invest Archives

Nov

2025

A smiling man with glasses and a beard works on a laptop in an office.

What Is Margin Debt?

By Laurel Tincher | Growing Wealth, invest, Investing | Comments Off

Table of Contents

Margin Debt Definition
How Margin Debt Works
Advantages and Disadvantages of Margin Debt
Is High Margin Debt a Market Indicator?
FAQ

Margin debt refers to the loan that qualified investors can borrow from their broker to place bigger trades, using a margin account. The money investors borrow from their brokerage is known as margin debt and is a type of leverage. As of October 2025, the amount of margin debt held by investors is at an all-time high of $1.13 trillion, according to FINRA.

Like other types of loans, margin debt comes with specific rules, governed by the Financial Industry Regulatory Authority (FINRA). A margin loan must be backed with collateral (cash and other securities), a minimum amount of cash must be maintained in the account, and the margin debt must be paid back with interest.

Margin is not available with a cash-only brokerage account, where a trader buys the securities they want using the cash in their account. Owing to the high risk of margin trading, margin accounts are available only to investors who qualify, owing to the high-risk nature of margin trading.

Key Points

• Margin debt allows qualified investors to borrow money from a broker to purchase securities, acting as a form of leverage.

• Margin accounts require collateral, a minimum cash balance, and repayment with interest.

• Federal regulations (Regulation T) and brokerage rules limit the amount that can be borrowed for margin trades, typically to 50% of the initial investment.

• Investors must maintain a certain equity level (maintenance margin) in their account; if it falls below this, a margin call may occur, requiring additional funds or asset sales.

• While margin debt can amplify gains and offer flexibility, it also significantly amplifies losses, making the use of margin a high-risk strategy.

Margin Debt Definition

In order to understand what margin debt is and how it works when investing online or through a traditional brokerage, it helps to review the basics of margin accounts.

What Is a Margin Account?

With a cash brokerage account, an investor can only buy as many investments as they can cover with cash. If an investor has $10,000 in their account, they can buy $10,000 of stock, for example.

A margin account, however, allows qualified investors to borrow funds from the brokerage to purchase securities that are worth more than the cash they have on hand.

In this case, the cash or securities already in the investor’s account act as collateral, which is why the investor can generally borrow no more than the amount they have in cash. If they have $10,000 worth of cash and securities in their account, they can borrow up to another $10,000 (depending on brokerage rules and restrictions), and place a $20,000 trade.

Recommended: What Is Margin Trading?

Margin Debt, Explained

In other words, when engaging in margin trading to buy stocks or other securities an investor generally can only borrow up to 50% of the value of the trade they want to place, though an individual brokerage firm has license to impose stricter limits. Although the cash and securities in the account act as collateral for the loan, the broker also charges interest on the loan, which adds to the cost — and to the risk of loss.

Margin debt is high-risk debt. If an investor borrows funds to buy securities, that additional leverage enables them to place much bigger bets in the hope of seeing a profit. The risk is that if the trade moves against them they could lose all the money they borrowed, plus the cash collateral, and they would have to repay the loan to their broker with interest — on top of any brokerage fees and investment costs.

For this reason, among others, margin accounts are considered to be more appropriate for experienced investors, since trading on margin means taking on additional costs and risks. It’s also why only certain investors can open margin accounts. In addition, investors must bear in mind that some securities cannot be purchased using margin funds.

Recommended: Stock Trading Basics

How Margin Debt Works

Traders can use margin debt for both long positions and short selling stocks. The Federal Reserve Board’s Regulation T (Reg T) places limitations on the amount that a trader can borrow for margin trades. Currently the limit is 50% of the initial investment the trader makes. This is known as the initial margin.

In addition to federal regulations, brokerages also have their own rules and limitations on margin trades, which tend to be stricter than federal regulations. Brokers and governments place restrictions on margin trades to protect investors and financial institutions from steep losses.

Example of Margin Debt

An investor wants to purchase 2,000 shares of Company ABC for $100 per share. They only want to put down a portion of the $200,000 that this trade would cost. Due to federal regulations, the trader would only be allowed to borrow up to 50% of the initial investment, so $100,000.

In addition to this regulation, the broker might have additional rules. So the trader would need to deposit at least $100,000 into their account in order to enter the trade, and they would be taking on $100,000 in debt. The $100,000 in their account would act as collateral for the loan.

What Is Maintenance Margin?

The broker will also require that the investor keep a certain amount of cash in their account at all times for the duration of the trade: this is known as maintenance margin. Under FINRA rules, the equity in the account must not fall below 25% of the market value of the securities in the account.

If the equity drops below this level, say because the investments have fallen in value, the investor will likely get a margin call from their broker. A margin call is when an investor is required to add cash or forced to sell investments to maintain a certain level of equity in a margin account.

If the investor fails to honor the margin call, meaning they do not add cash or equity into their account, the brokerage can sell the investor’s assets without notice to cover the shortfall.

Managing Interest Payments on Margin Debt

There’s generally no time limit on a margin loan. An investor can keep margin debt and just pay off the margin interest until the stock in which they invested increases to be able to pay off the debt amount.

The brokerage typically takes the interest out of the trader’s account automatically. In order for the investor to earn a profit or break even, the interest rate has to be less than the growth rate of the stock.

Increase your buying power with a margin loan from SoFi.

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

*For full margin details, see terms.

Advantages and Disadvantages of Margin Debt

There are several benefits and drawbacks of using margin debt to purchase securities such as stocks, bonds, mutual funds, or exchange-traded funds (ETFs).

Advantages

• Margin trading allows a trader to purchase more securities than they have the cash for, which can lead to bigger gains.

• Traders can also use margin debt to short sell a stock. They can borrow the stock and sell it, and then buy it back later at a lower price.

• Traders using margin can more easily spread out their available cash into multiple investments.

• Rather than selling stocks, which can trigger taxable events or impact their investing strategy, traders can remain invested and borrow funds for other investments.

Disadvantages

• Margin trading is risky and can lead to significant losses, making it less suitable for beginner investors.

• The investor has to pay interest on the loan, in addition to any other trading fees, commissions, or other investment costs associated with the trade.

• If a trader’s account falls below the required maintenance margin, let’s say if a stock is very volatile, that will trigger a margin call. In this case the trader will have to deposit more money into their account or sell off some of their holdings.

• Brokers have a right to sell off a trader’s holdings without notifying the trader in order to maintain a certain balance in the trader’s account.

