invest Archives | Page 6 of 182

Oct

2024

How to Open an IRA: Beginners Guide

By Rebecca Lake | Budgeting & Goals, Building Your Career, Growing Wealth, invest, Investing | No Comments

Saving for retirement may be the biggest financial goal many of us will ever set. So it makes sense to explore all retirement savings options, including an IRA, or individual retirement account. Individual retirement accounts are tax-advantaged tools that can be opened by virtually anyone with earned income, unlike employer-sponsored 401(k) plans. The sooner you open your first IRA, the more opportunity your savings have to grow over time, potentially leading to a nice nest egg upon retirement.

There are other benefits to opening an IRA. For one, it can deliver attractive tax perks — either up front or in retirement — and it can be especially attractive to individuals who don’t have an employer-sponsored 401(k) plan, or have maxed it out already.

This article will walk you through the steps of opening an IRA — whether a traditional, Roth, or SEP IRA.

Key Points

• Opening an IRA provides a tax-advantaged way to save for retirement, allowing individuals with earned income to benefit regardless of employer-sponsored plans.

• Selecting the right investing style, either through a robo-advisor for automation or an online broker for hands-on management, is crucial when setting up an IRA.

• Different types of IRAs, including Traditional, Roth, and SEP IRAs, offer various tax benefits and contribution limits based on income and employment status.

• The process of opening an IRA involves providing personal information, identification, and selecting beneficiaries, followed by funding the account through transfers or rollovers.

• Choosing the right investments within an IRA, such as stocks, bonds, or target date funds, should align with individual risk tolerance and retirement goals for optimal growth.

How to Open an IRA

1. Choose Your Investing Style

When setting up an IRA, you have the option to select the investing style that aligns with your preferences and goals. You can choose between two primary methods: using an online broker for self-directed investing or opting for a robo-advisor for automated investing.

• Consider a robo-advisor for a hands-off approach: If you find the array of investment choices daunting or you’re unsure where to begin, a robo-advisor might be the ideal solution. This option allows you to take a more hands-off approach and automate your investments. Simply share your retirement and investment objectives, and the robo-advisor will create and maintain a tailored portfolio specifically designed to meet your needs.

• Choose an online broker to take control of your investments: For those who prefer to be more involved and make their own investment decisions, using an online broker for self-directed investing is the way to go. This method allows you to directly manage your investments and typically comes with the benefit of commission-free trades. This is a great choice for individuals who want to actively participate in the management of their IRA investments.

2. Choose Where to Open Your IRA

You can open an IRA at a brokerage, a bank, mutual fund company, or other financial services provider. Typically, the more personal care and advice you get, the higher the account fees will be. A robo-advisor, for instance, might charge lower fees than a brokerage.

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.

3. Choose the Type of IRA You Want to Open

Traditional IRA

If you have earned income, you can open a traditional IRA regardless of how much you make per year. An IRA can be a good next step if you’ve maxed out your 401(k), for instance.

One notable difference between traditional and Roth IRA accounts is that traditional IRAs allow you to deduct your contributions on your tax returns now, meaning you pay taxes on distributions when you retire. You’ll pay a 10% penalty tax (in addition to regular income tax) on any money you withdraw from a traditional IRA before age 59 ½, with a few exceptions.

It may be better to go with a traditional IRA if you think you’ll be in a lower tax bracket after retirement. This is because you’ll be saving on a higher tax rate now (vs. the lower rate you’d be paying later, since you’d be in a lower tax bracket in retirement).

Roth IRA

Unlike traditional IRAs, there are income limits on who can open a Roth IRA. For 2024, individuals can only contribute the full amount — $7,000, with an additional $1,000 for people age 50 or over — to a Roth IRA if their income is below $146,000 for single filers. Those earning more than $146,000 but less than $161,000 can contribute a reduced amount. For married people who file taxes jointly, the limit is $230,000; those who earn up to $240,000 can contribute a reduced amount.

Roth IRA contributions are made with after-tax income. While that doesn’t offer any tax advantages now, it does mean that when you withdraw money upon retirement, you won’t have to pay taxes on it. As such, a Roth IRA may make sense for eligible individuals who typically get a tax refund and expect to be in a similar or higher tax bracket when they retire (for example, if they plan to have substantial income from a business, investments, or work).

SEP IRA

A SEP IRA, or simplified employee pension, can be set up by either an employer at a small business or by someone who is self-employed.

Employers get a tax deduction when they contribute to their employees’ IRAs, and they’re also allowed to contribute on a “discretionary basis” (meaning the employer doesn’t have to contribute in years where it’s not as financially feasible for the company.) For employees, this option may allow you to contribute a greater amount than other IRAs, depending on your income.

4. Open an IRA Account

Once you decide where to open an IRA, you’ll need to follow through with doing so. The process to open an IRA can vary a bit from provider to provider, but it’s generally pretty straightforward.

What You’ll Need to Open an IRA

• A copy of your government-issued ID

• Personal information, including contact information and Social Security number

• Details on intended beneficiaries

5. Fund Your Account

Once your account is opened, you’ll receive guidance on funding an IRA. If you want to fund your account through an electronic transfer, you’ll be asked to provide banking information. It’s also possible to roll over existing retirement accounts — and yes, it is possible to open an IRA if you have a 401(k) already.

As of 2024, you can contribute up to $7,000 a year to a traditional or Roth IRA, or up to $8,000 if you’re 50 or older. If you take home more than the maximum earnings allowed for a Roth IRA but still prefer a Roth IRA over a traditional account, you might be able to contribute a reduced amount of Roth IRA contribution limits. An IRA contribution calculator can help you get an idea of how much you can contribute this year.

In many cases, it’s a good idea to invest as much as you can up to that amount each year to take full advantage of the power of compound growth.

A retirement calculator can help you figure out whether you’re on track for retirement. A quick rule of thumb: By the time you’re 30, it’s typically good to have the equivalent of one year’s salary saved.

Rolling Over a 401(k) into an IRA

If you’re leaving a job with an employee-sponsored retirement plan, you can roll over your 401(k) into a traditional IRA. When you roll money over from a 401(k), there’s no limit to how much you can add to an IRA at that time. Going forward, additional contributions will be capped at the typical IRA contribution limit.

