate investors about how to secure their financial future	Yes, offers tools and insights that help educate investors about how to secure their financial future

How to Avoid Trouble With FINRA and the SEC

The best way to avoid trouble with FINRA and the SEC is to abide by their rules and regulations. And, if you give your money to an investment or financial professional to manage, you also may want to confirm that this professional is registered with the SEC and licensed to do business in your particular state. It also could be worthwhile to research whether they have ever been disciplined by the regulatory agencies, or if there are any prior complaints against these professionals.

Cash Accounts vs Margin Accounts

Two popular accounts that are typically opened by market participants are either cash accounts or margin accounts. Each type of account comes with its own regulations. With margin accounts — which are regulated by FINRA along with other financial institutions — you have the ability to borrow funds, but with a cash account, you cannot borrow funds.

For investors using cash accounts to purchase securities, there are regulations to abide by. To avoid violations, remember that you can’t borrow funds from your brokerage firm to pay for transactions in your cash account. Transactions using borrowed funds can only be made in a margin account.

The Takeaway

The SEC and FINRA exist to manage U.S. financial markets with investor protection top of mind. Their rules and regulations can adjust according to how the market is evolving. Understanding their mandates and goals is a great tool for investors to understand their rights as market participants in the event they fall victim to fraud.

If you’re an experienced trader and have the risk tolerance to try out trading on margin, consider enabling a SoFi margin account. With a SoFi margin account, experienced investors can take advantage of more investment opportunities, and potentially increase returns. That said, margin trading is a high-risk endeavor, and using margin loans can amplify losses as well as gains.

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FAQ

Does FINRA approve SEC rules?

No. The SEC is the oversight authority over FINRA, not the other way around.

Is FINRA part of the US federal government?

No. FINRA is an independent, private entity, while the SEC is a government-mandated organization.

Does FINRA report to the SEC?

FINRA is a self-regulatory organization that operates under the purview of the SEC.

Photo credit: iStock/damircudic

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

Jun

2024

Cross Margin and Isolated Margin in Trading

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

There are two common ways to use margin in a trading account: Cross margin and isolated margin. Cross margin involves margin that is shared between open positions. Isolated margin, on the other hand, is margin assigned to a single position that is restricted from being shared.

Cross margin may help prevent quick liquidations and has a better capability to withstand portfolio losses. Isolated margin offers better flexibility in that other portfolio holdings will not be affected if a single position is liquidated.

What Is Cross Margin?

Cross margin was introduced in the late 1980s as a way to reduce systematic risk in the market and to help traders better manage their portfolios when engaging in margin trading.

At the institutional level, cross margin offsets the value of hedged positions maintained by firms at multiple clearinghouses. Cross margining recognizes intermarket hedged positions, thus it allows for reduced initial margin requirements, fewer margin variations, and smaller net settlements.

For individual traders, cross margin provides more leeway in how open positions in a portfolio move. Cross margin takes excess margin from one margin account and gives it to another to satisfy maintenance margin requirements. That sharing of margin allows the trader to use all available margin balances across their accounts.

How Does Cross Margin Work?

Cross margin is not a simple calculation, and it runs on sophisticated algorithms. By sharing margin across accounts, traders can access more exposure without depositing more capital. Clearinghouses, central counterparties, and brokers determine cross margin amounts and automatically move margin between accounts that have registered for the service.

Traders might prefer cross margining, as a single losing position might not be liquidated quickly when market conditions change. Excess margin is transferred from another account to meet a minor shortfall in minimum maintenance. Cross margin helps to avoid quick margin calls and forced liquidations.

How to Use Cross Margin

Cross margin is best used when a trader has multiple margin trading accounts. A cash account and margin account work differently, and cross vs. isolated margin only apply to the latter type. For traders concerned about a single position being stopped out, it is generally better for them to use cross margin vs. isolated margin, as the former is a tool to help prevent unnecessary forced liquidations. So, a trader must trade with a broker who offers this service.

Volatile markets demonstrate the benefits of cross vs. isolated margin. With cross margin, when there are extreme movements in single securities, it is hard to keep a handle on individual positions’ margin requirements. Cross margining can calculate amounts automatically and move excess margin to other accounts that need it.

