invest Archives

Mar

2025

Can You Use Your IRA to Invest in Real Estate?

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

There are a couple of ways to use an IRA to invest in real estate. First, you can invest in mutual funds, exchange-traded funds (ETFs), or real-estate investment trusts (REITs) that focus on real estate investments within an IRA.

It’s also possible to set up a self-directed IRA, or SDIRA, that can own physical real estate, as well as other types of alternative investments.

Using an IRA to invest in real estate property directly, however, is a complicated and potentially risky proposition. It’s important to understand the many rules and restrictions, as well as the potential advantages and disadvantages of investing in real estate in an IRA before doing so.

Key Points

• It’s possible to invest in real estate in an IRA via conventional methods, such as buying shares of a mutual fund, ETF, or REIT.

• Direct ownership of physical property using an IRA means setting up a self-directed IRA, or SDIRA, which requires a specialized custodian, not an ordinary broker.

• While a SDIRA gives investors the ability to invest in alternative investments (such as real estate, commodities, and precious metals), the account holder must oversee and manage the account and all investments.

• Investing in real estate in an IRA comes with stringent rules, including that neither the investor nor anyone in their family can own or live in the property.

• Investors considering investing in real estate through a SDIRA should weigh their risk tolerance, overall portfolio allocation, and the potential time commitment involved.

Can You Invest in Real Estate Using an IRA?

IRAs can offer a wide variety of investment opportunities, including those that target the real estate sector. While conventional investment options within an IRA are often confined to equity and fixed-income mutual funds, exchange-traded funds (ETFs), and index funds, it is in fact possible to use an IRA to invest in real estate in various ways.

Investing in real estate may be appealing to some investors because this asset class tends not to move in sync with traditional stock and bond markets; thus real estate may provide portfolio diversification. Some real estate investments also offer the potential for passive income.

But real estate is a type of alternative investment, and as such tends not to be very liquid, which may present risks for some investors.

Ways to Invest in Real Estate With an IRA

Here are some choices investors can consider for IRA real-estate investments. But not all types of real estate can be held in any type of IRA:

• Real estate mutual funds, real estate-focused exchange-traded funds (ETFs), real estate investment trusts (REITs) are typically available through a traditional, Roth, SEP, or SIMPLE IRA.

• Investing directly or owning residential and commercial investment properties, tax-lien certificates, crowdfunded real estate investments typically require a self-directed IRA or SDIRA (see detail below).

1. Real Estate-Related Funds

Like any type of mutual fund, real estate funds hold a basket of investments. Real estate mutual funds tend to be actively managed funds that may hold shares of real estate-related stocks, REITs, or they may track an index.

A real estate index fund, for example, seeks to mimic the performance of a market benchmark or index.

ETFs, meanwhile, are pooled investments similar to mutual funds, but are traded on an exchange like stocks, so they offer more liquidity. ETFs may also hold real-estate related investments — typically shares of REITs.

💡 Quick Tip: Did you know that you must choose the investments in your IRA? Once you open a new IRA online and start saving, you get to decide which mutual funds, ETFs, or other investments you want — it’s totally up to you.

2. Real Estate Investment Trusts

Investors can also invest in Real estate investment trusts (REITs) directly. REITs own and manage properties on behalf of investors. REITs can target a specific niche or segment of the real estate market, such as retail shopping centers or storage facilities. Or they might hold a wide mix of property investments, including residential rental properties, office buildings, and industrial warehouses.

Dividends are often at the top of the list of benefits when weighing the pros and cons of REITs. They’re required to pay out 90% of profits to shareholders as dividends, making them a potentially reliable source of passive income.

Some of the advantages of REITs include passive income from dividends, and portfolio diversification, but these vehicles come with a number of risks. Potential risks include less liquidity and sensitivity to interest rates, as well as other factors that can negatively impact real estate markets: i.e., consumer trends, property destruction (from wear and tear, or weather), local laws and regulations.

3. Investment Properties

It’s also possible to own investment properties directly, such as commercial and residential real estate, among other types of properties. Investment properties can generate passive income through rent payments, and they may offer a profit when sold.

But investment properties typically require an upfront investment of capital, managing a mortgage, and ongoing maintenance that may be beyond the reach of most investors.

4. Tax-Lien Certificates

Tax-lien certificate investing involves buying liens that have been placed against properties in connection with unpaid tax debts. The holder of the certificate can collect interest while the property owner repays the debt. If the owner defaults on the debt, the certificate holder can take ownership of the property.

These are high-risk instruments, typically owing to the potential for losing money on tax payments and low-quality properties that don’t yield a profit.

5. Real Estate Crowdfunding

Real estate crowdfunding platforms, also known as online real estate platforms, allow a number of investors to purchase property by pooling their investment funds. Depending on which platform you’re using, the minimum investment could be as low as $500, but terms vary and the risks can be high.

Crowdfunding is even less liquid than many other types of real estate investments, since there’s typically a minimum holding period — which means investors’ money can be tied up for long periods, and there is no guarantee that a certain property or properties will turn a profit.

What IRAs Can You Use to Invest in Real Estate?

If you’re interested in real estate funds or REITs, you may be able to invest in these through a traditional, Roth, SEP, or SIMPLE IRA. Many brokerages include real estate funds and REITs as investment options for ordinary IRA investors.

On the other hand, if you’re specifically interested in property investments or tax-lien certificates — i.e., directly investing your IRA in real estate — you’ll need to open a self-directed IRA (SDIRA) instead.

What Is a Self-Directed IRA?

A self-directed IRA is a traditional or Roth IRA that’s held by a specialized custodian that allows investors access to a broader range of investments, including alternative investments like real estate.

Unlike ordinary IRAs which are overseen by a broker, all assets in a SDIRA are researched and managed by the account holder.

Self-directed IRAs are subject to a number of IRS restrictions. Many of these rules also apply to ordinary IRAs, but it’s important to bear them in mind when thinking about investing your IRA in real estate. Specifically, you’re barred from:

• Transacting with disqualified persons. These include your spouse and any family members, as well as your IRA beneficiary if they don’t fit either of those categories. The prohibition also extends to any business entity that’s owned by a disqualified person.

