Life insurance provides a safety net for beneficiaries after a loved one dies. Broad choices exist between term life and whole life policies. Here is more info.
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Wondering how to buy life insurance—and what kind of life insurance you need in the first place? This step-by-step guide will set you straight.
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A mutual fund is a portfolio or basket of securities (often stocks or bonds) where investors pool their money. Nationally, there are more than 7,000 mutual funds investors can choose from, spanning equity funds, bond funds, growth funds, sector funds, index funds, and more.
Mutual funds are typically actively managed, where a manager or team of professionals decides which securities to buy and sell, although some are passively managed, where the fund simply tracks an index like the S&P 500. The main differences among mutual funds typically come down to their investment objectives and the strategies they use to achieve them.
Key Points
• Mutual funds pool money from many investors to build a diversified portfolio of securities.
• Equity funds are higher risk, but have the potential to offer higher long-term growth; bond funds are typically lower risk, but may provide steady income.
• Money market funds are structured to be highly illiquid and low risk, typically appropriate for short-term investments
• Index funds passively track market indices, and may offer lower fees and tax efficiency.
• Balanced funds have a (typically) fixed allocation of stocks and bonds, which may be suitable for moderate risk investors.
Mutual funds pool money from many investors to buy a diversified mix of securities, known as a portfolio. These may include:
• Stocks
• Bonds
• Money market instruments
• Cash or cash equivalents
• Alternative assets (such as real estate, commodities, or precious metals)
Mutual funds are typically open-end funds, which means shares are continuously issued based on demand, while existing shares are redeemed (or bought back). In contrast, a closed-end fund issues a set number of shares at once during an initial public offering.
You can buy mutual fund shares through a brokerage account, retirement plan, or sometimes directly from the financial group managing the fund. For example, you might hold mutual funds inside a taxable investment account, within an individual retirement account (IRA) with an online brokerage, or as part of your 401(k) at work.
One of the main advantages of mutual funds is the potential for diversification. If one holding underperforms or loses value, the other investments in the fund may help offset those losses, reducing overall portfolio risk.
💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.
Before adding mutual funds to your portfolio, it’s important to understand the different types. Some funds aim for growth, while others focus on steady income. Certain mutual funds may carry a higher risk profile than others, though they may offer the potential for higher rewards.
Knowing more about the different mutual fund options can make it easier to choose investments that align with your goals and tolerance for risk.
• Structure: Typically open-end
• Risk Level: High
• Goal: Growth or income
• Asset Class: Stocks
Equity funds primarily invest in stocks to pursue capital appreciation and potential income from dividends. The types of companies an equity fund invests in will depend on the fund’s objectives.
For example, some equity funds may concentrate on blue-chip companies that tend to offer consistent dividends, while others may lean toward companies that have significant growth potential. Equity funds can also be categorized based on whether they invest in large-cap, mid-cap, or small-cap stocks.
Investing in equity funds can offer the opportunity to earn higher rewards, but they tend to present greater risks. Since the prices of underlying equity investments can fluctuate day to day or even hour to hour, equity funds tend to be more volatile than other types of mutual funds.
• Structure: Typically open-end; some closed-end
• Risk Level: Low
• Goal: Steady income
• Asset Class: Bonds
Bond funds invest in debt securities, such as government, municipal, or corporate bonds. They give investors a convenient way to access the fixed-income market without buying individual bonds. Some bond funds try to mirror the broad bond market and include short- and long-term bonds from a wide variety of issuers, while other bond funds specialize in certain types of bonds, such as municipal bonds or corporate bonds.
Generally, bond funds tend to be lower risk compared to other types of mutual funds, and bonds issued by the U.S Treasury are backed by the full faith and credit of the U.S. government. However, bonds are not risk-free. Bonds are typically sensitive to interest rate risk (meaning their market value fluctuates inversely with changes in interest rates), as well as credit risk (since a bond’s value is directly tied to the issuer’s ability to repay its debt).
• Structure: Open-end
• Risk Level: Low
• Goal: Income generation
• Asset Class: Short-term debt instruments
Money market funds invest in high-quality, short-term debt from governments, banks or corporations. This may include government bonds, municipal bonds, corporate bonds, and certificates of deposit (CDs). Money market funds may also hold cash and cash equivalent securities.
Money market funds can be labeled according to what they invest in. For example, Treasury funds invest in U.S. Treasury securities, while government money market funds can invest in Treasuries as well as other government-backed assets.
In terms of risk, money market funds are considered to be very low risk. That means, however, that money market mutual funds tend to produce lower returns compared to other mutual funds.