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What Is Isolated Margin?

Isolated margin is the margin assigned to a single position that is restricted to a specific amount. When the allocated margin drops below an unrealized profit and loss threshold or the maintenance margin requirement, the position is automatically liquidated.

The upshot is that other positions in the account are not affected. Isolated vs. cross margin tends to offer better flexibility because it can divide the trader’s funds, but stop-outs can happen quickly in volatile markets. Isolated margin vs. cross margin are different from each other, and both are used in crypto trading. It’s important to know what decentralized exchanges are when using either margin type when buying and selling crypto.

How Does Isolated Margin Work?

Isolated margin works by setting aside a margin amount for a single position. Volatile and speculative positions are sometimes good candidates for the use of isolated margin. It can be helpful when you don’t want other portfolio holdings to be impacted by a change in the value or margin requirements from that single position.

How to Use Isolated Margin

Traders have the flexibility to adjust their isolated margin amounts, which can be useful when managing their portfolio positions. You should consider isolated margin when you want more flexibility with a single position and seek to restrict a potential loss to only a small piece of your account. Isolated vs. cross margin can also require more nimble attention to the market, as you might need to actively adjust the isolated margin amount.

Cross- vs Isolated-Margin Compared

Let’s review the similarities and differences in cross vs. isolated margin. In general, cross margin is preferable for long-term strategies, as market- and single-asset volatility could always strike. Cross margin helps portfolios endure volatility with fewer automated stop-outs. The downside is that if there is an extremely volatile event, and liquidations occur, then total portfolio losses could be severe.

Similarities

Initial and maintenance margin rules apply to your account whether you use cross margin or isolated margin. The two strategies help to reduce the risk that your overall portfolio will experience fast liquidations.

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Differences

The key difference between the two is that cross margin shares margin between positions and accounts. This can be a helpful feature for long-term investors and during periods of market volatility. Overall, cross margin can be a better risk-management tool for complex portfolios that consist of cryptocurrencies, options, and other derivatives.

Cross Margin	Isolated Margin
Margin shared between open positions	Restricts margin to single positions
Reduces the risk of liquidations	Tighter liquidation thresholds — more stop-outs possible
Ideal when used with intermarket hedged positions, as margin requirements can be offsetting	Traders can actively manage margin amounts on single positions

Advantages and Disadvantages of Cross Margin

There are advantages and disadvantages of cross margin — here’s a comparison:

Cross Margin Advantages	Cross Margin Disadvantages
The entire portfolio can be used to margin a position, as excess margin is transferred from one position to another	Cross margin amounts cannot be adjusted like isolated margin amounts can
The available balance can be added to isolated holdings	Higher liquidation total portfolio losses if the market moves against the trader in an extreme way
Useful in a volatile market to avoid quick stop-outs	One position change can negatively impact other holdings

Advantages and Disadvantages of Isolated Margin

Similarly, there are upsides and drawbacks to isolated margin:

Isolated Margin Advantages	Isolated Margin Disadvantages
Liability is limited to the initial margin posted	Excess margin won’t be transferred to a losing position
Ideal for a single speculative position	Volatility can cause fast liquidations
Dividing funds between assets can reduce risk of major loss across a portfolio	Leverage can be adjusted quickly

The Takeaway

Cross margining is a feature that increases a firm’s or individual trader’s liquidity and trading capability by reducing margin requirements and lowering net settlement values. It provides flexibility when owning many positions. Isolated margin is the margin assigned to just one position — if it is liquidated, the account positions are not affected. Conversely, isolated margin is margin assigned to a single position that is restricted from being shared.

It’s important that traders who engage in margin trading understand the concept of cross- vs. isolated margin. If you feel like you’re in over your head while trading on margin, it may be a good idea to consult with a financial professional for guidance.

Get one of the most competitive margin loan rates with SoFi, from 4.75% to 9.50%*

FAQ

How is cross margin calculated?

In options trading, cross margin is calculated by clearinghouses and their clearing members, including prime brokerages that offer margin services. At the end of each trading day, organizations such as the Intercontinental Exchange and the Options Clearing Corporation (OCC) perform routing calculations and run reports for their clearing members.

