What can I do now to boost my retirement savings?

You can increase your retirement savings using a number of methods, such as taking advantage of employer 401(k) matches or diversifying your investments.

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Q: What’s the average retirement age in the US?

The average retirement age in the U.S. is 64, with Alaska and West Virginia having the lowest average retirement age, 61, and D.C. having the highest, 67.

Jun

2024

What Are the Average Retirement Savings By State?

By Kaitlyn Farley | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

For many Americans, not having enough saved up for retirement is a real fear. Which state you live in can have a major effect on how much you may need. Research from Personal Capital, a digital wealth manager, shows just how much your state really impacts that savings number: The state with the highest retirement savings has an average of $545,754, while the lowest had $315,160.

And that number can vary even more when you consider factors like age. Currently, the average retirement age in the U.S. is 65 for men and 63 for women, but you may find yourself retiring much later or earlier depending on which state you live in and when you start saving for retirement.

The Average Retirement Savings by State

Looking at the retirement savings average 401(k) balance by state can help you get a better idea of how much money you need to retire in your state. To find that information, Personal Capital, a financial services company, looked at the retirement accounts of its users and took the average balances by state as of September 29, 2021. This is the most recent data available. You can find out more about Personal Capital’s methodology here.

Alaska

• Average Retirement Balance: $503,822

• Rank (as of 9/29/21): 4 out of 51

Alabama

• Average Retirement Balance: $395,563

• Rank (as of 9/29/21): 36 out of 51

Arkansas

• Average Retirement Balance: $364,395

• Rank (as of 9/29/21): 46 out of 51

Arizona

• Average Retirement Balance: $427,418

• Rank (as of 9/29/21): 31 out of 51

California

• Average Retirement Balance: $452,135

• Rank (as of 9/29/21): 17 out of 51

Colorado

• Average Retirement Balance: $449,719

• Rank (as of 9/29/21): 19 out of 51

Connecticut

• Average Retirement Balance: $545,754

• Rank (as of 9/29/21): 1 out of 51 (BEST)