It’s also worth noting that money market funds are not the same thing as money market accounts (MMAs). Money market accounts are deposit accounts offered by banks and credit unions. While these accounts can pay interest to savers, they’re more akin to savings accounts than investment vehicles. While money market accounts may be covered by the Federal Deposit Insurance Corporation (FDIC), money market funds may alternatively be insured by the Securities Investor Protection Corporation (SIPC).
• Structure: Open-end
• Risk Level: Moderate
• Goal: To replicate the performance of an underlying market index
• Asset Class: Stocks, bonds, or both
Index funds are designed to match the performance of an underlying market index. For example, an index fund may attempt to mirror the returns of the S&P 500 Index or the Russell 2000 Index. The fund does this by investing in some or all of the securities included in that particular index, a process that’s typically automated. Because of this, index funds are considered passively managed, unlike actively managed funds where a manager actively trades to try to exceed a benchmark.
Because index funds need much less hands-on management and don’t require specialized research analysts, they’re generally lower cost than actively managed funds. They’re also considered to be more tax-efficient due to their potentially longer holding periods and less frequent trading, which may result in fewer taxable events. However, an index fund may include both high- and low-performing stocks and bonds. As a result, any returns you earn would be an average of them all.
• Structure: Open-end
• Risk Level: Moderate
• Goal: Provide both growth and income
• Asset Class: Stocks and bonds
Balanced funds, sometimes referred to as hybrid funds, typically contain a fixed allocation of stocks and bonds for investors interested in both income and capital appreciation. One common example of a balanced fund is a fund that invests 60% of its portfolio in stocks and 40% of its portfolio in bonds.
By holding both growth-oriented equities (stocks) and stability-focused, fixed-income securities (bonds) in one portfolio, these funds aim to provide a middle ground between the high-risk/high-return profile of equity funds and the low-risk/low-return profile of bond funds. Balanced funds automatically maintain their asset allocation and may make sense for moderately conservative, hands-off investors seeking long-term growth potential.
• Structure: Open-end
• Risk Level: Low to moderate
• Goal: Provide steady income
• Asset Class: Bonds, income-generating assets
Income funds are designed with the goal of providing investors with regular income through interest or dividends, rather than focusing mainly on long-term growth. Some income funds focus on bonds, such as government, municipal, or corporate bonds, while others mix equities with bonds to offer a diversified approach to income generation.
Though not risk-free, income funds are generally lower risk than funds that prioritize capital gains. This type of mutual fund can be appealing to investors who value stability and regular cash flow, such as retirees. Income funds may also help balance risk in any investor’s portfolio, especially in uncertain markets.
• Structure: Mostly open-end
• Risk Level: High
• Goal: Growth or income outside the U.S.
• Asset Class: Global equities and bonds (excluding U.S. securities)
International mutual funds invest in securities and companies outside of the U.S. This sets them apart from global funds, which can hold a mix of both U.S. and international securities. Some international funds focus on developed economies, while others target emerging markets, which may offer higher growth but come with higher risk.
Adding international funds to a portfolio can increase diversification and access to global opportunities if you’ve primarily invested in U.S. companies or bonds so far. But keep in mind that international funds can carry unique risks, including the risk of currency volatility and changing economic or political environments, especially in emerging markets.
• Structure: Open or closed-end
• Risk Level: Varies
• Goal: Thematic or sector-specific investing
• Asset Class: Equities, bonds, alternatives
A specialty fund concentrates on a specific sector, industry, or investment theme, such as technology, health care, or clean energy. They allow investors to target specific opportunities and expand their portfolios beyond traditional stocks or bonds. Specialty funds can offer exposure to assets like real estate, commodities, or even precious metals. You could also use specialty funds to pursue specific investing goals, such as investing with environmental, social, and governance (ESG) principles in mind.
Because of their narrower focus, specialty funds frequently offer less diversification, which means they may come with higher potential risks. This type of mutual fund is generally best suited for investors with a deep understanding of the target market.
💡 Quick Tip: Spreading investments across various securities may help ensure your portfolio is not overly reliant on any one company or market to do well. For example, by investing in different sectors you can add diversification to your portfolio, which may help mitigate some risk factors over time.
• Structure: Typically open-end
• Risk Level: Declines over time
• Goal: Retirement planning
• Asset Class: Mix of stocks, bonds, and short-term investments
Target date funds are mutual funds that adjust their asset allocation automatically so the fund becomes more conservative as the target (typically retirement) date approaches. For example, if you were born in 2000 and plan to retire at 65, you would invest in a 2065 fund. As you get closer to retirement age, your target date fund will gradually become more conservative, increasing its allocations to bonds, cash, or cash equivalents.