Is isolated margin the same as isolated leverage?

Isolated margin and isolated leverage are similar concepts. Isolated leverage is sometimes employed in cryptocurrency trading. In isolated leverage mode, each cryptocurrency pair has a specific isolated margin account. Each margin account can only use margin on a specific trading pair.

What is the main benefit of cross margin?

Cross margining is when excess margin is transferred to another margin account to satisfy maintenance margin requirements. It allows traders to use their available margin balances across all their accounts. It makes it possible to have more exposure without extreme risk of liquidation should the market move against the trader.

Photo credit: iStock/Mirel Kipioro

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.

¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.
SOIN-Q224-1912605-V1

Jun

2024

How to Invest in Wind Energy

By Michael Flannelly | Growing Wealth, invest, Investing | Comments Off

Investing in wind energy involves putting money into companies or funds focused on some aspect of the wind energy industry. Individuals can invest in the wind energy industry directly by investing in companies that operate wind farms or indirectly by putting money into companies that manufacture wind turbines or components.

Wind energy is one of the cornerstones of the renewable energy industry, providing a cost-effective source of electricity generation. As more attention is paid to the effects of climate change and the need to reduce dependence on fossil fuels, many investors are turning to wind energy investments.

What Are Wind Energy Investments?

Wind energy investments are financial stakes in companies and projects focused on generating electricity through wind power. Wind turbines, sometimes called windmills, harness this power by collecting the energy created by wind and converting it into electricity. Wind energy is often divided into two market segments, distributed wind and utility-scale wind.

💡 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.

Distributed Wind Market Segment

The distributed wind market is usually made up of smaller-scale projects, where wind turbines are used to generate electricity for homes, businesses, and even entire communities.

Utility-scale Market Segment

Utility-scale wind energy, in contrast, consists of turbines that generate more than 100 kilowatts of energy. The power generated by utility-scale wind projects is added to the electrical grid. Companies involved in utility-scale wind energy draw the most interest from individual investors.

Utility-scale wind energy projects can be land-based, where a group of wind turbines is grouped in a wind farm on land. Offshore wind farms built off the coast are another type of utility-scale wind energy, taking advantage of powerful ocean winds to generate large amounts of energy.

Individuals can invest in the wind energy industry by putting money into companies involved in some portion of the wind energy industry or, more rarely, by investing in specific wind energy projects.

Increased Popularity

Wind energy investments, and other socially responsible investments, have grown in popularity in recent years as the focus on the need for sustainable energy grows. Because they rely on wind power rather than fossil fuels, these investments and projects cut down on emissions and pollution.

Further, wind energy is becoming more common because of declining costs, technological improvements, and government tax incentives. In the United States, wind power supplied more than 20% of all electricity to 12 states as of 2022, and in 2023, U.S. wind generation totaled more than 425,000 gigawatt hours of power.

3 Ways to Invest in Wind Energy

Investors can invest in wind energy by putting money into the stocks and bonds of companies in the wind energy industry. Mutual funds and exchange-traded funds (ETFs) with wind energy or renewable energy-focused strategies are also potential investment vehicles for those interested in adding wind energy to their portfolio.

Regardless of the type of investment, investors need to remember that many companies and funds are diversified, meaning that they may be involved in sectors other than wind energy . For investors that want to invest in purely wind energy companies or funds, it’s essential to do research into potential investments.

💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

1. Stocks

Investors can put money into various publicly-traded companies involved in some aspect of the wind energy industry. These companies may include wind farm operators, which own and operate wind turbines to produce energy for customers and end-users, and manufacturers of turbines and other components of wind farms. Some utility companies may also be an option for wind energy investors.

Some companies involved in the wind energy industry include:

• Orsted : The Denmark-based power company is the largest developer of offshore wind power in the world.

• Vestas Wind Systems : The Denmark-based company is one of the world’s largest manufacturers of wind turbines

• GE Vernova : The US-based company that was spun-off from GE’s main business in 2024, specializing in energy equipment manufacturing.