D.C., Washington

• Average Retirement Balance: $347,582

• Rank (as of 9/29/21): 49 out of 51

Delaware

• Average Retirement Balance: $454,679

• Rank (as of 9/29/21): 14 out of 51

Florida

• Average Retirement Balance: $428,997

• Rank (as of 9/29/21): 28 out of 51

Georgia

• Average Retirement Balance: $435,254

• Rank (as of 9/29/21): 26 out of 51

Hawaii

• Average Retirement Balance: $366,776

• Rank (as of 9/29/21): 45 out of 51

Iowa

• Average Retirement Balance: $465,127

• Rank (as of 9/29/21): 11 out of 51

Idaho

• Average Retirement Balance: $437,396

• Rank (as of 9/29/21): 25 out of 51

Illinois

• Average Retirement Balance: $449,983

• Rank (as of 9/29/21): 18 out of 51

Indiana

• Average Retirement Balance: $405,732

• Rank (as of 9/29/21): 33 out of 51

Kansas

• Average Retirement Balance: $452,703

• Rank (as of 9/29/21): 15 out of 51

Kentucky

• Average Retirement Balance: $441,757

• Rank (as of 9/29/21): 23 out of 51

Louisiana

• Average Retirement Balance: $386,908

• Rank (as of 9/29/21): 39 out of 51

Massachusetts

• Average Retirement Balance: $478,947

• Rank (as of 9/29/21): 8 out of 51

Maryland

• Average Retirement Balance: $485,501

• Rank (as of 9/29/21): 7 out of 51

Maine

• Average Retirement Balance: $403,751

• Rank (as of 9/29/21): 35 out of 51

Michigan

• Average Retirement Balance: $439,568

• Rank (as of 9/29/21): 24 out of 51

Minnesota

• Average Retirement Balance: $470,549

• Rank (as of 9/29/21): 9 out of 51

Missouri

• Average Retirement Balance: $410,656

• Rank (as of 9/29/21): 32 out of 51

Mississippi

• Average Retirement Balance: $347,884

• Rank (as of 9/29/21): 48 out of 51

Montana

• Average Retirement Balance: $390,768

• Rank (as of 9/29/21): 38 out of 51

North Carolina

• Average Retirement Balance: $464,104

• Rank (as of 9/29/21): 12 out of 51

North Dakota

• Average Retirement Balance: $319,609

• Rank (as of 9/29/21): 50 out of 51

Nebraska

• Average Retirement Balance: $404,650

• Rank (as of 9/29/21): 34 out of 51

New Hampshire

• Average Retirement Balance: $512,781

• Rank (as of 9/29/21): 3 out of 51

New Jersey

• Average Retirement Balance: $514,245

• Rank (as of 9/29/21): 2 out of 51

New Mexico

• Average Retirement Balance: $428,041

• Rank (as of 9/29/21): 29 out of 51

Nevada

• Average Retirement Balance: $379,728

• Rank (as of 9/29/21): 42 out of 51

New York

• Average Retirement Balance: $382,027

• Rank (as of 9/29/21): 40 out of 51

Ohio

• Average Retirement Balance: $427,462

• Rank (as of 9/29/21): 30 out of 51

Oklahoma

• Average Retirement Balance: $361,366

• Rank (as of 9/29/21): 47 out of 51

Oregon

• Average Retirement Balance: $452,558

• Rank (as of 9/29/21): 16 out of 51

Pennsylvania

• Average Retirement Balance: $462,075

• Rank (as of 9/29/21): 13 out of 51

Rhode Island

• Average Retirement Balance: $392,622

• Rank (as of 9/29/21): 37 out of 51

South Carolina

• Average Retirement Balance: $449,486

• Rank (as of 9/29/21): 21 out of 51

South Dakota

• Average Retirement Balance: $449,628

• Rank (as of 9/29/21): 20 out of 51

Tennessee

• Average Retirement Balance: $376,476

• Rank (as of 9/29/21): 43 out of 51

Texas

• Average Retirement Balance: $434,328

• Rank (as of 9/29/21): 27 out of 51

Utah

• Average Retirement Balance: $315,160

• Rank (as of 9/29/21): 51 out of 51 (WORST)

Virginia

• Average Retirement Balance: $492,965

• Rank (as of 9/29/21): 6 out of 51

Vermont

• Average Retirement Balance: $494,569

• Rank (as of 9/29/21): 5 out of 51

Washington

• Average Retirement Balance: $469,987

• Rank (as of 9/29/21): 10 out of 51

Wisconsin

• Average Retirement Balance: $448,975

• Rank (as of 9/29/21): 22 out of 51

West Virginia

• Average Retirement Balance: $370,532

• Rank (as of 9/29/21): 44 out of 51

Wyoming

• Average Retirement Balance: $381,133

• Rank (as of 9/29/21): 41 out of 51

Why Some States Rank Higher

Many factors are involved when determining why some states have higher rankings than others. For the sake of simplifying the data, different tax burdens and cost of living metrics weren’t considered in the analysis, which can make the difference between the highest and lowest ranking state retirement accounts look far wider than they may actually be.

Likewise, not considering the average cost of living by state could explain why states like Hawaii, D.C. and New York aren’t in the top five states for retirement. These states have some of the highest costs of living.

So, when planning your retirement and determining where your retirement savings may stretch the furthest, you may also want to consider tax burdens and cost of living metrics by state instead of just considering the average retirement savings by state.

💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.

How Much Do You Need to Retire Comfortably in Each State?

How much you need to retire comfortably is largely determined by a state’s cost of living, but it will vary even more based on your own personal financial situation, the retirement lifestyle you’re aiming to pursue, and anticipated retirement expenses.

As such, you may want to use a retirement calculator or even talk with a financial advisor to help you determine just how much you should be saving for retirement based on your lifestyle, what you expect to spend in retirement, where you want to live, your current and projected financial situation, and a slew of other factors.

Recommended: How to Choose a Financial Advisor

By Generation Breakdown

Unsurprisingly, the amount Americans have saved for retirement varies a lot by generation. Personal Capital’s report reveals that generally, younger generations have less saved up for retirement than older ones.