Bonus Step: Choose Your Investments

Investors can choose to invest in stocks, bonds, mutual funds, low-cost index funds, or exchange-traded funds (ETFs) — or a combination thereof – through a financial institution.

One popular type of investment fund geared toward retirement savings is a “target date fund.” A target date fund is calibrated to the year you plan to retire, and it’s meant to automatically update your mix of assets, like stocks and bonds, so they’re more aggressive earlier in life and more conservative as you approach retirement.

Ultimately, the mix of investments in your IRA should depend on your personal risk tolerance, lifestyle, and retirement goals.

Pros and Cons of IRAs

If you’re contemplating whether to open an IRA, it’s important to understand the pros and cons of this category of retirement account. Here’s a look at the pros and cons of traditional and Roth IRAs, two of the most common types of IRAs:

Pros	Cons
Tax-advantaged saving	Lower contributions limits than other types of retirement accounts
Anyone can open one	Income limits on contributions/ deductions
Wider array of investment options	No employer matching contributions
Easy to set up	Have to set it up yourself

Traditional IRA

Contributions to a traditional IRA are potentially tax deductible, which can lower your taxable income for the year. However, you will pay taxes on withdrawals in retirement.

Roth IRA

With a Roth IRA, contributions are made with after-tax dollars, but the growth and withdrawals in retirement can occur tax free. This can be a significant advantage if you expect to be in a higher tax bracket in retirement.

Investing in Your Retirement

Once you’re familiar with how to open an individual retirement account, the process itself is pretty straightforward — possibly the biggest lift involved is deciding which IRA suits your personal situation and retirement goals best: a traditional, Roth, or SEP IRA. From there, you’ll need to decide where to start a Roth IRA or other type or IRA, then go through the formal process of starting an IRA, which includes providing certain information, funding the account, selecting a contribution amount, and deciding where to invest your funds.

That can all sound like a lot, but getting started on saving for your retirement doesn’t have to be difficult. SoFi Invest makes opening an IRA simple — it’s possible to sign up in less than five minutes. You can be as involved in the investment process as you want to be — either with hands-on investing or our automated investing technology, in which our algorithm will recommend an appropriate mix of investments based on your age and retirement goals.

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

How much money is required to open an IRA?

There’s no universal minimum amount required to open an IRA. That being said, some providers will have minimum requirements.

Can you open an IRA all on your own?

Yes, it’s definitely possible to open an IRA on your own. The process is simple, similar to opening a bank account, and you can do so at most banks, brokerages, or other financial institutions. Often, it’s possible to start an IRA online.

Can you open an IRA at a bank?

Yes, many banks offer IRAs. You can also open an IRA at credit unions, brokerages, and investment companies.

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.

You may also be interested in:

IRA vs 401(k): What Is the Difference?

What Is a Roth IRA and How Does It Work?

Retirement Planning: Step-by-Step Guide

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.

SoFi Invest®

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

Oct

2024

How to Invest in Stocks: A Beginner’s Guide

By Krystal Etienne | Growing Wealth, invest, Investing | Comments Off

Table of Contents

How to Start Investing in Stocks: 5 Steps
Step 1: Determine Your Investing Approach
Step 2: Decide How Much You Want to Invest in Stocks
Step 3: Open an Investment Account
Step 4: Choose Your Stocks
Step 5: Continue Building Your Portfolio
Stock Tips for Beginners
FAQ

Stocks are shares of ownership in a company. To start investing in stocks, you would find a company that you believe may grow or appreciate in value over time, then purchase its stock through a brokerage account. If the stock price rises, you could sell your shares and potentially make a profit — or suffer a loss, if share prices decline.

Of course, when it comes to investing in stocks as a beginner, you’ll want to learn the basics so that you’re confident and comfortable with the decisions you make. Here is a step-by-step guide for those who want to start investing in stocks now.

Key Points

• Stocks represent shares of ownership in a company and can be purchased through a brokerage account.

• Before investing in stocks, it may be wise to determine your investing approach and consider your time horizon.

• Different ways to invest in stocks include self-managed investing, using a financial advisor, or utilizing robo-advisors.

• The amount you invest in stocks will likely depend on your budget and financial goals.

• Investors may want to choose stocks based on thorough research, including analyzing a company’s financial statements and valuation metrics.

How to Start Investing in Stocks: 5 Steps

It’s not terribly difficult to start investing in stocks or other securities. But it may be a good idea to sit down and think through your approach, strategy, goals, and more, before actually throwing some money into the markets. Here is a broad, basic rundown of how to start investing in stocks:

▶️ Watch the video: How to Trade Stocks

1. Determine Your Investing Approach

As noted, before you get started investing in stocks, you need to determine your investing approach. Because every person has unique financial goals and risk tolerances, there is no one-size-fits-all strategy to begin investing in the stock market.

Most people will need to decide whether they want a hands-on approach to investing or whether they’d like to outsource their wealth building to some sort of financial professional, or service.

Additionally, investors need to consider their time horizons before investing in stocks. Some investors want to invest long-term — buying and holding assets to build wealth for retirement. In contrast, other investors are more interested in short-term trading, buying and selling stocks daily or weekly to try and make a quick profit. The type of investor you want to be will help determine what kind of stocks you should buy and your investing approach.

2. Decide How Much You Want to Invest in Stocks

How much you invest will likely depend on your budget and financial goals. You may decide to invest with whatever you can comfortably afford, even if that doesn’t amount to much.

Fortunately, it’s fairly easy to start investing even with relatively little money. Many brokerage firms offer low or no trading fees or commissions, so you can make stock trades without worrying about investment fees eating into the money you decide to invest.

Additionally, many brokerage firms offer fractional share investing, which allows investors to buy smaller amounts of a stock they like. Instead of purchasing one stock at the value for which the stock is currently trading — which could be $1,000 or more — fractional share investing makes it possible to buy a portion of one stock. Investors can utilize fractional investing to use whatever dollar amount they have available to purchase stocks.

