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Feb

2024

Aiming to Become a Millionaire? These Steps Could Help

By Samuel Becker | Financial Independence, Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

Do you find yourself dreaming about what you would do if you were a millionaire? Maybe you fantasize about retiring early and traveling the world. Or perhaps what excites you is the thought of being able to donate to causes you care about.

But, you might be wondering, how to become a millionaire? You may suspect the only way you’ll ever be that rich is if you win the lottery.

Fortunately, the road to wealth isn’t that narrow — there are many ways to become a millionaire. For instance, some individuals retire with over a million dollars in savings because they made good financial decisions.

Others may have started businesses that brought them success, advanced their careers so that they made enough to save seven figures, or made smart investments.

Read on to learn more about how to become a millionaire, and strategies that could help get you there.

Introduction to the Millionaire Mindset and Goals

You may have a certain image of a millionaire in your mind. Maybe it’s a jetsetter or a celebrity. But many millionaires are not born into wealthy families or individuals who suddenly struck it rich. In fact, many millionaires are people who work for a living every day. In general, what tends to set them apart is that they have a millionaire mindset. They are smart and disciplined when it comes to their money. And they stay focused on their financial goals.

Defining What it Means to be a Millionaire

The true definition of a millionaire is someone with a net worth of at least $1 million. That means that their assets, minus any debt, is $1 million or more.

So, if you have $500,000 in savings and investments, plus a house that’s worth at least $500,000, are you a millionaire? Yes, if you own the house outright and don’t have a lot of debt such as car loans, student loans, or credit cards to pay off. But if you still owe money on your house and you’ve got a fair amount of debt to repay, you probably aren’t a millionaire. At least, not yet.

To do the math for your situation, total up your assets. Then subtract your debts from that amount. This will show you how close you are to reaching millionaire status, and possibly give you a sense of what you might have to do to get there.

Following these eight strategies can help when it comes to how to become a millionaire.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

Step 1: Stay Away From Debt

As we just saw in the example above, one thing that could be holding you back from becoming a millionaire is debt — especially if that debt is “bad debt,” a term often used for high-interest debt. Eliminating your debt is key because it’s difficult to build wealth if you’re paying a significant portion of your income toward interest.

Paying off debt could help free up money to invest and build wealth. One way to repay debt is to use the debt avalanche method. With this technique, you pay off your debts with the highest interest rates first and then focus on debts with the next highest interest rates (while still making minimum payments on all of your debt, of course).

Eliminating debt isn’t just about paying off existing debt, though, it’s also about avoiding the chances of going into debt in the future. Part of a debt payoff strategy could involve spending less so that you don’t need to rely on credit. You can also set a strict budget and pay with cash whenever possible.

In addition, you may want to create an emergency fund by setting aside a certain amount of money every month. That way, if you have a financial setback, you don’t have to go into credit card debt.

Recommended: Ready to build your emergency fund? Use our emergency fund calculator to determine the right amount.

Step 2: Invest Early and Consistently

Investing successfully doesn’t happen overnight. It takes time. That’s why you need to start early. There are a few rules to know that could help you improve your chances of becoming a millionaire.

Benefits of Compounding Returns

First, compounding returns can make all the difference. They can help your money grow, as long as the returns are reinvested.

Here’s how they work: Compounding returns depend on how much an investment gains or loses over time, which is known as the rate of return. The longer your money is invested, the more compounding it can do. That’s why some individuals start saving aggressively when they’re young.

Saving $100,000 by the time you’re 30 might not be possible for everyone, but the more you save early on, the greater impact it could have on your net worth.

And here’s the thing: Even if you’re in your 30s, 40s, or 50s now, it’s never too late to start saving. The important thing is that you start, period. And that you keep saving.

There are other investing strategies that could help as you work on how to become a millionaire. For instance, you could reduce the amount you spend on investment fees. High investment fees can have a big impact on your returns, so you might want to look into low-fee investments.

Also, you should make sure that you invest in a way that’s right for you throughout your life. That may mean investing more aggressively when you’re younger and gradually becoming more conservative in your investments as you get older and closer to retirement.

Step 3: Make Saving a Priority

Your savings is the amount of money you have left after paying taxes and spending money.

Many Americans aren’t saving enough to become a millionaire — in October 2023, the average personal savings rate was 3.8%, according to the Bureau of Economic Analysis. You’ll likely need to save more than three times that amount to become a millionaire.

Effective Saving Strategies for Long-term Wealth

To save for your goals, start by investing in your company’s 401(k). Max out your 401(k) if you can. At the very least, invest at least enough to earn the employer match, if there is one. That way your employer is contributing to your savings.

In addition, consider opening a traditional IRA or a Roth IRA and contribute as much as possible — up to the limit set by the IRS. These IRAs are tax-advantaged, so they’ll help with your tax bill, too.

And investigate other savings options as well. For instance, you could open a high-yield savings account rather than a regular savings account for a higher return.

Step 4: Increase Your Income

You can’t join the ranks of millionaires if you’re not bringing in more money than you need for your basic necessities. The more money you make, the more you can save and invest.

Tips for Boosting Earnings and Maximizing Income

Some ways to boost your income include asking for a raise or looking for a new higher-paying job. You could also go back to school to earn an advanced degree that could lead to a position with a higher income. Your current employer might even help you cover the cost; check with your HR department.

Another one of the ways to earn extra money is to take on a side hustle. You could tutor students on evenings or weekends, do freelance writing, or dog sit. And those are just some of the options to consider.

Step 5: Cut Unnecessary Expenses

Getting control of your spending is critical to building wealth. That doesn’t mean you have to cut back on everything that gives you pleasure, but you could consider the happiness return on investment you get from the money that you spend. How big of an apartment or home do you truly need to be content? What kind of car do you need? Do you have to buy lunch out every day or could you bring your own lunch from home?

