What Are Structured Products? A Comprehensive Guide for Investors

Structured products are investment vehicles that are structured to seek specific objectives or goals. Most often, structured products are designed with the aim of generating returns based on the performance of an underlying security or basket of securities.

Structured products may offer investors built-in downside protection, with the potential for higher returns. However, investing in structured products does have risks, which investors should be aware of.

Key Points

•   Structured products are investment vehicles designed to seek specific objectives, often linked to the performance of underlying securities.

•   Structured products offer the potential for higher returns and downside protection but also come with higher risks.

•   Structured products are suitable for experienced investors comfortable with derivatives and higher risk, not ideal for beginners.

•   Structured products are generally complex, less liquid, and taxed at ordinary income rates, which can be a disadvantage for some.

•   They can enhance portfolio diversification by providing indirect exposure to alternative investments.

Understanding Structured Products

Structured products are a type of alternative investment that can act as a counterbalance to more traditional investments, like stocks or bonds. Alternative investments, in general, may be structured to seek higher returns for investors compared to other investment types, though they typically entail a higher degree of risk.

They also require that investors hold onto them until they mature, meaning that they’re suited to buy-and-hold strategies, which can be important to note for investors who may have a different overall investment strategy.

Definition and Basic Concepts

In simple terms, a structured product is an investment that derives its value from other investments. Structured products are designed to offer maximum upside, based on market conditions.

There are different categories of structured products you might invest in:

•   Participation products: These track an underlying asset, which may be an individual security or an index. Risk/reward profiles align with the underlying asset.

•   Yield enhancement products: These pay a set coupon or interest rate and offer downside risk protection, so long as the underlying asset’s value remains at or above a certain level.

•   Capital protection structured products: These offer guaranteed recovery of your initial investment, with the potential to benefit from increases in the value of the underlying asset.

Market-linked certificates of deposit (CDs) are one example of structured products. These are bank CDs that tie potential returns to an underlying asset, such as individual stocks or a stock index.

For example, you might invest $10,000 into a market-linked CD that bases returns on the performance of the S&P 500. The CD has a 12-month term. During that period, you get the benefit of returns that parallel the performance of the 500 largest publicly traded companies in the U.S., with the reassurance of FDIC insurance protection.

Individuals and institutional investors can invest in structured products. The difference between institutional vs. individual investors lies in who they represent. Institutional investors trade on behalf of other investors; a bank is one example. Individual investors trade for themselves.

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How Structured Products Differ from Traditional Investments

Structured products are distinct from traditional products in terms of how they work and what they’re designed to do for investors.

Stocks, bonds, mutual funds, and exchange-traded funds (ETFs) may be good for diversifying your portfolio, but there are limits to the needs they can meet for certain investors. Structured products may help fill gaps in a portfolio.

In terms of what a structured product looks like, they can be issued as:

•   Publicly offered or privately placed debt securities

•   Closed-end funds or trusts

•   CDs

Each option has a different risk/reward profile, allowing investors to select structured products that align with their goals and risk tolerance. Structured products can be traded on exchanges just like stocks and some also trade on the secondary market, though that’s rare.

Compared to stocks or other traditional investments, structured products tend to be more complex in both how they work and how they’re taxed. In the past, structured products required a substantial minimum investment. Today, more financial institutions offer structured products such as market-linked CDs with low minimum buy-ins, reducing barriers to entry for a broader range of investors.

Benefits and Risks of Structured Products

Structured products can be attractive to investors for a variety of reasons. Some of the chief benefits of investing in structured products may include:

•   Potential for higher returns, based on the performance of the underlying asset

•   Indirect exposure to alternative investments

•   Certain types may have built-in downside protections

It’s important to understand that structured product returns follow an “if/then” model. If the underlying asset delivers ABC return, then you reap XYZ rate of return.

That’s what makes structured products both enticing — and risky. You’re essentially banking on the underlying asset meeting or exceeding performance expectations. But structured products allow for flexibility, so you can choose investments that are most aligned with the outcomes you seek.

That can enhance diversification. And if you’re unsure why portfolio diversification matters, it’s simple. A diversified portfolio helps you to balance risk.

On the risk side, it’s important to know that structured products are not liquid investments, as they require you to hold the investment until maturity. That is, investors can’t sell early if they hope to receive the specified returns and protections they signed up for. They’re less widely traded than traditional stocks or bonds and if you need to exist before maturity, you may have to do so at a loss.

Structured products are often highly customized, which adds another wrinkle if you plan to sell. Cost structures can sometimes be difficult to decipher and high fees can detract from your overall rate of return. Gains are taxed at ordinary income tax rates, versus the more favorable long-term capital gains rate.

💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

Who Should Consider Structured Products?


Structured products are more appropriate for some investors than others. If you’re a complete beginner to trading, you may want to familiarize yourself with more traditional investments before looking into structured products.

These investments may be most suitable for investors who:

•   Have experience with derivatives

•   Are comfortable accepting a higher degree of risk to seek potentially better returns

•   Want to diversify with alternative investments, without buying them directly

•   Understand the liquidity implications of allocating part of their portfolio to structured products

Note that some structured product finance investments may require you to be an accredited investor. The Securities and Exchange Commission (SEC) defines an accredited investor as someone who:

•   Has a net worth >$1 million, excluding their primary residence AND

•   Has income over $200,000 (or $300,000 with a spouse or partner) in each of the prior two years, with a reasonable expectation for the same income in the current year

Financial professionals who hold a Series 7, Series 65, or Series 82 securities license may also qualify.