For example, if you only have $50 available to invest and want to buy stock XYZ trading at $500 per share, fractional share investing allows you to buy 10% of XYZ for $50.

3. Open an Investment Account

Once you’ve determined your investing approach and how much money you can invest, you’ll need to open a brokerage account to buy and sell stocks and other securities.

Several investment accounts might make sense for you, depending on your comfort level in managing your investments and your long-term financial goals. But in a general sense, there are a few options for investors: Full-service brokerages, online brokerages, and robo-advisors. But you can also invest using a retirement account, too.

Full-service brokerages

Many investors may use traditional brokerage firms, also known as full-service brokerages, to buy and sell stocks and other securities. A full-service brokerage offers additional services beyond just buying and selling stocks, such as investment advice, wealth management, and estate planning. Typically, full-service brokerages provide these services at high overall costs, while discount and online brokerages maintain scaled-down services with lower overall costs.

A full-service brokerage account may not be the best option for investors just getting started investing in stocks. These firms often require substantial account minimum balances to open an account. This option may be out of reach for most in the early stages of their investing journey.

Online brokerage

An online brokerage account may be ideal for most beginning investors looking to have a hands-on approach to trading stocks and building a financial portfolio. Many online brokers offer services with the convenience of an app, which can make investing more streamlined. If you feel confident or curious about how to start investing at a lower cost than a full-service brokerage firm, opening an account with an online broker could be a great place to start.

Robo-advisor

If you’re interested in investing but want some help setting up a basic portfolio, opening an investment account with a robo-advisor might be best for you. A robo-advisor uses a sophisticated computer algorithm to help you pick and manage investments. These automated accounts generally don’t offer individual stocks; instead, they build a portfolio with a mix of exchange-traded funds (ETFs). Nonetheless, it’s a way to become more familiar with investing.

Retirement option: 401(k) and IRAs

Retirement accounts like employer-sponsored 401(k)s or individual retirement accounts (IRAs) are tax-advantaged investment accounts that can be great for the beginning investor trying to build a retirement nest egg. These accounts offer investors a range of investment choices, including individual stocks. You may also have access to tutorials, advisors, or other resources to help you learn how to start investing in these accounts.

💡 Ready to start retirement investing? Consider opening an IRA online.

4. Choose Your Stocks

Deciding what individual stocks to invest in can be challenging for most investors. There are countless ways to evaluate stocks before you buy.

Before choosing your stocks, you generally want to do some homework into a company’s inner workings to understand the company’s overall valuation and the stock’s share price.

As a beginning investor, you want to get comfortable reading a company’s balance sheet and other financial statements. All publicly-traded companies must file this information with the Securities and Exchange Commission (SEC), so it shouldn’t be difficult to track those statements and filings down.

One of the most fundamental metrics for understanding a stock’s value compared to company profits is its price-to-earnings (PE) ratio. Others include the price-to-sales (PS) ratio and the price/earnings-to-growth (PEG) ratio, which may be helpful for companies that have little to no profits but are expanding their businesses quickly.

These metrics, and other financial ratios, may help you determine what stocks to buy. And the advantage of owning individual stocks is that you can get direct exposure to a company you believe has the potential to grow based on your research. The downside, of course, is that investing doesn’t come with guarantees, and your stock’s value could decline.

💡 Recommended: 7 Technical Indicators for Stock Trading

5. Continue Building Your Portfolio

After you’ve decided what stocks to invest in, you generally want to continue building a portfolio that will help you meet your financial goals.

One way to bolster your portfolio is by buying mutual funds and ETFs, rather than individual stocks. A potential benefit to investing in funds that hold stocks is that you may avoid some of the risks of being invested in individual stocks that may not perform well.

Whether investing in individual stocks or funds, you may want to consider the level of diversification in your portfolio that feels right for you. There is no consensus about the right way to diversify investments. For one person, ideal diversification could mean owning 20 stocks in different industries. For another, it could mean owning the “whole” market via a handful of mutual funds.

Once you get more comfortable investing in stocks and funds, you may employ other investing strategies.

Stock Tips for Beginners

As you wade into the markets, it can be a good idea to keep a few things in mind.

• Consider Your Approach Carefully: As mentioned, some investors like to have a hands-on approach to investing (active), while others prefer a more passive approach. Active investors want to make decisions on their own, picking what stocks are right for them and building a portfolio from the ground up. This self-managed strategy can be time-consuming but an excellent option for investors who have a general understanding of the markets or would like to learn more about them. Take some time to think about the pros and cons of each approach.

• Think About Asset Allocation: Asset allocation involves spreading your money across different types of investments, like stock, bonds, and cash, in order to balance risk and reward. Determining a portfolio’s asset allocation can vary from person to person, based on financial goals and risk tolerance.

• Compare Account Costs and Features: No matter where you decide to open your investment account, be sure to research and compare costs and features within the account. For example, many brokerage accounts charge investment fees and commissions for making trades, while some do not, though other fees may apply. You should check with your brokerage’s fee schedule to get a good idea of what costs may be applicable.

The Takeaway

Historically, investing in the stock market has been a way for some individuals to build personal wealth. These days, it’s never been easier for new investors considering getting into stocks to start. Whether you choose to work with a financial advisor or use an online broker or app, there are several ways to find a method that makes stock investing approachable, fun, and potentially profitable.

Of course, there are no guarantees, so it’s wise to take a step-by-step approach, start small if you prefer, do some research using the many resources available, and see what comes as you gain experience and confidence.

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

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

FAQ

Do you need a lot of money to start investing in stocks?

You don’t need a lot of money to start investing in stocks. Many brokerages allow investors to start investing with relatively little money, and many also offer fractional investing features and options.

Are there fees when investing in stocks?

There may be fees involved with investing in stocks, such as commissions or trading fees. Whether an investor is charged a fee will ultimately come down to the specific brokerage or platform they’re using to invest.

Is stock trading good for a beginner?

Stock trading, or day-trading, is generally for more advanced investors. But stock trading over longer periods of time may be good for investors to learn to get a hang of the markets. Beginners who are interested in stock trading may want to consult with a financial professional to get a better idea of a suitable trading strategy.