Identifying and Eliminating Non-Essential Spending

You could find ways to cut back on the things that don’t matter so much, but not skimping to the point that you miss out on things you love. For example, maybe you need your gym sessions (and there are plenty of low-cost gyms out there), but you can do without a $5 latte every morning.

Also, you could focus on cutting back on big expenses instead of those that won’t have a huge impact on your budget. For example, dining out only once a month, adjusting your thermostat higher or lower depending on the season, or finding a less expensive, smaller home could help you save a significant amount of money over time.

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

Step 6: Keep Your Financial Goals in Focus

To become a millionaire, you’ll need to stay laser-focused on your financial goals. When everyone else around you is spending money, going on fancy vacations, and buying expensive cars, remind yourself what’s truly important to you. Keep your spending in check, continue to save and invest, and avoid taking on debt.

It takes discipline. But instead of thinking about the stuff you don’t have, appreciate all the good things in your life, like your family and friends. Remember that you’re saving for your future. You’ll be able to enjoy yourself then if you have the money you need to live comfortably and happily.

Think of it this way: You’re making yourself and your financial security the priority. Make that your mantra.

Step 7: Consult with Investment Professionals

Investing can be complicated because there are so many options to choose from. If you need help figuring out what investments are right for you, consider working with a qualified financial advisor.

Leveraging Advice for Wealth Building

A good financial advisor could help you select the right investments and the best investing strategies for your situation. They can also help you plan and budget to reach your goals. But be sure to be an active participant in the process. Ask questions, be involved. Why are they suggesting a specific investment? And if you don’t feel comfortable with something, say so.

Finally, be sure to check your investment performance regularly. Know what you are investing in, how much, and why.

Step 8: Repeat and Refine Your Financial Plan

The final step to becoming a millionaire is to stay committed to your goal and your plan. Keep saving and investing your money. Stay out of debt. Let time and the power of compounding returns kick in. Be patient.

But also, don’t be afraid to refine or change your plan if need be. For instance, as you get closer to retirement, you will likely want to choose safer, less aggressive investments. You can keep saving and growing money throughout different ages and stages, but your method for doing so can evolve to make sense for where you are in your life.

Additional Tips for Wealth Building

In addition to all of the strategies above, there are a few other techniques that may help you reach millionaire status.

Lifestyle Considerations and Spending Habits

As you work your way up the ladder and earn more money throughout your career, you may be tempted to increase your lifestyle spending, too. After all, you have more money now, so you may feel the urge to spend it.

But here’s the thing: Giving in to these temptations can be a slippery slope. It might start with a bigger house in a nice neighborhood, and then grow to taking extravagant vacations and driving a luxury car. Before you know it, you could be spending way more than you’re saving.

Try to avoid lifestyle splurging if you want to be a millionaire. Instead, take the extra money and save and invest it. That way, you’ll be able to reach your goal even faster.

The Takeaway

Becoming a millionaire is possible if you take the right approach. It involves saving and investing your money, spending wisely, and avoiding debt. You need to be disciplined and focused, and it won’t always be easy. But staying committed to your goals can reward you with financial security and success.

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).

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

Photo credit: iStock/pixelfit

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.

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.

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.

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.

SOIN1023169

Feb

2024

Stochastic Oscillator Explained

By Matthew Warholak | Financial Independence, Growing Wealth, invest, Investing | Comments Off

A stochastic oscillator is a technical indicator that traders use to determine whether a given security is overbought or oversold. Traders will use a stochastic indicator, which is considered a momentum indicator, to compare a specific closing price of a security to a range of its prices over a certain time frame.

In other words, by using a stochastic chart traders can gauge the momentum of a security’s price with the aim of anticipating trends and reversals. A stochastic oscillator uses a range of 0 to 100 to determine if an asset is overbought (when the measurements are above 80) or oversold (when the measurement is below 20).

What Is a Stochastic Oscillator?

Let’s consider two main types of analysis that investors and traders commonly use when trading stocks: fundamental analysis and technical analysis.

Fundamental analysis incorporates earnings data, in addition to economic and market news, to predict how an asset’s price might move. Whereas technical analysis relies on various sets of data and indicators, such as price and volume, to identify patterns and trends.

The stochastic oscillator is a key tool in securities trading because it helps gauge how strong the momentum of the market is. Thus the stochastic oscillator, or sto indicator, is an indicator used in trading to assess trend strength.

History of the Stochastic Oscillator

Developed in the 1950s for commodities traders, the stochastic oscillator is now a common technical indicator that investors use to evaluate a variety of assets in many online investing platforms and price chart services.

💡 Quick Tip: The best stock trading app? That’s a personal preference, of course. Generally speaking, though, a great app is one with an intuitive interface and powerful features to help make trades quickly and easily.

How Does a Stochastic Oscillator Work?

The stochastic oscillator has two moving lines, or stochastics, that oscillate between and around two horizontal lines. The primary “fast” moving line is called the %K and reflects with a specific formula, while the other “slow” line is a three-period moving average of the %K line.

The full stochastic oscillator is a line customized by the user that may combine the traits of the slow and fast stochastics.

Slow vs Fast Stochastics

A signal is generated when the “fast” %K line diverges above the “slow” line or vice versa. The two horizontal lines are often pre-set at 30 and 70, indicating oversold and overbought levels, respectively, but can be modified to other levels, such as 20 and 80, to reduce the risk of entering trades on false or premature signals.

The price is considered “overbought” when the two moving lines rise above the upper horizontal line and “oversold” when they fall below the lower horizontal line. The overbought line indicates price action that exceeds the top 20% (or 30%) of the recent price range over a defined period — typically 14-interval period. Conversely, the oversold line represents price levels that fit into the bottom 20% of the recent price range.

The stochastic oscillator is a form of stock technical analysis that calculates statistically opportune times for trade entries and exits. When both stochastics are above the ‘overbought’ line (typically 80) and the fast %K line crosses below the slow %D line, this may signify a time to exit a long position or initiate a short position.