Gen Z

• Total Surveyed: 121,489

• Average Retirement Balance: $38,633

• Median Retirement Balance: $12,016

Millennials

• Total Surveyed: 742,108

• Average Retirement Balance: $178,741

• Median Retirement Balance: $75,745

Gen X

• Total Surveyed: 375,718

• Average Retirement Balance: $605,526

• Median Retirement Balance: $303,663

Baby Boomers

• Total Surveyed: 191,648

• Average Retirement Balance: $1,076,208

• Median Retirement Balance: $587,943

Recommended: Average Retirement Savings by Age

The Takeaway

The average 401(k) balance by state varies quite a bit, and myriad factors can affect how much you’ll personally need to retire comfortably. Your state’s costs of living, the age you start saving for retirement, and your state’s tax burdens will all play a role.

As you’re taking a look at your retirement savings, you may want to explore additional options beyond a 401(k), such as opening an IRA or setting up a brokerage account. Taking the time now to see what options might be right for you could be time well spent when it comes to reaching your financial goals.

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.

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

FAQ

Have more questions about retirement? Check out these common concerns about retirement and retirement savings.

How much do Americans have saved up for retirement?

How much the average American has saved for retirement varies greatly by state and age. Connecticut has the highest average retirement savings, $545,754, and Utah has the lowest, $315,160. In general, younger generations have far less saved up than older generations, with Gen Zers averaging $38,633 and Boomers averaging $1,076,208.

What’s the average retirement age in the US?

The average retirement age in the U.S. is 65 for men and 63 for women. Alaska and West Virginia have the lowest average retirement age, 61, and D.C. has the highest, 67.

What can I do now to help build my retirement savings?

To help build your retirement savings you could take such actions as participating in your workplace 401(k) and taking advantage of the employer 401(k) match if there is one. You might also want to consider opening an IRA or investing in the market. Weigh your options carefully and consider the possible risk involved to help determine what savings and investment strategy is best for you.

Photo credit: iStock/izusek

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.

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

Jun

2024

Guide to IRA Accounts With Limited Margin

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

An IRA account with limited margin is a retirement account that allows investors to trade securities with unsettled cash. It’s a more lenient structure versus a cash account, where you must wait for trades to settle before using the money for further trading. But an IRA account with limited margin isn’t a true margin account in that you can’t use leverage.

Nonetheless, an IRA account with limited margin offers a few advantages, including the ability to defer or avoid short-term capital gains tax, and you’re protected against good faith violations. That said, there are still restrictions, so before setting one up, it may be beneficial to learn more about how these accounts work.

What Is an IRA Account With Limited Margin?

An IRA account that may have limited margin — often called simply a limited margin IRA — presents a more flexible option to invest for retirement than a traditional IRA. These types of IRAs may allow you to trade with unsettled funds, meaning that if you close a position you don’t have to wait the standard two days after you trade, you can use those funds right away.

There may also be tax benefits. In a traditional IRA margin account, capital gains taxes are deferred until funds are withdrawn. This is similar to a regular IRA, where you don’t pay taxes on contributions or gains until you withdraw your money.

You may also be able to use limited margin in a Roth IRA, and there may be even more tax benefits when using limited margin in a Roth IRA. You don’t pay any capital gains because Roth accounts are tax-free, since Roth contributions are made with after-tax money.

As noted, an IRA account with limited margin may allow investors to trade with unsettled cash. However, a limited margin IRA is just that — limited. It is not a true margin account, and does not allow you to short stocks or use leverage by borrowing money to trade with margin debits. In that sense, it is different from margin trading in a taxable brokerage account.

You may be able to use limited margin in several IRA types. In addition to having margin IRAs with traditional and Roth accounts, rollover IRAs, SEP IRAs, and even small business SIMPLE IRAs are eligible for the margin feature. While mutual funds are often owned inside an IRA, you cannot buy mutual funds on margin.

💡 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.

How Does Limited Margin Work?

Limited margin works by allowing investors to trade securities without having to wait for funds to settle. You can think of it like an advance payment from positions recently sold.

The first step is to open an IRA account and request that the IRA margin feature be added. Once approved, you might have to request that your broker move positions from cash to margin within the IRA. This operational task will also set future trades to the margin type.