• Using the IRA or investments in the IRA for personal benefit. Using an IRA for personal benefit in any way is not allowed. For example, if you’re collecting rental income from a property you own in the IRA, you have to deposit any profit into the IRA, along with any other income generated by self-directed IRA assets.

• Making disallowed investments. Finally, there are some limits on what you can own in a self-directed IRA. Disallowed investments include life insurance, collectibles, and business interests in S-corporations. Transactions that count as “self-dealing” are also prohibited: i.e., borrowing money from a SDIRA, selling property to it, using it as loan collateral.

Note: While the IRS permits using an IRA to buy a first home, that doesn’t apply to self-directed IRAs.

Steps to Buying Real Estate With an IRA

If you’d like to invest in property or tax lien certificates with an IRA, you need to set up a self-directed IRA, and then purchase the property or similar investment through the SDIRA . Because it can be very difficult to secure a mortgage for this kind of purchase, most direct property purchases are paid for with cash from the SDIRA.

1. Find a Custodian

The first thing you’ll need to do is find a qualified custodian that offers self-directed IRAs for real estate investment. When researching custodians, it’s a good idea to consider their reputation in the space, customer service and satisfaction, as well as the fees you’ll pay.

2. Open a Self-Directed IRA

Once you select a custodian, you can open your SDIRA. Your custodian should be able to guide you through this process, which usually involves completing the appropriate paperwork.

Remember, you’ll need to specify whether you’d like to open a traditional or Roth self-directed IRA. Traditional IRAs allow for tax-deductible contributions, while Roth SDIRAs can offer qualified withdrawals tax free in retirement.

Your custodian may give you the option (or require you) to establish a self-directed IRA as a limited liability company (LLC). Doing so can offer an advantage, since it allows you to have full control with regard to signing authority over IRA funds.

However, setting up an LLC real estate IRA can trigger additional IRS rules against prohibited transactions.

3. Deposit Funds to Your IRA

The next step is transferring funds into your self-directed IRA. That may be as simple as scheduling an electronic transfer from a bank account. You can also roll funds over from a 401(k) or another eligible plan.

Keep in mind that self-directed IRAs follow the same annual contribution limits as other IRAs, but those limits do not apply to IRA rollovers.

4. Compare Investment Options

Once you have money in your self-directed IRA, you’ll need to decide how you want to invest it. If you’re focused on real estate, that might mean purchasing an investment property. It’s important to perform due diligence to find a property that aligns with your investment needs, goals, and risk tolerance.

Remember that self-directed IRA investment options can include:

• Single-family or multifamily homes

• Commercial and rental properties

• Land

• Tax liens

• Mortgage notes

Each one can have a different risk/reward profile so it’s important to understand what you might gain from each one and what you may stand to lose. It’s also a good idea to consider how much of your self-directed IRA funds, and your portfolio as a whole, you’d like to allocate to real estate.

5. Purchase a Property

If you’re investing in a rental property and you’ve found one you want to buy, the final step is making the purchase. You’ll need to make an offer and once that’s accepted, you’ll need to authorize your IRA custodian to complete the transaction on your behalf. That’s important, as the property needs to be held in contract by the IRA, rather than yourself.

Pros and Cons of Investing Your IRA in Real Estate

Investing an IRA in real estate can yield some advantages but there are some serious considerations to keep in mind.

While you can use a self-directed IRA to hold real estate, which may offer some tax advantages, it’s important to know the rules so you don’t risk losing those benefits. Also, keep in mind that holding real estate inside a self-directed IRA can mean missing out on some tax advantages you’d get by owning property directly.

A self-directed IRA can offer high return potential but that means doing your homework first to find solid investments. You’ll need to spend some time researching properties to ensure that you understand the risks, as well as the level of returns you might be able to expect.

Managing a self-directed IRA may be more time-consuming than investing in a regular IRA, especially if you’re not hiring a property manager to oversee property investments. Self-directed IRAs offer less liquidity and depending on which custodian you choose, the fees may be high.

thumb_upPros:

• Potentially for returns

• IRA-related tax benefits

• Diversification

• IRAs are protected from creditors

thumb_downCons:

• Physical real estate is subject to numerous risks

• Stringent rules and requirements

• Less liquid than other investments

• Time-consuming to set up and manage

• Fees may be high

Is Investing Your IRA in Real Estate Right for You?

Deciding whether to invest in real estate with your IRA can start with reviewing your portfolio as a whole. Here are some questions to consider:

• Do you already own any real estate investments, including REITs or index funds?

• If so, how much of your portfolio is allocated to real estate?

• How much time and effort do you have to put into managing real estate investments?

• How much money are you able to invest?

• Do you have a trusted custodian and if not, do you know where to find one?

• What degree of risk are you willing to take and what kind of returns are you hoping to earn?

• Asking those kinds of questions can help you to evaluate where real estate fits into your investment plans and whether a self-directed IRA is the best option for you.

Alternative IRA Investment Options

In addition to real estate, you can also hold a wide variety of other alternative investments in a SDIRA.

• Commodities

• Gold and other precious metals

• Limited partnerships

• Private equity

Remember that the IRS bars you from owning things like artwork, antiques, rare coins or stamps, and fine wine in a self-directed IRA.

The Takeaway

Opening an IRA for real estate investing could be worth the effort if you’re hoping to diversify your portfolio beyond stocks and bonds, but it requires opening a specific type of IRA called a self-directed IRA, or SDIRA. This type of IRA isn’t available from a traditional broker, because you can use a SDIRA to hold alternative investments, such as real estate and commodities.

Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA through SoFi Securities or an automated robo IRA with SoFi Wealth, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.

Help grow your nest egg with a SoFi IRA.

FAQ

Can I invest in real estate using my IRA?

You can invest in real estate using a self-directed IRA, or SDIRA. This type of IRA is held by a custodian and allows you to choose from a wider range of investment options than regular IRAs. With a self-directed IRA, you can own rental properties, mortgage notes, and tax lien certificates.

How is real estate taxed in an IRA?

Real estate held in an IRA is subject to the tax rules that apply to the type of IRA. For example, if you have real estate in a traditional SDIRA then any earnings or income generated by those investments would grow tax-deferred. You’d pay ordinary income tax on them when you make qualified withdrawals in retirement. A Roth-style SDIRA would provide tax-free income on qualified withdrawals. Owing to the complexity of self-directed IRAs to begin with, it might make sense to consult a professional regarding tax implications.

