Feb
27
2024
What Does It Mean If the Fed Is Hawkish or Dovish?

What Does It Mean If the Fed Is Hawkish or Dovish?

By | Financial Independence, invest, Terminology | Comments Off on What Does It Mean If the Fed Is Hawkish or Dovish?

The Federal Reserve has two primary long-range goals: controlling inflation (hawkish) and maximizing employment (dovish). But these two aims can be at odds, and thus the Fed is often called hawkish or dovish.

While you may be thinking that monetary policy is for the birds, the Fed’s posturing, be it hawkish or dovish at any given time, is incredibly important for setting expectations and determining economic outcomes. That’s critical for investors to understand.

Key Points

•   The Federal Reserve has two primary goals: controlling inflation (hawkish) and maximizing employment (dovish).

•   Monetary policy decisions are made by the Federal Reserve, which can take a hawkish or dovish stance based on its goals.

•   Hawkish monetary policy focuses on low inflation and may involve raising interest rates, while dovish policy prioritizes low unemployment and may involve lowering rates.

•   The Federal Open Market Committee (FOMC), consisting of 12 members, is responsible for deciding monetary policy.

•   Hawkish and dovish policies can impact savers, spenders, and investors through changes in interest rates and economic outcomes.

Who Decides Monetary Policy?

The Federal Reserve, the central bank of the United States, decides monetary policy. And, as mentioned, it can take different postures in achieving its goals. In fact, the Fed is striving to balance what can seem like opposing scenarios. For example:

•   A monetary hawk is someone for whom keeping inflation low is the top concern. So if the Federal Reserve seems to be embracing a hawkish monetary policy, it might be because it’s considering raising interest rates to control pricing and fight inflation.

•   A dove is someone who prioritizes other issues — especially low unemployment over low inflation. If the Fed seems to tilt toward a dovish monetary policy, it could signify that it plans to keep rates where they are — at least for the time being — because growth and employment are doing fine. Or it may plan to lower rates to stimulate the economy and add jobs.

It’s important to note that the Federal Reserve’s decisions on monetary policy aren’t left to just one person.

People often blame the sitting president or the chairman of the Federal Reserve if they don’t like the way interest rates are going — whether that’s up or down. But the Fed’s direction is determined by a group of central bankers, not by the Fed chair alone.

The 12 members of the Federal Open Market Committee (FOMC), who typically meet eight times a year to review economic conditions and vote on the federal funds rate, are responsible for deciding the country’s monetary policy. And they may have varying opinions about what the economy needs. So you might hear that the Fed is hawkish or dovish, or you may hear that an individual policymaker — or policy influencer — is a hawk while another is a dove.

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Why Would the Fed Take a Hawkish Stance?

fed hawkish stance

When fiscal policy advisors in the government or banking industry are described as favoring a hawkish or “contractionary” monetary policy, it’s usually because they want to tighten the money supply to protect the economy from inflation and promote price stability.

If the price of goods and services rises due to inflation, consumers can lose their purchasing power. A moderate inflation rate is considered healthy for the economy. It encourages people to spend or invest their money today, rather than sock it away in a low-interest savings account where it could slowly lose value. The FOMC has determined that an inflation rate of around 2% is optimal for employment and price stability.

If inflation rises above that level for a prolonged period of time, the Fed may decide to pump the brakes to control inflation and keep the U.S. economy on track.

The Fed has several tools for controlling inflation, including raising its federal funds rate and discount rate, selling government bonds, and increasing the reserve requirements for banks. When access to money gets more expensive, consumers and businesses typically borrow less and save more, economic activity slows, and inflation stays at a more comfortable level.

Recommended: Is Inflation Good? Who Benefits from Inflation?

Why Would the Fed Take a Dovish Stance?

A dovish or expansionary monetary policy is the opposite of hawkish monetary policy.

If the Fed is worried about the economy’s growth, it may decide to give it a boost by lowering interest rates, purchasing government securities by central banks, and lowering the reserve requirements for banks. Or, if it thinks employment and growth are on track, it might keep interest rates the same.

With lower interest rates, businesses can borrow more money to expand and potentially hire more workers or raise wages. And when consumers are in a low-interest rate environment created by a dovish monetary policy, they may be more likely to borrow money for big-ticket items like cars, homes, home improvements, and vacations. That increased consumption can also create more jobs. And doves tend to prefer low unemployment over low inflation.

Is It Possible to Be Both Hawkish and Dovish?

Yes. Some economists (and FOMC members) don’t take a completely hawkish or dovish attitude toward monetary policy. They are sometimes referred to as neutral or “centrists,” because they don’t appear to prioritize one economic goal over another. Fed Chair Jerome Powell, for example, has been called a hawk, a dove, a “cautious hawk,” a “cautious dove,” neutral, and centrist in various media reports.

And the media frequently pondered where Powell’s predecessor, U.S. Treasury Secretary Janet Yellen, stood on the hawk-dove continuum.

The current (as of 2023) FOMC includes members who have been identified as hawkish, dovish, and neutral. That mix of viewpoints can make it difficult to guess the group’s next move — so anxious investors are keeping a close eye out for clues as to what could happen next.

How Do Hawkish vs Dovish Policies Affect Savers, Spenders, and Investors?

Interest rates frequently rise and fall as the economy cycles through periods of growth and stagnation, and those fluctuations impact everyone. Whether you’re a saver, spender, or investor — or, like most people, all three — you can expect those rate changes to eventually impact your bottom line.

For Savers

Savings account rates are loosely connected to the interest rates the Fed sets, so you might not see a difference right away if there’s a cut or a hike.