• NextEra Energy : The American energy company has 119 wind farms in operation

• Alliant Energy : The American energy company owns and operates wind farms across Wisconsin and Iowa

2. Mutual Funds and ETFs

Investors who don’t want to pick individual stocks to invest in can always look to mutual funds and exchange-traded funds (ETFs) that provide exposure to wind energy companies and investments. A growing number of index funds invest in a basket of companies involved in the wind energy industry.

These funds allow investors to diversify their holdings by investing in one security. However, not all wind energy funds follow the same criteria and may focus on different aspects of wind energy. These funds may also have holdings in traditional energy and utility companies that only are partially involved in the wind energy industry.

3. Bonds

The bonds of corporations involved in wind energy business practices can be a good option for investors interested in fixed-income securities. Green and climate bonds are bonds issued by companies to finance various environmentally-friendly projects and business operations.

Additionally, government bonds used to fund wind energy projects can be an option for fixed-income investors. These bonds may come with tax incentives, making them a more attractive investment than traditional bonds.

💡 Recommended: How to Buy Bonds: A Guide for Beginners

Benefits and Risks of Investing in Wind Energy

The trend of investing in renewable energy sources like wind energy is rising as the public becomes more aware of the environmental and economic benefits of doing so. However, before investing in this sector, there are benefits and risks to consider.

Benefits

A benefit of investing in wind energy is that it is a renewable resource, so it will never run out as long as the sun shines and the wind blows. Additionally, wind energy is cost-effective, and tends to be one of the lowest-priced energy sources. And because the power generated from wind farms is sold at a fixed price over a long period of time, it may provide reliable returns for investors — though there are no guarantees.

Wind power is also a clean energy source, meaning it does not produce emissions that can harm the environment like fossil fuels and power plants. This can be attractive for investors focused on building a portfolio of green investments.

Risks

One primary risk of investing in wind energy is that it is a relatively new technology, so there is little data available on its long-term performance. Wind energy and all renewable energy sources must compete with traditional energy sources like oil, coal, and natural gas. Because of this, the long-term outlook for wind energy investments may change. Wind energy investments may be harder to stomach for investors who are not comfortable with the risk of newer technologies.

Additionally, wind energy projects may get pushback from communities where companies want to operate.

How to Build a Wind Energy Portfolio

If you are ready to start investing and want to build a portfolio of wind energy investments, you can follow these steps:

Step 1: Open a brokerage account

You will need to open a brokerage account and deposit money into it. Once your account is funded, you can buy and sell stocks and other securities.

Step 2: Pick your assets

Decide what type of investment you want to make, whether in a company’s stock, a wind energy-focused ETF or mutual fund, or bonds.

Step 3: Do your research

It’s important to research the different companies and funds and find a diversified selection that fits your desires and priorities.

Step 4: Invest

Once you’re ready, make your investment and then monitor your portfolio to ensure that the assets in your portfolio have a positive social and financial impact.

It is important to remember that you should diversify your portfolio by investing in various asset classes. Diversification may help to reduce your risk and maximize your returns.

The Takeaway

Wind energy is a renewable resource that is becoming increasingly popular and is expected to grow significantly in the coming years. This makes it a potential growth investment for those looking to diversify their portfolios and reduce their reliance on traditional energy sources.

While the outlook for wind energy is promising, investments in wind energy may not always produce positive returns. When considering a wind energy investment, it is important to do your research and understand the risks and rewards involved with this nascent industry.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

Photo credit: iStock/XtockImages

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.

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 emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

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.

¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.
SOIN-Q224-1912261-V1

Jun

2024

How to Invest in the Solar Energy Sector

By Michael Flannelly | Growing Wealth, invest, Investing | Comments Off

Solar energy investing focuses on companies or funds focused on some aspect of the solar energy industry. You can invest in the solar energy industry by putting money into companies involved in some part of the solar power supply chain, including manufacturers of solar panels and operators of solar energy facilities. Investors can also profit from solar energy by installing solar panels on their homes.

Solar energy is one of the most popular and growing renewable energy sources. There are several ways to invest in solar energy for investors interested in supporting an industry that may help reduce dependence on traditional fossil fuels and help combat climate change.