What type of real estate can be held in an IRA?

A self-directed IRA can hold residential rental properties, commercial real estate investment properties, tax lien certificates, and mortgage notes. If you have a regular traditional or Roth IRA, you can use it to invest in real estate funds, ETFs, or REITs.

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.

Photo credit: iStock/boonstudio

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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

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.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

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

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.

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.

SOIN0123009

Mar

2025

How To Invest in Publicly Traded Sports Teams

By Rebecca Lake | Growing Wealth, invest, Investing | Comments Off

Owning a professional football or baseball team is well out of reach for the average investor, but owning a piece of one isn’t. Publicly traded sports teams offer investors exposure to the world of alternative investments without requiring you to bring billions to the table.

If you have a brokerage account you may be able to invest through the wide world of sports. Here’s a look at how it works to invest in publicly traded sports teams.

Key Points

• Investing in publicly traded sports teams allows individuals to engage with their passions and diversify their portfolios through publicly traded teams.

• U.S. sports leagues like the NBA, NHL, and MLB have publicly traded teams, while international options include Manchester United and Borussia Dortmund.

• Key factors to consider before investing in sports teams include team management, ownership structure, financials, and performance record.

• Risks include stock price fluctuations, potential privatization, and significant debt loads affecting financial stability.

• Investment strategies may include buying shares through brokerages or investing in sports-focused ETFs for diversified exposure.

Understanding Sports Team Ownership Structures

Sports team ownership structures vary by organization and franchise. Major and minor league teams can be owned by:

• A single individual

• A family or family trust

• Corporations

• Limited liability companies (LLCs)

• Partnerships

• Private equity firms

Some teams have mixed ownership, meaning there are multiple owners, which can include a mix of individuals or entities. The controlling owner may be an individual or family who owns a majority share, with the rest distributed among other owners that were interested in investing.

There may be limits on what percentage of ownership an individual or entity can have in such a structure. For example, the National Football League (NFL) approved a vote in 2024 to allow private equity funds to buy stakes in teams. Private equity is capped at 10% of total ownership and controlling owners must have at least 30% ownership.

What Is a Publicly Traded Sports Team?

Most sports teams are privately owned following one of the ownership structures listed previously. Publicly traded sports teams are teams that are owned by corporations that may or may not make their shares available to trade on stock exchanges.

Current Publicly Traded Teams

A handful of professional sports teams are publicly traded. If you’re interested in how to invest in sports teams here are the companies you might choose from.

• Atlanta Braves. The Braves baseball team is owned by Atlanta Braves Holdings, Inc. (BATRA), which also operates mixed-use development projects. BATRA is traded on the Nasdaq Select Global Market.

• Toronto Blue Jays. Rogers Communications (RCI) owns the Blue Jays and is a leading provider of wireless service in Canada. RCI is traded on the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE).

• New York Knicks. Madison Square Garden Sports Corp. (MSGS) owns and operates the New York Knicks. Shares are traded on the NYSE.

• New York Rangers. MSGS also owns and operates the New York Rangers hockey team.

• Manchester United. The Manchester United Football Club is owned by Manchester United plc. The stock trades on the NYSE using the ticker symbol MANU.

• Borussia Dortmund. Borussia Dortmund is a publicly traded sports team that trades on the German stock exchange. Its ticker symbol is BVB.

The Green Bay Packers, a professional football team playing in the NFL, are often included in the discussion about publicly traded sports teams, too. But while the team is publicly owned, it is not publicly traded. The team has, in the past, offered stock sales, and is a nonprofit organization.

Alternative investments,
now for the rest of us.

Explore trading funds that include commodities, private credit, real estate, venture capital, and more.

Strategies for Investing in Sports Franchises

There are several ways to invest in sports teams. The simplest path may be investing in sports by purchasing shares through a brokerage.

You’ll need to open a brokerage account if you don’t have one already, and deposit funds to trade. Once your account is set up you can buy and sell shares of publicly traded sports teams the way you would any other stock. Some brokerages also offer access to alternative investment funds, such as commodities or currencies.

If you don’t want to tie up all of your investment dollars in a single team, sports-focused ETFs are another option. These are thematic ETFs that allow investors to own a basket of investments in a single fund. Funds may be focused on:

• Sports betting

• Digital sports entertainment, including esports and gaming

• Sports broadcasting

• Sports and athletic technology, such as wearables

• Energy drinks or foods that are marketed to athletes

Real estate investment trusts (REITs) are another opportunity to invest in sports, albeit not necessarily sports teams per se. REITs own and operate real estate properties, which can include sports stadiums, arenas, and training facilities. Investing in sports REITs can diversify your portfolio while generating passive income through dividends.

Private equity may also be an option, depending on your situation. Private equity involves investment in sports companies that are not publicly traded. Investing in private companies can be lucrative but the barrier to entry is often high, as you may need to be an accredited investor to qualify.

SEC guidelines consider you to be an accredited investor if you:

• Have a net worth greater than $1 million, excluding the value of your primary residence

• Earned $200,000 or more ($300,000 with a spouse or partner) for the previous two years and expect the same level of income for the current year.

If you don’t meet those requirements there’s another option. You could invest in private equity ETFs that have a sports focus. This alt investment guide offers a closer look at how nontraditional assets like private equity work.

Risks and Challenges in Sports Team Investing

Investing in sports has risks like any other investment. Weighing them carefully can help you decide if it makes sense to invest with sports.

Here are some of the biggest challenges and associated risks associated with investing in sports teams:

• Stock prices of publicly traded sports teams (or their parent organizations) can fluctuate widely, based on how well the team performs.

• A team that’s publicly traded today may not be tomorrow if the team is sold to a new owner who decides to make it private.

• Sports teams can generate huge profits but they can also carry significant debt loads, which can affect their financial health and stability.

• Investing in sports REITs can generate passive income but those investments often lack liquidity.

• Private equity often has higher barriers to entry and may carry more risk than other sports investments.

Before investing in sports it’s helpful to review your current asset allocation and risk tolerance. That can help you decide how much of your portfolio to allocate to sports investments.