When the Fed lowers the federal funds rate, however, financial institutions may move to protect their profits by lowering the interest paid on high-yield savings accounts, money market accounts, and certificates of deposit (CDs). That can be frustrating, and it may be tempting to give up on saving or move money to riskier investments. But specialists generally recommend keeping an emergency fund with at least three to six months’ worth of living expenses stashed in a low-risk account that’s easy to access and isn’t tied to the markets.

Savers may want to check out the more competitive rates offered by online accounts. Because online-only financial institutions have a lower overhead, they typically out-yield brick-and-mortar banks’ savings accounts, regardless of what the Fed is doing with its rates.

For Spenders

An increase or decrease in the federal funds rate can indirectly affect the prime rate banks offer their most credit-worthy customers. And it is often used as a reference rate, or base rate, for other financial products, including car loans, mortgages, home equity lines of credit, personal loans, and credit cards.

If interest rates go down, and borrowing gets cheaper, it can encourage consumers to go out and make those purchases — both big and small — that they’ve been wanting to make.

If those interest rates go up, on the other hand, consumers tend to be deterred from borrowing and spending. They might decide to wait for rates to drop before financing a house, a car, or an expensive purchase like an appliance or home renovation.

Impulse spending also can be affected. Spenders might choose to save their money instead — especially if the interest rate goes up on CDs, money market accounts, and other savings vehicles. Or consumers may focus on paying down credit card debt and other loans to avoid paying high interest on big balances, especially if those obligations carry a variable interest rate.

For Investors

There are no guarantees as to how any investment will react to changes in interest rates made by the Fed. Some assets (like bonds) can be more directly impacted than others. But nearly every type of investment you might have could be affected.

One way to reduce your risk exposure is to create a diversified portfolio, with a mix of assets — from stocks and bonds to real estate and commodities, and so on — that won’t necessarily react in the same way to changes in the interest rate (or other economic factors). If your investments all trend up or down together, your portfolio isn’t properly diversified.


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The Takeaway

The Federal Reserve has two primary goals: overseeing U.S. monetary policy in order to stabilize prices and control inflation — a stance that’s considered hawkish or contractionary — and maximizing employment, which is considered dovish. While these two aims can seem at odds, the Fed has been striving to take a mostly dovish or neutral stance in recent years.

A recent bout of inflation, however, forced the Fed to change its stance in 2022 and raise interest rates. It’ll likely change its stance again when inflation cools. It’s a never-ending game of posturing, all with the goal of maintaining low unemployment and stable prices.

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Feb
27
2024
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Are 401(k) Contributions Tax Deductible? Limits Explained

By | Growing Wealth, invest, Investing | Comments Off on Are 401(k) Contributions Tax Deductible? Limits Explained

As you’ve been planning and saving for retirement, you may have heard that there’s a “401(k) tax deduction.” And while there are definitely tax benefits associated with contributing to a 401(k) account, the term 401(k) tax deduction isn’t accurate.

You cannot deduct your 401(k) contributions on your income tax return, per se — but the money you save in your 401(k) is deducted from your gross income, which can potentially lower how much tax you owe.

This is not the case for a Roth 401(k), a relative newcomer in terms of retirement accounts. These accounts are funded with after-tax contributions, and so tax deductions don’t enter the picture.

Key Points

•   401(k) contributions are not tax deductible, but they lower your taxable income.

•   Roth 401(k) contributions are made with after-tax money and do not provide tax deductions.

•   Contributions to employer-sponsored plans like 401(k) or 403(b) are taken out of your salary and reduce your taxable income.

•   401(k) withdrawals are taxed as income, and early withdrawals may incur additional penalties.

•   Making eligible contributions to a 401(k) or IRA can potentially qualify you for a Retirement Savings Contributions Credit.

How Do 401(k) Contributions Affect Your Taxable Income?

The benefits of putting pre-tax dollars toward your 401(k) plan are similar to a tax deduction, but are technically different.

•   An actual tax deduction (similar to a tax credit) is something you document on your actual tax return, where it reduces your gross income.

•   Contributions to an employer-sponsored plan like a 401(k) or 403(b) are actually taken out of your salary, so that money is not taxed, and thus your taxable income is effectively reduced. But this isn’t technically a tax deduction.

People will often say your 401(k) contributions are tax deductible, or you get a tax deduction for saving in a 401(k), but it’s really that your 401(k) savings are deducted from your salary, and not taxed.

The money in the account also grows tax free over time, and you would pay taxes when you withdraw the money.

Example of a 401(k) Contribution

Let’s say you earn $75,000 per year. And let’s imagine you’re contributing 10% of your salary to your 401(k), or $7,500 per year.

Your salary is then reduced by $7,500, an amount that is noted on your W2. As a result, your taxable income would drop to $67,500.

Would that alone put you in a lower tax bracket? It’s possible, but your marginal tax rate is determined by several things, including deductions for Social Security and Medicare taxes, so it’s a good idea to take the full picture into account or consult with a professional.

Recommended: IRA vs 401(k): What’s the Difference?

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Do You Need to Report 401(k) Contributions on Your Tax Return?

The short answer is no. Because 401(k) contributions are taken out of your paycheck before being taxed, they are not included in taxable income and they don’t need to be reported on a tax return (e.g. Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Tax Return for Seniors).

Your employer does include the full amount of your annual contributions on your W2 form, which is reported to the government. So Uncle Sam does know how much you’ve contributed that year.

You won’t need to report any 401(k) income until you start taking distributions from your 401(k) account — typically after retiring. At that time, you’ll be required to report the withdrawals as income on your tax return, and pay the correct amount of taxes.

When you’re retired and withdrawing funds (aka taking distributions), the hope is that you’ll be in a lower tax bracket than while you were working. In turn, the amount you’re taxed will be relatively low.

How the Employer Match Works

When an individual receives a matching contribution to their 401(k) from their employer, this amount is also not taxed. A typical matching contribution might be 3% for every 6% the employee sets aside in their 401(k). In this case, the matching money would be added to the employee’s account, and the employee would not owe tax on that money until they withdrew funds in retirement.

