Discover the pros and cons of robo advising (also called automated investing) and those of using a human financial advisor to make the right choice for you.
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Gambling is typically defined as risking something of value on an uncertain event. Although common forms of gambling include lottery games, blackjack, or sports betting, the line between gambling and investing can be less distinct. For example, binary options are unlike standard options, as they involve an all-or-nothing payoff that makes them more akin to gambling.
It’s important to know that there are some important differences between options trading and gambling, however. Understanding the similarities and differences can help you decide whether your options trading behavior is investing or gambling.
Key Points
• Options trading can resemble gambling due to high risks but is legitimate with a solid strategy and risk management.
• Protective collars, involving holding assets and using options, limit losses and reduce risk.
• A well-defined trading strategy may incorporate stock analysis, technical and fundamental indicators, and risk mitigation.
• Social pressure and excitement can blur the line between investing and gambling, leading to irrational decisions.
• Potential outcomes range from significant losses to profits, emphasizing the need for informed and strategic trading.
Options trading is the trading of contracts that give a purchaser the right — but not always the obligation — to buy or sell a security, like a stock or exchange-traded fund (ETF), at a fixed price within a specific period of time. Since options contracts fluctuate in value, many traders can buy or sell the contracts before expiration for a profit or loss, just like they would trade a stock or bond.
Options are financial derivatives, meaning an option contract’s value is derived from the value of an underlying asset.
There are two main types of options: call and put options. A call option gives the holder (or buyer) the right to buy an underlying asset, and a put option gives the holder the right to sell it. In general, if you think the underlying asset price will go up, you would buy a call option. But if you believe the underlying asset price will go down, you would buy a put option.
Buying a put or call option, in of itself, is a long strategy. However, options traders may also sell options or use advanced combinations of buying and selling options to pursue certain outcomes. There are many strategies for trading options, whether you anticipate rising, falling, or neutral market trends. Options can be a way to hedge risk or increase leverage for a given investment.
Recommended: Options Trading 101: An Introduction to Stock Options
Most options contracts expire on the third Friday of each month. However, many underlying securities also have options that expire weekly. These options are referred to as weekly options. Weekly options often have lower liquidity and higher volatility, since there is less time to smooth out the ups and downs of stock movement. This short timeframe makes weekly options more speculative since small price movements can have an outsized impact on your premium.
*Check out the OCC Options Disclosure Document.
There are many risks in playing the market, so investors should be cautious with their investments and have a risk mitigation plan in place before making any type of stock or option trade. Although options trading is a legitimate investment activity, it involves significant risks that, without a solid strategy, can resemble gambling behavior.
Weekly options — along with day trading — are another form of investing in the stock market that shares some characteristics with gambling. If you find yourself rapidly making trades in weekly options without a system in place, trading from social pressure, or because of excitement, you may be gambling rather than investing.
Risk management is one of the most important parts of a solid investment strategy. If you are trading options, it’s crucial to have a plan for handling risk. One way that you can protect your capital and manage risk when trading options is through the use of protective collars.
For example, protective collars involve holding the underlying asset, selling a call option, and buying a protective put against it. This is designed to limit potential losses. This may reduce your risk of loss from larger-than-expected moves, but also can reduce your overall gains.
There are no hard-and-fast rules to determine the difference between investing and gambling, but here are a few questions you can ask yourself to help tell the difference.
If you find yourself trading options due to social pressure, that can signify that your activities are closer to gambling than investing. It can be common — especially in a bull market — for people to talk about investing with friends and co-workers. If you find that you are trading due to social pressure, especially without a financial plan in place or understanding of your risk tolerance, that may be a sign that you should reconsider trading stocks or options.
Having a system in place for how and when you trade is a good indicator that you are investing, rather than gambling. An investment system can include things such as stock analysis, technical and fundamental indicators, and a risk mitigation plan for what to do when a trade moves against you. If you are trading based on hunches and chance, that may indicate that you’re gambling and not investing.
For some, there can be a degree of excitement that comes with making money. If that excitement is the primary reason you’re trading, however, that may be more akin to gambling than actual investing. It can be hard to separate emotions from rational thinking when making stock and option trades, which is another reason to have a trading strategy in place.
There are no hard-and-fast rules that determine whether any particular trading behavior is investing or gambling. Instead, you might think about the reasons why you are investing. If you are trading options for the excitement, to fit in with others, or without a system, that may be a sign that your activity is closer to gambling than actual investing.