Conversely, when both stochastics are below the oversold line (typically 20), and the %K line crosses above the %D line, this could signify a time to exit a short position or initiate a new long position.

The stochastic oscillator is especially useful among commonly day-traded assets such as low-float stocks that have limited amounts of shares and are more volatile.

However useful these stock indicators are for determining entry and exit points, most readers use them in connection with other tools. While a stochastic oscillator is useful for implementing an overall strategy, it does not assist with identifying the overall market sentiment or trend direction.

It is only when the trend or sideways trading range is well established that traders can safely and reliably use the stochastic oscillator to look for long entries in oversold conditions and shorts entries in overbought conditions.

What Is the Formula for a Stochastic Oscillator?

Below is the calculation for a standard 14-period stochastic indicator, but the time period can be adjusted for any time frame.

Calculation for %K:

%K = [(C – L14) / H14 -L14)] x 100

Key:

C = Latest closing price
L14 = Lowest low over the period
H14 = Highest high over the period

%K is sometimes referred to as the “fast stochastic”, whereas the “slow” stochastic indicator is defined as %D = 3-period moving of %K.

The general idea for this oscillator is that in an uptrending market prices will close near the indicator’s high, and in a downtrending market prices will close near the low. Trade signals are generated when the “fast” %K line crosses above or below the three-period moving average, or “slow” %D.

The Slow %K Stochastic Oscillator incorporates a slower three-interval period that provides a moderate internal smoothing of %K. If the %K smoothing period was set to one instead of three, it would result in the equivalent of plotting the ‘fast stochastic.’

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

Pros of the Stochastic Oscillator

There are several benefits to using the stochastic oscillator when evaluating investments.

Clear Entry/Exit Signals

The oscillator has a simple design and generates visual signals when it reaches an extreme level, which can help a trader determine when it’s time to buy or when to sell stocks.

Frequent Signals

For more active traders who trade on intraday charts such as the five, 10, or 15 minute time frames, the stochastic oscillator generates signals more often as price action oscillates in smaller ranges.

Easy to Understand

The oscillator’s fluctuating lines ranging from 0 to 100 are fairly clear for investors who know how to use them.

Available on Most Trading Platforms

The stochastic oscillator is a ubiquitous technical indicator found in many trading platforms, online brokerages, and technical chart services with similar configurations.

Recommended: How to Open a Brokerage Account

Cons of the Stochastic Oscillator

Despite its benefits, the stochastic oscillator is not a perfect tool.

Possible False Signals

Everyone’s strategy is different but depending on the time settings chosen, traders may misperceive a sharp oscillation as a buy or sell signal, especially if it goes against the trend. This is more common during periods of market volatility.

Doesn’t Measure the Trend or Direction

The stochastic oscillator calculates the strength or weakness of price action in a market, not the overall trend or direction.

How to Trade With the Stochastic Oscillator

Some traders find the stochastic oscillator indicator useful to identify trade entry and exit points, and help decide whether they’re bullish on a stock. The stochastic oscillator does this by comparing a particular closing price based on the user’s selected time frame to a range of the security’s highest and lowest prices over a certain period of time.

Traders can reduce the sensitivity of the oscillator to market fluctuations by adjusting the time frame and range of prices. The oscillator tends to trend around a mean price level because it relies on recent price history, but it also adjusts (with lag) when prices break out of price ranges.

The Takeaway

The stochastic oscillator is a popular technical trading indicator, which can help investors find trading opportunities, measure movements, and calculate valuations. After identifying the direction of a security’s trend, the stochastic oscillator can help determine when the security is overbought or oversold, thus identifying lower-risk trade-entry points.

The oscillator uses a complex formula to calculate recent price averages according to the user’s preset time frame and the most recent price to the average price ranges. The tool plots the final calculation on a scale of 0 to 100, 0 being extremely oversold and 100 being extremely overbought. While technical indicators are not trading strategies on their own, they are useful tools when properly incorporated into an overall trading strategy.

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

Which is more accurate, RSI or Stochastic?

Relative strength index, or RSI, tends to be more useful for investors in trending markets, whereas Stochastics tend to be more helpful or reliable in non-trending markets.

What are the default indicator settings for Stochastic?

The default indicator settings for Stochastic Indicator are 5,3,3, though there are other commonly-used settings.

What is divergence in Stochastics?

Divergences are indications of a change, and can be used by traders or investors to try and determine whether a trend is getting weaker, stronger, or continuing.

Photo credit: iStock/alvarez

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.

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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Feb

2024

Margin Calls: Defined and Explained

By Inyoung Hwang | Growing Wealth, invest, Investing | Comments Off

Table of Contents

What Is a Margin Call?
How Do Margin Calls Work?
Example of Margin Call
Margin Call Formula
2 Steps to Cover a Margin Call
How Long Do I Have to Cover a Margin Call?
Tips on Avoiding Margin Calls

A margin call is when an investor is required to add cash or sell investments to maintain a certain level of equity in a margin account if the value of the account decreases too much.

Margin trading — when an investor borrows money from a brokerage firm to enhance trades — is a risky endeavor. Placing bets with borrowed funds can boost gains but can also supercharge losses. Brokers require traders to keep a minimum balance in their margin accounts for this reason.

If the margin account dips below a certain threshold, this is when the brokerage firm will issue a margin call. A margin call is one of several risks associated with margin trading.

Margin calls are designed to protect both the brokerage and the client from bigger losses. Here’s a closer look at how margin calls work, as well as how to avoid or cover a margin call

Key Points

• A margin call occurs when an investor must contribute cash or sell investments to uphold a specific equity level in their margin account.

• Margin trading involves borrowing money from a brokerage firm to enhance trades, but it comes with risks.

• If the equity in a margin account falls below the maintenance margin, a margin call is issued by the brokerage firm.