How Do 401(k) Withdrawals Affect Taxes?

The tax rules for withdrawing funds from a 401(k) account differ depending on how old you are when you withdraw the money.

Generally, all traditional 401(k) retirement plan distributions are eligible for income tax upon withdrawal of the funds (note: that rule does not apply to Roth 401(k)s, since contributions to those plans are made with after-tax dollars, and withdrawals are generally tax free).

If you withdraw money before the age of 59 ½ it’s known as an “early” or “premature” distribution. For these early withdrawals, individuals have to pay an additional 10% tax as a part of an early withdrawal penalty, with some exceptions, including withdrawals that occur:

•   After the death of the plan participant

•   After the total and permanent disability of the plan participant

•   When distributed to an alternate payee under a Qualified Domestic Relations Order

•   During a series of substantially equal payments

•   Due to an IRS levy of the plan

•   For qualified medical expenses

•   Certain distributions for qualified military reservists called to active duty

For individuals looking to withdraw from their 401(k) plan before age 59 ½, a 401(k) loan may be a better option that will not result in withdrawal penalties, but these loans with their own potential consequences.

How Do Distributions From a 401(k) Work?

Once you turn 59 ½, you can withdraw 401(k) funds at any time, and you will owe income tax on the money you withdraw each year. That said, you cannot keep your retirement funds in the account for as long as you wish.

When you turn 72, the IRS requires you to start withdrawing money from your 401(k) each year. These withdrawals are called required minimum distributions (or RMDs), and it’s important to understand how they work because if you don’t withdraw the correct amount by Dec. 31 of each year, you could get hit with a big penalty.

Prior to 2019, the age at which 401(k) participants had to start taking RMDs was 70 ½. The rule changed in 2019 and the required age is now 72. When you turn 72 the IRS requires you to start taking withdrawals from your 401(k), or other tax-deferred accounts (like a traditional IRA or SEP IRA).

If you don’t take the required minimum amount each year, you could face another requirement: to pay a penalty of 50% of the withdrawal you didn’t take.

All RMDs from tax-deferred accounts like 401(k) plans are taxed as ordinary income. If you withdraw more than the required minimum, no penalty applies.

Recommended: Should You Open an IRA If You Have a 401(k)?

What Are Tax Saver’s Credits?

Making eligible contributions to an employer-sponsored retirement plan such as a 401(k) or an IRA can potentially lead to a tax credit known as a Retirement Savings Contributions Credit, or a Saver’s credit. There are three requirements that must be met to qualify for this credit.

1.    Individual must be age 18 or older.

2.    They cannot be claimed as a dependent on someone else’s return.

3.    They can not be a student (certain exclusions apply).

The amount of the credit received depends on the individual’s adjusted gross income.

The credit amount is typically 50%, 20%, or 10% of contributions made to qualified retirement accounts such as a 401(k), 4013(b), 457(b), traditional or Roth IRAs.

For tax year 2023, the maximum contribution amount that qualifies for this credit is $2,000 for individuals, and $4,000 for married couples filing jointly, bringing the maximum credit to $1,000 for individuals and $2,000 for those filing jointly. Rollover contributions don’t qualify for this credit.

Alternatives for Reducing Taxable Income

Aside from contributing to a traditional 401(k) account, there are other ways to reduce taxable income while putting money away for the future.

Traditional IRA: Traditional IRAs are one type of retirement plan that can lower taxable income. Individuals may be able to deduct their traditional IRA contributions on their federal income tax returns. The deduction is typically available in full if an individual (and their spouse, if married) doesn’t have retirement plan coverage offered by their work. Their deduction may be limited if they or their spouse are offered a retirement plan at work, and their income exceeds certain levels.

SEP IRA: SEP IRAs are a possible alternative investment account for individuals who are self-employed and don’t have access to an employee sponsored 401(k). Taxpayers who are self-employed and contribute to an SEP IRA can qualify for tax deductions.

403(b) Plans: A 403(b) plan applies to employees of public schools and tax-exempt organizations, and certain ministers. Employees with 403(b) plans can contribute some of their salary to the plan, as can their employer. As with a traditional 401(k) plan, the participant doesn’t need to pay income tax on any allowable contributions, earnings, or gains until they begin to withdraw from the plan.

Charitable donations: It’s possible to claim a deduction on federal taxes after donating to charities and non-profit organizations with 501(c)(3) status. To deduct charitable donations, an individual has to file a Schedule A with their tax form and provide proper documentation regarding cash or vehicle donations.

To deduct non-cash donations, they have to complete a Form 8283. For donated non-cash items, individuals can claim the fair market value of the items on their taxes. from the IRS explains how to determine vehicle deductions. For donations that involve receiving a gift or a ticket to an event, the donor can only deduct the amount of the donation that exceeds the worth of the gift or ticket received. Individuals are generally required to include receipts when they submit their return.

Earned Income Tax Credit: Individuals and married couples with low to moderate incomes may qualify for the Earned Income Tax Credit (EITC). This particular tax credit can help lower the amount of taxes owed if the individual meets certain requirements and files a tax return — whether or not the individual owes money. Filing a return in this case can be beneficial, because if EITC reduces the amount of taxes owed to less than $0, then the filer may actually get a refund.

The Takeaway

Individuals who expect a 401(k) deduction come tax time may be disappointed to learn that there is no such thing as a 401(k) tax deduction. But they may be pleased to learn the other tax benefits of contributing to a 401(k) retirement account.

Contributions are made with pre-tax dollars, which effectively lowers one’s amount of taxable income for the year — and that may in turn lower the amount of income taxes owed.

Once an individual reaches retirement age and starts withdrawing funds from their 401(k) account, that money will be considered income, and will be taxed accordingly.