IRAs with limited margin will state your intraday buying power — you should use this balance when day trading stocks and options in the IRA.

An advantage to trading in limited margin IRAs is that you can avoid or defer capital gains tax. Assuming you earn profits from trading, that can be a major annual savings versus day trading in a taxable brokerage account. If you trade within a pre-tax account, such as a traditional or rollover IRA, then you simply pay income tax upon the withdrawal of funds. When using Roth IRA margin, your account can grow tax-free forever in some cases.

The drawback with an IRA with limited margin versus day trading in a taxable account is you are unable to borrow money from your broker to create margin debits. You are also unable to sell securities short with an IRA with limited margin account. So while it is a margin account, you do not have all the bells and whistles of a full margin account that is not an IRA.

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Borrow against your current investments at just 4.75% to 9.50%* and start margin trading.

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Who Is Eligible for an IRA With Limited Margin?

Some brokerage firms have strict eligibility requirements such as a minimum equity threshold (similar to the minimum balances required in full margin accounts). When signing up, you might also be required to indicate that your investment objective is the “most aggressive.” That gives the broker a clue that you will use the account for active trading purposes.

Another restriction is that you might not be able to choose an FDIC-insured cash position. That’s not a major issue for most investors since you can elect a safe money market fund instead.

IRA Margin Calls

An advantage to having margin in an IRA is that you can more easily avoid margin calls by not having to wait for cash from the proceeds of a sale to settle, but margin calls can still happen. If the IRA margin equity amount drops below a certain amount (often $25,000, but it can vary by broker), then a day trade minimum equity call is issued. Until you meet the call, you are limited to closing positions only.

To meet the IRA margin call, you just have to deposit more cash or marginable securities. Since it is an IRA, there are annual contribution limits that you cannot exceed, so adding funds might be tricky.

💡 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.

Avoiding Good Faith Violations

A good faith violation happens when you purchase a security in a cash account then sell before paying for the purchase with settled cash. You must wait for the funds to settle — the standard is trade date plus two days (T+2 settlement) for equity securities. Only cash and funds from sale proceeds are considered “settled funds.” Cash accounts and margin accounts have different rules to know about.

A good faith violation can happen in an IRA account without margin. For example, if you buy a stock in the morning, sell it in the afternoon, then use those proceeds to do another round-trip trade before the funds settle, that second sale can trigger a good faith violation. Having margin in an IRA prevents good faith violations in that instance since an IRA with limited margin allows you to trade with unsettled funds.

Pros and Cons of Limited Margin Trading in an IRA

Can IRA accounts have margin? Yes. Can you use margin in a Roth IRA? Yes. Should your IRA have the limited margin feature added? It depends on your preferences. Below are the pros and cons to consider with IRAs with limited margin.

Pros	Cons
You are permitted to trade with unsettled cash.	You cannot trade using actual margin (i.e. leverage).
You can avoid good faith violations.	You cannot engage in short selling or have naked options positions.
	You take on more risk with your retirement money.

The Takeaway

An IRA account with limited margin allows people investing in individual retirement accounts to trade securities a bit more freely versus a cash account. The main benefit to having an IRA with limited margin is that you can buy and sell stocks and options without waiting for lengthy settlement periods associated with a non-margin account.

But remember: Unlike a normal margin account, this type doesn’t allow you to use leverage. That means a margin-equipped IRA doesn’t permit margin trading that creates margin debit balances. You are also not allowed to have naked options positions or engage in selling shares short.

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

FAQ

Is an IRA a cash or a margin account?

An IRA can either be a cash account or a limited margin account. While a cash account only lets you buy and sell securities with a traditional settlement period, a limited margin IRA might offer same-day settlement of trades. You are not allowed to borrow funds or short sell, however.

Is day trading possible in an IRA?

Yes. You can day trade in your IRA, and it can actually be a tax-savvy practice. Short-term capital gains can add up when you day trade in a taxable brokerage account. That tax liability can eat into your profits. With a limited margin IRA that offers same-day settlement, however, you can buy and sell stocks and options without the many tax consequences of a non-IRA. The downside is that, in the case of losses, you cannot take advantage of the $3,000 capital loss tax deduction because an IRA is a tax-sheltered account. Another feature that is limited when day trading an IRA is that you cannot borrow funds to control more capital. A final drawback is that you are limited to going long shares, not short.