• Margin calls are designed to protect both the brokerage and the client from bigger losses.

• To cover a margin call, investors can deposit cash or securities into the margin account or sell securities to meet the requirements.

What Is a Margin Call?

A margin call is when a brokerage firm demands that an investor add cash or equity into their margin account because it has dipped below the required amount. The margin call usually follows a loss in the value of investments bought with borrowed money from a brokerage, known as margin debt.

A house call, sometimes called a maintenance call, is a type of margin call. A brokerage firm will issue the house call when the market value of assets in a trader’s margin account falls below the required maintenance margin — the minimum amount of equity a trader must hold in their 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 in the account. This entails a high level of responsibility and potential risk, which is why margin trading is primarily for experienced investors, not for investing beginners.

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

How Do Margin Calls Work?

When the equity in an investor’s margin account falls below the maintenance margin, a brokerage firm will issue a margin call. Maintenance margins requirements differ from broker to broker.

Additionally, regulatory bodies like the Federal Reserve and FINRA have rules for account minimums that all firms and investors must follow to limit risk and leverage.

Regulation T

The Federal Reserve Board’s Regulation T states that the initial margin level should be at least 50% of the market value of all securities in the margin account. The minimum equity amount must be valued at 50% or more of the margin account’s total value. For example, a $10,000 trade would require an investor to use $5,000 of their own cash for the transaction.

Recommended: Regulation T (Reg T): All You Need to Know

FINRA

The Financial Industry Regulatory Authority (FINRA) requires that investors have a maintenance margin level of at least 25% of the market value of all securities in the account after they purchase on margin. For example, in a $10,000 trade, the investor must maintain $2,500 in their margin account. If the investment value dips below $2,500, the investor would be subject to a margin call.

Example of Margin Call

Here is how a margin trade works. Suppose an investor wants to buy 200 shares of a stock at $50 each for an investment that totals $10,000. He or she puts up $5,000 while the brokerage firm lends the remaining $5,000.

FINRA rules and the broker require that the investor hold 25% of the total stock value in his or her account at all times — this is the maintenance requirement. So the investor would need to maintain $2,500 in his or her brokerage account. The investor currently achieves this since there’s $5,000 from the initial investment.

If the stock’s shares fall to $30 each, the value of the investment drops to $6,000. The broker would then take $4,000 from the investor’s account, leaving just $1,000. That would be below the $1,500 required, or 25% of the total $6,000 value in the account.

That would trigger a margin call of $500, or the difference between the $1,000 left in the account and the $1,500 required to maintain the margin account. Normally, a broker will allow two to five days for the investors to cover the margin call. In addition, the investor would also owe interest on the original loan amount of $5,000.

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Borrow against your current investments at just 12%* and start margin trading.

*For full margin details, see terms.

Margin Call Formula

Here’s how to calculate a margin call:

Margin call amount = (Value of investments multiplied by the percentage margin requirement) minus (Amount of investor equity left in margin account)

Here’s the formula using the hypothetical investor example above:

$500 = ($6000 x 0.25%) – ($1,000)

Investors can also calculate the share price at which he or she would be required to post additional funds.

Margin call price = Initial purchase price times (1-borrowed percentage/1-margin requirement percentage)

Again, here’s the formula using the hypothetical case above:

$33.33 / share = $50 x (1-0.50/1-0.25)

💡 Quick Tip: When you trade using a margin account, you’re using leverage — i.e. borrowed funds that increase your purchasing power. Remember that whatever you borrow you must repay, with interest.

2 Steps to Cover a Margin Call

When investors receive a margin call, there are only two options:

1. They can deposit cash into the margin account so that the level of funds is back above the maintenance margin requirement. Investors can also deposit securities that aren’t margined.

2. Investors can also sell the securities that are margined in order to meet requirements.

In a worst case scenario, the broker can sell off securities to cover the debt.

How Long Do I Have to Cover a Margin Call?

Brokerage firms are not required to give investors a set amount of time. As mentioned in the example above, a brokerage firm normally gives customers two to five days to meet a margin call. However, the time given to provide additional funds can differ from broker to broker.

In addition, during volatile times in the market, which is also when margin calls are more likely to occur, a broker has the right to sell securities in a customer’s trading account shortly after issuing the margin call. Investors won’t have the right to weigh in on the price at which those securities are sold. This means investors may have to settle their accounts by the next trading day.

Tips on Avoiding Margin Calls

The best way to avoid a margin call is to avoid trading on margin or having a margin account. Trading on margin should be reserved for investors with the time and sophistication to monitor their portfolios properly and take on the risk of substantial losses. Investors who trade on margin can do a few things to avoid a margin call.

• Understand margin trading: Investors can understand how margin trading works and know their broker’s maintenance margin requirements.

• Track the market: Investors can monitor the volatility of the stock, bond, or whatever security they are investing in to ensure their margin account doesn’t dip below the maintenance margin.

• Keep extra cash on hand: Investors can set aside money to fulfill the potential margin call and calculate the lowest security price at which their broker might issue a call.

• Utilize limit orders: Investors can use order types that may help protect them from a margin call, such as a limit order.

The Takeaway

While margin trading allows investors to amplify their purchases in markets, margin calls could result in substantial losses, with the investor paying more than he or she initially invested. Margin calls occur when the level of cash in an investor’s trading account falls below a fixed level required by the brokerage firm.

Investors can then deposit cash or securities to bring the margin account back up to the required value, or they can sell securities in order to raise the cash they need.

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, 12%*

FAQ

How can you satisfy your margin call in margin trading?

A trader can satisfy a margin call by depositing cash or securities in their account or selling some securities in the margin account to pay down part of the margin loan.

How are fed and house calls different?

A fed call, or a federal call, occurs when an investor’s margin account does not have enough equity to meet the 50% equity retirement outlined in Regulation T. In contrast, a house call happens when an investor’s margin equity dips below the maintenance margin.