Investors who are ready to try their hand at options trading despite the risks involved, might consider checking out SoFi’s options trading platform offered through SoFi Securities, LLC. The platform’s user-friendly design allows investors to buy put and call options through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.
Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors. Currently, investors can not sell options on SoFi Active Invest®.
For experienced investors, there may be many reasons to trade options. One reason can be to hedge an existing investment. Another possible reason is to get additional leverage. With leverage in options trading, you may make (or lose) more money with a smaller investment.
Options trading does carry some risk for investors, which can be one reason not to participate in the options market. Options are also typically more volatile than their underlying stock, and some options strategies run the risk of losing your entire investment or even putting you in a position where you owe more than you have available. If you are just starting your investment journey, it might be a better idea to get practice by making less risky investments to gain experience.
As with nearly all investments, options trading carries the risk of losing money. Some options trading strategies run the risk of losing 100% of your investment. If you buy a call option and the stock closes at expiration below your strike price, your option will expire worthless. If you sell call options, you can even be in a position of losing a potentially unlimited amount.
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Both brokerage accounts and cash management accounts (CMAs) are offered by brokerage firms and both have the potential to earn returns on your money. However, these accounts serve different purposes and work in different ways: Brokerage accounts are for investing in the market, while CMAs focus on managing cash with easy access and the ability to earn interest on your balance.
Here’s a closer look at brokerage accounts vs. cash management accounts to help you decide if you need one or the other, or both.
Key Points
• Cash management accounts offer checking and savings features, while brokerage accounts are for trading securities.
• Cash management accounts earn interest, while brokerage accounts can earn income from investment gains.
• Brokerage accounts have higher potential returns but also higher risk.
• SIPC insurance covers brokerage accounts from firm failure or theft, while CMAs receive FDIC insurance when funds are swept to partner banks.
A cash management account (CMA) is a type of cash account offered by brokerage firms that offers some of the same features as checking accounts and savings accounts. CMAs allow you to deposit money and earn interest. Most provide access to your money via debit cards, in addition to checks.
A brokerage account allows customers to deposit money which can then be used to buy and sell investments such as stocks, bonds, mutual funds, exchange-traded funds (ETFs), and other securities.
There are three main types of brokerage firms.
• A full-service brokerage firm usually provides a range of financial services including financial advice and automated investing.
• A discount brokerage offers lower fees in exchange for fewer financial planning services.
• Online brokerages allow you to trade via the internet and often charge the lowest fees.
Although brokerage and CMA accounts work in different ways, there are some similarities.
Both types of accounts are offered by brokerage firms. When you open a brokerage account and link it to a CMA at the same firm, it can provide a convenient way to transfer assets from one account to another when you buy and sell securities.
When considering a brokerage account vs. a cash management, remember that they both offer customers the potential to earn money on investments or deposits, respectively.
In a brokerage account, you have the potential to earn returns from your investments, although you also face the risk of loss that comes with investing in stocks, bonds, and other securities.
A cash management account is generally a safer place to keep your money and you’ll earn interest on your deposits. But those rates are generally lower than the gains you might see from other investments.
No account or overdraft fees. No minimum balance.
Up to 3.80% APY on savings balances.
Up to 2-day-early paycheck.
Up to $3M of additional FDIC insurance.
Cash management accounts and brokerage accounts work in different ways. CMAs mirror traditional savings and checking accounts and brokerage accounts are strictly for investments. Here are the details:
In a brokerage account, potential earnings come from the gains you might see when investing in stocks, bonds, and other investments. Investing in securities also comes with the risk of losses.
Earnings in cash management accounts come from the interest rate paid on your balance. Usually, these rates are similar to the rates paid in traditional savings accounts.
CMAs also act like checking accounts because you can use checks or a debit card for purchases. But traditional checking accounts don’t usually pay interest, or if they do the rate is often lower than a CMA.
Over the long term, investing has historically provided higher returns than savings accounts. With those potential earnings comes market risk, meaning you may experience losses too, especially in the short-term.
To manage a brokerage account or work with a broker, you need to take into account your tolerance for market risk and what combination of stocks and bonds is right for your financial goals.