Evaluating and Purchasing Structured Products


If you’re interested in adding structured products to your portfolio, it’s important to do your research. The due diligence process can involve:

•   Checking the minimum investment requirements and accredited investor requirements, if applicable

•   Researching the product’s underlying assets/investments to understand how it generates returns and what type of performance you might expect.

•   Reviewing the fees associated with the structured product

•   Understanding the product’s risk profile and how it corresponds to your personal risk tolerance

•   Planning your eventual exit from the investment and what consequences may apply if you need or want to exit early

Working with a financial advisor can be helpful if you have questions about how a particular structured product works or where it might fit into your portfolio. A financial professional can look at your entire asset allocation, risk tolerance, and goals to determine how well structured products might work for you.

The Takeaway


While alternative investments may enable you to seek potentially higher returns in your portfolio, it’s important to weigh the benefits against the risks. Structured products can offer exposure to alternatives, with some downside protection added. While SoFi doesn’t offer structured product investments at this time, it does allow you to invest in stocks, ETFs, and more.

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

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

FAQ

Are structured products suitable for beginner investors?

Structured products are often complex, which could make them a less suitable choice for beginner investors. You may want to learn the basics of stocks and bonds first before exploring the possibilities of structured products and other alternative investments.

How are structured products taxed?

Gains from structured products are typically taxed at ordinary income rates vs. the long-term capital gains tax rate. That could be a disadvantage if you’re in a higher tax bracket year to year, as the long-term capital gains rate maxes out at 20%.

Can I sell a structured product before maturity?

It’s possible to sell structured products before maturity if you can find a buyer on the secondary market. If you’re unable to find a buyer you may have to sell to the original issuer at a reduced price. You may also be charged fees or penalties to sell before maturity, which can reduce returns.


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SoFi Invest®

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

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

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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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How to Invest in Hedge Funds

Hedge funds are pooled investment vehicles that use complex investment strategies to try and generate above-average returns. Investing in hedge funds can be risky, but rewarding if the fund meets or exceeds performance expectations.

Compared to traditional mutual funds or exchange-traded funds, hedge funds typically have more barriers to entry for investors. If you’re interested in how to invest in a hedge fund, it’s helpful to understand who these funds are designed for, and the minimum requirements.

Key Points

•   Hedge funds are private investment vehicles using complex strategies to seek high returns, but they carry significant risks.

•   Access is limited to accredited investors, typically requiring a net worth of more than $1 million, or a relatively high income.

•   Hedge funds invest in diverse assets like stocks, derivatives, and real estate, using strategies like equity long, equity short, or equity neutral.

•   Investing involves understanding fund strategies, performance, and costs, and that fees are often higher than mutual funds.

•   Regulatory oversight by the SEC helps ensure legal compliance, with trends showing slower growth and evolving strategies.

What Exactly Is a Hedge Fund?

A hedge fund is a private investment vehicle that accepts funds from multiple investors. The hedge fund manager directs the investment strategy to attempt to generate the best possible returns for investors.

Hedge funds can hold a variety of investments, including alternative investments. Depending on the fund’s strategy and investment objectives, a hedge fund may offer exposure to:

•   Stocks

•   Derivatives

•   Foreign currencies

•   Real estate

•   Commodities

•   Fixed income investments

Fund managers may utilize a range of strategies to manage fund assets. Examples of hedge fund strategies include equity long, equity short, and market neutral (basically, strategies that take different time frames into consideration, as well as prevailing market conditions), which may be chosen in anticipation of or to hedge against anticipated market movements. The strategy or strategies employed can influence the fund’s risk/reward profile. Greater risk can bring greater rewards, but it also raises the possibility of losing money.

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Getting Started in Hedge Fund Investments

Getting started in hedge fund investing isn’t exactly straightforward — it’s not the same as firing up an investment account and buying stocks online.

Hedge funds are generally viewed as high-risk investments and as a result, the Securities and Exchange Commission (SEC) regulates who can directly invest in them. Access to hedge investment funds is limited to institutional investors, pension funds, and accredited investors. However, it’s possible for unaccredited investors to gain exposure to hedge funds in their portfolio through certain mutual funds or ETFs.

Under SEC guidelines, you’re an accredited investor if you have:

•   Net worth >$1 million, excluding the value of your primary residence, and

•   Annual income over $200,000 individually or $300,000 with a spouse or partner in each of the prior two years, with the same income expected for current and future years

Financial professionals with Series 7, Series 65, or Series 82 securities licenses also qualify as accredited investors.

Aside from those requirements, you must be able to meet the minimum investment requirements for a hedge fund. The amount you’ll need will vary by fund, but a typical investment minimum may range anywhere from $100,000 to $2 million.

Maximizing Potential for Returns and Managing Risks

The key to making money with hedge funds while minimizing risk generally lies in two things: Market trends and the fund manager. Like other investments, hedge funds are influenced by things like changing interest rates and volatility, and hedge fund managers need to do their best to contend with those risks to try and maximize returns for investors.