Another way to maximize your retirement savings: Consider rolling over your old 401(k) accounts so you can manage your money in one place with a rollover IRA. SoFi makes the rollover process seamless and simple. There are no rollover fees. The process is automated so you’ll avoid the risk of a penalty, and you can complete your 401(k) rollover quickly and easily.

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

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

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

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

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Feb
27
2024

Guide to Wealth Advisors & What They Do

By | Growing Wealth, invest, Investing | No Comments

Key Points

•   Wealth management advisors are professionals who offer personalized financial advice and services to individuals with significant assets.

•   These professionals assist clients with various aspects of their financial lives, including investment management, retirement planning, tax strategies, and estate planning.

•   Expertise in multiple areas, such as finance, accounting, and law, enables wealth management advisors to provide comprehensive guidance.

•   By closely collaborating with clients, wealth management advisors gain an understanding of their goals, risk tolerance, and financial situation to develop tailored strategies.

•   Engaging the services of a wealth management advisor grants individuals access to specialized knowledge, ongoing support, and a holistic approach to managing their wealth.

What Is a Wealth Advisor?

Wealth advisors are a subset of the greater financial advisor world, and they typically (but not exclusively) help high-net worth individuals or families manage their assets, and plan for the future.

There are many firms that offer wealth advisory services, including individual wealth management advisors running independent firms. And while their services often mirror or closely resemble those offered by others in the space — such as financial advisors or financial planners — the key difference is that a wealth advisor tends to offer those with high net worth holistic wealth management services.

Wealth advisors, or wealth management advisors, usually work with wealthy people or families with at least $1 million in liquid assets (i.e. not including property, businesses, trusts, and so on). Wealth management can be expensive, because the services are comprehensive, including but not limited to retirement planning, tax planning, estate planning, and investment management.

Wealth Manager vs Financial Advisor

Wealth manager, financial advisor, investment advisor, financial planner — there are many terms and titles in the financial services sector. Because of that, it can be helpful to know which specific type of financial service provider you’re looking for when you’re in need of guidance and advice.

Differences in certifications and licenses are one of the reasons there are so many terms and titles used to describe people who provide advice related to personal finances. So, it pays to do a little research to determine who would work best for you and your specific financial situation.

Wealth Manager vs Financial Advisor
Wealth Manager

 Financial Advisor
Subset of financial advising Advise on financial plans or strategies
Usually work with high-earners or high-net-worth individuals Often sell products to earn commissions
Role is more comprehensive, and includes estate planning, tax consulting, and retirement planning Two common types: Financial Planners and Investment Advisors

What Do Wealth Advisors Do?

Wealth management is a subset of financial advising. Wealth managers tend to focus on managing the assets of high earners. A wealth manager’s role is generally far more comprehensive than offering just investment advice. While investment advisors and financial planners focus on one piece of your financial situation, wealth managers combine several areas of financial guidance.

It may be helpful to think of them as a quarterback with a team of professionals behind them, who can provide highly customized services and products.

They might place your assets in markets to enhance returns and shift them out when risk exceeds your comfort levels. Once the parameters are set, and the wealth manager understands your individual needs, you can focus your energy elsewhere.

They are able to provide financial advice that addresses the entirety of a person’s financial life, including investment management, accounting and tax strategy consulting, estate planning, retirement planning, and more. They work closely with you to establish a plan to grow and maintain wealth.

While wealth management is often thought of as a service only for the affluent, there are opportunities to get great advice, service, and solutions from a wealth advisor at very reasonable costs.

There are three areas a wealth advisor can help you:

Investment Management and Risk Management

A wealth advisor will work with you to assess your tolerance for risk and then provide an investment strategy to help you reach your financial goals. For example, if you’re beginning to plan for retirement early in your career, you may be more apt to take on risk than someone who may be nearing the end of their career and is much closer to retiring.

Part of any investment plan also includes managing risk over time. This includes having adequate insurance for your financial investments, and diversifying your portfolio to minimize risk.

💡 Learn more about investment risk.

Tax and Estate Planning

Wealth managers do not offer tax advice, but they can often coordinate with your attorney or accountant to strategize and minimize the taxes you owe by planning for tax efficiency.

Many wealth advisors can also help with estate planning strategies. Estate planning often involves more than just wills. For instance, there are advantages for setting up trusts, especially if you have dependents that will need caring for. Working with a wealth manager for estate planning can help get your affairs in order, and help avoid any surprises or legal snags for your family down the road.

Real Estate

If you own investment property, this is where the wealth manager vs financial advisor debate will be quite impactful. Wealth advisors usually have more experience and skills to help you manage portfolios with valuable real estate. Millions of Americans invest in real estate in one way or another — often by purchasing property, or shares of REITs — and choosing an advisor who can help with financial planning and real estate might make sense.

What Do Financial Advisors Do?

Financial advisor is the broadest of the terms. The phrase can describe anyone who advises you on a financial plan, investments, or tax strategy implications.

How much do these professionals cost? Be aware that some financial advisors are incentivized to recommend certain investments based on the fees they can earn. So, your first step should be to understand which type of financial advisor you’re looking for, as well as what the advisor charges.

Many young investors might not have a good understanding of what financial advisors do. But the two most common types are financial planners and investment advisors.

Financial Planners

It may be easiest to think of financial planners as “lifestyle planners.” They’re most suitable for helping you set up a budget, plan for tax time, save for retirement, or to plan your child’s college education. They should have completed professional requirements for their Certified Financial Planner™ practitioner designation.

Some, usually in larger companies, earn their keep by selling you financial products, rather than just advice or guidance. Those can include insurance, stocks, mutual funds, and more.

Fee-only financial planners don’t sell products, however, as they’re paid for their advice — per hour, or at a certain rate. Fee-based planners may charge a fee but also may earn a commission from certain products, like mutual funds.