When you open a new bank account, up to $250,000 of your cash deposits are typically covered by the Federal Deposit Insurance Corporation (FDIC) in the unlikely event of bank failure. The $250,000 limit is per depositor, per insured bank, for each account ownership category.
Most brokerage accounts, however, are insured by the Securities Investor Protection Corporation (SIPC) in the event of theft, fraud, or if the brokerage fails. The SIPC offers up to $500,000 of coverage total, per person, if such a loss were to occur. The SIPC does not cover investment losses.
Cash management accounts have so-called sweep accounts, which are insured by the FDIC. Here’s how it works: CMAs sweep funds into a variety of FDIC-insured banks. If you make a $200,000 deposit, for example, your money may be split into four $50,000 deposits in four different bank accounts. (The CMA provider manages this process — you only see your total CMA balance.)
Before your money is moved into the different accounts, your deposit is protected by SIPC insurance if the brokerage is an SIPC member.
Because CMA accounts typically offer checks and/or debit cards, you can use that money for purchases or bill paying or ATM withdrawals.
Money kept in a brokerage account is strictly used for trading securities. But by linking a CMA to your brokerage account, you can easily transfer cash from one to the other, for investing purposes.
When considering a brokerage account vs. cash management, it helps to know what makes these accounts different, and how they can work together. While a brokerage account is for trading securities, and comes with the risks associated with investing in securities, a cash management account (CMA) is similar to a traditional checking or savings account. There’s almost no risk of losing money, and your deposits can earn interest. Because both are offered at brokerage firms, you can have both, and use your cash management account as a place to keep funds you don’t wish to invest.
Or, as an alternative to a cash management account, you might consider keeping your extra cash in a high-yield savings account. This is a type of federally insured savings product offered by banks and credit unions that typically earns a much higher rate than a regular savings account.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
No. Brokerage accounts are used to buy and sell securities. Cash management accounts act more like traditional bank savings and checking accounts, but are provided by brokerage and other non-bank financial institutions. Sometimes the accounts may be linked. However, the accounts earn money from different sources.
Yes, you can deposit and keep cash in a brokerage account. However, money in a brokerage account is strictly for investing in stocks, bonds, funds and other securities. If you’re just looking to store cash and earn interest, you’re likely better off with a cash management account, money market account, or high-yield savings account.
Generally, yes. If you have a cash management account (CMA) and a brokerage account at the same brokerage firm and the accounts are linked, you can use your CMA to move cash into your brokerage account in order to execute trades. You can also transfer the money from sales of securities into your CMA for safekeeping. The combination gives you the ability to purchase stocks, bonds, mutual funds and other securities, but also offers the flexibility, liquidity, and interest earnings of traditional bank accounts.
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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).
Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.
As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.
Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
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.
We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.
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A spousal lifetime access trust (SLAT) is a specific type of trust that’s designed to help married couples reduce estate taxes while retaining access to their assets. Trusts can serve as a tool to help you preserve your wealth and potentially minimize some of your tax burden when planning your estate. A SLAT trust is established by one spouse for the benefit of the other and may be particularly appealing to higher-net-worth couples with larger estates.
Key Points
• A SLAT allows one spouse to transfer assets to a trust for the benefit of the other spouse.
• Assets transferred to a SLAT are removed from the grantor’s taxable estate, potentially lowering estate taxes.
• The recipient spouse can access trust assets, providing financial flexibility and support.
• Gift tax may apply if the transferred asset value exceeds the annual exclusion limit.
• Once assets are placed in a SLAT, they become irrevocable, and the grantor loses direct control over them.
In effect, a SLAT can be an addition to your overall financial plan, along with your saving and investing activities. To fund the trust, the grantor must transfer ownership of assets that will be held in trust to a trustee. This trustee has a fiduciary duty to manage the trust according to the grantor’s wishes and in the best interests of the beneficiary or beneficiaries. Spousal lifetime access trust can hold a variety of asset types, including:
• Real estate
• Bank accounts
• Individual shares of stock
• Bonds
• Life insurance policies
An irrevocable SLAT trust is permanent; once it’s established its terms cannot be changed. Any assets transferred to the trust cannot be removed, which is an important consideration for estate planning. If you’d prefer to have the option of changing trust terms, you’d likely need to establish a revocable trust instead.
A SLAT trust allows the beneficiary spouse to have access to those assets during their lifetime. They can draw on trust assets or any interest those assets earn for income should they need to do so.