Can a 401(k) be a margin account?

Most 401(k) plans do not allow participants to have the margin feature. An emerging type of small business 401(k) plan — the solo brokerage 401(k) — allows participants to have a margin feature. Not all providers allow it, though. Also, just because the account has the margin feature, it does not mean you can borrow money from the broker to buy securities.

Photo credit: iStock/Drazen_

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.

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.
SOIN0124108

Jun

2024

What Is a Hostile Takeover?

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

A hostile takeover is when one entity or investor tries to take control of a company without the permission of that company’s management or board of directors. That’s why the unwelcome acquisition bid is considered ‘hostile.’

There are various ways a hostile takeover can occur. The hostile company or investor may make a tender offer to buy the other company’s shares directly from shareholders. Or they may attempt a proxy fight, where the hostile company tries to replace the other company’s board of directors.

The implications of a hostile takeover can affect investors of all stripes. If you own shares of the companies involved, the outcome of a takeover can be important for short- and long-term stock price movements.

How Hostile Takeovers Work

A hostile takeover is a type of legal acquisition in which a bidder — either another company or an investor — seeks to acquire a majority stake in the target company without the approval of the target’s board of directors. Hostile takeovers are often characterized by aggressive tactics such as proxy fights, tender offers, and open letters to company shareholders.

This aggressive action contrasts with typical acquisitions, where two companies work together to agree on a deal, and the board of directors of the target company approves of the purchase. Investors who own stock in a company that’s involved in any kind of merger or takeover need to pay attention to the motives, proposed terms, and possible outcomes.

Reasons for a Hostile Takeover

There are many reasons why a company or investor may try to take over another company. Hostile takeovers happen when a target company’s management refuses initial takeover offers, but the bidding company is persistent in its efforts to acquire the company.

Sometimes it’s because the stock market undervalues the target company’s shares, and the bidder believes that they can increase the company’s value. Other times, it may be because the bidder wants the target company’s assets, brand recognition, or market share.

If the company making the hostile takeover successfully acquires a majority of the shares, then it can gain control of the target company. Once in power, the acquiring company can make changes to the target company’s management, strategy, and operations.

In some cases, the company making the hostile takeover may take steps to increase the value of the company, such as selling off non-core assets, cutting costs, or increasing investment in research and development.

Recommended: How to Buy Stocks: A Step-by-Step Guide

Hostile Takeover Strategies

There are a few ways a company may pursue a hostile takeover. Sometimes a bidder may try to buy a significant percentage of shares of the target company on the open market, hoping to gain enough voting power to persuade the board of directors to accept a takeover offer. If that doesn’t work, the bidder uses its voting power to change management.

The bidder may also take aggressive measures, such as making open letters to shareholders or launching a public relations campaign to pressure the target company’s management to accept the offer. The most common hostile takeover tactics include:

• Tender offers: A tender offer is when the bidding company reaches out directly to the target company’s shareholders, offering to purchase shares — usually at a premium to the current market value. The bidder pursues a tender offer to bypass a company’s leadership and get enough shares to have a controlling stake in the company. Each shareholder can then decide if they want to sell the stake in the company.

• Proxy fights: A proxy fight is a battle between competing groups of shareholders to gain control of a company. In a hostile takeover, a bidder, which usually owns a portion of the target company’s stock, tries to persuade other shareholders to vote out the target company’s management. This may allow the bidder to replace the board of directors and seize control of the company.

Examples of Hostile Takeovers and Takeover Attempts

A hostile takeover usually starts when the acquiring company makes an unsolicited bid to purchase the target company. If the board of directors of the target company doesn’t approve of the proposal, they may reject the offer. The acquiring company then will pursue a hostile takeover bid by going directly to the shareholders or trying to replace the board of directors.

However, hostile takeovers don’t usually reach this conclusion. The target companies may defend themselves, causing the bidding company to drop the takeover attempt. Or the target company’s board of directors will relent and eventually agree to terms on an acquisition.

In some cases, antitrust laws or shareholder resistance can thwart a hostile takeover in its tracks.