How much time do you have to satisfy a margin call?

It depends on the broker. In some circumstances, a broker will demand that a trader satisfy the margin call immediately. The broker will allow two to five days to meet the margin call at other times.

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.

*Borrow at 12%. 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.
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.

SOIN0123023

Feb

2024

Sell-to-Open vs Sell-to-Close: How They Work

Sell-to-Open vs Sell-to-Close: How They’re Different

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

Table of Contents

What Is Sell-to-Open?
An Example of Selling-to-Open with 3 Outcomes
What Is Sell-to-Close?
An Example of Selling-to-Close with 3 Outcomes
What Is Buying-to-Close and Buying-to-Open?
FAQ

Sell-to-open and sell-to-close are two of the four order types used in options trading. The other two are buy-to-open and buy-to-close. Options contracts can be created, closed out, or simply exchanged on the open market.

A sell-to-open order is an options order type in which you sell (also described as write) a new options contract.

In contrast, a sell-to-close order is an options order type in which you sell an options contract you already own. Both types of options, calls and puts, are subject to these order types.

Key Points

• Sell-to-Open involves selling a new options contract, while Sell-to-Close involves selling an existing options contract.

• Sell-to-Open profits from decreasing option values, while Sell-to-Close profits from options that have increased in value.

• Sell-to-Open can increase open interest, while Sell-to-Close can decrease open interest.

• Sell-to-Open writes a new options contract, while Sell-to-Close closes an existing options contract.

• Sell-to-Open benefits from time decay and lower implied volatility, but can result in steep losses and be affected by increasing volatility. Sell-to-Close avoids extra commissions and slippage costs, retains extrinsic value, but limits further upside before expiration.

What Is Sell-to-Open?

A sell-to-open transaction is performed when you want to short an options contract, either a call or put option. The trade is also known as writing an option contract.

Selling a put indicates a bullish sentiment on the underlying asset, while selling a call indicates bearishness.

When trading options, and specifically writing options, you collect the premium upon sale of the option. You benefit if you are correct in your assessment of the underlying asset price movement. You also benefit from sideways price action in the underlying security, so time decay is your friend.

A sell-to-open order creates a new options contract. Writing a new options contract will increase open interest if the contract stays open until the close of that trading session, all other things being held equal.

How Does Sell-to-Open Work?

A sell-to-open order initiates a short options position. If you sell-to-open, you could be bullish or bearish on an underlying security depending on if you are short puts or calls.

Writing an option gives the buyer the right, but not the obligation, to purchase the underlying asset from you at a pre-specified price. If the buyer exercises that right, you, the seller, are obligated to sell them the security at the strike price.

An options seller benefits when the price of the option drops. The seller can secure profits by buying back the options at a lower price before expiration. Profits are also earned by the seller if the options expire worthless.

Pros and Cons of Selling-to-Open

Pros	Cons
Time decay works in your favor	A naked sale could result in steep losses
Benefits from lower implied volatility	Increasing volatility hurts options sellers
Collects an upfront premium	Might have to buy back at a much higher price

An Example of Selling-to-Open with 3 Outcomes

Let’s explore three possible outcomes after selling-to-open a $100 strike call option expiring in three months on XYZ stock for $5 when the underlying shares are trading at $95.

1. For a Profit

After two months, XYZ shares dropped to $90. The call option contract you sold fell from $5 per contract to $2. You decide that you want to book these gains, so you buy-to-close your short options position.

The purchase executes at $2. You have secured your $3 profit.

You sold the call for $5 and closed out the transaction for $2, $5 – $2 = $3 in profit.

A buy-to-close order is similar to covering a short position on a stock.

Keep in mind that the price of an option consists of both intrinsic and extrinsic value. The call option’s intrinsic value is the stock price minus the strike price. Its extrinsic value is the time value.

Options pricing can be tricky as there are many variables in the binomial option pricing model.

2. At Breakeven

If, however, XYZ shares increase modestly in the two months after the short call trade was opened, then time decay (or theta) might simply offset the rise in intrinsic value.

Let’s assume the shares rose to $100 during that time. The call option remains at $5 due to the offsetting changes in intrinsic value and time value.

You decide to close the position for $5 to breakeven.

You sold the call for $5 and closed out the transaction for $5, $5 – $5 = $0 in profit.

3. At a Loss

If the underlying stock climbs from $95 to $105 after two months, let’s assume the call option’s value jumped to $7. The decline in time value is less than the increase in intrinsic value.

You choose to buy-to-close your short call position for $7, resulting in a loss of $2 on the trade.

You sold the call for $5 and closed out the transaction for $7, $7 – $5 = $2 loss.

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the
OCC Options Disclosure Document.

What Is Sell-to-Close?

A sell-to-close is executed when you close out an existing long options position.

When you sell-to-close, the contract you were holding either ceases to exist or transfers to another party.

Open interest can stay the same or decrease after a sell-to-close order is completed.

How Does Sell-to-Close Work?

A sell-to-close order ends a long options position that was established with a buy-to-open order.

When you sell-to-close, you might have been bullish or bearish an underlying security depending on if you were long calls or puts. (These decisions can be part of options trading strategies.) A long options position has three possible outcomes:

1. It expires worthless

2. It is exercised

3. It is sold before the expiration date

Pros and Cons of Selling-to-Close

Pros	Cons
Avoids extra commissions versus selling shares in the open market after exercising	There might be a commission with the options sale
Avoids possible slippage costs	The option’s liquidity could be poor
Retains extrinsic value	Limits further upside before expiration

An Example of Selling-to-Close with 3 Outcomes

Let’s dive into three plausible scenarios whereby you would sell-to-close.

Assume that you are holding a $100 strike call option expiring in three months on XYZ stock that you purchased for $5 when the underlying shares were $95.