Managing risk, of course, starts with doing your research. Specifically, it’s important to understand what the fund invests in, the strategies the fund manager employs, and the fund’s track record. Helpful questions to ask include:

•   How is fund performance determined?

•   Does the fund use leverage or speculative strategies?

•   Does the fund manager have any conflicts of interest?

•   How are the fund’s assets valued?

•   How are fund assets safeguarded?

It may also be wise to consider the costs, as hedge funds can charge higher fees than traditional mutual funds or ETFs. An investor might pay an asset management fee of 1%-2%, as well as a higher performance fee of 20%, which is intended to motivate the hedge fund manager to generate better returns.

Note that hedge funds are generally not liquid assets and you may be required to leave your capital in the fund for a certain period. There may be limits on when you can redeem your shares, so it’s important to consider how much money you’re comfortable putting into these investments.

Regulatory and Legal Aspects

Due to their complexity, hedge funds and hedge fund investments are subject to federal regulation. Some of the laws and regulations governing hedge funds include:

•   Securities Act of 1933

•   Securities Exchange Act of 1934

•   Investment Company Act of 1940

•   Dodd-Frank Wall Street Reform and Consumer Protection Act of 20106

The SEC regulates hedge funds to ensure that they act within the scope of the law concerning registration, investment offerings, and investor protections. Hedge funds that trade in commodities or futures may also be subject to regulation from the Commodity Futures Trading Commission (CFTC).

Hedge funds are required to file Form ADV with the SEC. This document includes relevant details about the fund’s assets, its investment strategies, and potential conflicts of interest. You have the right to review a hedge fund’s Form ADV before investing to learn more about it.

Evolving Trends in Hedge Funds

Hedge funds are not static, as new trends emerge and older ones fade away. Some of the most significant trends to watch right now, according to the CAIA Association, include:

•   Slower growth as the hedge fund industry reaches maturity

•   Increased focus on long/short equity strategies, private debt, and private credit

•   Gradual reduction in hedge fund fees

Demand for hedge funds may slow, too, should the U.S. economy enter a recession. If you’re all interested in how to invest in hedge fund markets now, or in the future, it’s worth watching these and other trends to see how this investment space will develop.

The Takeaway

Hedge funds can help you build a diversified portfolio, with the potential to generate returns. If you’re interested in how to invest in hedge funds, you’ll first need to determine whether you’re an accredited investor. If not, consider other avenues for accessing these and other types of alternative investments, such as through investing in mutual funds or ETFs. You can quickly start investing online in funds that offer exposure to venture capital, real estate, and other alternatives.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.

Invest in alts to take your portfolio beyond stocks and bonds.

FAQ


What are the requirements to invest in hedge funds as an individual?


Individual investors must typically be accredited to invest in hedge funds. That means having a net worth greater than $1 million, excluding the value of your primary residence, and an annual income of $200,000 (or $300,000 for couples).

Is it possible to start investing in hedge funds with a small capital?


It’s possible to find hedge funds that have a lower minimum investment of $20,000 or $25,000. But that may still be out of reach for the average person who’s just getting started with investing. It may be easier to invest in diversified funds that hold alternatives such as hedge funds, real estate, or private equity through a brokerage.

What are the key benefits of investing in hedge funds?


The most attractive feature of hedge fund investing is that it’s possible to see returns that beat the market. It’s important to remember, however, that hedge funds don’t always outperform and in some cases, returns may lag significantly behind returns generated by the S&P 500.


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SoFi Invest®

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

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

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


An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

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Alternative Investments: Definition, Examples, Strategies

While most investors are familiar with stocks, bonds, and cash, there is a world of investment opportunities beyond these assets.

Alternative investments are those outside of traditional assets. While they can be higher risk, alternatives can offer various potential upsides for investors, such as diversifying an existing investment portfolio, higher returns compared to stocks and bonds, and the opportunity to earn passive income.

Key Points

• Alternative investments include assets other than stocks, bonds, and cash, such as collectibles, commodities, derivatives, real estate, private equity, venture capital, hedge funds, and more.

• Alternative investments may provide portfolio diversification, as they often have a low correlation with traditional asset classes.

• Alternative investments have the potential to generate higher risk-adjusted returns compared with traditional assets, though this also comes with higher risk.

• Alternative investments tend to be illiquid, not as transparent as other financial assets, and may include the risk of total loss.

• You can invest in alternative investments through mutual funds, ETFs, interval funds, REITs, MLPs, or by working with an experienced asset manager.

What Are Alternative Investments?

Alternative investments — commonly known as alts — are those that are different from conventional investment categories such as stocks, bonds, and cash. Alts include a wide variety of securities as well as tangible assets such as commodities, foreign currencies, real estate, art and collectibles, venture capital, derivative contracts, and more.

Alts typically have a lower correlation with traditional asset classes, meaning they tend to move independently of them, and thus they may provide investment portfolio diversification. They also have the potential to generate higher returns when compared to stocks and bonds, and some are structured to provide passive income to investors. But alts typically include higher-risk assets and strategies, which can be illiquid and harder to track, owing to a lack of transparency.

Alts used to be accessible mainly to high net-worth and accredited investors, but now they’re available to a range of investors, thanks to the emergence of vehicles such as mutual funds and ETFs that include various alts and strategies.