SLAT trusts are generally protected from creditors, though state laws may vary. If your spouse, who is named as beneficiary, is sued for a debt, the creditor might be barred from attempting to attach any assets in a SLAT trust to satisfy a judgment. It may be wise to speak with a lawyer or financial professional to get a sense of your exact situation.
SLAT trusts do one simple but very powerful thing from an estate and tax planning perspective: They remove assets from the grantor spouse’s taxable estate. This means that any future appreciation of those assets is free of estate tax.
Federal tax rules allow for annual gift tax exclusions, as well as lifetime gift and estate tax exemption. The annual gift tax exclusion allows you to make gifts up to a certain threshold, without triggering gift tax.
• For 2024, the annual gift tax exclusion limit was $18,000.
• For 2025, the limit is $19,000.
These amounts double for married couples. So, if you have three children you could gift each one of them $38,000 in 2025 if you and your spouse agree to “split” the gift on your joint tax return.
Amounts exceeding the annual gift tax exclusion limit count against your lifetime gift and estate tax exemption. This is the amount of assets you can give away during your lifetime without triggering federal estate or gift tax.
• For 2024, the exemption limit was $13,610,000.
• For 2025, the is $13,990,000.
Again, those limits double for married couples. The current limits took effect under the Tax Cuts and Jobs Act of 2017, which is set to expire at the end of 2025. Without new legislation, the lifetime gift and estate tax exemption limit will revert to its pre-TCJA level of $5 million, which works out to about $7 million when adjusted for inflation.4
Now, here’s where the SLAT fits in. When you establish a SLAT, you lock in the gift tax value at the time assets are transferred to the trust. Funding a spousal lifetime access trust now could help you hedge against less favorable changes to the gift and estate tax exemption in the future.
The basic steps in creating a SLAT trust are as follows:
• Trust creation. The first step is establishing the trust on paper. An estate planning attorney can draft the necessary documents for you. You’ll need to designate one or more beneficiaries and select someone to act as trustee. When drafting the trust document, you can include instructions for how trust assets should be managed.
• Asset selection. Once the paperwork is out of the way you can fund the trust. Here, you’ll need to decide which assets it makes the most sense to include. Your SLAT estate planning attorney might advise you to include any assets that are likely to appreciate significantly in value, as well as life insurance policies or other assets you want your spouse to have access to.
• Trust funding. If you know what you want to put into a SLAT trust, the remaining step is funding. Here, you’ll work with your attorney to transfer ownership of assets to the trustee. Remember, once assets are transferred to a SLAT trust the move is permanent.
Your beneficiary spouse can also act as trustee but you may prefer to have a third party take on this role. When choosing a trustee, look for an individual or entity that’s reliable and trustworthy. You might ask your attorney, financial advisor, or bank to handle trustee duties, depending on your situation and needs.
• Annual gift tax exclusion limits still apply. When you transfer assets to a SLAT trust you’re making a financial gift to your spouse. Ordinarily, gifts to spouses are not subject to gift tax but SLAT trusts are an exception. As the gifting spouse, you’re responsible for any gift tax that may be due if the value of assets donated exceeds the annual gift tax exclusion limit.
• Gifts must be reported. You’ll need to tell the IRS about the assets you’ve transferred to a SLAT trust. Gifts to the trust are reported on IRS Form 709.
• Income tax returns are required for the trust. You’ll also need to handle annual income tax filing for any income tax generated by trust assets. Income includes dividends, interest, and capital gains. The trustee should file a blank Form 1041 to let the IRS know that any trust income and/or deductions will be reported on your personal income tax return.5,6
• SLAT trusts are irrevocable; if your financial situation or marital situation changes, you would be locked in to the trust terms even if they’re no longer suitable for your needs.
• Transferring your assets to a SLAT trust means you give up control of them and become dependent on your beneficiary spouse to retain a connection to them.
• If your beneficiary spouse passes away first, you lose the benefit of having indirect access to trust assets without estate tax implications.
• Any heirs who inherit assets from a SLAT trust also inherit your original tax basis, which could result in a significant capital gains tax bill if those assets have greatly appreciated.
There’s also the time and expense of setting up a SLAT trust to consider. If you have a smaller estate, it may not be worth it to create this type of trust. A different type of trust may be more appropriate if you’re not in danger of hitting the estate tax exclusion limit.