Like mutual funds, target date funds are offered by nearly every investment company. In most cases, they’re recognizable by the year in the fund name. If you have a 401(k) at work, you may have access to various target date funds for your portfolio.
While target date funds offer a “set it and forget it” option for retirement planning, they are a one-size-fits-all solution that does not account for an individual’s unique financial situation, risk tolerance, or outside assets. Some investors may prefer a more aggressive or conservative allocation than the one the fund provides.
It can be easy to confuse exchange-traded funds (ETFs) with mutual funds, since they have a number of similarities. Both are baskets of securities designed to provide diversification. And both can hold stocks, bonds, or a mix, or follow specific themes or strategies.
However, ETFs and mutual funds differ in several key ways:
• Trading: ETFs trade throughout the day like stocks, while mutual funds are priced only once daily after the market closes.
• Liquidity: Because they trade on exchanges throughout the day, ETFs are generally more liquid than traditional mutual funds.
• Management: Most EFTs are passively managed, while mutual funds are typically actively managed.
• Cost: Because they are largely passively managed, EFTs often carry lower expenses ratios.
Mutual funds are among the most accessible and flexible investment options available. With choices ranging from conservative money market funds to aggressive equity and specialty funds, there’s a fund for nearly every type of investor.
The best mutual fund for you depends on your goals, time horizon, and tolerance for risk. Whether you’re seeking steady income, long-term growth, international exposure, or a hand-off retirement plan, understanding the different types of mutual funds can help you build a portfolio that supports your financial future.
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.
The four main types of mutual funds are equity funds, debt funds, money market funds, and hybrid funds.
Equity funds invest primarily in stocks and aim for long-term capital growth. Debt funds focus on fixed-income securities like bonds, offering relatively stable returns. Money market funds invest in short-term, low-risk instruments such as Treasury bills. Hybrid funds combine equity and debt securities in varying proportions to balance risk and reward. Each type suits different investor goals, risk tolerances, and time horizons.
The 7-5-3-1 rule in SIP (systematic investment plan) is a guideline for disciplined investing. The 7 suggests staying invested for at least seven years to reap the benefits of compounding and market growth. The 5 suggests diversifying your investments across at least five different mutual fund categories to help reduce risk. The 3 is about overcoming three common mental hurdles investors face (disappointment, frustration, and panic). The 1 suggests increasing your SIP amount every year to improve your return potential in the long term.
The “best” type of mutual fund depends on your goals, risk tolerance, and time horizon. For long-term wealth creation, equity funds often provide the highest growth potential but come with more risk. For those prioritizing stable returns, debt funds or money market funds may be a favorable choice. Investors seeking balance may prefer hybrid funds. The best fund is one that is aligned with your unique financial objectives.
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Mutual Funds (MFs): 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 clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
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.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. This should not be considered a recommendation to participate in IPOs and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation. New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For more information on the allocation process please visit IPO Allocation Procedures.
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.
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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.
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Crypto mining and staking are two different ways for a blockchain network to achieve consensus and validate transactions. They use different means to achieve a similar end. While mining uses a consensus mechanism called proof-of-work (PoW), staking uses another consensus mechanism called proof-of-stake (PoS). Crypto mining and staking can also generate rewards for network users or participants, which is why many people are interested in them.
Key Points
• To validate transactions, crypto mining uses specialized hardware to solve complex equations, while staking uses participants’ existing holdings.
• Proof-of-work (PoW) relies on computational power, whereas proof-of-stake (PoS) locks up assets as collateral.
• Mining is resource-intensive and costly; staking is more accessible and environmentally friendly.
• Mining may offer higher rewards, while staking provides passive income with lower barriers to entry.
• Participants may choose mining or staking based on their financial commitment and goals, technical skills, environmental concerns, and risk tolerance.
Crypto mining and crypto staking are two different protocols cryptocurrencies may use to validate transactions and reach consensus on network data. Staking involves locking up tokens for a fixed period, while mining requires running specialized hardware.
Crypto mining is a consensus protocol utilized by some blockchain networks. It’s grown into a multi-billion dollar industry, mostly because the mining process can lead to rewards in the form of new coins or cryptocurrency. In effect, mining involves computers solving complex mathematical problems or equations, validating data on the blockchain, and “unlocking” new blocks on the network. Users who participate may be “rewarded” for doing so, and receive cryptocurrency for their efforts.