It’s always wise to ask how any advisor is being compensated, as taxes and fees quickly eat into profits.

Investment Advisors

Investment advisors also encompass a range of financial professionals. Probably the biggest difference between a financial advisor and an investment advisor is that a Registered Investment Advisor has a fiduciary responsibility to put his or her client’s interests first. And as the name implies, they must register with the SEC, and are subject to various oversight and record keeping rules, among other obligations.

You can even look up individual advisors and review their credentials through a relatively simple internet search. Some financial planners are also Registered Investment Advisors (RIAs).

If you’re unsure of your advisor’s intentions, it’s always best to ask about their priorities before you start working with them. With an investment broker, for example, you’d want to know whether he or she has a fiduciary responsibility.

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How Much Does a Wealth Advisor Cost?

As noted, wealth advisors may charge their clients on a fee-only basis, or as a percentage based on the total asset management load. Ultimately, what clients end up paying will vary drastically based on how much they’re actually putting under management — so, the more a wealth advisor is managing, the more a client might pay.

Fees can vary widely, and as noted above, some advisors are compensated in more than one way. For fee-only or flat-fee wealth advisors, the fees generally land somewhere between $7,500 and can be as high as $55,000 per year.

The typical wealth advisor charging on a percentage basis will likely levy a fee between 0.6% and 1.2%.

The point is that it’s up to the client to ascertain how their advisors charge for their services so they know what they’re paying, and what they’re paying for exactly.

Pros and Cons of Having a Wealth Advisor

Whether the expenses of hiring a wealth advisor, along with the hassle of finding the right person, may prove to be worth it in the end, there are no guarantees. As such, there are pros and cons to hiring a wealth advisor.

On the upside, wealth advisors can shoulder some of the burden of financial decision making, and properly manage one’s assets — which, if you have a lot to manage, can become like a full-time job in and of itself.

Wealth advisors can also act as a sounding board for clients to bounce ideas or strategies off of, offer support during difficult times (death in the family, etc.), and have plans and contingencies in place in case things don’t go to script.

As for some of the potential cons, it’s hard to overlook the expense. If you have a substantial amount of wealth, a 1% management fee can easily amount to tens of thousands of dollars every year.

For some people, it may be worth looking into automated investing platforms rather than hiring a professional. Automated investing, or robo advisors as they’re sometimes called, can be a low-cost way to manage a pre-set portfolio of exchange-traded funds (ETFs). These services are more limited however, and may be more suited to investors with fairly straightforward goals and situations.

It’s also important to note that not all wealth advisors act as fiduciaries, and may be looking to benefit themselves more than you as a client.

4 Tips for Choosing a Wealth Advisor

If you’re interested in working with a wealth management advisor, it’s important to research options carefully before making a decision. Meeting with different financial professionals can give you an opportunity to ask questions about their background, experience and services, as well as the fees they charge.

These tips can help with selecting an advisor that meets your needs and goals as well as your budget.

1. Determine the Type of Wealth Advisor for You

Again, wealth management advisors aren’t identical when it comes to the types of clients they work with and the advisory services they offer. So, it’s important to consider which one is best suited for helping to guide money decisions.

A wealth management advisor can help you with financial-market investment guidance, some may specialize in taxes, real estate investments, or estate planning. Clarifying what you need and want from an advisor, based on where you are financially and where you want to end up, can help winnow your choices.

It is also important to know who the typical clientele of the wealth management advisor you are considering is. For instance, some advisors may prefer to work with clients who have a certain level of assets.

2. Research Their Credentials

It’s never a bad idea to do some background research on a professional you’re planning to hire, and the same logic applies to choosing a wealth management advisor. Specifically, that means looking at things such as:

•   How many years of experience they have

•   What types of clients they typically work with

•   What professional certifications or licenses they hold, if any

•   Whether they’ve ever been the subject of any disciplinary or legal action

There are several tools you can use to research a financial advisor’s background. The regulatory body known as FINRA, for instance, has a BrokerCheck Tool that allows you to explore the backgrounds of investment advisors who are registered with the Securities and Exchange Commission (SEC).

You can also look at registration information from the SEC, and your state’s securities agency.

3. How Much You Can Afford to Pay?

Not every advisor’s fee schedule will work with your budget, so it’s critical to know the distinction between fee-based and fee-only to understand how advisors structure their fees and what you’ll pay for their services.

You should be able to get a sense of what an advisor charges by reviewing their client brochure. A brochure is essentially a condensed version of Form ADV (which is used by advisors to register with federal and state securities authorities), which details the services an advisor offers, their fees, where they operate, any potential conflicts of interest that exist and past disciplinary or legal actions they were subject to, if any. You may be able to find both their Form ADV and their client brochure on an advisor’s website but they’re also required to furnish you with a copy upon request.

It may also be helpful to cast a wider net and look beyond traditional advisors. Using an online platform like SoFi Invest, for example, allows you to benefit from professional investment guidance without paying commissions, or advisory fees, but other fees apply.

4. Which Questions to Ask

Before committing to a wealth management advisor, take the time to interview them first. This vetting process can help with making a final decision about whether you want to pursue a professional relationship.

During this process, you should ask questions about their background and services. Specifically, consider posing these questions to any advisor you’re thinking of working with:

•   How long have you been a financial professional?

•   What certifications do you hold?

•   Which financial advisory services do you offer?

•   How are you paid for those services?

•   Are you a fiduciary financial advisor?

•   What type of client do you typically work with?

•   What is your approach to or strategy for financial planning?

•   How do you typically communicate with clients?

•   Will I work with anyone besides you? (To determine if the advisor is part of a financial services firm.)

•   Do you have any potential conflicts of interest?

•   Are there any past legal or disciplinary actions on your record?