Is High Margin Debt a Market Indicator?

What is the impact of high margin debt on the stock market, historically? It’s unclear whether higher rates of margin use, as in the last quarter of 2025 where margin debt increased 34.4% year over year, might signal a market decline.

Looking back on market booms and busts since 1999, it does seem that margin debt tends to accompany the markets’ peaks and valleys. As such, margin debt may reflect investor confidence.

Different Perspectives on Margin Debt Levels

While some traders view margin debt as one measure of investor confidence, high margin debt can also be a sign that investors are chasing stocks, creating a cycle that can lead to greater volatility. If investors’ margin accounts decline, it can force brokers to liquidate securities in order to keep a minimum balance in these accounts.

It can be helpful for investors to look at whether total margin debt has been increasing year over year, rather than focusing on current margin debt levels. FINRA publishes total margin debt levels each month.

Jumps in margin debt do not always indicate a coming market drop, but they may be an indication to keep an eye out for additional signs of market shifts.

The Takeaway

Margin trading and the use of margin debt — i.e., borrowing funds from a broker to purchase securities — can be a useful tool for some investors, but it isn’t recommended for beginners due to the higher risk of using leverage to place trades. Margin debt does allow investors to place bigger trades than they could with cash on hand, but profits are not guaranteed, and steep losses can follow.

Thus using margin debt may not be the best strategy for investors with a low appetite for risk, who should likely look for safer investment strategies.

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

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

FAQ

Is margin debt good or bad?

Like any kind of leverage or borrowed capital, the use of margin can be beneficial in some instances, but it comes with an inherent risk. It’s possible to have a good outcome using margin to make trades, but it’s also possible to lose money. Investors have to weigh the pros and cons of leveraged strategies.

How does margin investing work?

If you qualify for a margin account, using a margin loan can enable you to place trades using more money than you could with cash alone. Taking bigger positions can lead to bigger gains, but the risk of loss is also steep if the trade moves against you. In that case, you can lose money on the trade, and you still have to repay the margin debt you owe, plus interest and fees.

Are there different margin rules for different securities?

Yes, trading stocks comes with different margin requirements than, say, trading forex or certain derivatives. It’s important to know the terms of the margin account as well as the securities you intend to trade.

Photo credit: iStock/PeopleImages

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.

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

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Mutual Funds (MFs): 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 clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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.

SOIN-Q425-009

Nov

2025

A man and woman sit at an office desk, looking at a screen that displays the initial margin in a margin account.

What Is Initial Margin? Examples and Minimums

By Colin Dodds | Growing Wealth, invest, Investing | Comments Off

Table of Contents

Using Initial Margin
How Do You Calculate Initial Margin?
Initial Margin Requirement Examples
Initial Margin vs Maintenance Margin
FAQ

Margin is a form of leverage, and initial margin is the amount of cash and/or collateral a qualified investor must deposit in a margin account in order to open a leveraged trade. Initial margin is generally expressed as a percentage.

For example, the Federal Reserve’s Regulation T requires a minimum 50% initial margin deposit for trading stocks on margin. Thus a $7,500 initial margin would be required to open a $15,000 position.

Different securities, such as futures contracts and forex (foreign currency) trades, may have different initial margin requirements. Trading on margin isn’t possible for most retail investors with cash accounts; only qualified investors may open a margin account.

Key Points

• Initial margin is the amount of cash or collateral an investor must deposit in a margin account to open a leveraged trade, typically expressed as a percentage.

• Initial margin is calculated by multiplying the investment amount by the initial margin requirement percentage.

• Regulation T requires a minimum 50% initial margin for trading stocks, though all margin rules can vary depending on the security and the brokerage.

• Trading on margin carries risks, as borrowed funds must be repaid with interest regardless of trade outcomes, potentially leading to greater losses.

• Maintenance margin is the minimum amount an investor must keep in their margin account after purchasing securities on margin, with a FINRA-set minimum of 25%.

Using Initial Margin

Qualified investors who want to open a margin account at a brokerage must first deposit the required minimum initial margin amount. They can make that deposit in the form of cash, securities, or other collateral, and the initial margin amount will depend on the securities they’re trading, and whether the brokerage firm has any specific requirements of its own. Note that standard cash trading accounts are not available for margin trading.

Once the investor makes that initial margin deposit as collateral, they can begin margin trading. Margin allows the investor to buy securities with money borrowed from the brokerage, i.e., leverage.

As noted, Regulation T has a 50% minimum initial margin requirement. However, brokerage firms offering margin accounts can set their initial margin requirement higher than 50% based on the markets, their clients, and their own business considerations. But brokerages cannot set the initial margin for their clients any lower than 50%. The level that a brokerage sets for margin is known as the “house requirement.”

Risks of Margin Trading

Trading on margin brings its own unique set of opportunities and risks because margin debt must be repaid, with interest, regardless of the outcome of the trade. Trading on margin can lead to outsized profits if investors buy appreciating stocks. But if an investor’s trade moves in the wrong direction, they can lose even more than if they’d purchased the securities outright because the borrowed funds must be repaid, with interest.

In the unfortunate situation where the securities purchased on margin lose all value, the investor must deposit the full purchase price of the securities to cover the loss. Given these risks, you’re typically not able to trade on margin when investing online in a cash account or in retirement accounts such as an IRA or a 401(k).

Sometimes investors use margin to short a stock, or bet that it will lose value. In that instance, they’d borrow shares from the brokerage firm that holds a position in the stock and sell them to another investor. If the share price goes down, the investor can purchase them back at a lower price.

In general, investors looking for safer investments might want to avoid margin trading, due to their inherent risk. Investors with a higher tolerance for risk, however, might appreciate the ability to generate outsize returns.

How Do You Calculate Initial Margin?

An investor who wants to trade in a margin account, must first determine how much to deposit as an initial margin. While that will depend on how much the investor wants to trade, and how big a role margin will play in their strategy, there are some guidelines.

The New York Stock Exchange and some of the other securities exchanges require that investors have at least $2,000 in their accounts. For day traders, the minimum initial margin is $25,000 (although a proposed FINRA rule change in 2025 may eliminate that requirement, pending SEC approval).

Each brokerage has its own set of requirements for trading stocks on margin in terms of the amount clients need to keep as collateral, and the minimum size of the account necessary to trade on margin.

Increase your buying power with a margin loan from SoFi.

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

*For full margin details, see terms.