Choice Hotels’ Attempted Takeover of Wyndham Hotels & Resorts

When Choice Hotels International, Inc. (CHH) made a hostile bid for Wyndham (WH) early in 2023, concerns arose over the potential for a monopoly, given that each company controlled multiple hotel brands and close to half a million hotel rooms.

Choice made multiple attempts to acquire Wyndham, starting in April 2023, but by December their strategy had evolved into an outright takeover. The $7.8 billion attempt did not go through, however, and Choice backed out in March of 2024, citing a lack of shareholder support.

JetBlue’s Strategy to Acquire Spirit Airlines

In March of 2024, JetBlue (JBLU) scuttled its attempted $3.8 billion acquisition of Spirit Airlines (SAVE). This marked the end of JetBlue’s protracted pursuit of the smaller budget airline, which began as a merger proposal in 2022. After Spirit rebuffed JetBlue’s advance, the situation devolved into a hostile takeover — with a twist. JetBlue hoped to prevent Spirit from joining forces with Frontier. Unfortunately, the Justice Department ruled against the takeover, and a similar fate befell the Spirit + Frontier merger as well.

Elon Musk Takes Over Twitter

In one of the more well-known hostile bids in recent years, Tesla (TSLA) CEO Elon Musk moved to take over Twitter in 2023, in a months-long process that was closely followed — and widely debated — by business and media alike.

Despite speculation that the hostile takeover would not succeed, The final $44 billion deal resulted in a complete rebranding of Twitter as X.

Sanofi’s Acquisition of Genzyme

The French healthcare company Sanofi (SNY) attempted a hostile takeover of the American pharmaceutical firm Genzyme in 2010. Before the hostile bid, Sanofi’s management made several friendly offers to buy Genzyme, but the American company’s management declined.

As a result, Sanofi courted shareholders to gather support for a deal and made a tender offer. This put pressure on Genzyme management to finally accept a deal, which they did. Sanofi bought Genzyme for $20.1 billion in 2011.

Kraft Foods’ Takeover of Cadbury

Kraft Foods (KHC), an American food company, launched a hostile bid for Cadbury, a UK-based chocolate company, in 2009. The hostile takeover was motivated by Kraft’s desire to increase its market share in the global confectionery market and acquire Cadbury’s valuable portfolio of brands. Cadbury’s management opposed the takeover and put together a hostile takeover defense team. Also, Cadbury shareholders and the UK government opposed the deal. However, Kraft was ultimately successful in acquiring Cadbury, and the takeover was completed in 2010 for $19.6 billion.

How Can Companies Defend Against Hostile Takeovers?

Companies can deploy various strategies to defend against a potential or imminent hostile takeover. These defensive plans are intended to make the hostile takeover more difficult, expensive, or less attractive to the bidder.

Poison Pill

Companies may adopt a shareholder rights plan, more commonly known as a poison pill, to protect themselves from a hostile bidder. With a poison pill, the target company’s shareholders have the right to purchase additional shares at a discount if a hostile takeover attempt is made, diluting the ownership of the existing shareholders. This makes it more expensive for the acquirer to buy a controlling stake in the company and often deters hostile takeover attempts altogether.

Golden Parachute

A golden parachute is a hostile takeover defense where the target company offers its top executives large severance packages if another firm takes over the company and the executives are terminated due to the acquisition. This makes the purchase more expensive and unattractive for a potential buyer.

Pac-Man Defense

A Pac-Man defense is an offensive strategy employed by a target company in a hostile takeover attempt. A Pac-Man defense refers to a target company that fights back against a hostile bidder by launching its own takeover bid for the bidder.

How Hostile Takeovers Affect Investors

A hostile takeover can significantly affect investors who own shares of either the target or bidding company, causing uncertainty in short- and long-term stock market prospects.

In the short term, investors who own shares of the competing companies may see share prices rise or fall, depending on whether the markets view the proposal as a good or bad deal.

Recommended: Understanding Market Sentiment

The target company’s management may also make the company less attractive to a bidder, such as by adopting poison pill provisions or increasing debt levels. These tactics may increase costs and debt burdens, which may negatively impact the long-term outlook for the company.