Do I Need a Wealth Management Advisor?

There’s no right or wrong answer as to whether you need a wealth management advisor — it really comes down to whether you feel hiring one would ultimately be worth the expense, and take the burden of managing your assets and finances off of your shoulders.

Since wealth advisors tend to work with wealthier clientele, they often do provide those clients a valuable service.

That said, if you’re in a lower income bracket or don’t have a vast array of assets to stay on top of, another type of financial advisor may prove to be more beneficial. It really comes down to your specific situation, goals, time horizon, and budget. You can also check out SoFi’s Wealth Investing Guide to try and gauge your needs too.

The Takeaway

Wealth management advisors can help you navigate unforeseen hurdles and ease your investing worries. Plus, they can be a great asset when defining your financial goals, among many other things.

Hiring a wealth management advisor has its upsides, like having someone to discuss strategy with, and to help you keep a cool head and make wise financial decisions during trying times. But they can have their downsides, too, and can be expensive.

With all of that in mind, if you’re ready to prioritize investing and want some guidance, consider opening a SoFi Invest® brokerage account. SoFi offers an Active Investing platform, where investors can trade stocks and ETFs. For a limited time, funding an account gives you the opportunity to win up to $1,000 in the stock of your choice. All you have to do is open and fund a SoFi Invest account.

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

Is a wealth advisor worth it?

A wealth advisor is worth it if the client feels that the amount they’re spending on the advisor’s service is getting them what they want. While a wealth advisor may not be worth it for everyone, depending on how wealthy you are, an advisor’s services could be invaluable.

What is the difference between a wealth advisor and a financial advisor?

A wealth advisor is a type of financial advisor, but one who tends to work with wealthier or high-earning clients, and who work to provide custom solutions to their clients’ wealth management issues. They’re more specialized, in many ways, than a financial advisor.

How rich do you need to be to have a financial advisor?

There’s not necessarily a minimum net worth needed to work with a financial advisor, but as a general guideline, once you have around $50,000 in assets, it may be a good idea to get in touch with one and explore the services they offer.

SoFi Invest®

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

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

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


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

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

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

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2024
What Is Compliance Testing for 401k?

What Is Compliance Testing for 401(k)?

By | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off on What Is Compliance Testing for 401(k)?

To maintain the tax-advantages of a 401(k) or 403(b) retirement plan, employers must follow the rules established by the Employment Retirement Income Security Act (ERISA) of 1974, including nondiscrimination testing.

401(k) compliance testing ensures that companies administer their 401(k) plans in a fair and equal manner that benefits all employees, rather than just executives and owners. In other words, a 401(k) plan can’t favor one group of employees over another.

Companies must test their plans yearly and address any compliance flaws surfaced by the tests. Often a third-party plan administrator or recordkeeper helps plan sponsors carry out the tests.

Understanding nondiscrimination tests for retirement plans is important both as an employer and as an employee.

401(k) Compliance Testing Explained

Compliance testing is a process that determines whether a company is fairly administering its 401(k) plan under ERISA rules. ERISA mandates nondiscrimination testing for retirement plans to demonstrate that they don’t favor highly compensated employees or key employees, such as company owners. 401(k) compliance testing is the responsibility of the company that offers the plan.

How 401(k) Compliance Testing Works

Companies apply three different compliance tests to the plan each year. These tests look at how much income employees defer into the plan, how much the employer 401(k) match adds up to, and what percentage of assets in the plan belong to key employees and highly compensated employees versus what belongs to non-highly compensated employees.

There are three nondiscrimination testing standards employers must apply to qualified retirement plans.

•   The Actual Deferral Percentage (ADP) Test: Analyzes how much income employees defer into the plan

•   The Actual Contribution Percentage (ACP): Analyzes employers contributions to the plan on behalf of employees

•   Top-Heavy Test: Anayzes how participation by key employees compares to participation by other employees

The Actual Deferral Percentage (ADP) Test

The Actual Deferral Percentage (ADP) test counts elective deferrals of highly compensated employees and non-highly compensated employees. This includes both pre-tax and Roth deferrals but not catch-up contributions made to the plan. This 401(k) compliance testing measures engagement in the plan based on how much of their salary each group defers into it on a yearly basis.

To run the test, employers average the deferral percentages of both highly compensated employees and non-highly compensated employees to determine the ADP for each group. Then the employer divides each plan participant’s elective deferrals by their compensation to get their Actual Deferral Ratio (ADR). The average ADR for all eligible employees of each group represents the ADP for that group.

A company passes the Actual Deferral Percentage test if the ADP for the eligible highly compensated employees doesn’t exceed the greater of:

•   125% of the ADP for the group of non-highly compensated employees

OR

•   The lesser of 200% of the ADP for the group of non-highly compensated employees or the ADP for those employees plus 2%

The Actual Contribution Percentage (ACP) Test

Plans that make matching contributions to their employees’ 401(k) must also administer the Actual Contribution Percentage (ACP) test. Companies calculate this the same way as the ADP test but they substitute each participant’s matching and after-tax contributions for elective deferrals when doing the math.

This test reveals how much the employer contributes to each participant’s plan as a percentage, based on their W-2 income. Companies pass the Actual Contribution Percentage test if the ACP for the eligible highly compensated employees doesn’t exceed the greater of:

•   125% of the ACP for the group of non-highly compensated employees

OR

•   The lesser of 200% of the ACP for the group of non-highly compensated employees or the ACP for those employees plus 2%

Companies may run both the ADP and ACP tests using prior year or current-year contributions.

Top-Heavy Test

The Top-Heavy test targets key employees within an organization who contribute to qualified retirement plans. The IRS defines a key employee as any current, former or deceased employee who at any time during the plan year was:

•   An officer making over $215,000 for 2023 and over $220,000 for 2024

•   A 5% owner of the business OR

•   An employee owning more than 1% of the business and making over $150,000 for the plan year

Anyone who doesn’t fit these standards is a non-key employee. Top-heavy ensures that lower-paid employees receive a minimum benefit if the plan is too top-heavy.