The lack of liquidity for most alts means that determining the fair market value of these assets can be quite challenging. Often there is little by way of public data available regarding price changes or asset appreciation or depreciation, making it difficult to assess historical performance.

💡 Quick Tip: While investing directly in alternative assets often requires high minimum amounts, investing in alts through a mutual fund or ETF generally involves a low minimum requirement, making them accessible to retail investors.

Alternative investments,
now for the rest of us.

Start trading funds that include commodities, private credit, real estate, venture capital, and more.


Types of Alternative Investments

The following list encompasses some common types of alternative investments and alternative strategies available to investors today.

1. Real Estate

•   Summary: You can invest in real estate by owning rental property, investing in commercial real estate, industrial real estate, healthcare facilities, and more. Investors can also buy into Real Estate Investment Trusts, or REITs.

•   Pros and cons: Although real estate tends to hold its value over time, there are no guarantees. Different properties can be vulnerable to a host of factors including business trends, land values, interest rate risk, and more.

Recommended: How to Invest in Real Estate: 7 Ways for Beginners

2. Commodities

•   Summary: Commodities are raw materials that include agricultural products (e.g. grain, meat), precious metals such as gold, silver, copper, energy (including renewables), and more. Generally, investors participate in commodity trading using futures contracts, index funds, mutual funds, or ETFs.

•   Pros and cons: Some investors consider commodities a good hedge against inflation and they have the potential to deliver a profit. However, commodities can suffer from any number of unexpected risk factors, from weather conditions to supply chain breakdowns and more.

Recommended: How to Invest in Commodities

3. Private Equity

•   Summary: Private equity firms invest capital in companies that aren’t publicly traded, often with the aim of taking over the company. Because PE is a high-stakes endeavor, these opportunities are generally available to high net-worth and accredited investors. Now, however, retail investors can gain exposure to private funds through vehicles such as interval funds.

•   Pros and cons: Private equity is considered a high-risk investment, but if a private company goes public or gets acquired, these investments may perform well. The risk with private equity investments is that these are often focused on distressed companies, with a complex track record, and sometimes startups (see Venture Capital below).

Recommended: How to Invest in Private Equity

4. Venture Capital

•   Summary: VC investing is a way of putting money into startups with the hope of later gains, though there is no guarantee of a return. Investors can buy a slice of startup or private companies, through equity crowdfunding platforms (which differ from traditional crowdfunding in that investors own equity in the company) and interval funds.

•   Pros and cons: Venture capital investing is considered a subset of Private Equity, as noted above. It can be risky because if the startup fails, investors may lose all of their money. On the other hand, if a startup does well, investors may see a significant profit.

Learn more: What Is Venture Capital and How Does It Work?

5. Private Credit

•   Summary: Private credit involves direct loans made to companies from non-bank entities. Private credit can be a more expensive way to borrow, but it can be faster for the companies needing capital, and for investors it offers the potential for steady interest payments.

•   Pros and cons: Private credit funds tend to see greater inflows when the stock market is underperforming, and they usually pay higher rates than conventional fixed income instruments. The risk here is that most PC funds offer only quarterly redemptions — so they’re quite illiquid — and they can be vulnerable to defaults.

Learn more: Private Credit: Types and Investing Benefits

6. Art & Collectibles

•   Summary: Works or art and other types of collectibles (e.g., wine, jewelry, antiques, cars, rare books) can personally appeal to investors, and may grow in value over time. It’s also possible to invest in fractional shares of art, or in shares of an art-focused fund.

•   Pros and cons: Investing in art or collectibles may provide a hedge against inflation or other market factors. That said, the price of upkeep, insurance, and maintenance can be considerable. And while some pieces may gain value over time, art and collectibles can also be subject to changing trends and tastes. Fraud is another risk to consider.

7. Hedge Funds

•   Summary: Hedge funds offer investors access to alternative investing strategies, like arbitrage, leveraged trades, short-selling, and more. Hedge funds aren’t as heavily regulated as other types of funds, so they’re able to make riskier investments and lean into aggressive strategies, with the goal of delivering outsized returns.

•   Pros and cons: While hedge fund managers sometimes deliver a significant profit, they charge high fees and investment minimums that often put them beyond the reach of mainstreet investors. Today, investors may be able to access mutual funds, ETFs, funds of funds, or other vehicles that employ similar alternative strategies.

8. Farmland/Timberland

•   Summary: Like many types of real estate, farmland and timberland tend to hold their value over time, as long as they remain productive. This type of property can be similar to commodities in that there is potential profit in the products that come from the land (e.g. produce and timber).

•   Pros and cons: Owners of farmland can lease out the land to earn income, which can be profitable for investors. The potential downside of investing in farmland and timberland are the environmental and weather-related risks that can impact both the value of the land and its productivity.

9. Infrastructure

•   Summary: Infrastructure refers to the physical structures that economies depend on: roads and highways, bridges and tunnels, energy pipelines, and more. Municipal bonds are one way to invest in infrastructure, as are some types of REITs (real estate investment trusts).

•   Pros and cons: As a non-cyclical type of asset, infrastructure investments may offer the benefit of less exposure to market risk factors, steady cash flows, and low variable costs. The risks of infrastructure investments include political and environmental factors that can impact or delay the execution of a project.