Recommended: Alternative Investment Definition

The Takeaway

Investing in sports is an opportunity to put your money where your passions are and diversify your portfolio. Comparing different investment paths can help you decide which one makes the most sense for you. And remember that if you’re interested in trading sports stocks, it’s easy to open a brokerage account and start investing online.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.

Invest in alts to take your portfolio beyond stocks and bonds.

FAQ

Which sports leagues have publicly traded teams?

In the U.S., the NBA, NHL, and MLB all have at least one publicly traded sports team on the stock market. While the Green Bay Packers are publicly owned and offer periodic sales of shares, they are not publicly traded.

Can I invest in international sports teams?

There are at least two international sports teams that are publicly traded. They are the Manchester United Football Club and Borussia Dortmund, a German football club and sports club.

What factors should I consider before investing in a sports team?

Some of the most important factors to consider before you invest in sports teams are the team’s management, its ownership structure, and its financials. It’s also wise to look at the team’s performance record, as that can influence how it’s valued at any given point in time.

About the author

Rebecca Lake

Photo credit: iStock/simonkr

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

SOIN-Q324-058

Mar

2025

How to Invest in Hedge Funds

By Rebecca Lake | Growing Wealth, invest, Investing | Comments Off

Hedge funds are pooled investment vehicles that use complex investment strategies to try and generate above-average returns. Investing in hedge funds can be risky, but rewarding if the fund meets or exceeds performance expectations.

Compared to traditional mutual funds or exchange-traded funds, hedge funds typically have more barriers to entry for investors. If you’re interested in how to invest in a hedge fund, it’s helpful to understand who these funds are designed for, and the minimum requirements.

Key Points

• Hedge funds are private investment vehicles using complex strategies to seek high returns, but they carry significant risks.

• Access is limited to accredited investors, typically requiring a net worth of more than $1 million, or a relatively high income.

• Hedge funds invest in diverse assets like stocks, derivatives, and real estate, using strategies like equity long, equity short, or equity neutral.

• Investing involves understanding fund strategies, performance, and costs, and that fees are often higher than mutual funds.

• Regulatory oversight by the SEC helps ensure legal compliance, with trends showing slower growth and evolving strategies.

What Exactly Is a Hedge Fund?

A hedge fund is a private investment vehicle that accepts funds from multiple investors. The hedge fund manager directs the investment strategy to attempt to generate the best possible returns for investors.

Hedge funds can hold a variety of investments, including alternative investments. Depending on the fund’s strategy and investment objectives, a hedge fund may offer exposure to:

• Stocks

• Derivatives

• Foreign currencies

• Real estate

• Commodities

• Fixed income investments

Fund managers may utilize a range of strategies to manage fund assets. Examples of hedge fund strategies include equity long, equity short, and market neutral (basically, strategies that take different time frames into consideration, as well as prevailing market conditions), which may be chosen in anticipation of or to hedge against anticipated market movements. The strategy or strategies employed can influence the fund’s risk/reward profile. Greater risk can bring greater rewards, but it also raises the possibility of losing money.

Alternative investments,
now for the rest of us.

Explore trading funds that include commodities, private credit, real estate, venture capital, and more.

Getting Started in Hedge Fund Investments

Getting started in hedge fund investing isn’t exactly straightforward — it’s not the same as firing up an investment account and buying stocks online.

Hedge funds are generally viewed as high-risk investments and as a result, the Securities and Exchange Commission (SEC) regulates who can directly invest in them. Access to hedge investment funds is limited to institutional investors, pension funds, and accredited investors. However, it’s possible for unaccredited investors to gain exposure to hedge funds in their portfolio through certain mutual funds or ETFs.

Under SEC guidelines, you’re an accredited investor if you have:

• Net worth >$1 million, excluding the value of your primary residence, and

• Annual income over $200,000 individually or $300,000 with a spouse or partner in each of the prior two years, with the same income expected for current and future years

Financial professionals with Series 7, Series 65, or Series 82 securities licenses also qualify as accredited investors.

Aside from those requirements, you must be able to meet the minimum investment requirements for a hedge fund. The amount you’ll need will vary by fund, but a typical investment minimum may range anywhere from $100,000 to $2 million.

Maximizing Potential for Returns and Managing Risks

The key to making money with hedge funds while minimizing risk generally lies in two things: Market trends and the fund manager. Like other investments, hedge funds are influenced by things like changing interest rates and volatility, and hedge fund managers need to do their best to contend with those risks to try and maximize returns for investors.

Managing risk, of course, starts with doing your research. Specifically, it’s important to understand what the fund invests in, the strategies the fund manager employs, and the fund’s track record. Helpful questions to ask include:

• How is fund performance determined?

• Does the fund use leverage or speculative strategies?

• Does the fund manager have any conflicts of interest?

• How are the fund’s assets valued?

• How are fund assets safeguarded?

It may also be wise to consider the costs, as hedge funds can charge higher fees than traditional mutual funds or ETFs. An investor might pay an asset management fee of 1%-2%, as well as a higher performance fee of 20%, which is intended to motivate the hedge fund manager to generate better returns.

Note that hedge funds are generally not liquid assets and you may be required to leave your capital in the fund for a certain period. There may be limits on when you can redeem your shares, so it’s important to consider how much money you’re comfortable putting into these investments.

Regulatory and Legal Aspects

Due to their complexity, hedge funds and hedge fund investments are subject to federal regulation. Some of the laws and regulations governing hedge funds include:

• Securities Act of 1933

• Securities Exchange Act of 1934

• Investment Company Act of 1940

• Dodd-Frank Wall Street Reform and Consumer Protection Act of 20106

The SEC regulates hedge funds to ensure that they act within the scope of the law concerning registration, investment offerings, and investor protections. Hedge funds that trade in commodities or futures may also be subject to regulation from the Commodity Futures Trading Commission (CFTC).

Hedge funds are required to file Form ADV with the SEC. This document includes relevant details about the fund’s assets, its investment strategies, and potential conflicts of interest. You have the right to review a hedge fund’s Form ADV before investing to learn more about it.