Should beginner investors buy individual stocks or stock funds?

Many financial professionals would likely recommend that beginner investors buy funds rather than individual stocks, as they offer some built-in diversification, in many cases. That said, what an investor ultimately decides to do should be dictated by their overall strategy and goals.

Is stock investing safe for beginners?

Stock investing is not necessarily safe for beginners or veteran investors. Investing has its risks, and there are investment types with different levels of risk that investors should familiarize themselves with.

Photo credit: iStock/

SoFi Invest®

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

SOIN-Q324-043

Oct

2024

What Is Full Retirement Age for Social Security?

By Samuel Becker | invest, Preparing for Retirement | Comments Off

In the United States, full retirement age actually varies depending on the year you were born. But if you were born in 1960 or later, your full retirement age is 67. Full retirement age (FRA) is the age at which you become eligible to receive your full retirement, or Social Security benefits. FRA is a key milestone in life and a crucial component of the U.S. Social Security system.

It impacts how much you’ll receive monthly, when you can claim Social Security in full, and how much your delayed retirement credits will increase over time. Your Social Security benefits will, likely, also have an effect on the decisions you make around your strategies for saving and investing for retirement, too.

Key Points

• Full retirement age varies depending on birth year. It ranges from 66 for those born from 1943 to 1954 to 67 for those born in 1960 or later.

• You can claim your Social Security benefits before FRA (as early as age 62), but your benefit will be permanently reduced by up to 30%.

• You can delay your retirement to increase your monthly benefit by 8% for each year of delay (up until age 70).

• You can still work after you’ve started collecting Social Security retirement benefits. But if you’re younger than FRA and earn above certain limits, your benefits may be reduced. There’s no earnings limit once you reach FRA.

What is Full Retirement Age?

Full retirement age (FRA) is the age at which you become eligible to receive 100% of your monthly primary insurance amount (PIA), which is the starting point for calculating your Social Security retirement benefit.

The PIA is the base monthly payment you should receive once you retire. It’s based on your past earnings and adjusted for inflation. In general, here’s how it works:

• If you retire once you’ve reached your exact FRA, you’ll receive 100% of your PIA.

• Retiring earlier will reduce your monthly Social Security retirement benefit to a smaller percentage of your PIA (but no less than 70% of it — more on this later).

• Conversely, if you delay retirement beyond your FRA, your Social Security retirement benefit will be a higher percentage of your PIA.

The bottom line is that because your Social Security retirement benefit is permanently set based on when you retire relative to your FRA, knowing your FRA is extremely important. Even if you’ve done some planning and opened an online IRA or other retirement account.

And, as noted, having an idea of what you can or should expect from your Social Security benefits can have a profound impact on your strategies as they relate to investing for retirement. Since many people may hope to supplement their Social Security income with their own savings and investment income, it can change the calculus in terms of when you’re able to retire.

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.

Determine Your Full Retirement Age

As mentioned, FRA varies depending on your birth year. If you were born in 1960 or later, your FRA is 67. For those born before 1960, FRA decreases by two months for each year earlier, down to 66 for those born between 1943 and 1954.

Here’s a table to clarify the math:

Social Security Retirement Age Chart
Year of Birth	Full Retirement Age	Months between 62 and FRA	Maximum PIA reduction if you retire at 62	Months between 70 and FRA	Maximum PIA increase if you retire at 70
1943 to 1954	66	48	-25%	48	+32%
1955	66 and 2 months	50	-25.83%	46	+30.67%
1956	66 and 4 months	52	-25.67%	44	+29.33%
1957	66 and 6 months	54	-27.5%	42	+28%
1958	66 and 8 months	56	-28.33%	40	+26.67%
1959	66 and 10 months	58	-29.17%	38	+25.33%
1960 and later	67	60	-30%	36	+24%
Source: Social Security Administration

Why Full Retirement Age Matters

FRA is a key factor in deciding when to start collecting Social Security benefits. Claim them too early, and your monthly check will be permanently reduced. Wait too long, and you won’t get any additional benefits. So, if you’re trying to figure out how to retire early, this could become a key piece of information in your calculations.

As mentioned, you’ll receive 100% of your PIA if you retire exactly at your FRA. You can apply for Social Security and start collecting earlier, but no earlier than age 62. And your benefits will be reduced for each month you begin early. How much? Here’s a recap:

• 5/9 of 1% for each month up to 36 months before your FRA

• 5/12 of 1% for each month over 36 months before your FRA

For example, if your FRA is 67, and you retire at 65 (i.e., 24 months earlier), your benefits will be reduced by:

24 months x 5/9 x 1% = 13.33%

That means your monthly benefit will be (100 – 13.33)% = 86.67% of your PIA.

If that sounds too complicated, you can check the retirement age calculator on the Social Security Administration (SSA) website.

But that’s not all. If you retire earlier than 65, the age of eligibility for Medicare, you may need to pay for your own healthcare coverage until you turn 65. If your previous job included medical benefits and you retire before becoming eligible for Medicare, you may have to pay a monthly premium to maintain coverage during this interim period. This could increase your expected expenses in retirement.

Regardless, it may be a good idea to enroll in Medicare when you turn 65 or risk paying a late enrollment penalty when you do sign up. Make sure to factor this into your calculations.

If you retire later instead, delaying your retirement beyond your FRA will earn you more money in the form of delayed retirement credits (DRCs), which increase your monthly benefit. If you were born in 1943 or later, you’ll earn a 2/3 of 1% (roughly 0.67%) increase for each month after FRA, equating to an 8% increase per year. You can keep earning these benefits only up until age 70, so there’s no financial reason to wait beyond this age.

For example, if your FRA is 66 and you wait until 68 to retire, you will earn an increase of:

24 months x 2/3 x 1% = 16%

That means your monthly benefit will be (100 + 16)% = 116% of your PIA.

When to Start Collecting Social Security

Given that the average retirement age in the U.S. is 65 for men and 62 for women, many Americans do choose to retire before reaching full retirement age. But there’s no one-size-fits-all answer for when it’s the right time to choose to retire and start collecting Social Security benefits. It depends on several factors.