Crypto staking is a consensus protocol utilized by PoS blockchain networks, serving as an alternative to mining. It involves users pledging or “locking up” their crypto holdings to a network, which may be used to validate data on the blockchain. Users can then earn staking rewards for doing so. In that way, it’s similar to putting money in a savings account and generating interest.
Both crypto mining and staking work to the same end: To entice users to participate and validate data on a given blockchain network. They’re simply two different ways to do it. There can be some advantages and disadvantages to both, of course, and those involved in the crypto space would do well to understand each.
Crypto mining is a fairly complex process that doesn’t involve pickaxes or hard hats, but rather, computer processors.
As noted, a proof-of-work consensus mechanism on blockchain networks involves miners solving mathematical equations. Doing so validates transactions on the network, which helps ensure that the information stored on the blocks is accurate and secure. That all requires computational power and resources, which miners supply.
As the data on each block is validated, new blocks are opened up, which also unlocks new cryptocurrency. So, participants who “mine” are forking over their computational resources in hopes of earning some of that new, unearthed crypto.
Crypto mining involves using computer processing power, and that can take many forms. In short, though, miners can use CPUs, GPUs, or advanced “mining rigs” called ASICs to mine crypto. In many cases, mining hardware is designed specifically for solving cryptographic equations, and can cost thousands of dollars.
Again participating on a blockchain network as a miner involves validating data in hopes of earning a reward. That’s the main incentive for miners. Each blockchain network is different, and on some networks, such as Bitcoin, there are hundreds of thousands of miners at work, meaning that competition for mining rewards is fierce.
One concern that’s become front-and-center as it relates to crypto mining is how resource intensive it tends to be. Dedicating computer hardware to solving cryptographic equations requires electricity to run and cool the machines, and in aggregate, can eat up a lot of energy.
That’s drawn the ire of some individuals and groups, who may feel the energy may be better used elsewhere, and who have voiced concerns about how that energy is being generated, and the impacts on the environment.
There are numerous mineable cryptocurrencies on the market. Bitcoin is the most popular (and the most competitive), but it certainly isn’t the only one.
And as a quick reminder, proof-of-work coins offer miners newly minted tokens as a reward for helping to solve the computational problems involved in processing a block of transactions — though there isn’t necessarily a guarantee that participants will be rewarded for leveraging their computational resources as a part of that process.
Some popular PoW cryptocurrencies include:
• Bitcoin (BTC)
• Bitcoin Cash (BCH)
• Litecoin (LTC)
• Ethereum Classic (ETC)
• Dogecoin (DOGE)
Note, too, that different PoW coins can use different mining algorithms. While Bitcoin uses SHA-256, Litecoin and Dogecoin use Scrypt, for example. Moreover, to mine a specific coin, the hardware (be it ASICs or GPUs) must be compatible with the type of algorithm used to mine that coin.
Crypto staking has a very different approach to blockchain transaction validation compared to mining. In effect, it involves users pledging their crypto holdings to a blockchain network, basically as collateral, which helps validate the data on that network (similar to mining). Participants may then earn passive rewards, usually expressed as a percentage yield of the coins staked.
On a proof-of-stake network, participants are referred to as “validators” (or stakers).” Validators “stake” their holdings on the network, and those resources are used by the network to validate and secure the data on the blockchain. It can be a complex, granular, and intricate process when you get down to it, but as mentioned, the aims are the same as mining: Validate data, and generate rewards for participants.
Participants may combine their holdings for staking purposes to try and increase their odds of being rewarded. This is called a staking pool, and represents the combined efforts of several validators. A single point-person or entity may run these pools, called a pool operator, who can then divvy up any rewards proportionally, too. Pool operators may also charge a fee for their services.
Conversely, becoming an independent staking validator often requires a large sum of tokens, along with keeping a computer up and running constantly. Validators can receive a penalty for not having 24/7 uptime, and starting your own validator node can come with a hefty price tag.
It’s also possible to stake coins through a crypto exchange. This is one of the easiest ways to stake, but these can also involve higher fees or commissions that reduce the amount of the rewards received.
A PoS cryptocurrency generally benefits from having more coins staked to its network. Having a higher staking ratio makes it harder for attackers to gain control of the cryptocurrency, and it can also help promote price stability, since fewer coins may be bought and sold.
But the critical thing to know about crypto staking is that, in general, the more crypto holdings you stake, the higher your chances of being selected to validate transactions and earn a reward.