Evolving Trends in Hedge Funds

Hedge funds are not static, as new trends emerge and older ones fade away. Some of the most significant trends to watch right now, according to the CAIA Association, include:

• Slower growth as the hedge fund industry reaches maturity

• Increased focus on long/short equity strategies, private debt, and private credit

• Gradual reduction in hedge fund fees

Demand for hedge funds may slow, too, should the U.S. economy enter a recession. If you’re all interested in how to invest in hedge fund markets now, or in the future, it’s worth watching these and other trends to see how this investment space will develop.

The Takeaway

Hedge funds can help you build a diversified portfolio, with the potential to generate returns. If you’re interested in how to invest in hedge funds, you’ll first need to determine whether you’re an accredited investor. If not, consider other avenues for accessing these and other types of alternative investments, such as through investing in mutual funds or ETFs. You can quickly start investing online in funds that offer exposure to venture capital, real estate, and other alternatives.

Invest in alts to take your portfolio beyond stocks and bonds.

FAQ

What are the requirements to invest in hedge funds as an individual?

Individual investors must typically be accredited to invest in hedge funds. That means having a net worth greater than $1 million, excluding the value of your primary residence, and an annual income of $200,000 (or $300,000 for couples).

Is it possible to start investing in hedge funds with a small capital?

It’s possible to find hedge funds that have a lower minimum investment of $20,000 or $25,000. But that may still be out of reach for the average person who’s just getting started with investing. It may be easier to invest in diversified funds that hold alternatives such as hedge funds, real estate, or private equity through a brokerage.

What are the key benefits of investing in hedge funds?

The most attractive feature of hedge fund investing is that it’s possible to see returns that beat the market. It’s important to remember, however, that hedge funds don’t always outperform and in some cases, returns may lag significantly behind returns generated by the S&P 500.

About the author

Rebecca Lake

Photo credit: iStock/ridvan_celik

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

SOIN-Q324-039

Mar

2025

How to Invest in Commodities: Ways to Invest, Pros/Cons

By Rebecca Lake | Growing Wealth, invest, Investing | Comments Off

Commodities are the raw materials or basic goods that are used to produce many of the things you use every day. Investing in commodities such as crude oil, soybeans, livestock, and wheat can be an effective way to diversify a portfolio, hedge against inflation, and potentially generate returns.

Key Points

• Investing in commodities can diversify a portfolio, hedge against inflation, and potentially generate returns.

• Commodities offer a low correlation to traditional asset classes like stocks and bonds, reducing market volatility impact.

• Different ways to invest in commodities include physical ownership, commodity mutual funds and ETFs, commodity futures contracts, individual stocks, and hedge funds.

• Commodities can act as an inflationary hedge, as their prices tend to rise with increases in consumer prices.

• Investing in commodities carries risks, including price volatility, geopolitical factors, and the feasibility of physical ownership for individual investors.

Why Invest in Commodities?

Commodities are alternative investments that offer a low correlation to traditional asset classes like stocks or bonds. Thus, holding commodities in your portfolio can help minimize the impact of market volatility, as commodities prices are driven largely by supply and demand rather than the mood of the market.

Investing in commodities can also be a strategic play for investors who are hoping to counter the effects of rising inflation. As prices for consumer goods rise, the prices of the underlying commodities used to produce them also tend to rise. Stock prices, by comparison, do not always move in tandem with inflation.

Commodities can also be highly liquid assets, depending on how you’re trading them. Liquidity may be of importance to investors who are focused on generating short-term returns, versus a longer-term buy-and-hold approach.

💡 Quick Tip: While investing directly in alternative assets often requires high minimum amounts, investing in alts assets through a mutual fund or ETF generally involves a low minimum requirement, making them accessible to retail investors.

Alternative investments,
now for the rest of us.

Explore trading funds that include commodities, private credit, real estate, venture capital, and more.

5 Ways to Invest in Commodities

If you’re considering investing in commodities, there are several options to choose from. The one that makes the most sense for you will depend on your risk tolerance, time frame for investing, and how much capital you have to invest.

1. Physical/Direct Ownership

Physical ownership of commodities may be impractical for most individual investors as it involves taking ownership of the actual commodity. Purchasing and storing two tons of wheat, or maintaining 1,000 live animals likely isn’t realistic if you don’t have the proper facilities.

On the easier end of the spectrum, precious metal investors may hold gold or silver as bullion, or coins inside a secure bank vault. But even then, holding quantities of specific metals also require storage, insurance; and reselling these commodities comes with liquidity issues.

2. Commodity Mutual Funds and Exchange-Traded Funds (ETFs)

Commodity mutual funds and exchange-traded funds can offer exposure to commodities without requiring you to hold anything physically. There are three broad categories of commodity funds you might invest in:

• Physically backed funds. These funds maintain direct ownership of commodities, specifically, precious metals. A gold commodity ETF, for example, may hold gold bars at a bank.

• Futures-based funds. Futures-based commodity ETFs invest in futures contracts. We’ll explain those in more detail shortly, but in general, a future contract is an agreement to buy or sell an asset at a predetermined price on a set date.

• Commodity company funds. Commodity company funds invest in commodity producers. For example, you might buy shares in an oil ETF that invests in oil and gas companies, oilfield servicers, and pipeline companies.

The main difference between a commodity mutual fund and a commodity ETF is how they’re traded. Mutual fund prices are set at the end of the trading day, while ETFs trade on an exchange just like a stock. Both commodity mutual funds and ETFs charge expense ratios, which represent the cost of owning the fund on an annual basis.

3. Commodity Futures Contracts

Commodity futures contracts are an agreement to buy or sell an underlying asset at a future date. The contract includes the price at which commodities will be bought or sold. Futures are derivative investments, meaning their value is determined by the price of another asset, i.e., the commodities you’re agreeing to trade.

Trading commodity futures contracts can be risky, as outcomes rely largely on investors making correct assumptions about which commodity prices will move. It’s possible to lose money on futures contracts if you’re expecting prices to increase but they decline instead.

4. Individual Stocks

Investing in stocks of commodity companies is another way to gain exposure to this asset class. For example, if you’re interested in adding energy sector assets to your portfolio you might buy shares in companies that produce oil, natural gas, solar technology, and so on.

Purchasing individual stocks can ensure that you’re only owning the companies that you want to, unlike a commodity mutual fund or ETF, which can hold dozens of different investments. However, picking individual stocks can be a bit more time-consuming and it may take more capital to buy shares if you’re choosing high dollar stocks.