First, you should honestly assess your health situation.

• Is your life expectancy short or long?

• Are you in good enough health to keep working and earning?

• Do you have persistent health issues that require the best possible health insurance coverage?

• Do you have the means to pay for private insurance if you retire before you’re eligible for Medicare?

Your answers to these types of questions will steer you in the direction.

Additionally, if you’re the higher-earning spouse, your surviving partner might continue receiving your benefits for many years after your passing. In that case, it could make sense to wait to maximize their future benefits — especially if they’re younger than you.

Other considerations like immediate income needs, if you have money in a Roth IRA, the potential for reduced expenses in retirement, or foreseeable job instability (such as concerns about your employer’s financial health) might mean early retirement is the right call.

Further, it may be worthwhile to investigate how a traditional IRA or other type of retirement plan could affect your plans as well.

Early Versus Late Retirement

Here’s a quick recap of the pros and cons of waiting to claim benefits until after FRA versus before FRA:

Claiming Benefits Before FRA
Pros	Cons
Access to income sooner	Permanently reduced monthly benefits
Better if your life expectancy is shorter or you suffer from health issues	Reduced spousal and survivor benefits
Useful if your job stability is uncertain	Might need to pay for private health insurance until Medicare eligibility at 65
Claiming Benefits After FRA
Pros	Cons
Permanently increased monthly benefits	Access to income is delayed
Higher survivor benefits for your spouse	Risky if you have health issues
Potential for higher lifetime income	Can impact your lifestyle or quality of life

Working After Reaching Full Retirement Age

You can keep working and collecting a paycheck after reaching full retirement age. If you keep working after hitting your FRA, your Social Security benefits won’t take a hit. However, if you claim benefits earlier, the government might temporarily withhold some of the benefits until you reach your FRA.

In particular, you might face one of three scenarios:

1. If you’re under FRA for the entire year, you can earn up to $22,320 (in 2024) without any benefit reduction.

2. If you earn more than $22,320, the SSA will deduct $1 from your benefits for every $2 you earn above this limit.

3. In the year you reach FRA, the earnings limit increases to $59,520 (for 2024). The SSA will deduct $1 from your benefits for every $3 you earn above this limit. Only earnings up to the month before you reach FRA count toward this limit.

This provision is known as the retirement earnings test (RET) and is periodically adjusted to account for inflation.

Once you reach FRA, the SSA will recalculate your benefits to account for the months when benefits were withheld due to excess earnings. So, while you don’t get a lump sum back, you do get higher payments for the rest of your life.

The Takeaway

Choosing the right time to apply for Social Security has a tremendous impact on your retirement strategy. Understanding what your full retirement age is factors heavily into this decision since it essentially defines the timing of your retirement. Whether you claim benefits early, at your FRA, or later will affect the amount of your checks. That will also come into play when seeing how far your savings and investments will take you, when paired with your Social Security benefits.

As you plan for your retirement, consider a savings strategy that can potentially offer you compound growth. SoFi Traditional IRAs or Roth IRAs allow you to invest your way. With investment options like stocks, ETFs, and more, you can invest your way. Save, invest, and watch your money grow as you work toward a secure and comfortable retirement.

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).

FAQ

How does age affect my Social Security benefits?

Your Social Security benefits will be reduced by a percentage if you claim them before your full retirement age (FRA) and increased if you delay claiming them. The earlier you claim before FRA, the greater the reduction, the longer you wait, the higher the increase (up until age 70).

Can I choose to receive Social Security benefits earlier than full retirement age?

Yes, you can start receiving benefits as early as age 62, but the earlier you claim them, the more they will be reduced. Note that this reduction is permanent.

What is the significance of the full retirement age increase?

The increase in FRA means you must work longer to claim 100% of your benefits. For example, people born in 1954 could earn full benefits at age 66, while those born in 1960 or later must wait until age 67 for unreduced benefits.

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SoFi Invest®

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

SOIN-Q324-049

Oct

2024

ETFs vs Index Funds: What’s the Difference?

By Kim Franke-Folstad | invest, Investing, Terminology | No Comments

The main difference between exchange-traded funds (ETFs) vs. index funds stems from a difference in how each type of fund is structured.

Index funds, like many mutual funds, are open-end funds with a portfolio based on a basket of securities (e.g. stocks and bonds). Fund shares are priced once at the end of the trading day, based on the fund’s net asset value (NAV).

An ETF is a type of investment fund that also includes a basket of securities, but shares of the fund are designed to be traded throughout the day on an exchange, similar to stocks.

Although index funds and most ETFs track a benchmark index and are passively managed, ETFs rely on a special creation and redemption mechanism that help make ETF shares more liquid, and the fund potentially more tax efficient.

In order to understand the differences between ETFs vs. index funds, it helps to know how each type of fund works.

Key Points

• ETFs and index funds both offer investors exposure to a basket of securities, which may provide portfolio diversification.

• ETFs can be traded throughout the day, while index mutual funds are traded at the end of the day.

• ETFs typically disclose their holdings daily, whereas index funds disclose quarterly.

• ETFs tend to have higher expense ratios than index funds, but can offer more trading flexibility.

• ETFs are generally more tax efficient than index funds.

What Are Index Funds?

Index funds are a type of mutual fund. Like other mutual funds, an index fund portfolio is a collection of stocks, bonds, or other securities that are bundled together into a pooled investment fund.

Index Funds Are Passive

Unlike most other types of mutual funds, which are actively managed by a portfolio manager, index funds are designed to mirror the holdings and the performance of an index like the S&P 500 index of U.S. large-cap stocks, or the Russell 2000 index of small-cap stocks.

Because index funds are passively managed, they tend to be lower cost than other types of mutual funds.

Not as Liquid

Investors buy shares of the fund, which gives them exposure to the basket of securities within the fund. As noted above, index mutual fund trades can only be executed once per day, which makes them less liquid than ETFs.

In addition, index funds (and mutual funds in general) have to reveal their holdings every quarter, so they tend to be less transparent than ETFs, which typically reveal their holdings once a day.