Initial Margin Requirement Examples

It’s possible, for example, that a brokerage firm might require 65% initial margin. The initial margin calculation simply requires the investor to multiply the investment amount by the initial margin requirement percentage. For an investor who wants to buy $20,000 of a given security, they will take that purchase price, multiply it by the margin requirement is 65% or 0.65 – to arrive at an initial margin requirement of $13,000.

The advantage for the investor is that they get $20,000 of exposure to that stock for only $13,000. In a scenario where the investor is buying a stock at a 50% margin, that investor can buy twice as many shares as they could if they bought them outright. That can double their return if the stock goes up. But if the stock drops, that investor could lose twice as much money.

If the price falls far enough, the investor could get a margin call from their broker. That means that they must deposit additional funds. Otherwise, the broker will sell the stock in their account to cover the borrowed money.

Initial Margin vs Maintenance Margin

For investors who buy securities on margin, the initial margin is an important number to know when starting out. But once the investor has opened a margin account at their brokerage, it’s important to know the maintenance margin as well.

The maintenance margin is the minimum amount of money that an investor has to keep in their margin account after they’ve purchased securities on margin.

Currently, the minimum maintenance margin, as set by the Financial Industry Regulatory Authority (FINRA,) is 25% of the total value of the margin account. As with the initial margin requirements, however, 25% is only the minimum that the investor must have deposited in a margin account. The reality is that brokerage firms can – and often do – require that investors in margin accounts maintain a margin of between 30% to 40% of the total value of the account.

Some brokerage firms refer to the maintenance margin by other terms, including a minimum maintenance or a maintenance requirement. The initial margin on futures contracts may be significantly lower.

Maintenance Margin Example

As an example of a maintenance margin, an investor with $10,000 of securities in a margin account with a 25% maintenance margin must maintain at least $2,500 in the account. But if the value of their investment goes up to $15,000, the investor has to keep pace by raising the amount of money in their margin account to reach the maintenance margin, which rises to $3,750.

Maintenance Margin Calls

If the value of the investor’s margin account falls below the maintenance margin, then they can face a margin call, or else the brokerage will sell the securities in the account to cover the difference between what’s in their account and the maintenance margin.

With a maintenance margin, the investor could also face a margin call if the investment goes up in value. That’s because as the investment goes up, the percentage of margin in relation by comparison goes down.

The Takeaway

Initial margin requirements and maintenance margins are just two considerations for investors who are looking to trade on margin. They allow investors to understand how much cash they need to hand on hand in order to trade on margin — and when they might be susceptible to a margin call.

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

FAQ

What is an example of initial margin?

If the initial margin in an account is 50%, and an investor wants to purchase $20,000 of a given security, they will need to deposit $10,000 of initial margin.

Is initial margin refundable?

Not exactly. Margin acts as a deposit on a leveraged position. Once the trade is complete, barring any losses, the investor may recoup their initial margin deposit.

Why is initial margin important?

Initial margin is important because it acts as collateral to cover a loss in the event that the investor loses money while trading on margin. The initial margin can help the lender – or brokerage – recoup some of those losses.

Why is initial margin paid?

Initial margin acts as a deposit or a form of collateral to establish good faith between a an investor and their brokerage.

Who sets the initial margin requirement?

Initial margin requirements are established by the Federal Reserve’s Regulation T. But there can also be other requirements put in place by an individual brokerage, and FINRA’s additional margin rules can also influence the amount.

Does initial margin have to be cash?

Generally, initial margin needs to be in the form of cash deposits, but it’s possible that some brokerages will allow it to take the form of other securities, or cash plus securities.

Is initial margin a cost?

Initial margin is not a cost per se, but a form of collateral. As such, it’s not a typical “cost,” though if a trade goes south the initial margin may be used to cover any losses.

Photo credit: iStock/FG Trade

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.

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.

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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.

This article is not intended to be legal advice. Please consult an attorney for advice.

SOIN-Q425-011

Nov

2025

A man sitting at a table working on his laptop to find out how much to withdraw from an account like an IRA in retirement.

4% Rule for Withdrawals in Retirement

By Krystal Etienne | invest, Investing, Preparing for Retirement | Comments Off

Table of Contents

What Is the 4% Rule for Retirement Withdrawals?
Drawbacks of the 4% Rule
How Can I Tailor the 4% Rule to Fit My Needs?
Should You Use the 4% Rule?
FAQ

After decades of saving for retirement, many new retirees often find themselves facing a new challenge: Determining how much money they can take out of their retirement account each year without running the risk of depleting their nest egg too quickly.

One popular rule of thumb is “the 4% rule.” Read on to learn more about the rule and how it works.

Key Points

• The 4% rule suggests withdrawing 4% of retirement savings in the first year, and then adjusting for inflation annually.

• The rule assumes a 30-year retirement period and a balanced 50% stock, 50% bond portfolio.

• Flexibility is important to adapt to lifestyle changes and fluctuating expenses in retirement.

• Additional income sources, such as Social Security or pensions, should be considered when it comes to how much to withdraw in retirement.

• For those who hope to retire early, the 4% rule likely won’t provide a sustainable income for all their years of retirement.

What Is the 4% Rule for Retirement Withdrawals?

The 4% rule suggests that retirees withdraw 4% from their retirement savings the year they retire, and adjust that dollar amount each year going forward for inflation. Based on historical data, the idea is that the 4% rule should allow retirees to cover their expenses for 30 years.

The rule is intended to give retirees some planning guidance about retirement withdrawals. The 4% rule may also help provide them with a sense of how much money they need for retirement.

How to Calculate the 4% Rule

To calculate the 4% rule, add up all of your retirement investments and savings and then withdraw 4% of the total in your first year of retirement. Each year after that, you increase or decrease the amount, based on inflation.

For example, if you have $1 million in retirement savings in an online investment account, you would withdraw 4% of that, or $40,000, in your first year of retirement. If inflation rises 3% the next year, you would increase the amount you withdraw by 3% to $41,200.

Drawbacks of the 4% Rule

While the 4% rule is simple to understand and calculate, it’s also a rigid plan that doesn’t fit every investor’s individual situation. Here are some of the disadvantages of the 4% rule to consider.

It doesn’t allow for flexibility

The 4% rule assumes you will spend the same amount in each year of retirement. It doesn’t make allowances for lifestyle changes or retirement expenses that may be higher or lower from year to year, such as medical bills.