1. For a Profit

After two months, XYZ shares rally to $110. Your call options jumped from $5 per contract to $12.

You decide that you want to book those gains, so you sell-to-close vs sell-to-open your long options position.

The sale executes at $12. You have secured your $7 profit.

You purchased the call for $5 and closed out the transaction for $12, $12 – $5 = $7 in profit.

2. At Breakeven

Sometimes a trading strategy does not pan out, and you just want to sell at breakeven. If XYZ shares rally only modestly in the two months after the long call trade was opened, then time decay (or theta) might simply offset the rise in intrinsic value.

Let’s say the stock inched up to $100 in that time. The call option remains at $5 due to the offsetting changes in intrinsic value and time value.

You decide to close the position for $5 to breakeven.

You purchased the call for $5 and closed out the transaction for $5, $5 – $5 = $0 in profit.

3. At a Loss

If the stock price does not rise enough, cutting your losses on your long call position can be a prudent move. If XYZ shares climb from $95 to $96 after two months, let’s assume the call option’s value declines to $2. The decline in time value is more than the increase in intrinsic value.

You choose to sell-to-close your long call position for $2, resulting in a loss of $3 on the trade.

You purchased the call for $5 and closed out the transaction for $2, $5 – $3 = $2 loss.

What Is Buying-to-Close and Buying-to-Open?

Buying-to-close ends a short options position, which could be bearish or bullish depending on if calls or puts were used.

Buying-to-open, in contrast, establishes a long put or call options position which might later be sold-to-close.

Understanding buy to open vs. buy to close is similar to the logic with sell to open vs sell to close.

The Takeaway

Selling-to-open is used when establishing a short options position, while selling-to-close is an exit transaction. The former is executed when writing an options contract, while the latter closes a long position. It is important to know the difference between sell to open vs sell to close before you start options trading.

If you’re ready to try your hand at options trading, you can set up an Active Invest account and, if qualified, trade options from the SoFi mobile app or through the web platform.

And if you have any questions, SoFi offers educational resources about options to learn more. SoFi doesn’t charge commissions, see full fee schedule here, and members have access to complimentary financial advice from a professional.

With SoFi, user-friendly options trading is finally here.

FAQ

Is it better to buy stocks at opening or closing?

It is hard to determine what time of the trading day is best to buy and sell stocks and options. In general, however, the first hour and last hour of the trading day are the busiest, so there could be more opportunities then with better market depth and liquidity. The middle of the trading day sometimes features calmer price action.

Can you always sell-to-close options?

If you bought-to-open an option, you can sell-to-close so long as there is a willing buyer. You might also consider allowing the option to expire if it will finish out of the money. A final possibility is to exercise the right to buy or sell the underlying shares.

How do you close a sell-to-open call?

You close a sell-to-open call option by buying-to-close before expiration. Bear in mind that the options might expire worthless, so you could do nothing and avoid possible commissions. Finally, the options could expire in the money which usually results in a trade of the underlying stock if the option is exercised.

Photo credit: iStock/izusek

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.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
SOIN0323021U

Feb

2024

457 vs 401(k): A Detailed Comparison

By Rebecca Lake | invest, Investing, Preparing for Retirement | Comments Off

Table of Contents

401(k) Plans
Vesting in a 401(k) Retirement Plan
457 Plans
Vesting in a 457 Retirement Plan
457 vs 401(k): Comparing the Pros
457 vs 401(k): Comparing the Cons
457 vs 401(k): The Differences
457 vs 401(k): The Similarities
457 vs 401(k): Which Is Better?
FAQ

Depending on where you work, you may be able to save for retirement in a 457 plan or a 401(k). While any employer can offer a 401(k), a 457 plan is commonly associated with state and local governments and certain eligible nonprofits.

Both offer tax advantages, though they aren’t exactly the same when it comes to retirement saving. Understanding the differences between a 457 retirement plan vs. 401(k) plans can help you decide which one is best for you.

And you may not have to choose: Your employer could offer a 401(k) plan and a 457 plan as retirement savings options. If you’re able to make contributions to both plans simultaneously, you could do so up to the maximum annual contribution limits — a terrific savings advantage for individuals in organizations that offer both plans.

Key Points

• A 457 plan and a 401(k) are retirement savings options with tax advantages.

• Both plans have contribution limits and may offer employer matching contributions.

• A 401(k) is governed by ERISA, while a 457 plan is not.

• 457 plans allow penalty-free withdrawals before age 59 ½ if you retire, unlike 401(k) plans.

• 457 plans have special catch-up provisions for those nearing retirement.

401(k) Plans

A 401(k) is a tax-advantaged, defined contribution plan. Specifically, it’s a type of retirement plan that’s recognized or qualified under the Employee Retirement Income Security Act (ERISA).

With a 401(k) plan, the amount of benefits you can withdraw in retirement depends on how much you contribute during your working years and how much those contributions grow over time.

Understanding 401(k) Contributions

A 401(k) is funded with pre-tax dollars, meaning that contributions reduce your taxable income in the year you make them. And withdrawals are taxed at your ordinary income tax rate in retirement.

Some employers may offer a Roth 401(k) option, which would enable you to deposit after-tax funds, and withdraw money tax-free in retirement.

401(k) Contribution Limits

The IRS determines how much you can contribute to a 401(k) each year. For 2024, the annual contribution limit is $23,000; $22,500 in 2023. Workers age 50 or older can contribute an additional $7,500 in catch-up contributions. Generally, you can’t make withdrawals from a 401(k) before age 59 ½ without incurring a tax penalty. So, if you retire at 62, you can avoid the penalty but if you retire at 52, you wouldn’t.

Employers can elect to make matching contributions to a 401(k) plan, though they’re not required to. If an employer does offer a match, it may be limited to a certain amount. For example, your employer might match 50% of contributions, up to the first 6% of your income.