There are thousands of indexes to choose from, and it’s possible to create an investing portfolio from index funds alone.

What Are ETFs?

Unlike index funds, ETF shares can be traded on exchanges throughout the day, just like stocks, so ETFs require a different wrapper or structure than traditional mutual funds.

How ETF Shares Are Created and Redeemed

Because an ETF itself can hold hundreds or even thousands of securities, these funds utilize a special creation and redemption mechanism that allows for intraday trading of shares. This helps to reconcile the number of ETF shares that are traded with the price of the underlying securities in the fund, thus keeping share price as close to the value of the underlying securities as possible.

As a result, ETF shares are not only more liquid than index funds from a cash standpoint, they are also more fluid from a trading standpoint. An investor can place a trade while markets are open, and get real-time pricing information with relative ease by checking financial websites or calling a broker. That’s a plus for investors and financial professionals who prefer to make trades based on market conditions.

ETF Costs

When trading ETFs, bear in mind that the average expense ratio of ETFs is 0.15%, according to the Investment Company Institute, which is historically low — but still higher than most index mutual funds, which have an average expense ratio of 0.05%.

Depending on the brokerage involved, investors may also pay commissions and a bid-ask spread, which is the difference between the ask price and the bid price of an ETF share, although this has less of an impact for buy-and-hold investors.

ETFs and Tax Efficiency

Owing to the way ETF shares are created and redeemed, ETFs may be more tax efficient than index funds. When investors sell shares of an index fund, the underlying securities in the fund must be sold, and if there is a capital gain it’s passed onto all the fund shareholders.

When an investor sells shares of an ETF, the fund doesn’t incur capital gains, owing to the mechanism for redeeming shares. But if the investor sees a profit from the sale, this would result in capital gains (which is also true when selling index fund shares), which has specific tax implications.

Of course, investors who hold ETFs or index funds within an IRA or other retirement account would not be subject to capital gains tax events.

When picking ETFs, however, bear in mind that the majority of ETFs are passively managed: i.e. they are index ETFs. Only about 2% of ETFs are actively managed, owing to the complexity of their structure and industry rules about transparency for these funds.

ETFs vs. Index Funds: Key Differences and Similarities

When comparing ETFs vs. index funds, there are a few similarities:

• Both types of funds include a basket of securities that can include stocks, bonds, and other securities.

• ETFs and index funds may provide some portfolio diversification.

• Index funds and most ETFs are considered passive investments because they typically mirror the constituents of a benchmark index. (By comparison, actively managed mutual funds and active ETFs have a live portfolio manager who oversees the fund, and makes trades with the goal of outperformance.)

This chart helps to summarize the similarities and differences between ETFs vs index funds.

ETFs	Index Funds
Similarities:
Portfolio consists of many securities	Portfolio consists of many securities
Provides diversification via exposure to different asset classes	Provides diversification via exposure to different asset classes
ETF expense ratios are generally low	Index fund expense ratios are generally low
Most ETFs are passively managed	Index funds are passively managed
Differences:
A special creation-redemption mechanism enables intraday share trading	Shares bought and sold/redeemed via the fund itself
Shares trade during market hours on an exchange	Trades executed at end of day
Fund holdings disclosed daily	Fund holdings disclosed quarterly
Shares are more liquid	Shares are less liquid
Investors may also pay a commission on trades or other fees	Investors may pay a sales load or other fees
ETFs tend to be more tax efficient	Index funds may be less tax efficient

Recommended: Learn what actively managed ETFs are and how they work.

ETF vs. Index Fund: Which Is Right for You?

There’s no cut-and-dried answer to whether ETFs are better than index funds, but there are a number of pros and cons to consider for each type of fund.

Transparency

By law, mutual funds are required to disclose their holdings every quarter. This is a stark contrast with ETFs, which typically disclose their holdings each day.

Transparency may matter less when it comes to index funds, however, because index funds track an index, so the holdings are not in dispute. That said, many investors prefer the transparency of ETFs, whose holdings can be verified day to day.

Fund Pricing

Because a mutual fund’s net asset value (NAV) isn’t determined until markets close, it can be hard to know exactly how much shares of an index fund cost until the end of the trading day. That’s partly why mutual funds, including index funds, allow straight dollar amounts to be invested. If you buy an index fund at noon, you can buy $100 worth, for example, regardless of the price per share.

ETF shares, which trade throughout the day like stocks, are priced by the share like stocks as well. Knowing stock market basics can help you invest in ETFs, as well. If you have $100 and the ETF is $50 per share when you place the trade, you can buy two shares.

This ETF pricing structure also allows investors to use stop orders or limit orders to set the price at which they’re willing to buy or sell.

These types of orders, which are different than standard market orders, can also be executed through an online investing platform or by calling a broker.

Taxes

ETFs are generally considered more tax efficient than mutual funds, including index funds.

The way mutual funds are structured, there can be more tax implications as investors buy in and out of an index fund, and the cost of taxes is shared among different investors.

ETF shares are redeemed differently, so if there are capital gains, you would only owe them based on your ETF shares.

The Takeaway

Choosing between ETFs vs. index funds typically comes down to cost and flexibility, as well as understanding the tax implications of the two fund types. While both ETFs and index funds are low-cost, passively managed funds — two factors which can provide an upside when it comes to long-term performance — ETFs can have the upper hand when it comes to taxes.

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

FAQ

Is it better to choose an ETF or an index fund?

ETFs and index funds each have their pros and cons. ETFs tend to be more tax efficient, and you can trade ETFs like stocks throughout the day. If you’re interested in a buy-and-hold strategy, an index fund may make more sense.

Are ETFs or index funds better for taxes?

In general, ETFs tend to be more tax efficient.

What are the differences between an ETF and an index fund?

While both types of funds can provide some portfolio diversification, ETFs are generally more transparent, and more tax efficient compared with index funds.

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.

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

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

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

SOIN-Q324-040

Oct

2024

What Are Index Funds, and How to Invest in Them

By Carla Tardi | Growing Wealth, invest, Investing | Comments Off

Index investing is a passive investment strategy in which you buy shares of an index fund that mirrors the composition and performance of a market index like the S&P 500.