However, the target company’s share price may be positively affected as the hostile company tries to buy the target company’s shares at a premium.

If the hostile takeover is successful, the investors in the target company may see a change in the management of the company, as well as a potential change in the company’s strategy. This may change the long-term outlook for the company, which may be bullish or bearish for investors.

On a macro level, a hostile takeover can also affect the industries in which the target company and bidder operate. If the hostile takeover is successful, the industry may see a consolidation of companies, affecting market competition and share prices of related firms.

The Takeaway

Investors may hear about hostile takeover bids in the press, causing them to wonder how the situation may affect them and their portfolios. In some situations, the stock of the companies involved may go up, and the stock may go down in other situations. In the end, it’s essential to monitor the news of the deal carefully and pay attention to price fluctuations.

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

Photo credit: iStock/gorodenkoff

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

Jun

2024

Overhead shot of a woman using her laptop at the desk

Green Investing: What It Is, Investing Options, Industries

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

What is green investing — and how can it help make the world a better place (while making investors money)? Here’s what investors need to know.

Jun

2024

Bull vs Bear Market: What’s the Difference?

By Michael Flannelly | invest, Investing, Terminology | No Comments

In the financial world, you’ll often hear the terms “bull market” and “bear market” in reference to market conditions, and these terms refer to extended periods of ups and downs in the financial markets. Because market conditions directly affect investors’ portfolios, it’s important to understand their differences.

As such, knowing the basics of bull and bear markets, and potentially maintaining or adjusting your investment strategy accordingly, may help you make wiser investing decisions, or at least provide some mental clarity.

What Is a Bull Market?

A bull market is a period of time in the financial markets where asset prices are rising, and optimism is high. A bull market is seen as a good thing for most investors because stock prices are on the upswing and the economy is booming. In other words, the market is charging ahead, and portfolios are rising in value. The designation is a bit vague, as there’s no specific amount of time or level of increase that defines a bull market.

The term “bull market” has an interesting history, and was actually coined in response to the development of the term “bear market” (more on that in a minute). The short of it is that “bears” became associated with speculation. In the 1700s, “bull” was used to describe someone making a speculative investment hoping that prices would rise, and thus, itself became the mascot for upward-trending markets.

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What Is a Bear Market?

Investors and market watchers generally define a bear market as a drop of 20% or more from market highs. When investors refer to a bear market, it usually means that multiple broad market indexes, such as the Standard & Poors 500 Index (S&P 500) or Dow Jones Industrial Average (DJIA), fell by 20% or more over at least two months.

As noted, the term “bear” has a long history. It can be traced back to an old proverb, warning that it isn’t wise to “sell the bear’s skin before one has caught the bear.” “Bear’s skin” became simply “bear” over the years, and the term started to be used to describe speculators in the markets. Those speculators were often betting or hoping that prices would decline so that they could generate returns, and from there, “bears” became associated with downward-trending markets.

Bull vs Bear: Main Differences

The most stark and obvious difference between bull and bear markets is that one is associated with a downward-trending market, and the other, with an upward-trending market. But there are other differences as well.

For instance, bull markets tend to last longer than bear markets – although there’s no guarantee that any bull market will last longer than any particular bear market. The average bull market, for instance, lasts between six and seven years, while the average bear market lasts less than one-and-a-half years.

Typical gains and losses are lopsided between the two, as well. The average gain over the course of a bull market is almost 340%, while the average cumulative loss during bear markets is less than 40%.

Bull vs Bear Market: Key Differences
Bull Market	Bear Market
Upward-trending market	Downward, or declining market
Have an average duration of 6.6 years	Have an average duration of 1.3 years
Average cumulative gains amount to ~340%	Average cumulative losses amount to 38%

How Is Investing Different During a Bull Market vs a Bear Market?

Depending on the individual investor, investing can be different during different types of markets. For some people, their investing habits may not change at all – but for others, their entire strategy may shift. A lot of it has to do with your personal risk tolerance and whether you’re letting your emotions get the best of you.

You may want to think of it this way: Just like encountering a grizzly on a hike, a bear market can be terrifying. Falling stock prices likely mean that the value of your retirement account or other investment portfolios are plummeting.