401(k) Investment Options

Money you contribute to a 401(k) can be invested in mutual funds, index funds, target-date funds, and exchange-traded funds (ETFs). Your investment options are determined by the plan administrator. Each investment can carry different fees, and there may be additional fees charged by the plan itself.

The definition of retirement is generally when you leave full-time employment and live on your savings, investments, and other types of income. So remember that both traditional and Roth 401(k) accounts are subject to required minimum distribution (RMD) rules beginning at age 72. That’s something to consider when you’re thinking about your income strategy in retirement.

💡 Recommended: 5 Steps to Investing in Your 401k Savings Account

Vesting in a 401(k) Retirement Plan

A 401(k) plan is subject to IRS vesting rules. Vesting determines when the funds in the account belong to you. If you’re 100% vested in your account, then all of the money in it is yours.

Employee contributions to a 401(k) are always 100% vested. The amount of employer matching contributions you get to keep can depend on where you are on the company’s vesting schedule. Amounts that aren’t vested can be forfeited if you decide to leave your job or you retire.

Employer’s may use a cliff vesting approach in which your percentage of ownership is determined by year. In year one and two, your ownership claim is 0%. Once you reach year three and beyond, you’re 100% vested.

With graded vesting, the percentage increases gradually over time. So, you might be 20% vested after year two and 100% vested after year six.

All employees in the plan must be 100% vested by the time they reach their full retirement age, which may or may not be the same as their date of retirement. The IRS also mandates 100% vesting when a 401(k) plan is terminated.

¹Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

457 Plans

A 457 plan is a deferred compensation plan that can be offered to state and local government employees, as well as employees of certain tax-exempt organizations. The most common version is the 457(b); the 457 (f) is a deferred compensation plan for highly paid executives. In certain ways, a 457 is very similar to a 401(k).

• Employees can defer part of their salary into a 457 plan and those contributions are tax-deferred. Earnings on contributions are also tax-deferred.

• A 457 plan can allow for designated Roth contributions. If you take the traditional 457 route, qualified withdrawals would be taxed at your ordinary income tax rate when you retire.

• Since this is an employer-sponsored plan, both traditional and Roth-designated 457 accounts are subject to RMDs once you turn 72.

• For 2023, the annual contribution limit is $22,500, and $7,500 for the catch-up amount for workers who are 50 or older.

One big difference with 457 plans is that these limits are cumulative, meaning they include both employee and employer contributions rather than allowing for separate matching contributions the way a 401(k) does.

Another interesting point of distinction for older savers: If permitted, workers can also make special catch-up contributions for employees who are in the three-year window leading up to retirement.

They can contribute the lesser of the annual contribution limit or the basic annual limit, plus the amount of the limit not used in any prior years. The second calculation is only allowed if the employee is not making regular catch-up contributions.

Vesting in a 457 Retirement Plan

Vesting for a 457 plan is similar to vesting for a 401(k), but you generally can’t be vested for two full years. You’re always 100% vested in any contributions you make to the plan. The plan can define the vesting schedule for employer contributions. For example, your job may base vesting on your years of service or your age.

As with a 401(k), any unvested amounts in a 457 retirement plan are forfeited if you separate from your employer for any reason. So if you’re planning to change jobs or retire early, you’d need to calculate how much of your retirement savings you’d be entitled to walk away with, based on the plan’s vesting schedule.

457 vs 401(k): Comparing the Pros

When comparing a 457 plan vs. 401(k), it’s important to look at how each one can benefit you when saving for retirement. The main advantages of using a 457 plan or a 401(k) to save include:

• Both offer tax-deferred growth

• Contributions reduce taxable income

• Employers can match contributions, giving you free money for retirement

• Both offer generous contribution limits, with room for catch-up contributions

• Both may offer loans and/or hardship withdrawals

Specific 457 Plan Advantages

A 457 plan offers a few more advantages over a 401(k).

Unlike 401(k) plans, which require employees to wait until age 59 ½ before making qualified withdrawals, 457 plans allow withdrawals at whatever age the employee retires. And the IRS doesn’t impose a 10% early withdrawal penalty on withdrawals made before age 59 ½ if you retire (or take a hardship distribution).

Also, independent contractors can participate in an organization’s 457 plan.

And, as noted above, 457 plans have that special catch-up provision option, for those within three years of retirement.

457 vs 401(k): Comparing the Cons

Any time you’re trying to select a retirement plan, you also have to factor in the potential downsides. In terms of the disadvantages associated with a 457 retirement plan vs. 401(k) plans, they aren’t that different. Here are some of the main cons of both of these retirement plans:

• Vesting of employer contributions can take several years, and plans vary

• Employer matching contributions are optional, and not every plan offers them

• Both plans are subject to RMD rules

• Loans and hardship withdrawals are optional

• Both can carry high plan fees and investment options may be limited

Perhaps the biggest con with 457 plans is that employer and employee contributions are combined when applying the annual IRS limit. A 401(k) plan doesn’t have that same requirement so you could make the full annual contribution and enjoy an employer match on top of it.

457 vs 401(k): The Differences

The most obvious difference between a 401(k) vs. 457 account is who they’re meant for. If you work for a state or local government agency or an eligible nonprofit, then your employer can offer a 457 plan for retirement savings. All other employers can offer a 401(k) instead.

Aside from that, 457 plans are not governed by ERISA since they’re not qualified plans. A 457 plan also varies from a 401(k) with regard to early withdrawal penalties and the special catch-up contributions allowed for employees who are nearing retirement. Additionally, a 457 plan may require employees to prove an unforeseeable emergency in order to take a hardship distribution.

A 457 plan and a 401(k) can offer a different range of investments as well. The investments offered are determined by the plan administrator.

457 vs 401(k): The Similarities

Both 457 and 401(k) plans are subject to the same annual contribution limits, though again, the way the limit is applied to employer and employee contributions is different. With traditional 401(k) and 457 plans, contributions reduce your taxable income and withdrawals are taxed at your ordinary income tax rate. When you reach age 72, you’ll need to take RMDs unless you’re still working.