10. Foreign Currencies

•   Summary: Foreign currencies are an example of an alternative investment that can be highly liquid, and thus easier to trade.

•   Pros and cons: Currency trading is known for its volatility, and currency traders often make leveraged trades, assuming a high degree of risk. Retail investors may find it potentially less risky to invest via mutual funds, ETFs, foreign bond funds, and even certain types of CDs (certificates of deposit), although the underlying volatility of most currencies will influence the performance of these investments as well.



💡 Quick Tip: Newbie investors may be tempted to buy into the market based on recent news headlines or other types of hype. That’s rarely a good idea. Making good choices shouldn’t stem from strong emotions, but a solid investment strategy.

Advantages and Disadvantages of Alternative Investments

In sum, alternative investments are certainly worth considering given their potential advantages, but it’s important to keep in mind the possible disadvantages to make the best choices in light of your own goals and risk tolerance.

Advantages

•   May offer the potential for higher risk-adjusted returns.

•   Are typically not correlated with traditional stock and bond markets, so they may help diversify a portfolio and mitigate risk.

•   May have the potential to deliver passive income.

•   Some alts may hedge against inflation or interest rate fluctuations.

•   May appeal to an individual’s personal interests: e.g., art, wine, memorabilia.

Disadvantages

•   Are often higher risk, or can be subject to greater volatility.

•   Can be less liquid than traditional investments due to limited availability of buyers and lack of a convenient market.

•   Often limited to high net-worth and accredited investors.

•   May have higher minimum investment requirements and higher upfront fees.

•   May have less available public data and transparency about performance, making it difficult to determine a financial asset’s value.

Recommended: Why Invest in Alternative Investments?

How to Invest in Alternative Investments

As mentioned above, alternative investments used to be limited to institutional investors and high net-worth investors, but they’re now available to average investors through mutual funds, ETFs, and sometimes even through companies’ IRAs.

If you’re thinking about adding alternative investments to your portfolio, finding the right brokerage and/or asset manager can help you incorporate alts into your portfolio in the way that makes sense for your long-term plan. SoFi, for example, is working with knowledgeable asset fund managers in the alts space to provide access to mutual funds across a variety of categories.

Once you’ve identified the types of alternative investments that would suit your goals, your risk tolerance, and your plan (e.g., you might prefer commodities to owning art), you can look for the funds that would help you buy into these alternative asset classes.

Here are some of the more traditional methods to invest in alternatives:





ETFs

An exchange-traded fund, or ETF, is an investment vehicle that enables investors to buy a group of stocks, bonds, commodities, or other securities in one bundle, thus promoting investment diversification and efficiency. They’re widely available, usually through major investment fund companies.

Interval Funds

These closed-end funds are not traded on the secondary market and have limitations on redemptions (among other risks and restrictions). But because the funds are highly illiquid and have infrequent redemptions, fund managers may use alternative investments to pursue higher yields.

MLPs

A master limited partnership, or MLP, is a business partnership that’s publicly traded on an exchange. While an MLP may sound like a company, these partnerships have a different type of structure and are restricted to natural resources and energy-related products and sometimes real estate.

MLPs can provide the liquidity of stocks, but the tax treatment can be complex — and they are higher risk than regular equities.

Mutual Funds

A mutual fund is an investment vehicle that pools money from many investors in order to invest in different securities. Mutual funds may hold any combination of stocks, bonds, money market instruments, or cash and cash equivalents.

They may also include alternative investments, such as real estate, commodities, or investments in precious metals.

REITs

A real estate investment trust, or REIT, is a way of investing in shares of different types of real estate within a single fund. REITs invest in companies that own, operate, or finance a wide variety of real estate types.

Things to Consider When Investing in Alts

Alternative investments are complex, and while the risk may be worth the potential reward for some investors, there are some additional caveats to bear in mind about these assets.

How Are Alternative Investments Taxed?

Unlike conventional asset classes, which are typically subject to capital gains tax or ordinary income tax, different alts can receive very different tax treatments, even when investing in these assets via a mutual fund or ETF. When investing in alts, it’s wise to involve a professional to help address the tax-planning side of the equation.

What Role Should Alts Play in Your Portfolio?

Remember, because alts don’t generally move in sync with traditional asset classes, they may offset certain risk factors. And while alts come with risks of their own, including volatility and lack of transparency, within the context of your portfolio as a whole, alts, and funds that invest in alts, may enhance returns. Some alts can provide passive income as well as gains.

It’s important to know, however, that alternative investments are higher risk, tend to be more illiquid, and less transparent. As such, alts should typically only be one part of your portfolio to complement other assets. Some advisors, for example, recommend up to a 10% allocation for alternative investments, though this number can vary.

The Takeaway

Alternative investments have the potential for high returns and may offer portfolio diversification. The scope and variety of these investments means investors can look for one (or more) that suits their investing style and financial goals. Unlike more conventional investments, alts tend to be higher risk, more expensive, and subject to complex tax treatment.

It’s important to research and do due diligence on any alternative investment option in order to make the best purchasing decisions and reduce risk. While some alternative investments are less accessible, others can be purchased through vehicles such as mutual funds and ETFs.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.

Invest in alts to take your portfolio beyond stocks and bonds.

FAQ

Are ETFs considered alternative investments?