What Is Solar Investing?

Solar investing generally refers to investing in companies that produce or sell solar energy products. This can include solar panel manufacturers, installers, or companies operating solar energy facilities. Investors usually invest in solar through traditional products like stocks, mutual funds, and exchange-traded funds (ETFs).

Another common type of solar investing is the installation of solar panels on a home or business. Solar panels can be used to power all or part of a home or business, and the electricity generated can offset the cost of an energy bill. Investors can also use solar panels to generate income by selling their electricity back to a utility company.

💡 Recommended: Beginner’s Guide to Sustainable Investing

What Is Solar Energy?

Solar energy is a form of renewable energy that comes from the sun; it is an abundant source of energy that can be used to generate electricity, heat water, and provide other forms of energy for homes, businesses, and communities.

Solar energy is generally generated by solar panels, which are made up of photovoltaic (PV) cells that convert sunlight into electricity. Solar panels can be installed on an individual’s home or business or arrayed across open spaces that experience strong sunlight.

Though solar panels are common for most consumer and business applications, thermal solar is another type of solar energy. Thermal solar energy utilizes mirrors to reflect and concentrate sunlight onto receivers that collect the energy and convert it to heat, which can then be used to produce electricity or stored for later use. It is used primarily in large power plants.

Solar energy is considered a clean and sustainable energy source that can help reduce the dependence on fossil fuels to combat climate change. Analysts expect renewable energy sources like solar will make up a more significant portion of all energy generation in the coming decades.

Benefits and Risks of Investing in Solar

The trend of investing in renewable energy sources like solar energy is rising as the public becomes more aware of the environmental and economic benefits. However, before investing in this sector, there are benefits and risks to consider.

Benefits

A benefit of investing in solar is that it provides a renewable energy source that can help reduce your carbon footprint. This can be appealing to investors interested in environmentally friendly and socially responsible investing.

Solar energy is also sustainable, especially compared to fossil fuels and traditional energy sources. The amount of oil and coal in the ground is limited, but the sun, hopefully, isn’t going anywhere. Investors interested in investments with long-term growth potential may prefer solar energy to other energy stocks.

Additionally, if you install solar panels on your home, it can increase the value of your property.

Risks

A primary risk of solar energy is that it is intermittent, meaning that solar energy is only generated when the sun is shining. Solar energy is only available during daylight, and a cloudy day may interfere with energy production. While this is a problem, technology is advancing so solar energy can be more adequately captured and stored during periods of extreme sunshine.

Another downside to solar energy is that many technologies in the sector require rare earth materials in the production process. The solar industry must compete with other industries for these scarce resources. Because there can be supply and demand issues for these commodities, it can increase costs for solar energy producers.

And though solar energy is a renewable resource, that doesn’t mean it doesn’t create any harm to the environment. The materials used in solar technologies are difficult to dispose of and recycle, which cuts into the sustainability claims of solar energy investments.

💡 Recommended: What Every New Investor Should Know About Risk

4 Ways to Invest in Solar Energy

Investors can invest in solar energy by putting money into the stocks and bonds of companies in the solar energy industry. Mutual funds and exchange-traded funds (ETFs) with solar energy or renewable energy-focused strategies are also potential investment vehicles for those interested in adding solar energy to their portfolio.

Regardless of the type of investment vehicle, investors need to remember that many companies and funds are diversified, meaning they may be involved in sectors other than solar energy. For investors that want to invest in purely solar energy companies or funds, it’s essential to do research into potential investments.

Stocks

Investors can put money into various publicly-traded companies involved in some aspect of the solar energy industry. Solar energy companies may include manufacturers of components for solar technologies, installers of solar panels, and firms that operate solar energy facilities.