Index investing is considered passive because index funds are formulated to follow the index and thus deliver market returns. There is no portfolio manager to oversee the fund or execute trades as there is with actively managed funds. Index funds can include mutual funds as well as exchange-traded funds (ETFs).

While index funds were once considered somewhat unsophisticated, a growing number of investors have come to embrace passive strategies in the last several years: In 2010, about 19% of total assets under management with U.S. investment firms were in passive funds. By 2023, passive strategies accounted for 48%.

Although index funds are considered passive, that doesn’t mean they are risk free; there are specific concerns for investors to bear in mind when considering index investing.

Key Points

• Index funds are mutual funds that try to replicate the benchmark index for a market segment or sector.

• Because index funds are passively managed and have low turnover, which helps keep costs lower than an actively managed fund.

• Indexes — and the index funds that track them — may be weighted by market cap, price, or fundamentals.

• Passive investing in index funds may help restrain investors’ emotional impulses and improve long-term returns.

• Index investing offers diversification and cost efficiency, but lacks downside protection and flexibility.

What Are Index Funds?

An index fund is a type of mutual fund or exchange-traded fund (ETF) that tracks the performance of a market segment — like large-cap companies — or a sector like technology, by following the benchmark index for that sector.

Index funds typically hold a portfolio of securities — e.g., stocks, bonds, or other assets — that are identical or nearly identical to those in the relevant index. The idea is to try to replicate the chosen benchmark’s performance as closely as possible.

Unlike actively managed funds, which employ a portfolio manager that seeks to outperform the benchmark by actively trading securities within the fund, index funds aim to provide returns based solely on the performance of that particular market or sector.

There is an ongoing debate about the merits of pursuing active vs. passive strategies. In 2023, passive investments tended to outperform their active counterparts, according to industry data analyzed by Morningstar. That said, active strategies outperformed under certain conditions, and for specific markets.

There are index funds for the U.S. bond market, the U.S. stock market, international markets, and countless others represented by various market indexes like the Russell 2000 index of small-cap companies, the Nasdaq 100 index of tech companies, and so on.

How Do Index Funds Work?

When you buy shares of an index fund — typically a mutual fund or ETF — your money is effectively invested in the many stocks or bonds that make up the particular index. This helps add some diversification to your portfolio, potentially more so than if you were buying individual securities.

In addition, index funds tend to be lower cost than active funds, because passive funds don’t require a live portfolio management team.

Passive investing comes with certain risks, however, chiefly the risk of being tied to the ups and downs of a specific market. Without an active manager at the helm, an index fund can only deliver market returns.

Why Index Funds Typically Cost Less

Because index funds are designed to track the securities in a given market index, an index fund’s portfolio is typically updated only when the constituents in the index itself change. Thus, there is typically low turnover in these funds, which helps keep overall costs low.

By contrast, actively managed funds typically employ a more frequent trading strategy in a quest for outperformance, which can add to the cost of the fund. In addition, active funds have a live portfolio manager and thus tend to charge higher fees.

Understanding the impact of investment fees is important to long-term performance, as many investors know.

How an Index Is Weighted

Some indexes give more weight to companies with a bigger market capitalization; these are market-cap-weighted indexes. This means index funds that track a weighted index, like the S&P 500, likewise allocate a higher percentage to those bigger companies — and those companies influence the performance of the index.

Indexes can also be weighted by price (with higher priced companies making up a higher proportion of the index) or by company fundamentals. While the weighting structure of the index may not matter to individual investors at first, it ultimately influences the holdings of any related index funds or ETFs, and may be something to bear in mind when selecting an index fund.

Well-Known Big Market Indexes

There are thousands of indexes in the U.S. alone, each one designed to reflect how a certain aspect of the market is doing. Some of the biggest indexes include:

• S&P 500 Index — Standard & Poor’s 500 tracks the 500 largest companies in the U.S. by market capitalization.

• Dow Jones Industrial Average (DIJA) — The Dow tracks 30 blue-chip companies; this is a price-weighted index.

• Nasdaq Composite Index — The Nasdaq Composite tracks all of the tech companies listed in the Nasdaq stock exchange (one of the major U.S. exchanges); this is a price-weighted index.

• Wilshire 5000 Index — The Wilshire 5000 is a market-cap-weighted index, and it’s considered a total market index because it tracks all publicly traded companies with headquarters in the United States.

• Bloomberg Barclays Aggregate Bond Index — Nicknamed the “Agg,” this index tracks over $50 trillion in fixed-income securities, and is often considered an indicator of the economy’s health.

Top 10 Equity Index Funds

While the above list reflects some of the larger market indexes, these don’t dictate what the most popular index funds may be. Some index funds are more cost efficient or do a better job of tracking their benchmark than others.

Following are the top 10 low-cost U.S. equity index mutual funds and ETFs in 2024, according to Morningstar, Inc., the industry ratings and research company.

1. DFA US Large Company (DFUSX)

2. Fidelity 500 Index (FXAIX)

3. Fidelity Mid Cap Index (FSMDX)

4. Fidelity Total Market Index (FSKAX)

5. Fidelity ZERO Large Cap Index (FNILX)

6. iShares Core S&P 500 ETF (IVV)

7. iShares Core S&P Total US Stock Market ETF (ITOT)

8. iShares S&P 500 Index (WFSPX)

9. Schwab US Mid-Cap Index (SWMCX)

10. Schwab Total Stock Market Index (SWTSX)

How to Invest in Index Funds: Step by Step

Investing in index funds requires as much due diligence as investing in any single security. Here’s how to start.

Step 1: Determine Your Goals, Time Horizon, and Risk Tolerance

You may want to consider some of the basic tenets of investing as you select your index fund or funds. Will you be adding an index fund to an existing portfolio? Are you starting a taxable account? Is this for retirement?

Knowing your goals, your time frame, and how much risk you feel comfortable with will inform the funds you choose.