Depending on the blockchain network, too, there may be different rules as to whether a participant’s pledged holdings can be “unlocked” or “unstaked” at a given time. So, you’ll want to do some research if you’re uncomfortable with the idea of not being able to liquidate your crypto for a period of time, if it’s staked.
A big advantage to staking versus mining is that staking doesn’t really require any equipment or resources, other than some current crypto holdings with which to stake. So, if you don’t have any interest in buying a mining rig or seeing your energy bill increase, staking can be an alternative. And for those with only a smaller amount of crypto to stake, the ability to join a staking pool can also be enticing.
There are an increasing number of cryptos on the market that use the proof-of-stake protocol. Ethereum is the biggest and most popular, and Ethereum itself actually switched from a proof-of-work network to a proof-of-stake one in 2022.
Again, stakers can lock up their native PoS blockchain tokens on the platform in exchange for a potential reward. Some popular PoS cryptocurrencies include:
• Ethereum (ETH)
• Solana (SOL)
• Cronos (CRO)
• Avalanche (AVAX)
• Polkadot (DOT)
There are both similarities and differences between crypto staking and mining.
As covered, both mining and staking have the same goal, which is to validate and secure blockchain networks. They both incentivize participants to pledge their resources to the network with the prospect of potentially earning rewards. Again, though, the difference comes down to how each consensus mechanism works on a more fundamental level.
In a nutshell: Proof-of-work networks use computational power to solve cryptographic puzzles or equations, validating the data. Proof-of-stake networks ask users to stake their holdings, use those resources to validate the network’s data, and reward some of those stakers.
A huge difference between the two consensus protocols is the resources required for participants to actually get involved. Mining requires mining equipment, or, in other words, computational power and resources. Miners need computers, and the energy required to run them.
Stakers don’t; they simply need crypto holdings they’re willing to stake.
The potential profit or rewards of crypto staking versus mining depends on a few things.
Staking could be more profitable for the average user because the only thing required is money. Mining requires specialized hardware, access to cheap electricity, and some technical knowledge.
The value of the coin in question is also important. Users could mine a lot of coins or have a lot of coins staked, but if the coin’s value falls against their local fiat currency, they could still realize losses.
Then there are the barriers to entry. It bears repeating: Many proof-of-stake exchanges or networks allow users to stake tokens in order to earn a relatively small yield. Mining, on the other hand, requires buying the necessary hardware and learning how to use it.
Proof-of-work networks are frequently noted as being more secure than their counterparts. That’s because they’re relying on decentralized computational power from a number of participants; that makes them more difficult to attack, and the blockchains themselves a bit more secure.
Proof-of-stake network participants, on the other hand, are financially incentivized to maintain the security of the network since bad actors could lose the coins (and money) they have stored in the network.
Plus, as cryptocurrencies become more established, they’re continuing to build security features into the networks.
Proof-of-work networks can be less accessible, given that they require participants to have expensive mining rigs for computational power they’re willing to dedicate to the blockchain. So, in that sense, mining may be less accessible to the average individual, given that there can be up-front costs involved.
Staking, conversely, is comparatively easy to do — you simply need to have some crypto holdings to stake, which can be purchased from an exchange in order to get started. However, the high cost of the more established PoS coins can make them inaccessible to the average staker.
As touched on, the crypto space can require substantial resources, which can have an environmental impact. If that’s important to you, specifically, staking may be the way to go.
Mining rigs suck up a lot of electricity, and electricity is generated one way or another (it may be via burning coal, or generated by a wind turbine, for example). That generation may cause pollution[1], and the electricity itself may be used for other things besides mining — which some people may prefer.
As such, staking is seen as a much more environmentally friendly alternative.
Both mining and staking have their advantages and disadvantages. Here’s a rundown.
When compared to staking, crypto mining shines in a few key ways. Perhaps most prominently, miners may have the potential to earn higher rewards compared to staking, though the upfront costs of the mining rigs need to be considered in terms of profitability.
Additionally, proof-of-work networks could be more secure in certain cases. In addition, users aren’t required to lock up their holdings as collateral, and miners themselves actually own their equipment, which they may use for other purposes as well.
On the other hand, the main drawbacks to crypto mining are that there can be a high barrier to entry for individual miners, given the prohibitive cost of mining equipment. Also, for more established PoW coins, it’s virtually impossible for individuals to compete against the large warehouse mining operations that are now more prevalent, and there is also the environmental impact to consider.
Staking has a clear advantage over mining in that it’s typically much cheaper and easier to do, potentially serving a passive form of crypto income. There’s no equipment required, and it’s a more environmentally-friendly alternative for generating crypto rewards.