5. Hedge Funds

Hedge funds are private investments that pool money to buy and sell assets, similar to a mutual fund. The difference is that hedge funds tend to use high-risk strategies like short-selling and may require a higher minimum investment to buy in or limit access to accredited investors only. Under SEC rules, an accredited investor is someone who:

• Has $200,000 or more in annual income ($300,000 for married couples) for the previous two years and expects the same level of income going forward

• Has a net worth exceeding $1 million, not including their primary residence

Financial professionals who hold certain securities licenses also qualify for accredited status.

Hedge funds can potentially offer higher returns than other commodity investments, but the risks are greater as well. If you’re considering private investment in commodities through a hedge fund you may want to talk to a professional about the pros and cons.

💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

How Do You Open a Commodities Investing Account?

Opening a commodities trading account is no different from opening any other type of brokerage account. You’ll first need to decide which brokerage you want to trade with, then complete the necessary paperwork and funding requirements to start trading.

Personal Information

When you open a brokerage account, you’ll need to provide some basic details about yourself. That includes your:

• Name

• Date of birth

• Social Security number

• Email and phone number

• Mailing address

• Driver’s license number

• Annual income

• Net worth

• Employment status

• Investment objectives and risk tolerance

You may also be asked about your experience with investing and your citizenship status. You’ll need to disclose whether you’re employed by a brokerage firm.

All of this information is required to verify your identity, meet FINRA’s suitability requirements, and comply with anti-money laundering regulations. Net worth and income information may also be used to determine whether you meet the standards for an accredited investor.

Minimum Funds

The minimum amount of money you’ll need to invest in commodities through your brokerage can depend on what you’re investing in. If you’re buying individual commodities stocks, then the stock’s share price will determine how much you’ll need based on the number of shares you plan to buy.

With commodity mutual funds minimums are typically determined by the brokerage. So you might need $1,000, $3,000, or $5,000 to get started, depending on what you’re buying. Commodity ETFs sell on a per-share basis, similar to stocks.

Some brokerages offer fractional share trading, which allows you to buy shares of mutual funds, ETFs, or stocks in increments. The minimum investment may be as low as $1, though it’s important to keep in mind that it can take time to build up the commodity portfolio of your portfolio when investing in such small amounts.

Trading futures can be a little trickier as you may need to meet a minimum investment requirement and margin requirements. Margin is a set amount of money you’re required to deposit with the brokerage as a condition of trading futures contracts.

Margin is typically calculated as a percentage of the contract but it can easily run into the thousands of dollars.

Pros and Cons of Investing in Commodities

Investing in commodities has advantages and disadvantages, and it may not be right for every investor. Examining the pros and cons can help you make a more informed decision about whether it’s something you should pursue.

Pros

• Commodities can help you diversify your portfolio beyond traditional stocks and bonds.

• Investing in commodities can act as an inflationary hedge since commodity prices usually move in sync with increases in consumer prices.

• Commodity ETFs and mutual funds offer a lower barrier to entry versus direct investment or hedge funds, making commodities more accessible to a wider range of investors.

• Returns may potentially outstrip stocks, bonds, and other investments.

• Commodity trading may generate short-term profits

Cons

• Commodity prices can be volatile, as they may be affected by natural disasters, geopolitical conditions, and other factors.

• Investing in commodities is generally riskier than other types of investments since supply and demand can impact trading.

• Holding physical ownership of commodities may not be feasible for every investor.

• Futures trading in commodities is highly speculative and while there may be potential for higher returns, there’s also more risk involved.

Is Investing in Commodities Right for Me?

Whether commodity trading makes sense for you can depend on your preferences concerning risk and your time horizon for investing. You might consider commodities if you are:

• Comfortable trading the potential for higher returns against higher risk

• Looking for short-term gains versus a long-term, buy-and-hold investment

• Savvy about futures contracts (if you plan to trade futures)

• Have sufficient capital to meet minimum investment requirements

Before investing in commodities, it’s helpful to learn more about the different types and their associated return profiles. It’s also wise to consider any costs you might pay to trade commodity ETFs, mutual funds, and stocks or the margin requirements for commodity futures trading.

The Takeaway

Although the commodities market is complex, commodities themselves are tangible products that are relatively easy to understand. Investing in commodities can take many forms, including direct or cash investment via the spot market, or by investing in commodity-related funds.

Although trading commodities comes with its own set of risks, commodities may offer some protection against inflation and traditional market movements, because these products are driven by supply and demand.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

Invest in alts to take your portfolio beyond stocks and bonds.

FAQ

Are there IRA accounts that specialize in commodity trading?

Some brokerages offer an IRA that’s designed for trading commodity futures contracts. You may also be able to gain exposure to commodity ETFs or mutual funds with a regular traditional or Roth IRA.

How much money do I need to invest in commodities?

The amount of money you’ll need to invest in commodities will depend on which vehicle you’re using. With a commodity stock or ETF, the amount of money required would depend on the share price and the number of shares you plan to purchase. Direct investment, hedge fund investments, or commodity futures contracts may require a larger financial commitment.

Can you make money with commodities?

Investors can make money with commodities through capital appreciation or by trading futures contracts. Returns may be higher than traditional assets but you may need to accept a greater degree of risk when trading commodities.

What is the risk profile for someone investing in commodities?

Investing in commodities often means being comfortable with more risk, as commodity prices can fluctuate quickly. You may want to limit your commodities allocation to 5%-10% of your portfolio to minimize your risk exposure.

About the author

Rebecca Lake

Photo credit: iStock/filadendron

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

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 emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.

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.

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.

SOIN0124118

Mar

2025

What Is a Pension Plan & How Does It Work?

By Colin Dodds | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

While pension plans are less common today than they once were, many workers still receive a pension — a type of retirement plan that provides guaranteed income throughout retirement (or a lump sum at retirement).

Pension plans are known as defined-benefit plans because the benefits the worker will receive during retirement are predictable (i.e., defined). A 401(k) plan or IRA account, on the other hand, is called a defined-contribution plan — because workers typically contribute a defined amount each month.

Pensions are employer-provided benefits; an individual can’t set up a pension as they would an IRA account — a key aspect of what a pension is and how it works.