The 4% rule assumes that your retirement will be 30 years

In reality, an individual’s retirement may be shorter or longer than 30 years, depending on what age they retire, their health, and so on. If someone’s life expectancy goes beyond 30 years post-retirement they could find themselves running out of money.

It’s based on a specific portfolio composition

The 4% rule applies to a portfolio of 50% stocks and 50% bonds. Portfolios with different investments of varying percentages would likely have different results, depending on that portfolio’s risk level.

It assumes that your retirement savings will last for 30 years

Again, depending on the assets in your portfolio, and how aggressive or conservative your investments have been, your portfolio may not last a full 30 years. Or it could last longer than 30 years. The 4% rule doesn’t adjust for this.

4% may be too conservative

Some financial professionals believe that the 4% rule is too conservative, as long as the U.S. doesn’t experience a significant economic depression. Because of that, retirees may be too frugal with their retirement funds and not necessarily live life as fully as they could.

Others say the rule doesn’t take into account any other sources of income retirees may have, such as Social Security, company pensions, or an inheritance.

How Can I Tailor the 4% Rule to Fit My Needs?

You don’t have to strictly follow the 4% rule. Instead you might choose to use it as as a starting point and then customize your savings from there based on:

• When you plan to retire: At what age do you expect to stop working and enter retirement? That information will give you an idea about how many years worth of savings you might need. For instance, if you plan to retire early, you may very well need more than 30 years’ worth of retirement savings.

• The amount you have saved for retirement: How much money you have in your retirement plans will help you determine how much you can withdraw to live on each year and how long those savings might last. Also be sure to factor in your Social Security benefits and any pensions you might have.

• The kinds of investments you have: Do you have a mix of stocks, bonds, mutual funds, and cash, for instance? The assets you have, how aggressive or conservative they are, and how they are allocated plays an important role in the balance of your portfolio. An investor might want assets that have a higher potential for growth but also a higher risk tolerance when they are younger, and then switch to a more conservative investment strategy as they get closer to retirement.

• How much you think you’ll spend each year in retirement: To figure out what your expenses might be each year that you’re retired, factor in such costs as your mortgage or rent, healthcare expenses, transportation (including gas and car maintenance), travel, entertainment, and food. Add everything up to see how much you may need from your retirement savings. That will give you a sense if 4% is too much or not enough, and you can adjust accordingly.

Should You Use the 4% Rule?

The 4% rule can be used as a starting point to determine how much money you might need for retirement. But consider this: You may have certain goals for retirement. You might want to travel. You may want to work part-time. Maybe you want to move into a smaller or bigger house. What matters most is that you plan for the retirement you want to experience.

Given those variations, the 4% rule may make more sense as a guideline than as a hard-and-fast rule.

Having flexibility in planning for withdrawals in retirement means saving as much as possible first. A starting place for many people is their workplace 401(k), but that’s not the only way you can save for retirement. For instance, those who don’t have access to a workplace retirement account might want to open an IRA or a retirement savings plan for the self-employed to invest for their future.

The Takeaway

The 4% rule represents a percentage that retirees can withdraw from their retirement savings annually (increasing or decreasing the amount each year, based on inflation) and theoretically have their savings last a minimum of 30 years. For example, in the first year in retirement, someone following this rule could withdraw $20,000 from a $500,000 retirement account balance.

However, the 4% rule has limitations. It’s a rigid strategy that doesn’t take factors like lifestyle changes into consideration. It assumes that your retirement will last 30 years, and it’s based on a specific portfolio allocation. A more flexible plan may be better suited to your needs.

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.

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FAQ

How long will money last using the 4% rule?

The intention of the 4% rule is to make retirement savings last for approximately 30 years. But exactly how long your money may last will depend on your specific financial and lifestyle situation.

Does the 4% rule work for early retirement?

The 4% rule is based on a retirement age of 65. If you retire early, you may have more years to spend in retirement and your financial needs will likely be different. In this instance, the 4% rule may not give you enough income to sustain you through all the years of retirement.

Does the 4% rule preserve capital?

With the 4% rule, the idea is to withdraw 4% of your total funds and allow the remaining money in the account to keep growing. Because the withdrawals would at least partly consist of dividends and interest on savings, the amount withdrawn each year would not come totally out of the principal balance.

Is the 4% rule too conservative?

Some financial professionals say the 4% rule is too conservative, and that by using it, retirees may be too frugal with their retirement funds and not live as comfortable a life as they could. Others say withdrawing 4% of retirement funds could be too much because the rule doesn’t take into account any other sources of income retirees may have, such as Social Security.

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

SOIN-Q425-016

Nov

2025

A Black woman in glasses works on her laptop at a desk in an office.

Top AI ETFs to Invest In: 2025 Guide

By Dan Miller | invest | Comments Off

Table of Contents

What Is an AI ETF?
Top AI ETFs by Market Cap in 2025
Why Consider Investing in AI ETFs?
AI ETFs vs Other Investment Options
How to Compare and Choose an AI ETF
How to Invest in AI ETFs
Risks of Investing in AI ETFs
FAQ

Artificial intelligence is rapidly becoming one of the most transformative forces in the global economy. From generative AI tools to robotics and automation, breakthroughs in AI are reshaping industries and driving innovation. For investors, this momentum has generated a new investment opportunity: AI exchange-traded funds, or ETFs.

Artificial intelligence ETFs allow investors to gain relatively low-cost, diversified exposure to the fast-growing AI sector, spreading risk across a wide range of companies, while tapping into the potential of a technology that’s just beginning to scale.

In this AI ETF guide, we’ll identify some of the promising AI ETFs by market capitalization. To keep pace with new players and help you navigate a rapidly changing AI environment, this guide will be updated quarterly.

Key Points

• Artificial intelligence ETFs offer a relatively low-cost, diversified way to invest in the rapidly growing artificial intelligence sector.

• Some of the top AI ETFs by market capitalization, as of October 2025, include Global X Artificial Intelligence & Technology ETF (AIQ), Global X Robotics & Artificial Intelligence ETF (BOTZ), Defiance Quantum ETF (QTUM), and more.

• Investing in AI ETFs allows for exposure to AI technology while diversifying risk compared to individual stock investments.

• AI ETFs differ from AI mutual funds in trading flexibility, management style, liquidity, and cost.

• When choosing an AI ETF, consider factors like expense ratio, fund size, diversification of holdings, and alignment with financial goals and risk tolerance.

What Is an AI ETF?

For those who want to invest in exchange-traded funds (ETFs), the term AI ETF refers to an ETF that focuses on companies that in some way participate in the artificial intelligence sector.