Recommended: Can You Use your Spouse’s Income for a Personal Loan?
This income is good for the beneficiary spouse’s lifetime. How valuable that is to you may depend on the size of your estate and what income streams you already have in place for retirement.
Keep in mind that if your spouse should pass away first, assets in the trust would not automatically revert to you. Instead, they would be distributed to any other beneficiaries named in the trust. You would need to ensure that you have other retirement assets to rely on in that scenario.
Recommended: Am I Responsible for My Spouse’s Debt?
• Marital trusts
• Bypass trusts (also known as AB trusts)
• Special needs trusts
• Life insurance trusts
These types of trusts are designed to meet different needs. For example, say that you and your spouse are parents to a child with a permanent disability that prevents them from living on their own. You might establish a special needs trust to plan and pay for their care during your lifetime and after you’re gone.
At a minimum, it’s wise to have a will in your estate plan. A will is a legal document that allows you to specify how you’d like your assets to be distributed when you pass away. You can also use a will to name a legal guardian for minor children or specify care instructions for any pets you may leave behind.
Wills may not offer the same level of creditor protection as a trust and they don’t convey any tax benefits either. Wills are subject to probate whereas trusts are not so it’s important to consider what you want your estate plan to look like when deciding what to include.
Recommended: What Is a Collective Income Trust?
When considering how you’ll build your future estate, opening an online brokerage account is a good first step. You can create and fund your account in minutes to begin building a diversified portfolio.
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).
SLATs are designed to benefit a spouse primarily, though you may name one or more other beneficiaries. For example, if you’d like to ensure that your wealth stays within the family you could name your children or grandchildren as beneficiaries. If your spouse passes away, the trust’s assets would be passed on to the other beneficiaries you named.
Spouses can create a SLAT trust fund for one another but doing so tends to be tricky, as you’ll need to ensure that you’re funding each one with distinct and separate assets. Each trust would also need to have a distinct structure and terms so the IRS doesn’t perceive them as being too similar in nature. In that scenario, you risk them canceling one another out and losing any anticipated tax benefits.
Since SLAT trusts are irrevocable, divorce typically won’t change much. Your ex-spouse would remain the beneficiary and they would have access to the trust assets. None of your other beneficiary designations would change either if you added children or grandchildren to the trust. You may have to continue paying income tax on the trust income as well, unless the terms of your divorce state otherwise.
About the author
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
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Saving steadily for retirement is important, but how you invest that money also matters. These days, you can choose from DIY investing options like a portfolio of stocks and bonds or other securities you select yourself. You can invest in mutual funds or exchange-traded funds (ETFs). There are also types of pre-set retirement funds and automated platforms like robo advisors that use technology to help manage a portfolio.
It’s wise to understand how the different strategies work to help decide which ones are best suited to your financial goals and personality. Below, you’ll learn about some popular retirement investment options.
This article is part of SoFi’s Retirement Planning Guide, our coverage of all the steps you need to create a successful retirement plan.
This article is part of SoFi’s Retirement Planning Guide, our coverage of all the steps you need to create a successful retirement plan.
Key Points
• Opening a retirement savings earlier than later allows for the possibility of compounding returns and recovery from market volatility.
• In general, younger investors might choose more aggressive high-risk, potentially high-reward investments like stocks, while those nearing retirement are likely to opt for more conservative options.
• Investment options include DIY investing, in which the investor is in control of their portfolio; index funds that track a specific market index; automated investments; and working with a financial advisor.
• Employer-sponsored plans like 401(k)s and IRAs provide savings automatically deducted from paychecks, certain tax benefits, and potential employer matches.
• Regularly reviewing your portfolio and rebalancing when necessary may help manage risk and align with retirement goals.
Retirement may be a long way off or a short way down the road, depending on your age and stage of life. Either way, developing an investment strategy that can help your savings grow is essential. For many people, retirement might last 20 or 30 years — or even longer. A solid long-term investment strategy can help you build the amount you need for the years where you’re no longer in the workforce.
The earlier you start saving for retirement, the more time your money has to grow. One reason for this is the potential for compounding returns. Compounding means that if your money sees a return from investments, and that profit is reinvested, you’re earning money not only on your original investment, but also on your returns. In other words, over time, both your savings and your earnings could see gains.