Generally no. For the most part, exchange-traded funds (ETFs) are passive investments — meaning they track an index — and typically that index is for a conventional asset class like stocks or bonds. That said, some ETFs track niche parts of the market, including certain types of alternative strategies, including options, long-short strategies, managed futures, real estate investment trusts (REITs), and more.

Are alternative investments worth it?

For some investors, choosing to add alts to their portfolio might be worth it because alternative assets can add diversification (which can help manage risk), and alts may enhance returns over time. But alts also come with their own set of risk factors, including the fact that some alternative assets are illiquid, and are not regulated like other financial products.

How do alternative investment funds work?

Alternative investment funds work in a range of ways. A mutual fund focused on alternative strategies, like derivatives, is likely to be actively managed and employ techniques like leverage or short selling. Before investing in an alternative fund, it’s wise to make sure you understand the underlying strategy, assets, and fees.

What are the key characteristics of alternative investments?

Alternative investments may offer portfolio diversification with low correlation to traditional assets, potentially higher returns, and may provide protection against inflation or interest rate fluctuations. However, they can be illiquid, may have redemption restrictions, and determining their real-world value can be challenging due to limited transparency and public data.



An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

SoFi Invest®

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

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

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

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.


Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.


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

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

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What Is a Chartered Alternative Investment Analyst (CAIA)?

A chartered alternative investment analyst, or CAIA, is a financial professional who specializes in offering advice about alternative investments. The CAIA Association offers the CAIA Charter Program for financial professionals who are interested in expanding their financial knowledge to include alternatives such as real estate, private equity, and hedge funds.

Obtaining a CAIA designation requires the successful completion of two exams and membership in the CAIA Association. A securities license is not needed for CAIA certification, though you will need to have at least a bachelor’s degree and adequate work experience to earn it.

Key Points

•   The CAIA Charter Program specializes in alternative investments like real estate, private equity, and hedge funds.

•   The successful completion of two exams and CAIA Association membership are required for certification.

•   Exams cover topics like professional standards, ethics, and the various types of alternative investments.

•   CAIA certification can enhance career prospects and distinguish financial advisors.

•   Approximately 13,000 CAIA charterholders exist worldwide, working in diverse financial roles.

Advantages of Obtaining a CAIA


Professional designations generally have a time and cost component to acquire — meaning that you’ll likely need to pay some fees and put in some study time to earn them — and it’s no different with the CAIA certification. It’s important, then, to consider what kind of return on investment you might enjoy. Adding a CAIA credential to your professional resume may yield several benefits.

•   A CAIA charter can help you distinguish yourself from other financial advisors you compete with.

•   Gaining additional knowledge in the area of alternative investments could enable you to expand the services you offer as a financial advisor, potentially increasing your revenues in the process.

•   You can use what you learn in the CAIA Charter Program to better serve your existing clients and offer more comprehensive advice when constructing a diversified portfolio.

•   CAIA certification may give you an edge if you’re hoping to get promoted within your current firm, or get hired at a different one.

•   You can use your skills to build your brand reputation and network. For example, you might offer to lead a seminar on the benefits of alternative investments at a nationally recognized conference.

A CAIA designation might be right for you if you’re hoping to broaden your knowledge base where alternative investments are concerned. Examples of financial professionals who may be good candidates for CAIA certification include risk managers, portfolio managers, traders, consultants, and fiduciary advisors.

Recommended: Alternative Investments Guide

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Preparing for the CAIA Exam


The CAIA exam is actually two levels of examinations, both of which you’ll need to complete unless you qualify for a waiver. You’re eligible to obtain CAIA certification by taking just one exam if you’re a CFA charterholder. CFA is short for “certified financial analyst,” and is a professional designation offered by the CFA Institute.

In terms of what the exams cover, there are two topic groups. Level I topics include, but are not limited to:

•   Professional standards and ethics

•   Introduction to alternative investments

•   Real assets

•   Private equity

•   Private debt

•   Hedge funds

•   Digital assets

•   Additional strategies in alternative investing3

Level II exams cover:

•   Emerging topics in alternative investments

•   Universal investment considerations

•   Modeling

•   Institutional asset owners and investment policies

•   Risk and risk management

•   Methods for alternative investments

•   Accessing alternative investments

•   Due diligence and selecting managers

•   Volatility and complex strategies3

Exams are offered twice per year, in March and September. The CAIA Association writes and prepares the curricula covered by both exams.

When you register for the CAIA exam and pay the registration fee you’ll get access to digital exam prep materials. You must pay a one-time enrollment fee of $400 for each exam, at the time of publication, as well as a $1,395 registration fee per exam. If you need to retake an exam, the fee is $795.

It’s possible to find CAIA study courses online. Courses may be self-paced or include live instruction. Note that these courses are not endorsed by the CAIA Association. Candidates are encouraged to commit at least 200 hours to study prep for each level before attempting the exams.

As far as the exam format goes, Level I and Level II are slightly different. Both exams include a multiple-choice component. Level I features 200 multiple-choice questions, while Level II has 100 multiple-choice questions. The Level II exam also has a constructed response section, which requires you to answer questions in essay format. You’ll have two hours per section, four hours total, to complete both exams.

Historical Pass Rates


CAIA exam pass rate numbers from March 2024 put the pass rate for the Level I exam at 46%, and the pass rate for the Level II exam at 59%. Since 2011, pass rates for the exam have been on a downward trend. Before 2011, the typical pass rate for the exams was around 70%.