Under IRS rules, a plan is top heavy if on the last day of the prior plan year the total value of plan accounts for key employees is more than 60% of the total value of plan assets. If the plan is top heavy the employer must contribute up to 3% of compensation for all non-key employees still employed on the last day of the plan year. This is designed to bring plan assets back into a fair balance.

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Why 401(k) Compliance Testing Is Necessary

401(k) compliance testing ensures that investing for retirement is as fair as possible for all participants in the plan, and that the plan continues to receive favorable tax treatment from the IRS. The compliance testing rules prevent employers from favoring highly compensated employees or key employees over non-highly compensated employees and non-key employees.

If a company fails a 401(k) compliance test, then they have to remedy that under IRS rules or risk the plan losing its tax-advantaged status. This is a strong incentive to fix any issues with non-compliant plans as it can cost employers valuable tax benefits.

Nondiscrimination testing can help employers determine participation across different groups of their workers. It can also shed light on what employees are deferring each year, in accordance with annual 401k plan contribution limits.

Highly Compensated Employees

The IRS defines highly compensated employees for the purposes of ADP and ACP nondiscrimination tests. Someone is a highly compensated employee if they:

•   Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation they earned or received,

OR

•   Received compensation from the business of more than $150,000 in 2023 and $155,000 in 2024 or $135,000 (if the preceding is 2022) and was in the top 20% of employees when ranked by compensation

If an employee doesn’t meet at least one of these conditions, they’re considered non-highly compensated. This distinction is important when compliance testing 401(k) plans, as the categorization into can impact ADP and ACP testing outcomes.

Non-Highly Compensated Employees

Non-highly compensated employees are any employees who don’t meet the compensation or ownership tests, as established by the IRS for designated highly compensated employees. So in other words, a non-highly compensated employee would own less than 5% of the interest in the company or have compensation below the guidelines outlined above.

Again, it’s important to understand who is a non-highly compensated employee when applying nondiscrimination tests. Employers who misidentify their employees run the risk of falling out of 401(k) compliance. Likewise, as an employee, it’s important to understand which category you fall into and how that might affect the amount you’re able to contribute and/or receive in matching contributions each year.

💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

How to Fix a Non-Compliant 401(k)

The IRS offers solutions for employers who determine that their 401(k) is not compliant, based on the results of the ADP, ACP or Top-Heavy tests. When a plan fails the ADP or ACP test, the IRS recommends the following:

•   Refunding contributions made by highly compensated employees in order to bring average contribution rates in alignment with testing standards

•   Making qualified nonelective contributions on behalf of non-highly compensated employees in order to bring their average contributions up in order to pass test

Employers can also choose to do a combination of both to pass both the ADP and ACP tests. In the case of the Top-Heavy test, the employer must make qualified nonelective contributions of up to 3% of compensation for non-highly compensated employees.

Companies can also avoid future noncompliance issues by opting to make safe harbor contributions. Safe harbor plans do not have to conduct ADP and ACP testing, and they can also be exempt from the Top-Heavy test if they’re not profit sharing plans. Under safe harbor rules, employers can do one of the following:

•   Match each eligible employee’s contribution on a dollar-for-dollar basis up to 3% of the employee’s compensation and 50 cents on the dollar for contributions that exceed 3% but not 5% of their compensation.

•   Make a nonelective contribution equal to 3% of compensation to each eligible employee’s account.

Safe harbor rules can relieve some of the burden of yearly 401(k) testing while offering tax benefits to both employers and employees.

The Takeaway

A 401(k) is a key way for employees to help save for retirement and reach their retirement goals. It’s important for employers to conduct IRS-mandated 401(k) compliance testing in order to ensure that their 401(k) plans are administered in a fair and equal manner that benefits all employees.

If you don’t have a 401(k) at work, however, or you’re hoping to supplement your 401(k) savings, you may want to consider opening an Individual Retirement Account (IRA) to help save for retirement. Since IRAs are not employer-sponsored, they’re not subject to 401(k) compliance testing, though they do have to follow IRS rules regarding annual contribution limits and distributions.

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).

Easily manage your retirement savings with a SoFi IRA.

FAQ

What is top-heavy testing for 401(k)?

Top-heavy testing for 401(k) plans determine what percentage of plan assets are held by key employees versus non-key employees. If an employer’s plan fails the top-heavy test, they must make qualified, nonelective contributions on behalf of non-key employees in order to bring the plan into compliance.

What happens if you fail 401(k) testing?

If an employer-sponsored plan fails 401(k) compliance testing, the IRS requires the plan to make adjustments in order to become compliant. This can involve refunding contributions made by highly-compensated employees, making qualified nonelective contributions on behalf of non-highly compensated employees or a combination of the two.

What is a highly compensated employee for 401(k) purposes?

The IRS defines a highly compensated employee using two tests based on compensation and company ownership. An employee is highly compensated if they have a 5% or more ownership interest in the business or their income exceeds a specific limit for the year. Income limits are set by the IRS and updated periodically.

Photo credit: iStock/tumsasedgars

SoFi Invest®

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

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

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

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

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

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Feb
16
2024
woman on floor on laptop

9 Golden Rules of Investing

By | Growing Wealth, invest, Investing | Comments Off on 9 Golden Rules of Investing

While each investor may have their own approach to investing, there are some best practices that have been honed over time by those with years of experience.

That’s not to say that one investing strategy is right and another is wrong, or that any strategy is more likely to succeed than another. When it comes to putting your money in the market, there are no guarantees and no crystal balls. But understanding some basic guidelines that have stood the test of time can be beneficial.