Understanding ETFs as a potential investment option is important, as these funds differ from mutual funds and stocks in key ways. As with other types of ETFs, instead of purchasing stock in an individual company, an AI ETF typically includes companies involved in AI development, AI-powered products, and AI infrastructure.

When considering ETFs vs. mutual funds, ETFs may be lower cost and more liquid, with potential tax efficiencies.

An AI ETF may also refer to an ETF that uses artificial intelligence to help pick the stocks that it invests in, though this definition is less common.

Types of AI ETFs to Consider

ETFs that are built around artificial intelligence stocks are not all the same. Here are some differences to be aware of.

Passive vs. Active ETFs: Until mid-2025, the majority of ETFs were considered passive funds in that they tracked a certain index, such as the S&P 500. This year, the number of actively managed ETFs exceeded the number of passive funds. This is important for investors to know, as active funds may charge higher fees, and may offer more complex strategies.

Technology ETFs: For those familiar with investing in technology stocks, many AI ETFs are essentially portfolios of tech stocks, and often include familiar tech companies such as Microsoft, Nvidia, AMD, and so on. In other words, when investing in a tech-focused ETF, it’s also possible to gain exposure to many AI industry leaders.

Thematic ETFs: Investors can also look for funds that are specifically invested in AI-centered stocks, under the umbrella of so-called thematic investing ETFs, which refer to funds focused on niche strategies in a range of industries (e.g., pharmaceuticals, green technology, real estate, and so on).

AI-powered ETFs: As noted above, artificial intelligence algorithms can be used to select and help manage an ETF portfolio. This does not ensure that the fund’s portfolio is invested in AI stocks; it’s best to check the meaning of the AI label from fund to fund.

Top AI ETFs by Market Cap in 2025

As of October 2025, these are the top artificial intelligence ETFs, by market capitalization.

Global X Artificial Intelligence & Technology ETF (AIQ)

• Market cap / AUM: $4.80B

• Expense ratio: 0.68%

• Performance (1-year: 38.0%

• Performance (3-year): 28.5%

• Top holdings (tickers): GOOGL, AVGO, AAPL, 0700.HK (Tencent), BABA

• Why it stands out: Large, diversified AI & big-data fund blending both innovators and infrastructure providers.

Global X Robotics & Artificial Intelligence ETF (BOTZ)

• Market cap / AUM: $2.85B

• Expense ratio: 0.68%

• Performance (1-year): 15.12%

• Performance (3-year): 17.8%

• Top holdings (tickers): NVDA, ABB, FANUC, KEYENCE, ISRG

• Why it stands out: A major industrial and robotics-focused AI fund with significant allocations to automation hardware leaders.

Defiance Quantum ETF (QTUM)

• Market cap / AUM: $2.0B

• Expense ratio: 0.40%

• Performance (1-year): 67.4%

• Performance (3-year): 33.8%

• Top holdings (tickers): MDB, TSEM, SNPS, TER, ALCPF

• Why it stands out: Combines AI/machine learning exposure with quantum computing, offering investors access to frontier technologies.

First Trust Nasdaq Artificial Intelligence & Robotics ETF (ROBT)

• Market cap / AUM: $562.8M

• Expense ratio: 0.65%

• Performance (1-year): 27.1%

• Performance (3-year): 10.3%

• Top holdings (tickers): SYM, AMBA, TPTX, UPST, GNTX

• Why it stands out: Equal-weight structure across AI enablers, engagers, and enhancers, with less concentration on mega-cap tech companies.

ROBO Global Artificial Intelligence ETF (THNQ)

• Market cap / AUM: $248.5M

• Expense ratio: 0.68%

• Performance (1-year): 43.1%

• Performance (3-year): 27.2%

• Top holdings (tickers): CRWD, IOT, PANW, TEM, ADSK, AMZN

• Why it stands out: Focuses its holdings by AI-revenue exposure in both infrastructure and applications/service buckets

Roundhill Generative AI & Technology ETF (CHAT)

• Market cap / AUM: $526.3M

• Expense ratio: 0.75%

• Performance (1-year): 65.4%

• Performance (3-year): N/A

• Top holdings (tickers): NVDA, GOOGL, PLTR, MSFT, ARM

• Why it stands out: Thematic play as this ETF is dedicated to generative AI including large language models (LLMs).

Source: Yahoo Finance, as of October 1, 2025.

Why Consider Investing in AI ETFs?

There’s no denying that artificial intelligence has already transformed many aspects of the economy and investing, and it appears likely to continue to do so in the years to come. Investing in an AI ETF allows you to have access to the growing AI technology sector, while diversifying your risk as compared to investing in individual stocks.

Rather than investing in individual AI companies, an AI ETF gives you broad exposure to a number of different AI companies.

AI ETFs vs Other Investment Options

It’s important to understand how ETFs compare to other investment options.

AI ETFs vs. AI Mutual Funds

The difference between AI ETFs and AI mutual funds is similar to the difference between ETFs and mutual funds in general.

ETFs trade on an exchange, may be passively or actively managed, usually have lower expense ratios than traditional mutual funds, and allow you to trade throughout the day.

In contrast, mutual funds are usually actively managed, can only be traded at the end of each day, are bought directly from the fund company, and often come with higher expense ratios than ETFs.

AI ETFs vs. Individual AI Stocks

Another way to invest in the AI sector is by choosing individual AI stocks to invest your money in. This might include companies that focus on robotics, self-driving vehicles, large language model (LLM) generation, or improving manufacturing processes.

While investing in individual stocks does open up the possibility of higher returns if you pick a company that outperforms the market, you also risk lower returns or losses if your stock doesn’t do well.

Remember that you can choose more niche AI ETFs if you prefer thematic investing. This can allow you to find an ETF that focuses directly on specific applications of AI, like robotics, automation, or self-driving technology.

How to Compare and Choose an AI ETF

If your brokerage account allows self-directed trading, you can research and choose which AI ETF you want to invest in. You can choose your AI ETF in the same way that you choose any other stock, mutual fund, ETF, or other investment. If you have specific AI companies you want to make sure you have exposure to, check the fund’s top holdings to make sure it is represented.

You can also look at the fund’s recent performance as compared to other funds over the past time periods, although keep in mind that past performance does not guarantee future results.

Another important factor to bear in mind is the fund’s expense ratio. These costs, which are often expressed as a percentage, may seem small, but they can add up over time, and all investment fees effectively reduce returns.