Key Points

• A pension is a defined-benefit plan that gives employees a regular paycheck throughout retirement, or in some cases a lump sum upon retirement (i.e. the payment is defined).

• Defined contribution plans, like 401(k)s, rely on worker savings but don’t provide a guaranteed payout like defined benefit plans.

• A pension is an employer-provided plan; workers cannot set up a pension plan.

• Pension plans are less common today; about 19% of U.S. private sector and government workers were eligible for a pension in 2024.

• While workers can choose their investments in a defined contribution plan like a 401(k) or 403(b), workers in pension plans cannot.

How to Get a Pension Plan

Unlike other types of retirement plans, such as IRAs, an investor who wants to save for retirement can’t simply fund a pension on their own. Like 401(k) plans, pension plans must be offered by an employer.

While pension plans were once a mainstay of how companies took care of their workers, they’ve become rare in recent decades. Only a small percentage of private sector and government employers — about 19% — offered some form of pension to their employees as of 2024.

The main reason many companies no longer offer pensions is that it’s cheaper for them to offer defined-contribution plans, such as 401(k) or 403(b) plans. That said, if an individual works for the federal, state, or local government, they may be offered a pension.

Among state and local government workers who participate in a retirement savings plan, a majority are in a pension plan.

Recommended: A 4-Step Guide to Planning Retirement

Pension Plans vs. Other Retirement Accounts

The key difference between pension plans and other retirement plans comes down to the difference between a “defined benefit” plan and a “defined contribution” plan.

• With a defined benefit plan, such as a pension, the amount workers will receive in retirement is predictable: e.g., $2,000 per month, which is valuable when you’re living in retirement.

• With a defined contribution plan, such as a 401(k) or similar, employees’ contributions, or savings, are defined: e.g., $500 per month. Unlike a pension, a defined contribution plan doesn’t guarantee a fixed benefit amount once the employee retires.

401(k) vs. Pension Plan

Although 401(k) plans and pension plans are both types of tax-deferred accounts that aim to provide workers with income in retirement, they differ in a few ways.

• Funding and contribution limits

While the employer provides the bulk of funding for a pension plan, 401(k) plans are primarily funded by the employee. In some cases, an employer has the option to contribute to the 401(k) through matching funds. (Employers are not, however, required to provide an employer match.)

Another key difference is the annual contribution limit for each type of account.

For tax year 2025, employee contributions to a 401(k) plan are capped at $23,500 per year ($31,000, if you’re 50 and older), with a total limit of $70,000, including employer contributions.

The maximum total annual contribution to a pension plan for 2025 is $280,000.

• Roth designation

There are other points of distinction between pension plans and 401(k) plans. For example, a 401(k) plan may offer a Roth feature (i.e., a Roth 401(k) account), which allows workers to contribute after-tax funds, and take tax-free withdrawals in retirement. Pensions generally do not offer a Roth option.

• Income and Taxes

As noted, the income from a pension plan is guaranteed, and thus a defined benefit.

But the income from a 401(k), 403(b), Roth or traditional IRA, or other defined contribution plan depends on the amount the employee has saved over time, and the investments they selected for their portfolio, and how those investments performed.

Also, because a pension provides a guaranteed payout (typically monthly), these plans do not come with required minimum distributions (RMDs), as 401(k) plans do.

The income from both a pension and a regular 401(k) is considered taxable income, however.

Pension Plan vs. IRAs

Individuals can also contribute to tax-advantaged IRAs and Roth IRA accounts. These are also quite different from pension plans. First, IRAs are Individual Retirement Arrangements, and they are a type of defined contribution plan that only an individual can set up (employers generally cannot offer IRAs, although small businesses may offer a SEP IRA or SIMPLE IRA to employees)

• Funding and contribution limits

The annual contribution limits for traditional and Roth IRAs for tax year 2025 is $7,000 per individual, with an extra $1,000 catch-up contribution for those 50 and older, for a total of $8,000.

Since standard traditional and Roth IRA plans are self-funded, there is no employer match. Small-business IRAs, like SEP and SIMPLE accounts, may offer an employer match.

• Roth accounts

The Roth designation refers to the use of after-tax money to fund a retirement account, such as with a Roth IRA. Roth IRA account holders invest after-tax funds, and qualified withdrawals are tax-free in retirement.

However, pension plans are tax-deferred accounts; the employee pays tax on their pension income in retirement. Typically, defined-benefit plans don’t offer a Roth option.

• Income

Like other defined contribution accounts, IRA investors can choose the investments in their portfolio. As a result, the ultimate payout from these plans depends on the amount saved and the performance, or returns of the investments in the plan.

Traditional IRAs are tax-deferred accounts, so withdrawals are subject to ordinary income tax. And traditional IRA holders must take RMDs, starting at age 73 (which is older than social security retirement age). Roth IRAs are not subject to RMD rules.

One advantage that pensions have over defined contribution plans is that pensions are guaranteed by the federal government through the Pension Benefit Guaranty Corporation (PBGC). It effectively guarantees the benefits of pension-plan participants. But the PBGC does not cover people with defined contribution plans.

Managing Your Pension Plan

Workers with pension plans should talk to a representative in their human resources department and find out what the plan offers. Every pension plan is unique. An employee may benefit from looking into the specifics such as:

• The pension benefit amount

• Whether it includes health and medical benefits

• What kind of benefits the pension will offer a surviving spouse or family members.

Someone just starting in their career may also want to ask when their pension benefits vest. In many plans, the benefits vest immediately, while others vest in stages, over the course of as many as seven years, which could affect their plans to move on to a new job or company.

One way to get a better handle on what a pension may pay over time is to inquire about the unit benefit formula. Utilizing that formula is how an employer tallies up its eventual contribution to a pension plan based on years of service.

Most often, the formula will use a percentage of the worker’s average annual earnings, and multiply it by their years of service to determine how much the employee will receive. But an employee can use it themselves to see how much they might expect to receive after 20 or 30 years of service.

Pros of a Pension Plan

Perhaps the biggest advantage of a defined-benefit plan is the guarantee of predictable income from the day a worker retires until the day they die. That’s the core promise that the PBGC protects.