Basic Investing Principles

Following are a few fundamentals that hold true for many people in many situations. Bearing these in mind won’t guarantee any outcomes, but they can help you manage risk, investing costs, and your own emotions.

1. The Sooner You Start, the Better

In general, the longer your investments remain in the market, the greater the odds are that you might see positive returns. That’s because long-term investments benefit from time in the market, not timing the market.

Meaning: The markets inevitably rise and fall. So the sooner you invest, and the longer you keep your money invested, the more likely it is that your investments can recover from any volatility or downturns.

In addition, if your investments do see a gain, those earnings generate additional earnings over time, and then those earnings generate earnings, potentially increasing your returns. This is similar to the principle of compound interest.

2. Make It Automatic

One of the easiest ways to build up an investment account is by automatically contributing a certain amount to the account at regular intervals over time. If you have a 401(k) or other workplace retirement account you likely already do this via paycheck deferrals. However, most brokerages allow you to set up automatic, repeating deposits in other types of accounts as well.

Investing in this way also allows you to take advantage of a strategy called dollar-cost averaging, which helps reduce your exposure to volatility. Dollar cost averaging is when you buy a fixed dollar amount of an investment on a regular cadence (e.g. weekly or monthly).

The goal is not to invest when prices are high or low, but rather to keep your investment steady, and thereby avoid the temptation to time the market. That’s because with dollar cost averaging (DCA) you invest the same dollar amount each time, so that when prices are lower, you buy more; when prices are higher, you buy less.

💡 Quick Tip: If you’re opening a brokerage account for the first time, consider starting with an amount of money you’re prepared to lose. Investing always includes the risk of loss, and until you’ve gained some experience, it’s probably wise to start small.

3. Take Advantage of Free Money

If you have access to a workplace retirement account and your employer provides a match, contribute at least enough to get your full employer match. That’s a risk-free return that you can’t beat anywhere else in the market, and it’s part of your compensation that you should not leave on the table.

Recommended: Investing 101 Guide

4. Build a Diversified Portfolio

By creating a diversified portfolio with a variety of types of investments across a range of asset classes, you may be able to reduce some of your investment risk.

Portfolio diversification involves investing your money across a range of different asset classes — such as stocks, bonds, and real estate — rather than concentrating all of it in one area. Studies have shown that by diversifying the assets in your portfolio, you may offset a certain amount of investment risk and thereby improve returns.

Taking portfolio diversification to the next step — further differentiating the investments you have within asset classes (for example, holding small-, medium-, and large-cap stocks, or a variety of bonds) — may also be beneficial.

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5. Reduce the Fees You Pay

No matter whether you’re taking an active, passive, or automatic approach to investing, you’re going to have to pay some fees to managers or brokers. For example, if you buy mutual or exchange-traded funds, you will typically pay an annual fee based on that fund’s expense ratio.

Fees can be one of the biggest drags on investment returns over time, so it’s important to look carefully at the fees that you’re paying and to occasionally shop around to see if it’s possible to get similar investments for lower fees.

6. Stick with Your Plan

When markets go down, it can feel like the world is ending. New investors might find themselves pondering questions like How can investments lose so much value so quickly? Will they ever go back up? What should I do?

During the crash of early 2020, for example, $3.4 trillion in wealth disappeared from the S&P 500 index alone in a single week. And that’s not counting all of the other markets around the world. But over the next two years, investors saw big gains as markets hit record highs.

The takeaway? Investments fluctuate over time and managing your emotions is as important as managing your portfolio. If you have a long time horizon, you may not need to be overly concerned with how your portfolio is performing day to day. It’s often wiser to stick with your plan, and don’t impulsively buy or sell just because the weather changes, so to say.

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

7. Maximize Tax-Advantaged Accounts

Like fees, the taxes that you pay on investment gains can significantly eat away at your profits. That’s why tax-advantaged accounts, those types of investment vehicles that allow you to defer taxes, or eliminate them entirely, are so valuable to investors.

The tax-advantaged accounts that you can use will depend on your workplace benefits, your income, and state regulations, but they might include:

•   Workplace retirement accounts such as 401(k), 403(b), etc.

•   Health Savings Accounts (HSAs)

•   Individual Retirement Accounts (IRAs), including Roth IRAs, SEP IRAs, SIMPLE IRAs, etc.

•   529 Accounts (college savings accounts)

Recommended: Benefits of Health Savings Accounts

8. Rebalance Regularly

Once you’ve nailed down your asset allocation, or how you’ll proportion out your portfolio to various types of investments, you’ll want to make sure your portfolio doesn’t stray too far from that target. If one asset class, such as equities, outperforms others that you hold, it could end up accounting for a larger portion of your portfolio over time.

To correct that, you’ll want to rebalance once or twice a year to get back to the asset allocation that works best for you. If rebalancing seems like too much work, you might consider a target-date fund or an automated account, which will rebalance on your behalf.

9. Understand Your Personal Risk Tolerance

While all of the above rules are important, it’s also critical to know your own personality and your ability to handle the volatility inherent in the market. If a steep drop in your portfolio is going to cause you extreme anxiety — or cause you to make knee-jerk investing decisions – then you might want to tilt your portfolio more conservatively.

Ideally, you’ll land on an asset allocation that takes into account both your risk tolerance and the amount of risk that you need (and are able) to take in order to meet your investment goals.

If, on the other hand, you get a thrill out of market ups and downs (or have other assets that make it easier for you to stomach short-term losses), you might consider taking a more aggressive approach to investing.

The Takeaway

The rules outlined above are guidelines that can help both beginner and experienced investors build a portfolio that helps them meet their financial goals. While not all investors will follow all of these rules, understanding them provides a solid foundation for creating the strategy that works best for you.

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

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

SoFi Invest®

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

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

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


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

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