Reviewing all of these factors can help you decide which AI ETF is right for you.

How to Invest in AI ETFs

There are many different ways for investing in ETFs, and the exact steps will depend on which brokerage you use and what ETFs you are interested in. Your overall investing goals and strategies will be important as well. Still, here are a few steps to consider when investing in AI ETFs:

• Choose a brokerage — Find a brokerage that offers AI ETFs. You may choose to use a brokerage where you already have an account, or open an account at a different brokerage.

• Research ETFs — Decide which ETF you want to invest in. Your brokerage may have research tools to help you, or you might choose to research on your own.

• Place an order — Once you’ve decided how you want to invest, place an order at your brokerage.

Recommended: How to Invest in ETFs

Risks of Investing in AI ETFs

The risks of investing in AI ETFs are similar to the risks of investing in general. Your investments could lose money, and the past performance of any particular fund is no guarantee that it will continue to produce those results in the years to come.

Additionally, as with any emerging technology, there is a risk that some of these technology companies may go out of business. The AI industry is highly competitive and volatile, with key players emerging, and changing frequently.

However, investing in an AI ETF is generally considered less risky than investing in individual stocks, since you are diversifying your risk across many different companies.

The Takeaway

AI is evolving at a breathtaking pace, with adoption expanding from consumer tools to enterprise solutions, manufacturing, and beyond. For investors looking to participate in this growth while balancing risk, AI ETFs provide a way to access the sector through diversified holdings.

Whether you’re drawn to broad AI technology funds or more thematic and focused strategies like robotics or generative AI, these AI ETFs offer individual investors the ability to take part in the potential growth of artificial intelligence companies.

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

FAQ

How do I choose the right AI ETF?

When choosing an AI ETF, you’ll want to look at factors such as expense ratio, fund size, diversification of holdings, and whether it focuses on pure AI companies or broader technology. It’s also helpful to review the top holdings to ensure they align with your investment goals and risk tolerance.

Is there an AI-managed ETF?

Yes, some ETFs use AI to pick which stocks to invest in. This may or may not mean the fund itself is invested in artificial intelligence technology, however.

What is the best way to invest in AI?

There is no single best way to invest in AI — instead, it will depend on your risk profile and investment goals. AI ETFs can provide diversified exposure to the sector, which can help reduce the risk of betting on a single company. More aggressive investors may also consider individual AI stocks or venture capital opportunities in startups.

How are AI ETFs different from regular tech ETFs?

Investing in AI ETFs has a few key differences as compared to investing in technology stocks or generic technology ETFs. AI ETFs focus specifically on companies that are developing or heavily leveraging artificial intelligence, machine learning, and automation.

What are the biggest risks of investing in AI ETFs?

The biggest risks of investing in AI ETFs include high volatility, since AI is still an emerging sector with uncertain regulation and adoption timelines. Because there are not as many companies focusing on artificial intelligence yet, AI ETFs may also be heavily concentrated in a few stocks. This increases exposure to individual company performance, which can also increase volatility.

About the author

Dan Miller

Dan Miller is a freelance writer who has spent over ten years covering developments in the finance space. His expertise extends to all things personal finance, including student loans, budgeting, credit cards, and mortgages. Read full bio.

Photo credit: iStock/miniseries

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Nov

2025

A Black man in glasses sits at a desk, looking thoughtfully at a laptop with his hand on his chin.

Top AI Stocks to Invest In: 2025 Guide

By Dan Miller | invest | Comments Off

Table of Contents

What Are AI Stocks and Why Invest in Them?
Top AI Stocks by Market Cap (2025)
AI Stocks to Watch
How to Invest in AI Stocks
How to Evaluate AI Companies
Common Risks of Investing in AI Stocks
Building an AI-Focused Portfolio
FAQ

Artificial intelligence (AI) is reshaping industries from health care to finance, and investors are increasingly investing in AI stocks as a way to capture that growth. AI stocks represent companies that are building or leveraging AI technology, including using cutting-edge algorithms, creating large language models or other generative AI, designing advanced chips, or applying AI to transform traditional business processes like manufacturing.

In this 2025 AI guide, we’ll spotlight some promising AI investment opportunities, helping you navigate a rapidly changing market, which can also be volatile and risky. To keep pace with new developments, this guide is updated quarterly, to help ensure you always have the latest insights at your fingertips.

Key Points

• AI stocks represent companies that develop or implement AI technology, e.g., large language models, designing advanced chips, or applying AI to transform business processes.

• Investing in AI stocks may capture growth in a rapidly changing market, though these stocks can be volatile and increase risk exposure.

• Top AI stocks by market cap, as of Q4 2025, include Nvidia, Microsoft, Alphabet, Amazon, Meta Platforms, and more.

• Investors can invest in AI stocks through direct stock purchases or by investing in AI-focused ETFs.

• Evaluating AI companies involves looking at fundamentals like revenue, growth, and debt, as well as risks such as volatility, competition, and regulatory issues.

What Are AI Stocks and Why Invest in Them?

The term “AI stocks” generally refers to stocks and companies that are investing in the AI space. This could be companies that are using generative AI, or companies that are building the infrastructure that helps support the growth of this sector.

There are many ways to seek returns while stock trading, but one of the most common is identifying successful and potentially profitable companies that are relatively undervalued.

One reason to invest in AI stocks is the same way that you might be investing in technology stocks in general. There is no denying that the demand for artificial intelligence has exploded over the past several years. Investing in the companies that are driving the AI boom may yield returns. But investors should also be prepared for some volatility in this space, owing to the rapid pace of innovation and steep competition.

It’s notable that in August of 2025, the Securities and Exchange Commission (SEC) announced the formation of a new AI-focused task force, to enable the regulatory body to enhance its own efficiency and ability to regulate markets increasingly inclusive of AI technology.^[1]

Top AI Stocks by Market Cap (2025)

Here is a look at some of the top AI stocks by market capitalization, as of October 2025, along with 1-year returns.

Company	Ticker	Market Cap	1-Year Return
Nvidia	NVDA	$4.3 trillion	55.50%
Microsoft	MSFT	$3.8 trillion	18.02%
Alphabet (Google)	GOOGL	$3.1 trillion	57.71%
Amazon	AMZN	$2.5 trillion	24.03%
Meta Platforms	META	$1.96 trillion	45.04%
Broadcom	AVGO	$1.6 trillion	113.61%
Palantir Technologies	PLTR	$419.8 billion	386.45%
AMD	AMD	$256.3 billion	6.49%
ServiceNow	NOW	$197 billion	6.44%
Snowflake	SNOW	$75.3 billion	100.50%

Source: Yahoo Finance, as of October 1, 2025.