Some companies involved in the solar energy industry include:

• Enphase Energy (ENPH): This company designs and manufactures technologies that turn sunlight into energy

• SolarEdge Technologies (SEDG): This firm creates products that help photovoltaic systems convert solar energy into power

• First Solar (FSLR): This company is a manufacturer of solar panels and a provider of utility-scale photovoltaic power plants

• Sunrun (RUN): This firm is a leading provider of residential solar panels

• Daqo New Energy (DQ): This company manufactures monocrystalline silicon and polysilicon, primarily for use in solar photovoltaic systems

Mutual Funds and ETFs

Investors who don’t want to pick individual stocks to invest in can always look to mutual funds and exchange-traded funds (ETFs) that provide exposure to solar energy companies and investments.

Several index funds invest in a basket of companies in the solar energy industry. These funds allow investors to diversify their holdings by investing in one security. However, not all solar energy funds follow the same criteria and may focus on different aspects of solar energy. These funds may also have holdings in traditional energy and utility companies that only are partially involved in the solar energy industry.

Bonds

The bonds of corporations involved in solar energy business practices can be a good option for investors interested in fixed-income securities. Green and climate bonds are bonds issued by companies to finance various environmentally-friendly projects and business operations.

Additionally, government bonds used to fund solar energy projects can be an option for fixed-income investors. These bonds may come with tax incentives, making them a more attractive investment than traditional bonds.

Install Solar Panels

As mentioned above, investors who want to profit from solar energy can purchase solar panels and install them on a home or business. This may be an appealing way to save money on your energy bills, generate income by selling electricity to a utility company and helping reduce your carbon footprint.

How to Start a Solar Investment Portfolio

If you are ready to start investing and want to build a portfolio of solar energy investments, you can follow these steps:

Step 1: Open a brokerage account

You will need to open a brokerage account and deposit money into it. Once your account is funded, you can buy and sell stocks and other securities. SoFi Invest® offers an active investing platform where you can start building your solar energy portfolio.

Step 2: Pick your assets

Decide what type of investment you want, whether in a company’s stock, a solar energy-focused ETF or mutual fund, or bonds.

Step 3: Do your research

It’s important to research the different companies and funds and find a diversified selection that fits your desires and priorities.

Step 4: Invest

Once you’re ready, make your investment and then monitor your portfolio to ensure that the assets in your portfolio have a positive environmental and financial impact.

It is important to remember that you should diversify your portfolio by investing in various asset classes. Diversification may help to reduce your risk and maximize your returns.

The Takeaway

Solar investing has become increasingly popular in recent years as the cost of solar panels has fallen and the technology has become more efficient. Solar panels are now available for a fraction of the cost of traditional electric power, and they are becoming more efficient at converting sunlight into electricity.

Investing in the solar energy industry may be a way to profit from the growth outlook for solar energy. However, it’s necessary to do your homework before investing in any solar company or fund or installing solar panels on your home.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

Photo credit: iStock/deepblue4you

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

Jun

2024

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Earnings Call: Definition, Importance, How to Listen

By Michael Flannelly | Growing Wealth, invest, Investing | No Comments

Earnings calls and earnings reports recap a company’s quarter or fiscal year, giving investors critical information as to how a company is functioning and faring. Understanding what’s going on with stocks can be tricky for both new and seasoned investors. It’s not always clear where you can turn for accurate information that will help with investment decisions — that’s why earnings calls or reports may be helpful.

But an earnings report doesn’t tell the whole story. Therefore, companies will hold earnings calls to provide context and backstory behind the data in an earnings report to help investors make informed decisions.

What Is an Earnings Call?

An earnings call is a conference call between the management of a public company and any interested outside party — usually investors, analysts, and business reporters — to discuss the company’s financial results and future outlook. Earnings calls are generally held quarterly, in the form of a teleconference or webcast; anyone can listen to an earnings call.

The earnings call often comes on the heels of the release of an earnings reports and covers a given reporting period, typically a fiscal quarter or fiscal year.

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The Securities and Exchange Commission (SEC) requires that public companies disclose certain financial information regularly and on an ongoing basis. Companies must file Form 10-Q quarterly reports during the first three fiscal quarters of the year. A 10-Q includes unaudited financial statements and provides the government and investors with a continuing account of the company’s financial position throughout the year.

For the fourth quarter of the year, a company will file a Form 10-K, an annual report that shares audited financial statements, a look at the company’s business overall, and financial conditions over the previous fiscal year. The financial information and metrics included on these reports, like earnings per share, is discussed during an earnings call.