The CAIA Association does not specify what constitutes a passing score for the CAIA exam. It’s generally recommended that candidates aim for a final score of 70 or better on both exams in order to position themselves for the best chance of passing.

CAIA vs. CFA


Chartered financial analysts or CFAs conduct research and analyze financial data, then use what they learn to make portfolio recommendations to clients who might be using a brokerage for online investing. A CFA may work with individual investors, institutional investors, or a mix of both. CFAs may offer advice on alternative investments but they may be less knowledgeable about them than a CAIA.

To obtain a CFA designation, you’ll need to pass three levels of exams, which become progressively more difficult. You must also meet minimum education and work experience requirements, and be able to provide professional letters of reference.

As for which is better, CAIA vs. CFA? It depends on your career goals. If you’d like to specialize in alternative investments, then a CAIA credential could help you attract clients with those particular needs. For example, you might have clients who are interested in investing in art, fine wines, or hedge funds.

On the other hand, you may lean toward a CFA designation if you’d like to offer advice for a broader range of investments, or even consider earning both designations.

The CAIA Charter


The CAIA Charter is how the CAIA Association refers to the CAIA designation or credential. Approximately 13,000 financial professionals worldwide have earned a CAIA certification and are considered charterholders.

The CAIA Association was founded in 2002 by the Alternative Investment Management Association (AIMA) and the Center for International Securities and Derivatives Markets (CISDM). The Association’s mission is to raise industry standards among financial professionals who work with alternative investments.

The Takeaway


If you’re working in financial services you might weigh the merits of a CAIA designation. And if you’re interested in exploring alternative investments for your portfolio it could make sense to seek out a CAIA professional.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.

Invest in alts to take your portfolio beyond stocks and bonds.

FAQ


How difficult is the CAIA exam?


Based on current pass rates and historical trends the numbers suggest that its level of difficulty is something to take seriously. Taking practice tests can be a helpful way to prepare for the exam and get a sense of where you might land score-wise.

What jobs can I get as a CAIA charterholder?


CAIA professionals can work in many different roles, in varied settings. Possible job titles you could get with a CAIA credential include investment analyst, investment consultant, portfolio manager, risk manager or risk analyst, and investment advisor.

How many CAIA charterholders are there?


According to the CAIA Association, there are approximately 13,000+ CAIA charterholders worldwide. Charterholders are located in more than 100 countries globally.


Photo credit: iStock/Arsenii Palivoda

SoFi Invest®

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

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


An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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Understanding ESG Frameworks: Definition and Types

As ESG-focused strategies continue to attract investors, there is a growing interest in establishing frameworks that can help companies meet specific environmental, social, and governance criteria — the better to help investors evaluate company performance in light of ESG standards.

ESG frameworks are important because they can allow market participants to reference a common set of guidelines when evaluating companies for investment purposes. In theory, consistent ESG frameworks could help encourage more efficient and transparent markets.

Although there are a number of ESG frameworks in use, however, the ESG sector as a whole still lacks a set of clear-cut criteria that have found universal approval or acceptance. Most recently, the Securities and Exchange Commission (SEC) put its own new set of ESG disclosure rules on hold.

Key Points

•   ESG frameworks include specific criteria and metrics to help firms assess and disclose their progress toward environmental, social, and governance goals.

•   ESG frameworks aim to standardize methodologies that will support transparency and accountability, and thereby serve all stakeholders.

•   While there are a dozen or more existing ESG frameworks worldwide, most are non-binding (mandatory guidelines tend to be implemented in local jurisdictions).

•   The SEC released a set of mandatory disclosure rules in March of 2024; these were put on hold a month later, owing to legal challenges.

•   In the absence of ESG standards mandated by financial regulators, individual firms are left to select appropriate frameworks and/or develop proprietary disclosures.

What Is an ESG Framework?

ESG frameworks include principles, guidelines, and often metrics to help firms measure and, importantly, report their progress regarding specific environmental, social, and governance standards — which in turn helps investors interested in green investing.

•   Environmental factors may include carbon emissions, sustainable energy use, pollution regulation, climate impact, and more.

•   Social factors may include a company’s involvement and support of local community issues, worker safety, as well as diversity, equity and inclusion in the workforce.

•   Governance factors may include a company’s leadership selection process, accounting practices, data privacy, and transparency in reporting.

As such, ESG frameworks are an attempt to standardize both methodologies and metrics employed in ESG disclosures to better serve all stakeholders.

The State of ESG Frameworks

Although there are numerous organizations (including policy groups and regulatory agencies) that have developed frameworks for ESG reporting in recent years, there has yet to be a single set of standards to insure that companies are held accountable for managing certain risk factors, and that investors are afforded some reliability in terms of their ESG investment choices.

While the SEC approved a set of ESG disclosure rules in March 2024, a month later, owing to legal challenges, these rules were put on hold.

In short: With no official ESG standards required by U.S. financial regulators or other governmental bodies, the question of which framework to adopt is left up to the individual firm.

Likewise, the lack of agreed-upon ESG frameworks means that investors must shoulder the responsibility for understanding which standards and/or metrics a company may be following, and whether this meets their own standards for investment.