Nvidia (NVDA)

• Overview: Data centers, driverless cars, and generative AI applications are all powered by Nvidia’s GPUs and AI accelerators. Many people consider these to be the foundation of the AI hardware ecosystem.

• Why it’s a top stock: The company has secured a dominant market position in training huge AI models due to the growing demand for its AI processors. It is positioned as a major facilitator of AI adoption in 2025 due to its robust revenue growth and alliances with cloud industry leaders.

• Risks: Due to its high value, Nvidia has little margin for mistake, and its market share may be eroded by growing competition from AMD, Intel, and hyperscalers producing custom chips.

Microsoft (MSFT)

• Overview: Microsoft is one of the largest companies in the world, and it’s now integrating AI into its Office, Azure, and GitHub Copilot software.

• Why it’s a top stock: Microsoft has partnered with OpenAI to make its Azure computing platform into a central hub for generative AI. It is considered an AI leader due to its size and scale.

• Risks: Microsoft has a history of attracting antitrust and regulatory scrutiny, which could affect returns. Owing to its size, it may be less nimble than competitors.

Alphabet (GOOGL)

• Overview: Alphabet is the parent of Google, one of the leading companies for search, cloud services, and AI research. Its DeepMind research lab is an industry leader.

• Why it’s a top stock: Google’s Gemini AI model is one of the more popular generative AI platforms. Due to its large data advantage and experience in AI, it has the potential to be a top AI stock.

• Risks: Alphabet has faced regulatory and antitrust action from governments. Also, the cost of remaining competitive (e.g., talent acquisition, operations) could exert downward pressure on the company’s bottom line.

AMD (AMD)

• Overview: AMD develops CPUs and GPUs used in gaming, PCs, and increasingly in AI data centers.

• Why it’s a top stock: Its MI300 chips are designed to compete with Nvidia for a slice of the artificial intelligence market. A track record of innovation also suggests AMD is well-placed for solid future performance. In addition, a Q4 deal to sell billions in GPUs to OpenAI has moved AMD into Nvidia’s space.^[2]

• Risks: Nonetheless, Nvidia is an entrenched competitor in this market, making it risky to bet on AMD as the challenger in CPU and GPU development.

Broadcom (AVGO)

• Overview: Broadcom is a semiconductor and infrastructure software company providing chips used in networking, broadband, and AI data centers.

• Why it’s a top stock: Broadcom produces chips that support high-bandwidth connectivity, and its components are an essential part of industry infrastructure. Its strategic purchase of VMware provides additional income and profit. In addition, its Q3 revenue, and forecasts for the coming year, topped expectations.^[3]

• Risks: Currently, Broadcom is considered overvalued, and there has been some top level insider selling that may indicate a lack of confidence.

Palantir (PLTR)

• Overview: Palantir provides big data analytics platforms, widely used by governments and enterprises to manage and analyze data.

• Why it’s a top stock: Palantir focuses on using large language models for enterprise rather than those targeted to individual consumers. This allows for a profit base through government contracts and through working with large businesses.

• Risks: Palantir has an outsized reliance on government contracts, which exposes it to political and budgetary risks. It’s also one of the most expensive stocks in the S&P 500, as of October 8, 2025, and analysts are questioning its valuation.

Amazon (AMZN)

• Overview: In addition to dominating global e-commerce, Amazon also operates Amazon Web Services (AWS), a leader in cloud computing and AI infrastructure.

• Why it’s a top stock: AWS offers AI tools and chips, which make it a key platform for developers and enterprises deploying AI. Amazon has also innovated in using AI for areas like in logistics, retail, and Alexa.

• Risks: Because it is such a large company, it can be difficult to achieve the same percentage of growth as smaller companies.

Meta Platforms (META)

• Overview: Meta operates Facebook, Instagram, WhatsApp, and Reality Labs, using AI for content recommendations, ads, and virtual reality.

• Why it’s a top stock: It has open-sourced its Llama LLM model and is investing heavily in AI infrastructure. If it is able to continue its strong user growth and AI-driven monetization, it could pave the way for higher profits.

• Risks: Meta has invested a huge amount in both AI and the metaverse. This could bring down profits if it is not able to capitalize on its large investment.

ServiceNow (NOW)

• Overview: ServiceNow delivers cloud-based workflow automation solutions for enterprise operations, enhanced by AI. It’s also expanding into the CRM area.

• Why it’s a top stock: ServiceNow uses generative AI in its platform to help its customers be more productive. Most of its customers are on a subscription model, which provides a baseline amount of revenue.

• Risks: ServiceNow is considered one of the top providers in enterprise software solutions, but it’s dependent on IT budgets. Also, with part of its customer base in the federal government, the company could face headwinds there.

Snowflake (SNOW)

• Overview: Snowflake provides cloud-native data warehousing and analytics to allow companies to process massive datasets.

• Why it’s a top stock: Snowflake Data Cloud is increasingly using its AI model training and deployment to help drive enterprise adoption.

• Risks: The stock’s current valuation is relatively expensive relative to company earnings, which could signal that its upcoming growth may not match previous returns.

AI Stocks to Watch

In addition to the top AI stocks mentioned above, there are a few other potential up-and-coming companies to keep in mind.

• Astera Labs (ALAB) helps meet demand for high-speed connectivity in AI data centers.

• Arista Networks (ANET) has become a critical supplier of networking gear that keeps massive AI clusters running smoothly.

• SoundHound AI (SOUN) is carving out a niche in voice-driven AI.

Since these are smaller or emerging companies, they may offer returns but also come with increased risk and volatility.

How to Invest in AI Stocks

There are a couple of different ways that you might consider investing in AI stocks.

Direct Stock Purchases

One of the simplest ways to invest in AI stocks is to use a self-directed brokerage account to make direct stock purchases of companies that focus on artificial intelligence. This could include companies that make the GPU, XPU, and TPU chips that power AI data centers, as well as companies that are using generative AI to help grow their business, or other companies in the space.

Many companies that work with AI are public companies, which means that you can purchase shares of their stock with a brokerage account.

Recommended: Understanding ETFs

AI ETFs

An AI exchange-traded fund (ETF) focuses on investing in companies using artificial intelligence.