What Is the Importance of Earnings Calls?

An earnings call is important because it allows a company’s management to discuss pertinent financial information and a company’s outlook.

Publicly-traded companies are not required to hold earnings calls; they are only required to release the details of their financial performance in a Form 10-Q or Form 10-K. However, most public companies have quarterly conference calls to keep shareholders up to date with the latest financial developments and provide context beyond the earnings data.

Earnings calls are also important for investors, especially those practicing fundamental analysis. These calls help long-term investors decide whether or not to invest in or continue investing in a company. For short-term traders, earnings calls may be helpful to capitalize on short-term volatility in a stock’s price immediately following an earnings call.

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The Structure of an Earnings Call

A company will announce upcoming earnings calls several days or even several weeks before the event. The company will usually issue a press release containing dial-in or webcast access information for stakeholders interested in participating in the call.

Earnings calls are generally scheduled in the morning, before the stock market’s opening bell, or in the afternoon, following the end of the day’s trading. These calls occur shortly after an earnings report is made public.

Safe Harbor Statement

When the call begins, a company representative will likely share a safe harbor statement, which is a disclaimer about some of the comments executives will make. Specifically, some statements might be “forward-looking” and discuss future revenue, margins, income, expenses, and overall business outlook. Because no company can predict the future, the SEC requires that each warns investors that forward-looking statements may differ from actual results and trends.

Overview of Financial Results

The earnings call is usually led by the CEO, CFO, or other senior executives. During the call, these executives will deliver prepared statements covering financial results and the company’s performance for the reporting period.

This section of the call allows company leaders to give a more in-depth look at the company from their own eyes beyond the data found in the earnings reports. Executives may discuss market trends or even unpredictable factors that could influence how the company moves forward. Management will also likely share risks and their plans to take them on.

Question and Answer Session

At the end of the call, there may be a chance for investors and analysts to ask questions about the financial results the company presents. However, not everyone will get to ask a question. The company’s management may answer these questions, or they may decline or defer answering until they have the correct information to make an accurate response.

Preparing for an Earnings Call as a Shareholder

Before listening in on an earnings call, it may help to research the company and its earnings history and listen to previous earnings calls. Here’s additional information to know how to listen to an earnings call.

Where to Find Earnings Call Info?

Companies will send out a press release announcing when they will give an earnings call. Investors can also check the investor relations section of a company’s website for scheduled earnings calls. Additionally, some financial news websites may keep calendars of expected upcoming earnings reports and calls investors can check to stay current.

Many companies will post audio from the call on their website, making it available to investors and analysts for a few weeks. Companies also frequently offer transcripts of the call to read. This is especially useful for investors who may have missed an earnings call.

Much of the information discussed in conference calls, including Forms 10-Q and 10-K, are part of the public record and searchable on the SEC’s website. To find a company’s public filings, the SEC has a searchable Electronic Data Gathering, Analysis, and Retrieval system (EDGAR).

How Long is an Earnings Call?

An earnings call usually lasts for less than an hour. However, there are no requirements for how long an earnings call should be.

What to Listen For

Investors should treat earnings calls as valuable information on a company but know that it doesn’t typically paint the complete picture of its potential performance.

Some key things investors should listen for in an earnings call are:

• How the company performed compared to analysts’ expectations

• What the company attributes its financial performance to

• Any changes in guidance for the future

• Any significant challenges or headwinds the company is facing

• Questions from analysts and how management responds to them

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Additionally, it may help to listen to the tone of the company’s executives when they are talking about the company’s performance. It isn’t quantifiable, but learning to pick up on the tone of management’s description of the company’s financials and the answers to analysts’ questions can help investors better understand the outlook for the company.

The Takeaway

Earnings calls provide investors with valuable insights into a company’s financial performance and outlook. These calls, paired with quarterly earnings reports, give investors a thorough understanding of the company, which helps with making investment decisions.

While earnings calls and earnings reports can be helpful to investors, keep in mind that they don’t tell the whole story. You’ll want to do your due diligence and further research to better inform your investment decisions, too.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

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