Unrealized losses during a bear market can be psychologically brutal, and if your investments don’t have time to recover, they can seriously affect your life.

Assuming, that is, that those unrealized losses become realized – if an investor does nothing during a bear market, allowing the market to recover (which, historically, it always has), then they’ve effectively lost nothing.

That can be important to keep in mind because markets are cyclical, meaning that bear markets are a fact of life; they tend to occur every three to four years. But what makes them nerve-wracking is that it’s difficult to see them coming. Some signs that a bear market may be looming include a slowing economy, increasing unemployment, declining profits for corporations, and decreasing consumer confidence, among other things.

Conversely, many investors may find it psychologically easier to invest during a bull market, when assets are appreciating (generally), and they can see an immediate unrealized return in their portfolio. Again, each investor will react differently to different market conditions, but the psychological weight of prevailing markets can be heavy on many investors.

Investing During a Bull Market

As noted, investors choose to adopt different investment strategies depending on whether we’re experiencing a bull or bear market.

During a bull market, some might suggest holding off on the urge to sell stocks even after you’ve had gains, since you could miss out on even higher prices if the bull market charges forward. However, no one knows when a peak will arrive, so this buy-and-hold strategy could lead to investors, who sell later, missing out on potential gains.

It may be a good idea to try and keep your confidence in check during a bull market, too. Because investors have seen their holdings gaining value, they might think they’re better at picking stocks than they actually are, and could feel tempted to make riskier moves.

Another common mistake is believing that the gains will continue in perpetuity; in reality, it’s often hard to predict a downswing, and stock market timing is challenging for even professional investors.

Investing During a Bear Market

A great way to prepare for a bear market is to try and remember that the market will, at some point, see a downturn. And, accordingly, to try and be prepared for it.

One way to do so could be to make sure your assets aren’t allocated in a way that’s riskier than you’re comfortable with — for example, by being overly invested in stocks in one company, industry, or region — when times are good. In other words, make sure your portfolio contains some degree of diversification.

Buying stock during a bear market can be advantageous since investors might be getting a better deal on stocks that could rise in value once the market recovers, which is also known as buying the dip. However, there can be obvious risks associated with predicting when certain stocks will hit bottom and buying them with the expectation of future gains.

No one knows what the future holds, so there’s always a chance the price will keep plummeting. Another tactic investors might be able to use is dollar-cost averaging — which is investing a fixed amount of money over time — so that chances of buying at high or low points are spread out over time.

Once the bear market arrives, investors make a common mistake: getting spooked and selling off all their stocks. But selling when prices are low means they could be likely to suffer losses and may miss the subsequent rebound.

In general, as long as investors are comfortable with their portfolio mix and are investing for the long haul, it may be a good idea to stick with your predetermined strategy, no matter what’s happening in the markets in the short-term. Again, it’s worth remembering that market cycles are normal, and the same dynamism responsible for downturns allows investors to experience gains at other times.

Examples of Bull and Bear Markets

As discussed, bear markets are fairly common. In fact, dating back to 1929, the S&P 500 has experienced a decline of 20% or more 27 times – and the good news for investors, as of late, is that more recent bear markets have tended to be shorter in duration, and fewer and further between.

The most recent bear market was during 2022, and lasted 282 days, with a market decline of more than 25%. The market has, since then, bounced back to reach record-highs. Before that, there was a bear market in February and March 2020, when the pandemic initially hit the U.S., which saw the markets fall more than 33% – but the bear market itself lasted only 33 days.

Going back even further, there was a relatively severe bear market in the early 1970s which lasted 630 days, and saw the market decline 48%. Again, that makes more recent downturns look fairly tame in comparison.

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The Takeaway

Bull and bear markets refer to either rising or declining markets, with bear markets notable as they represent declines of at least 20% in the market. Both bull and bear markets can have psychological effects on investors, and it’s important to understand what they are to try and adjust (or stick to) your strategy, accordingly.

If you’re investing for decades down the road, once you have an investment mix that is diversified and matches your comfort with risk, it’s often wisest to leave it alone regardless of what the market is doing. It may also be a good idea to speak with a financial professional for guidance.

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