Either plan may allow you to take a loan, which you’d repay through salary deferrals. Both have vesting schedules you’d need to follow before you could claim ownership of employer matching contributions. With either type of plan you may have access to professional financial advice, which is a plus if you need help making investment decisions.

457 vs 401(k): Which Is Better?

A 457 plan isn’t necessarily better than a 401(k) and vice versa. If you have access to either of these plans at work, both could help you to get closer to your retirement savings goals.

A 401(k) has an edge when it comes to regular contributions, since employer matches don’t count against your annual contribution limit. But if you have a 457 plan, you could benefit from the special catch-up contribution provision which you don’t get with a 401(k).

If you’re planning an early retirement, a 457 plan could be better since there’s no early withdrawal penalty if you take money out before age 59 ½. But if you want to be able to stash as much money as possible in your plan, including both your contributions and employer matching contributions, a 401(k) could be better suited to the task.

Investing in Retirement With SoFi

If you’re lucky enough to work for an organization that offers both a 457 plan and a 401(k) plan, you could double up on your savings and contribute the maximum to both plans. Or, you may want to choose between them, in which case it helps to know the main points of distinction between these two, very similar plans.

Basically, a 401(k) has more stringent withdrawal rules compared with a 457, and a 457 has more flexible catch-up provisions. But a 457 can have effectively lower contribution limits, owing to the inclusion of employer contributions in the overall plan limits.

The main benefit of both plans, of course, is the tax-advantaged savings opportunity. The money you contribute reduces your taxable income, and grows tax free (you only pay taxes when you take money out).

Another strategy that can help you manage your retirement savings: Consider rolling over an old 401(k) account so you can keep track of your money in one place. SoFi makes setting up a rollover IRA pretty straightforward, and there are no rollover fees or taxes.

Help grow your nest egg with a SoFi IRA.

FAQ

What similarities do 457 and 401(k) retirement plans have?

A 457 and a 401(k) plan are both tax-advantaged, with contributions that reduce your taxable income and grow tax-deferred. Both have the same annual contribution limit and regular catch-up contribution limit for savers who are 50 or older. Either plan may allow for loans or hardship distributions. Both may offer designated Roth accounts.

What differences do 457 and 401(k) retirement plans have?

A 457 plan includes employer matching contributions in the annual contribution limit, whereas a 401(k) plan does not. You can withdraw money early from a 457 plan with no penalty if you’ve separated from your employer. A 457 plan may be offered to employees of state and local governments or certain nonprofits while private employers can offer 401(k) plans to employees.

Is a 457 better than a 401(k) retirement plan?

A 457 plan may be better for retirement if you plan to retire early. You can make special catch-up contributions in the three years prior to retirement and you can withdraw money early with no penalty if you leave your employer. A 401(k) plan, meanwhile, could be better if you’re hoping to maximize regular contributions and employer matching contributions.

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.

SOIN0722011

Aiming to Become a Millionaire? These Steps Could Help

Introduction to the Millionaire Mindset and Goals

Defining What it Means to be a Millionaire

Step 1: Stay Away From Debt

Step 2: Invest Early and Consistently

Benefits of Compounding Returns

Step 3: Make Saving a Priority

Effective Saving Strategies for Long-term Wealth

Tips for Boosting Earnings and Maximizing Income

Step 5: Cut Unnecessary Expenses

Identifying and Eliminating Non-Essential Spending

Step 6: Keep Your Financial Goals in Focus

Step 7: Consult with Investment Professionals

Leveraging Advice for Wealth Building

Step 8: Repeat and Refine Your Financial Plan

Additional Tips for Wealth Building

Lifestyle Considerations and Spending Habits

The Takeaway

Stochastic Oscillator Explained

What Is a Stochastic Oscillator?

History of the Stochastic Oscillator

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, alternative investments, IRAs, and more. Get started in just a few minutes.

How Does a Stochastic Oscillator Work?

Slow vs Fast Stochastics

What Is the Formula for a Stochastic Oscillator?

Pros of the Stochastic Oscillator

Clear Entry/Exit Signals

Frequent Signals

Easy to Understand

Available on Most Trading Platforms

Cons of the Stochastic Oscillator

Possible False Signals

Doesn’t Measure the Trend or Direction

How to Trade With the Stochastic Oscillator

The Takeaway

FAQ

Which is more accurate, RSI or Stochastic?

What are the default indicator settings for Stochastic?

What is divergence in Stochastics?

Margin Calls: Defined and Explained

What Is a Margin Call?

How Do Margin Calls Work?

Regulation T

FINRA

Example of Margin Call

Increase your buying power with a margin loan from SoFi.

Borrow against your current investments at just 12%* and start margin trading.

Margin Call Formula

2 Steps to Cover a Margin Call

How Long Do I Have to Cover a Margin Call?

Tips on Avoiding Margin Calls

The Takeaway

FAQ

How can you satisfy your margin call in margin trading?

How are fed and house calls different?

How much time do you have to satisfy a margin call?

Sell-to-Open vs Sell-to-Close: How They’re Different

What Is Sell-to-Open?

How Does Sell-to-Open Work?

Pros and Cons of Selling-to-Open

An Example of Selling-to-Open with 3 Outcomes

1. For a Profit

2. At Breakeven

3. At a Loss

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

What Is Sell-to-Close?

How Does Sell-to-Close Work?

Pros and Cons of Selling-to-Close

An Example of Selling-to-Close with 3 Outcomes

1. For a Profit

2. At Breakeven

3. At a Loss

What Is Buying-to-Close and Buying-to-Open?

The Takeaway

FAQ

Is it better to buy stocks at opening or closing?

Can you always sell-to-close options?

How do you close a sell-to-open call?

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.¹

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