In all, staking is a lower-cost alternative in terms of financial costs for participants, and potential costs to society in terms of resource usage.
The high costs of established cryptocurrencies, such as Ethereum, can pose a high barrier to entry for those who wish to stake independently. Staking rewards also tend to be lower overall compared to mining, though they may be steadier, with lower operational costs.
Aside from that, some believe that PoS networks could potentially be less secure compared to proof-of-work protocols, given the computational power the latter uses to secure the network. Users also need to lock up their holdings when staking, which means they can’t use them for other purposes, and they could lose value during that time.
Making a decision about crypto staking vs. mining comes down to a few important things.
Those interested in participating in the mining or staking process might want to ask themselves questions like:
• How much time and money do I want to devote?
• What is my level of technical expertise with crypto and computers?
• Which cryptocurrencies am I interested in, and which network do I want to support?
• Do I want to become my own miner/validator, or have someone else do the heavy lifting?
Those with technical knowledge who want to handle things themselves could consider mining an appealing option. Or, those looking to invest less time and money might simply choose to stake some tokens on an exchange. The potential profit you can fetch from staking vs. mining varies according to a number of factors, including how much an individual is willing to invest upfront, as well as the market price of the token involved.
Another thing to consider is how technologically savvy you are when it comes to the crypto space. A mining rig may require some expertise or a certain level of skill to set up and get running; staking, on the other hand, may be as simple as flipping a switch on a crypto app. With that in mind, staking can be much easier for beginners, or those without a wealth of technical knowledge.
Worth mentioning again: Mining requires some financial commitments and ongoing costs in the form of equipment and resource usage. That is, you need to buy stuff to do it, and pay for the energy required to keep your equipment running.
If that sounds like a lot, staking may be the more attractive option, given that equipment and resource requirements are vastly different.
As discussed, mining is much more resource-intensive. If you have concerns about the environmental impact of the crypto space, you might consider staking over mining.
There may also be some differences in how the two methods are viewed by regulators. A lot of things are still being sorted out across the federal agencies involved in regulatory authority, such as the Securities and Exchange Commission (SEC), Department of the Treasury, Federal Reserve, IRS, and others, so that may be something to keep an eye on going forward.[2]
Taken all together, each individual will need to assess what is practical and reasonable if they’re hoping to generate crypto rewards. There are risks to be aware of when considering any type of cryptocurrency, and each person is going to have different resources available to them, skill sets, risk profiles, personal preferences, and more.
Crypto mining and crypto staking are both methods utilized by blockchain networks to validate and secure data. They incentivize users to pledge their resources to the network by offering the prospect of a potential reward, but each method is different in some key ways.
To sum it up: Mining is generally more expensive and resource-intensive given the computing power that’s required, but may offer the prospect of bigger rewards. Staking can be a cheaper and easier-to-access alternative, but the rewards may be lower (if more steady). It’s important to always assess the risks involved, too, before deciding whether to stake or mine crypto.
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Whether you can stake or mine crypto depends wholly on the specific crypto, and which mechanism its respective blockchain network uses to validate and secure itself. So, no, you can’t necessarily switch from one to the other.
It’s possible that staking or mining could affect the value of crypto over time, as some cryptos have a capped quantity. As more coins or tokens hit the market, it could impact value.
Cryptocurrencies can either be staked or mined, not both. Though some cryptos may switch consensus mechanisms, as Ethereum did in 2022.
Staking is much more environmentally friendly than mining, as it doesn’t require as much computational power, and thus uses far less resources (energy) to process.
Yes, if you earn rewards as a result of mining or staking, you may generate a tax liability. The IRS considers those rewards to be ordinary income, so you’ll be taxed for those at your ordinary income rate. Conversely, gains you realize from selling, exchanging, or converting crypto are subject to capital gains taxes.
About the author
Brian Nibley
Brian Nibley is a freelance writer, author, and investor who has been covering the cryptocurrency space since 2017. His work has appeared in publications such as MSN Money, Blockworks, Business Insider, Cointelegraph, Finance Magnates, and Newsweek. Read full bio.
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Cryptocurrency and other digital assets are highly speculative, involve significant risk, and may result in the complete loss of value. Cryptocurrency and other digital assets are not deposits, are not insured by the FDIC or SIPC, are not bank guaranteed, and may lose value.
All cryptocurrency transactions, once submitted to the blockchain, are final and irreversible. SoFi is not responsible for any failure or delay in processing a transaction resulting from factors beyond its reasonable control, including blockchain network congestion, protocol or network operations, or incorrect address information. Availability of specific digital assets, features, and services is subject to change and may be limited by applicable law and regulation.