Step 2: Choose an Index Fund

The name of a particular index fund may catch your eye, but it’s essential to examine what’s inside an index fund’s portfolio before investing in it. Some index funds track a larger market, such as the S&P 500 or Russell 3000. Others track a more narrow or even niche sector of the market.

Determine what your short- and long-term goals are, and what markets you are interested in. You may want to start with a broad market index fund focused on equities or bonds. Or you may want to target certain sectors like technology, sustainability, or health care.

Step 3: Open a Brokerage Account

Open and fund a brokerage account or online brokerage account, and explore the index fund options available. Be sure to check potential fees and trading costs, as well as account minimums and cost per share. The price per share can vary widely.

Step 4: Buy Shares of an Index Fund

Once you’ve selected the fund(s) you want, execute the trade. Decide whether to create an automatic investment (e.g. every month) to support your goals.

Step 5: Consider Your Index Strategy

While it’s possible to simply add one index fund to your portfolio, it’s also possible to populate your entire portfolio using only index funds. Again, bear in mind the pros and cons of index strategies in light of your current and long-term goals for this investment, as well as your risk tolerance.

Potential Advantages of Index Investing

Index investing has a number of merits to consider. As noted above, index investing tends to be cost efficient, and may offer some portfolio diversification. In addition, investors may benefit from other aspects of passive strategies.

Easier to Manage

It might seem as if active investors could have a better chance at seeing significant returns versus index investors, but this isn’t necessarily the case. Day trading and timing the market can be difficult, and may result in big losses or underperformance. After all, few individual investors have the time to master the ins and outs of financial markets.

Index investing offers a lower-cost, lower-maintenance alternative. Because index funds simply track different benchmarks, individual investors don’t have to concern themselves with the success or failure of an active portfolio manager. Also, index investing doesn’t necessarily require a wealth manager or advisor — you can assemble a portfolio of index funds on your own.

Behavioral Guardrails

Investors who pursue active strategies may succumb to emotional impulses, like timing the market, which can impact their portfolio’s performance. Investing in index funds, which takes a more hands-off approach, may help restrain investor behavior — which may help portfolio returns over time.

According to the 30th annual Quantitative Analysis of Investor Behavior (QAIB) report by DALBAR, the market research firm, equity investors typically underperform the S&P 500 over time.

The QAIB report is based on data from Bloomberg Barclays indices, the Investment Company Institute (ICI), and Standard and Poor’s, as well as proprietary sources. The study examined mutual fund sales, redemptions, and exchanges each month, from Jan. 1, 1985 to December 31, 2023, in order to measure investor behavior, and then compared investor returns to a relevant set of indices.

In 2023, the average equity investor earned 5.50% less than the return of the S&P 500 for that year — a common pattern, as DALBAR research shows.

Potential Disadvantages of Index Investing

The potential upsides of passive strategies have to be weighed against the potential risks.

No Downside Protection

Index funds track the market they’re based on, whether that’s small-cap stocks or corporate bonds. So, if the market drops, so does the index fund that’s trying to replicate that market’s performance. There is no live manager who can try to offset losses; index investors have to ride out any volatility on their own.

No Choice About Investments

Individual investors themselves typically can’t change the securities in any mutual fund or ETF, whether passive or active. But whereas active strategies are based on trading securities within the fund, index funds rarely change up their portfolios — unless the index itself changes constituents (which does happen).

Index Investing: a Long-Term Strategy

Some investors may try to time the market: meaning, they try to buy high and sell low. Investing in index funds tends to work when you hold your money in the fund for a longer period of time; or if you rely on dollar-cost averaging.

Dollar-cost averaging is a method of investing the same amount consistently over time to take advantage of both high and low points in market prices. Generally speaking, this strategy tends to lower the average cost of your investments over time, which may support returns. But dollar-cost averaging can be inflexible, and limit an investor’s ability to respond to certain market conditions.

The Takeaway

Index investing is considered a passive strategy because index funds track a benchmark that reflects a certain part of the market: e.g. large-cap stocks or tech stocks or green bonds. Indexing is considered a low-cost way to gain broad market exposure. But index funds are not without risks, and it’s wise to consider index funds in light of your long-term goals.

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FAQ

What happens when you invest in an index?

You can’t invest in an index, per se, but you can invest in a fund that tracks a specific market index. When you invest in an index fund, you’re investing in not one stock, but in numerous stocks (or other securities, like bonds) that match that benchmark. A large-cap index fund would track big U.S. companies; an emerging market index fund would track emerging markets.

How much do index funds cost?

Index funds tend to have a lower annual expense ratio than actively managed funds, often under 0.05%. That said, investment fees can vary widely, and it’s essential to check a fund’s all-in costs.

Are index funds safe?

Investing in the capital markets always entails risk — no investment is 100% safe. That said, investing in an index fund may involve less risk than owning a single stock, because the range of securities in the fund’s portfolio provide some diversification. That doesn’t mean you can’t lose money. Index funds are only as stable as their underlying index.

Is it smart to put all your money in an index fund?

It’s possible to use an index investing strategy for your entire portfolio. Whether this makes sense for you is determined by your goals and risk tolerance. Index investing offers some potential advantages in terms of cost efficiency and broader market exposure, but comes with the risk of being tied to market returns, with no ability to adjust the portfolio allocation.

Photo credit: iStock/PixelsEffect

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.

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

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.

Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

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

SOIN-Q324-042

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2. Choose Where to Open Your IRA

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3. Choose the Type of IRA You Want to Open

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Determine Your Full Retirement Age

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FAQ

How does age affect my Social Security benefits?

Can I choose to receive Social Security benefits earlier than full retirement age?

What is the significance of the full retirement age increase?

What Are Index Funds?

Index Funds Are Passive

Not as Liquid

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What Are ETFs?

How ETF Shares Are Created and Redeemed

ETF Costs

ETFs and Tax Efficiency

ETFs vs. Index Funds: Key Differences and Similarities

ETF vs. Index Fund: Which Is Right for You?

Transparency

Fund Pricing

Taxes

The Takeaway

FAQ

Is it better to choose an ETF or an index fund?

Are ETFs or index funds better for taxes?

What are the differences between an ETF and an index fund?

What Are Index Funds?

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