Many pension plans also include related medical and other benefits for the employee, as well as related benefits for surviving spouses. Those benefits vary widely from plan to plan and are important to investigate.

A defined-benefit plan enables workers to predict the amount they’ll have to live on after they retire, and when they can retire. This can help workers plan for other needs, such as supplemental medical insurance or long-term care insurance, in order to better protect themselves down the road.

Cons of a Pension Plan

The downside of knowing that a pension will provide guaranteed income is that it can give would-be retirees a false sense of security.

A pension, with its promise of steady income, can lead people to ignore important questions, and avoid budgeting for basic living expenses.

That flat monthly income might also lead people to believe that their expenses will be the same each month — which is rarely the case.

And that can lead retirees to avoid planning for increased overall living expenses due to the effects of inflation or sudden, unexpected expenses that may crop up.

There’s also the likelihood that their expenses later in life could be significantly higher, as they’re able to accomplish fewer daily necessities themselves.

That’s why, regardless of how thorough a pension plan is, it can pay to save for retirement in other ways, including through a 401(k), IRA or Roth IRA. Just because a worker has a pension, that doesn’t mean that it’s the only retirement plan that’s right for them. And employees will benefit from preparing for retirement early.

The Takeaway

Pension plans are a type of savings plan that are offered by employers, guaranteeing a certain amount of income to workers after they retire. Pension plans are defined-benefit plans, and differ in some key ways from IRAs or 401(k)s. Pensions have become less common in recent decades, and they have their pros and cons, like any other financial product or service.

Easily manage your retirement savings with a SoFi IRA.

FAQ

What is a pension plan?

A pension plan is a type of defined-benefit retirement plan offered by employers. Pensions are known for providing a guaranteed amount of income to retired workers. But pensions today are uncommon, and have largely been replaced by defined contribution plans like IRAs and 401(k)s.

How do pension plans work?

Generally, an employer maintains a pension fund that will pay workers’ income benefits when they retire; in some cases, workers may also contribute to their pensions. At retirement, the employee receives a guaranteed amount of income, often monthly. Because pension benefits are paid regularly, these accounts don’t have RMDs. Pension income is taxed at ordinary income rates.

What are the different types of pension plans?

Pension plans vary, so it’s important to know what the rules and restrictions are. For example, a defined-benefit plan uses a basic formula to calculate the amount the employee will receive. A cash-balance plan bases a worker’s payout on the account balance, while still providing a guaranteed income. In addition, some pensions may include insurance or spousal benefits (or not). Be sure to know the terms.

How do pension plans compare to 401(k)s and IRAs?

While there are several differences between these accounts, the most important distinction is that pension plans are defined-benefit plans that provide guaranteed income throughout retirement (or a lump sum) for the employee. Defined-contribution plans, like 401(k)s and IRAs, do not provide guaranteed income; rather, the account holder takes withdrawals in retirement.

Another important point is that an individual can set up a defined contribution plan and select the investments in their portfolio, but they cannot join a pension unless they work for a company that offers one.

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

SOIN-Q125-081

Can You Use Your IRA to Invest in Real Estate?

Can You Invest in Real Estate Using an IRA?

Ways to Invest in Real Estate With an IRA

1. Real Estate-Related Funds

2. Real Estate Investment Trusts

3. Investment Properties

4. Tax-Lien Certificates

5. Real Estate Crowdfunding

What IRAs Can You Use to Invest in Real Estate?

What Is a Self-Directed IRA?

Steps to Buying Real Estate With an IRA

1. Find a Custodian

2. Open a Self-Directed IRA

3. Deposit Funds to Your IRA

4. Compare Investment Options

5. Purchase a Property

Pros and Cons of Investing Your IRA in Real Estate

thumb_upPros:

thumb_downCons:

Is Investing Your IRA in Real Estate Right for You?

Alternative IRA Investment Options

The Takeaway

FAQ

Can I invest in real estate using my IRA?

How is real estate taxed in an IRA?

What type of real estate can be held in an IRA?

How To Invest in Publicly Traded Sports Teams

Understanding Sports Team Ownership Structures

What Is a Publicly Traded Sports Team?

Current Publicly Traded Teams

Alternative investments, now for the rest of us.

Explore trading funds that include commodities, private credit, real estate, venture capital, and more.

Strategies for Investing in Sports Franchises

Risks and Challenges in Sports Team Investing

The Takeaway

FAQ

Which sports leagues have publicly traded teams?

Can I invest in international sports teams?

What factors should I consider before investing in a sports team?

How to Invest in Hedge Funds

What Exactly Is a Hedge Fund?

Alternative investments, now for the rest of us.

Explore trading funds that include commodities, private credit, real estate, venture capital, and more.

Getting Started in Hedge Fund Investments

Maximizing Potential for Returns and Managing Risks

Regulatory and Legal Aspects

Evolving Trends in Hedge Funds

The Takeaway

FAQ

What are the requirements to invest in hedge funds as an individual?

Is it possible to start investing in hedge funds with a small capital?

What are the key benefits of investing in hedge funds?

How to Invest in Commodities: Ways to Invest, Pros/Cons

Why Invest in Commodities?

Alternative investments, now for the rest of us.

Explore trading funds that include commodities, private credit, real estate, venture capital, and more.

5 Ways to Invest in Commodities

1. Physical/Direct Ownership

2. Commodity Mutual Funds and Exchange-Traded Funds (ETFs)

3. Commodity Futures Contracts

4. Individual Stocks

5. Hedge Funds

How Do You Open a Commodities Investing Account?

Personal Information

Minimum Funds

Pros and Cons of Investing in Commodities

Pros

Cons

Is Investing in Commodities Right for Me?

The Takeaway

FAQ

Are there IRA accounts that specialize in commodity trading?

How much money do I need to invest in commodities?

Can you make money with commodities?

What is the risk profile for someone investing in commodities?

What Is a Pension Plan & How Does It Work?

How to Get a Pension Plan

Pension Plans vs. Other Retirement Accounts

401(k) vs. Pension Plan

Pension Plan vs. IRAs

Alternative investments,
now for the rest of us.

Alternative investments,
now for the rest of us.

Alternative investments,
now for the rest of us.

Student Loan
Refinancing

Personal
Loans

Online
Investments