Recommended: Sustainable Investing Guide for Beginners

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What Is the Goal of an ESG Framework?

ESG frameworks give companies a way to define key principles, standards, and goals in each area (i.e., pertaining to the environment, societal factors, and corporate governance) in order to facilitate accurate ESG reporting. These frameworks may include metrics to measure progress toward specific goals.

Thus, ESG frameworks serve three main purposes:

1.    To provide guidelines for companies in terms of their operations and outcomes.

2.    To enable consistent reporting that enables investors to evaluate companies.

3.    To help governments track regulatory compliance, and identify areas for improvement or disciplinary action.

ESG Frameworks and Risk

In addition to helping support positive ESG outcomes, companies that adhere to an ESG framework may also be able to mitigate certain ESG risk factors that can impact company performance long term.

For example: Reducing the demand for fossil fuels as part of product manufacturing can be beneficial for the environment, and it also may help protect a company from price shocks from oil or gas shortages — which can help its bottom line.

Recommended: What Is Socially Responsible Investing?

Benefits of Using an ESG Framework

To the extent that an ESG reporting framework can act as a blueprint for progress in specific areas, it may be more likely that organizations that embrace a certain framework are able to drive more positive outcomes in desired areas.

In that light, an ESG framework can enable companies to expand the scope of their business reporting to a wider universe of stakeholders.

•   From an environmental perspective, using ESG to guide corporate actions can mitigate the chance of government oversight; and it may reduce a firm’s overreliance on natural resources, and help to limit insurance and legal costs if environmental safety guidelines are followed.

•   From a social perspective, ESG-influenced policies can improve working conditions, employee retention, reduce the likelihood of labor disputes that can impact productivity, build community support, and improve a firm’s image.

•   When it comes to governance, ESG policies can improve transparency at all levels of a firm; protect data privacy; reduce fraud; and potentially reduce operational costs through the better alignment of all stakeholders within a firm.

Large financial institutions, such as public pension funds, have started incorporating ESG criteria into their investment selections. In addition, there are now ESG-focused ETFs and mutual funds being offered by mutual fund companies, online investing platforms, and brokerage firms.

Types and Examples of ESG Frameworks

In the last 20 years or so, over a dozen ESG frameworks have been established. And while some methods may overlap with each other, and in the last few years some have been consolidated, the existing frameworks each provide a separate set of standards, metrics, and reporting requirements that organizations can consider.

Despite the confusing number of options, some frameworks or disclosure systems seem to be taking the lead in terms of wider adoption, particularly with the expansion of the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards.

While some firms have adopted all or parts of these frameworks, others have created proprietary sets of criteria, metrics, and reporting methods that, in some cases, may complement existing frameworks.

Following is a brief summary of some prominent ESG frameworks:

Global Reporting Initiative (GRI)

The Global Reporting Initiative, established in 1999, is an independent organization that helps companies and governments assess and report their impact on ESG issues such as climate change, human rights, and corruption. Although the GRI standards are voluntary, nearly 80% of the world’s biggest companies by revenue have adopted the GRI reporting standards, making it the most widely adopted framework.

International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards

The IFRS establishes corporate accounting standards and policies overseas; it’s the equivalent of the U.S. Generally Accepted Accounting Principles (US GAAP). Because a growing number of companies need a way to incorporate sustainability into their accounting and reporting disclosures, the IFRS Foundation set up the International Sustainability Standards Board (ISSB) in 2021.

The ISSB disclosure standards are voluntary, and build on previous frameworks, a few of which have since been folded into the working IFRS Sustainability Disclosure Standards, including: the Task Force on Climate-Related Financial Disclosures (TCFD), Climate Disclosure Standards Board (CDSB) and others.

Sustainability Accounting Standards Board (SASB) Standards

The SASB Standards were established in 2018 to enable the disclosure of sustainability-related information that would be considered financially material; the framework detailed key ESG issues across 77 different industries. These standards were absorbed by the IFRS Foundation in 2022, and as such are now overseen by the ISSB, which maintains the SASB Standards for organizations that prefer this method.

CDP

The CDP (formerly the Carbon Disclosure Project) is an international non-profit that helps not only companies, but state and local governments to evaluate and disclose key environmental impacts such as carbon and greenhouse gas emissions, water quality protection, and deforestation on a voluntary basis.

Companies are given a score on separate areas; the questionnaires have been modified to align with the IFRS climate disclosure requirements (above), and continue to evolve. According to CDP, over 23,000 companies around the world rely on the CDP disclosure framework.

United Nations Global Compact

The U.N. Global Compact is considered one of the world’s largest corporate sustainability initiatives; it is “principle based” in that this U.N. pact is non-binding and offers 10 voluntary principles that organizations can use to establish or enhance policies based on human rights, labor practices, the environment, and anti-corruption measures. These 10 Principles are aligned with the 17 Sustainable Development Goals (SDGs), which continue to serve as global guidelines and voluntary frameworks for greater corporate accountability.

The Takeaway

For investors who are exploring ways to invest sustainably, or invest in companies committed to ESG goals, it can be helpful to understand the landscape of ESG standards and reporting frameworks. While there are a number of existing ESG frameworks, a handful have been more widely adopted, which can be useful for ESG-focused investors to know.

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SoFi Invest®

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

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

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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

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