There are AI ETFs that are more general, investing in a combination of innovators and artificial intelligence providers, such as the Global X Artificial Intelligence & Technology ETF (AIQ).

There are also ETFs that take a more narrow focus, such as the Roundhill Generative AI & Technology ETF (CHAT), that focuses only on companies using generative AI.

Regularly putting money into an AI ETF can be a way to increase automated investing in your portfolio.

How to Evaluate AI Companies

If you’re interested in thematic investing such as investing primarily in AI companies, you’ll want to make sure that you can accurately evaluate these companies.

One way to evaluate a company is to look at its fundamentals. This includes its top-line revenue, growth prospects, profit margins, competitors in the space, and debt levels.

You might also compare its P/E ratio (calculated by dividing the current market price of its stock by its earnings per share (EPS) to the P/E ratios of similar companies. That can be an indicator as to whether the stock price is currently under- or over-valued.

Understanding a company’s fundamentals can help you assess its potential upside and risks, and whether it’s a good fit with your risk tolerance.

Recommended: Risk Tolerance Explained

Common Risks of Investing in AI Stocks

Some of the risks that come with investing in AI stocks are the same risks that come with investing in any stocks. One of the most common maxims in stock investing is that past results do not guarantee future performance. So even if you find an AI stock or ETF that has performed well, it may not be a good choice going forward.

Because many AI stocks are also emerging companies without a long track record, they may come with higher risks than some other companies.

One of the biggest risks of investing in AI stocks, though, is the rapidly evolving state of AI technology right now — with numerous competitors here and abroad, and an astounding pace of innovation.

Building an AI-Focused Portfolio

If you have done your research and decided that you want to build an AI-focused portfolio, you have a number of options to get started. By and large, the process of selecting AI stocks is similar to selecting any investment: It requires research and due diligence to find the right fit with your financial goals.

It may also be possible to choose a robo advisor that includes AI stocks. A robo advisor is a type of automated portfolio that can help investors select a portfolio that matches their goals and financial needs. These portfolios typically include a range of low-cost securities such as ETFs; it’s important to do your due diligence to verify the types of investments included.

Learn more: What Is a Robo-Advisor?

However you choose to proceed, you may also want to consult a financial professional, owing to the range of options and the potential risks involved.

The Takeaway

AI is being integrated into multiple facets of our society at a breakneck pace, with new companies and new products emerging every day. If you want to capture some of the potential growth that comes from this sector, consider dedicating a portion of your overall investment portfolio into AI stocks, bearing in mind the potential risk exposure.

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

FAQ

What exactly are AI stocks?

The term “AI stocks” generally refers to stocks of companies that focus on areas like large language models (LLM), robotics, self-driving vehicles, or using AI to improve manufacturing processes. This means that there are many stocks that could be considered AI stocks, especially because AI technology is being integrated into many other sectors.

What are the main risks of investing in AI stocks?

The biggest risks of investing in AI stocks are that companies that focus on AI are often highly volatile, subject to competition and market disruptions. Unlike investing in AI ETFs, which include the stocks of many companies, investing in AI stocks ties your investment directly to the performance of a single company, which may increase risk exposure.

How can I identify the best AI companies for me to invest in?

There isn’t a single best AI company to invest in. Instead, the right AI companies to invest in will vary for every investor. That’s because each investor has a different risk tolerance and different things that are important to them. One way to identify AI companies to invest in is to look at the fundamentals of various AI companies, including revenue growth, profitability, and debt levels.

How much of my portfolio should be in AI stocks?

Deciding on your overall portfolio composition will depend on many individual factors, such as your risk tolerance and investment goals. AI stocks are generally thought to have a higher risk-reward ratio than other individual stocks, so you may want to keep the percentage of AI stocks in your portfolio low, unless you have a very high risk tolerance.

Should I buy individual AI stocks or an AI ETF?

Whether you should focus on AI stocks as compared to investing in an AI ETF depends on your overall investment goals and risk tolerance. You will generally have less volatility in an AI ETF, since your risk is spread out among many different stocks.

How do I stay updated on AI stock trends?

You can stay updated on AI stock trends in the same way that you might stay updated on trends for any company. You can follow news outlets, earnings releases, and industry reports. You can also follow analysts or set up alerts on companies you’re interested in through your brokerage app or another financial news service.

About the author

Dan Miller

Article Sources

U.S. Securities and Exchange Commission. SEC Creates Task Force to Tap Artificial Intelligence for Enhanced Innovation and Efficiency Across the Agency.
CNBC. Tech AMD’s deal with OpenAI gives Nvidia much-needed challenger in market it dominates.
Morningstar. After Earnings, Is Broadcom Stock a Buy, a Sell, or Fairly Valued?.

Photo credit: iStock/Liubomyr Vorona

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Why is initial margin paid?

Who sets the initial margin requirement?

Does initial margin have to be cash?

Is initial margin a cost?

4% Rule for Withdrawals in Retirement

What Is the 4% Rule for Retirement Withdrawals?

How to Calculate the 4% Rule

Drawbacks of the 4% Rule

It doesn’t allow for flexibility

The 4% rule assumes that your retirement will be 30 years

It’s based on a specific portfolio composition

It assumes that your retirement savings will last for 30 years

4% may be too conservative

How Can I Tailor the 4% Rule to Fit My Needs?

Should You Use the 4% Rule?

The Takeaway

FAQ

How long will money last using the 4% rule?

Does the 4% rule work for early retirement?

Does the 4% rule preserve capital?

Is the 4% rule too conservative?

Top AI ETFs to Invest In: 2025 Guide

What Is an AI ETF?

Types of AI ETFs to Consider

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Top AI ETFs by Market Cap in 2025

Global X Artificial Intelligence & Technology ETF (AIQ)

Global X Robotics & Artificial Intelligence ETF (BOTZ)

Defiance Quantum ETF (QTUM)

First Trust Nasdaq Artificial Intelligence & Robotics ETF (ROBT)

ROBO Global Artificial Intelligence ETF (THNQ)

Roundhill Generative AI & Technology ETF (CHAT)

Why Consider Investing in AI ETFs?

AI ETFs vs Other Investment Options

AI ETFs vs. AI Mutual Funds

AI ETFs vs. Individual AI Stocks

How to Compare and Choose an AI ETF

How to Invest in AI ETFs

Risks of Investing in AI ETFs

The Takeaway

FAQ

How do I choose the right AI ETF?

Is there an AI-managed ETF?

What is the best way to invest in AI?

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