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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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Table of Contents
Investing for the long term is a time-honored way to help manage certain market risks so you can reach financial goals, like saving for a downpayment on a house and retirement.
When it comes to building a nest egg for bigger life expenses, saving alone may not get you where you need to go. If this is the case, the boost of potential investment returns over time may help you reach your savings goal. That’s where long-term investing, also called buy-and-hold, comes in.
That said, long-term investing isn’t a risk-free endeavor, and there are also tax implications for holding investments long term. Knowing the ins and outs can make all the difference to your portfolio over time.
Key Points
• Long-term investing focuses on longer-term goals like education, buying a home, and retirement.
• Starting investing early helps increase the potential benefits of compound growth and market returns.
• Understanding risk tolerance can be helpful in choosing the right mix of investments.
• Automating contributions can make saving and investing easier.
• Reducing fees and using tax-advantaged accounts can enhance long-term returns.
An advantage of a long-term investing strategy is that “time in the market beats timing the market,” as the saying goes. In other words, by sticking to an investment plan for the long term, your portfolio is more likely to weather its ups and downs, and fluctuations in different securities.
So how do you go about establishing a long-term investment plan? These tips should help.
Your financial goals will largely determine whether or not long-term investing is the right choice for you. Spend time outlining what you want to achieve and how much money you’ll need to achieve it, whether that’s paying for your child’s college tuition, retirement, or another big goal.
Once you’ve done that, you can think about your time horizon — when you’ll need the cash — which can help you determine what types of investments are suited to your goals.
For example, stock market investing can be appropriate for big goals in the distant future, such as saving for a child’s education or your own retirement, which could be 20 or 30 or more years down the line. This relatively long time horizon not only gives your investments a chance to grow, but it means that you also have the time to ride out market downturns that may occur along the way. That may translate to a more favorable return on investment, although there are no guarantees.
Your risk tolerance is essentially a measure of your ability to stomach volatile markets. It can help you determine the mix of investments that you may choose for your portfolio. But your risk tolerance also depends on (or interacts with) your goals and time horizon.
Longer time horizons may allow you to take on more risk in some cases, because you’re not focused on quick gains. Which in turn means you might be more inclined to hold a greater proportion of stocks inside your portfolio, for example.
How long should you hold stocks? Generally speaking, holding stocks longer could be beneficial from a tax perspective, and from a risk perspective. Theoretically, the longer you stay invested, the longer you have to recover should markets take a dive.
Setting your risk tolerance also means knowing yourself. If you’re somebody who won’t be able to sleep at night when the market takes a downward turn, even if your goal is still 20 years away, then you may not want a portfolio that’s aggressively allocated to stocks. While there are no safe investments per se, it’s possible to have a more conservative allocation.
On the other hand, if short-term market volatility doesn’t bother you, a more aggressive allocation may be an option to help you achieve your long-term goals.
Understanding your goals, time horizon, and risk tolerance can help give you an an idea of the mix of assets, such as stocks, bonds, and cash equivalents you may want to hold in your portfolio.
As a general rule of thumb, the longer your time horizon, the more stocks you may want to hold. That’s because stocks tend to be drivers of long-term growth — although they also come with higher levels of risk.
As you approach your goal, you may want to consider shifting some of your assets into fixed-income investments like bonds. The reason for this shift? As you get closer to the time when you’ll need your money, you’ll be more vulnerable to market downturns, and you may not want to risk losing any of your cash.
For example, if the market experiences a big drop, you may be left without enough money to meet your goal. By gradually shifting your money to bonds, cash, or cash equivalents like CDs or a money market account, you can help protect it from potential stock market swings. That way, by the time you need your cash, you may have a more stable source of income to draw upon.
A key factor of investing is portfolio diversification. The idea is that holding many different types of assets helps reduce risk inside your portfolio in the long and short term. Imagine briefly that your portfolio consists of stock from only one company.
If that stock drops, your whole portfolio drops. However, if your portfolio contains stocks from 100 different companies, if one company does poorly, the effect on the rest of your portfolio will be relatively small.
A diverse portfolio generally contains many different asset classes, such as stocks, bonds, and cash equivalents, as mentioned above. And within those asset classes a diverse portfolio holds many different types of assets across size, geographies, and sectors, for example.
The basic principle behind diversification is that assets in a diverse portfolio are not perfectly correlated. In other words, they react differently to different market conditions.