In addition, the longer your time horizon, the more time you may have to recover from market volatility. If you have a time horizon of 30 or 40 years before you retire, you might be able to afford to weather some short-term losses, knowing that your investment returns could balance themselves out over time.
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The type of retirement accounts you have is important. Different types of accounts have different contribution limits and tax implications. Since both the amount you can save and how it will be taxed can have an impact on your nest egg, be sure to spend time strategizing about which types of accounts make the most sense for you.
For instance, you may have a workplace retirement account like a 401(k) or 403(b). In addition, you might decide to set up an Individual Retirement Account (IRA), like a traditional IRA or a Roth IRA that you manage yourself, to save even more for retirement.
There are many types of IRAs, but two of the main options to choose from are a traditional and Roth IRA. Both can be helpful for saving for retirement, and you can contribute the same amount to each — up to $7,000 annually in 2024 and 2025, with a catch-up contribution of $1,000 each year if you are age 50 or older.
However, there are some key differences between a Roth and traditional IRA, especially when it comes to taxes. With a traditional IRA you contribute pre-tax dollars, and you get an upfront deduction on your taxes. But you’ll pay taxes on the money when you withdraw it in retirement.
A Roth IRA allows you to contribute after-tax dollars. In other words, you pay the taxes on the money upfront, and you’ll withdraw your savings tax-free in retirement.
Another difference between the two types of IRAs: With a traditional IRA you will need to take required minimum distributions (RMDs) starting at age 73 (assuming you turned 72 after December 31, 2022). A Roth IRA does not have RMDs.
If you’d like to open an IRA, think about which type makes the most sense for you. If you expect to be in a lower tax bracket in retirement, a traditional IRA might be a good choice. But if you think you’ll be in a higher tax bracket, a Roth IRA may be a better option.
Retirement accounts such as 401(k)s, 403(b)s, and 457 plans are examples of employer-sponsored plans.
401(k)s are one of the most common types of employer-sponsored plans. An employee signs up for the plan at work and their contributions are automatically deducted from their paychecks. Employees choose how to invest their 401(k) funds, and employers may match the employees’ contribution up to a certain amount, depending on the plan.
Your employer may offer a Roth 401(k) in addition to a traditional 401(k). With a traditional 401(k), contributions are taken from your paycheck before taxes, lowering your taxable income for the year, and you pay taxes on your withdrawals in retirement. With a Roth 401(k), contributions are taken after taxes, and your withdrawals in retirement are tax-free.
Other employer-sponsored plans like 403(b)s are for those who work in education, health-care, and other tax-exempt organizations, and the way they work is similar to a 401(k). Another type of employer sponsored plan, a 457 plan, is offered to some government employees and those who work for certain tax-exempt organizations.
All of these employer-sponsored plans have the same annual employee contribution limits: up to $23,000 in 2024, and $23,500 in 2025 for those under age 50. For both years, individuals age 50 and up can contribute an additional $7,500 in catch-up contributions. (In 2025, those ages 60 to 63 can contribute an additional $11,250 instead of $7,500, thanks to SECURE 2.0.)
Total contributions limits (including employer contributions) are $69,000 in 2024, and $76,500 for those 50 and up. In 2025, the total contribution limit is $70,000, and $77,500 with the standard catch-up, and $81,250 with the SECURE 2.0 catch-up.
While investing for retirement can seem overwhelming, it doesn’t have to be. There are various retirement strategies suited to different personality types and risk-tolerance levels, as well as a number of investment options, so you can choose methods and plans that are the best fit for you.
Here are a few options for retirement investing to consider:
For investors who feel confident in managing their own retirement portfolio, taking a DIY approach may be an option.
You can open an investment account and purchase stocks, bonds, commodities, mutual funds, or any other types of securities for your long-term portfolio. While the term “active investing” brings to mind day traders, active investing can also mean taking a hands-on approach to managing your own portfolio.
This strategy isn’t for everyone. It’s time and energy intensive, and it requires a certain amount of expertise. For instance, anyone interested in something like IPO investing, which can be risky and speculative, according to the Securities and Exchange Commission (SEC), should be a very experienced investor.
In addition, if you go the DIY route, bear in mind that the same rules apply to all long-term investors.
• Be mindful of the contribution limits and tax implications of the retirement account you choose.
• Consider the cost of your investments, as fees can reduce your earnings over time.
• Consider using a strategy that includes some portfolio diversification, as this may, over time, help mitigate unsystematic risk, which is the type of risk unique to a particular company or industry (something that’s due to the management of a specific company, say). But remember, risk is inherent in all investing.
An index fund is a type of fund that tracks a broad market index. One of the most popular types of index funds tracks the S&P 500 index, for example, which mirrors the performance of the 500 largest U.S. companies.
There are hundreds of indexes, and many have corresponding funds that track different sectors of the market, such as smaller companies, technology companies, sustainable or green companies, various types of bonds, and more. Most are index funds.
Index funds don’t rely on a live team of portfolio managers, so they tend to be less expensive than actively managed funds. However, they have a downside which is that your money is pegged to the securities in that sector.
Mutual funds are a type of pooled investment. Mutual funds may include stocks, bonds, commodities, and other securities that are in what you might think of as a basket. An investor buys shares or fractional shares of a mutual fund, which gives them exposure to a variety of different companies or assets and may help with portfolio diversification. Unlike stocks and ETFs, mutual funds trade just once a day, at the end of the day.
Mutual funds were designed to get people started with investing. Buying even just a few shares of a mutual fund invests an individual in all the individual securities the fund holds.
Mutual funds may be actively or passively managed. Passively managed funds track an index, while actively managed funds attempt to beat the performance of an index with careful investment selection. Actively managed funds typically cost more than passively managed funds, so you’ll want to watch for transaction and operating fees.
In the world of investing there isn’t a truly automated “set it and forget it” strategy that will work on its own, without any input, for decades. But there are some options that are more hands-off than others.
One such option is a target date fund. A target date fund is designed to be an all-inclusive portfolio option for people that are looking to retire on or near a certain date. For example, a 2050 target date fund is intended for people that will be ready for retirement in 2050.
Target date funds use a set of calculations to adjust a portfolio’s asset allocation over time. When a target date fund is decades away from the specified date, it might invest 80% in equities and 20% in fixed income or cash/cash equivalents, for instance. As the date draws nearer, it will automatically move more of its investments away from equities towards bonds, cash, or other investments with lower risk. This automatic readjustment is referred to as the glide path.
Another option is automated investing, commonly known as a robo advisor (although these services are not robots, and don’t typically offer advice).
A robo advisor platform offers a questionnaire for investors to gauge their time horizon (years to retirement or another financial goal), their risk level, and so forth.
The platform then uses sophisticated technology to recommend a portfolio of low-cost index and exchange-traded funds (ETFs).
While automated options do offer the convenience of managing a portfolio on your behalf, they also have some drawbacks. The cost can be higher than other types of investment options. And there is limited flexibility. Investors typically have less control to adjust the securities in these funds.
If you don’t feel comfortable investing for retirement on your own, you may want to consider using a financial advisor. Talk with your trusted friends or family members to get a recommendation.
Because an advisor introduces a new level of cost, be sure to ask how the person is compensated. Some advisors charge a flat fee or an hourly rate, and some earn commissions — or combinations of the above.
As you start investing for retirement, here are a few things that you’ll want to keep in mind:
Many investments come with fees that are charged by the advisor or company that manages the investment. These investment fees may be explicitly charged to your account, or they may be captured as part of the investment’s returns. Make sure to check any fees that are charged before you invest. There are many low-cost mutual funds that offer investment fees under 0.1% as compared to a financial advisor who may charge 1% or more. Even a small difference in the fees charged can make a huge difference on your returns when compounded over decades.
You’ll also want to account for how your retirement investments will be taxed.
If you contribute to a traditional 401(k) or IRA, you may be eligible for a tax deduction in the tax year that you make the contribution (meaning a contribution for tax year 2025 can typically be deducted on your 2025 taxes).
These accounts are called tax-deferred because you will owe taxes on your withdrawals.
If you contribute to a Roth 401(k) or Roth IRA, you won’t get a tax deduction when you contribute because you deposit after-tax dollars. Instead, your qualified withdrawals will be tax-free.
There are other differences between tax-deferred and after-tax accounts that can impact your nest egg. For example, once you reach the age of 73, you’re required to take RMDs from a traditional IRA or 401(k) every year. That doesn’t apply to Roth accounts.
If you invest for retirement in a non-retirement or taxable account, such as a brokerage account, you’ll owe income taxes on your gains whenever you sell those securities, which will affect your portfolio’s overall performance.
Setting a retirement goal can help you establish a road map for your future and get you to the place you want to be financially and personally.
To get started, decide at what age you’d like to retire. Next, determine what you’d like to do in retirement. Travel? Visit family frequently? Move to a new city? Think about what suits you best. Then figure out how much money you’ll need for a comfortable retirement based on what you want to do in your after-work years, the costs associated with the goal, and your life expectancy.
Setting goals can motivate you to take action and step up your retirement savings. Revisit your goals periodically to make you’re on track to reach them.
It’s generally considered a good idea to periodically adjust your investments by rebalancing your portfolio. Portfolio rebalancing is a way to adjust the mix of your investments. It means realigning the assets of a portfolio’s holdings to match your desired asset allocation.
Investors who are managing their investments themselves can rebalance when they like, based on their personal preferences. Some choose to do it at certain points, such as quarterly or annually. Others do it when their target asset allocation changes.
If you have a robo advisor or investment advisor, they likely have you set up with a specific target of different types of investments. Over time, the advisor will typically rebalance your portfolio to keep it in line with your target percentages. Check in periodically and review what’s going on to make sure everything is on track.
There is no one answer for when to rebalance your portfolio —it is up to each investor and what they are comfortable with. However, there are certain situations that indicate it might be time to consider a portfolio rebalance. These typically include:
• Major life changes that affect your financial goals or risk tolerance. For instance, perhaps you lost your job or got divorced. Or on a happier note, maybe you inherited some money or had a baby.
• Market volatility has caused your asset allocations to stray from your target goals.
• You’re concerned your portfolio isn’t diversified enough.
The mix of assets in your portfolio will likely shift with age. When you’re younger and you have a longer time horizon until retirement, you may want to have more assets that are considered riskier with more potential for growth, like stocks, because you have more time to ride out any market volatility.
As you get older and closer to retirement, however, you will likely want to shift your allocation to have fewer riskier assets and more assets considered less risky, such as bonds, to help protect your money from any drops in the market.
Each investor’s financial situation is different, so individuals’ asset allocation will vary. Every investor needs to determine the best allocation for their age and circumstances.
Investing for retirement is important as part of an overall financial plan. And with some research, picking the right investment options doesn’t have to be overwhelming.
You can learn about different types of retirement plans, including employer-sponsored plans and IRAs, and investment options. Then, you can weigh the pros and cons and pick those that suit your financial situation, risk tolerance, and goals. Make sure you are aware of any fees involved, along with tax implications.
If you don’t feel comfortable managing your own portfolio, you might want to consider such alternatives as working with an advisor or using an automated portfolio. Whatever you do, start saving as soon as you can so that you’ll have more time to work toward your retirement goals.
Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
It is possible to invest for retirement if you have limited funds. In fact, if you have limited funds, that may be one reason it’s even more important to invest for retirement as soon as you can. Especially if you are younger and have a long time before retirement, even a small amount can potentially grow to be a sizable nest egg when investment returns are compounded over many decades.
How you choose to invest will depend on a number of factors, one of which is how close you are to retirement. One common strategy is to be more aggressive with your investment strategy when you are years or decades away from retirement. This type of higher-risk, potentially higher-rewards strategy can possibly lead to higher overall returns while you have a long time to weather the ups and downs of the market. Then, as you get closer to retirement, you’ll likely want to be more conservative with your investments in an attempt to better preserve capital.
Choosing your investment options will depend on your overall financial situation and tolerance for risk. Some examples of more conservative investments include bonds, cash, CDs, and Treasury bills. As you get closer to retirement, it likely makes sense to choose more conservative investments. You may give up some possible returns, but you may also be better insulated against large losses.
How much you should save monthly to reach your retirement goal depends on what your goal is, your time frame for reaching it, and your financial situation. One guideline is to put 15% to 20% of your income toward your retirement, and aim for specific targets based on your age, such as having 1 times your salary saved by age 30, 3 times your salary by age 40, and 10 times your salary saved by the time you are 67. Those are just rough guidelines, but they can give you a point of reference.
Typically, Social Security doesn’t provide enough of a retirement income for most people. For instance, in 2023, retirees received about $1,900 per month, on average. That’s why it’s a good idea to start saving for retirement as early as possible, through an employer-sponsored retirement plan or an IRA, or both, and not rely on Social Security as the main source of your retirement income.
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