Domestic stocks for example, might react differently than European stocks should U.S. markets start to struggle. Or investing in energy stocks will be different from tech-stock investing. So, if oil prices drop, energy sector stocks might take a hit, while tech might be less affected.
Many investors may choose to add diversification to their portfolios by using mutual funds, index funds, and exchange-traded funds ETFs, which themselves hold diverse baskets of assets.
Increasing your time horizon gives you the opportunity to invest for longer. Take stocks, for example. Though risky, stocks typically offer higher earning potential than other types of investments, such as bonds. Consider that the average stock market return annually is about 10% (or 7% when adjusted for inflation).
Second, the sooner you start investing, the sooner you are able to take advantage of compound growth, one of the most potentially powerful tools in your investing toolkit. The idea here is that as your money grows, and you reinvest your returns, you steadily keep increasing the amount of money on which you earn returns.
As a result, your returns may keep getting bigger and your investments could start to grow exponentially.
💡 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.
Humans are emotional creatures and sometimes those emotions can get the better of us, leading us to make decisions that aren’t always in our best interest. Letting emotions dictate our investing behavior can result in costly mistakes, as behavioral finance studies have shown.
For example, if you’re investing during a recession and the stock market starts to drop, you may panic and be tempted to sell your stocks. However, doing so can actually lock in your losses and means that you miss a potential subsequent rally.
On the other end of the spectrum, when the stock market is roaring, you may be tempted to jump on the bandwagon and overbuy stocks. Yet, doing so opens you up to the risk that you are jumping on a bubble that may soon burst.
There are a number of strategies that can help these mistakes be avoided. First, fight the urge to constantly check how your investments are doing. There are natural cycles of ups and downs that can happen even on a daily basis. To help reduce potential anxiety, you might want to avoid constant checking in and instead keep your eye on the big picture of achieving your long-term goals.
Tinkering with your asset allocation based on emotions and spur-of-the-moment decisions can throw off your allocation and make it difficult to achieve your goals.
Taxes and fees can take a hefty bite out of your potential earnings over time. Many investment fees are expressed as a small percentage (e.g. less than 1% of the money you have invested) that may seem negligible, but it’s not.
Also, many investment costs can be hard to track. Meanwhile, various expenses can add up over time, reducing any overall gains.
To cover the cost of management, mutual funds and exchange-traded funds charge an expense ratio — a percentage of the total assets invested in the fund each year. An actively managed mutual fund might charge 0.75% or more. A passively managed ETF or index fund may charge an average of 0.12%. So you may want to choose mutual funds with the lowest expense ratios, or you may consider passive ETFs or index funds that charge very low fees.
The expense ratio is deducted directly from your returns. You may also encounter annual fees, custodian fees, and other expenses.
You can also be charged fees for buying and selling assets as well as commissions that are paid to brokers and/or financial advisors for their services. It’s important to manage these costs as well. One of the best lines of defense is doing your research to understand what fees you will be charged and what your alternatives are.
There are a few long-term goals that the government generally encourages you to save for, including higher education and retirement. As a result, the government offers special tax-advantaged accounts to help you achieve these goals.
A 529 savings plan can help you save for your child’s college or grad school tuition. Contributions can be made to these accounts with after-tax dollars. This money can be invested inside the account where it grows tax-free. You can then make tax-free withdrawals to cover your child’s qualified education expenses.
Your employer may offer you a 401(k) retirement account through your job. These accounts allow you to contribute pre-tax dollars, which lower your taxable income and can grow tax-deferred inside the account. If your employer offers matching funds, you could try to contribute enough to receive the maximum match. When you withdraw money from your 401(k) at age 59 ½ or later, it is subject to income tax.
You may also take advantage of traditional IRAs and Roth IRAs. Traditional IRAs use pre-tax dollars and allow tax-deferred growth inside your account. You pay tax on withdrawals in retirement.
Roth IRAs are funded with after-tax dollars, so money in your account grows tax-free, and withdrawals are not subject to income tax.
There are other tax-advantaged accounts that can work favorably for long-term investors, including SEP IRAs for self-employed people, and health savings accounts (or HSAs), in addition to other options.
You can continually add to your investments by making saving a regular activity. One easy way to do this is through automation. If you have a workplace retirement account, you can usually automate contributions through your employer.
If you’re saving in a brokerage account you can set it up so that a fixed amount of money is transferred to your brokerage account each month and invested according to your predetermined allocation.
Automation can take the burden off of you to remember to invest. And with the money automatically flowing from your bank account to your investments accounts, you probably won’t be as tempted to spend it on other things.
You may want to periodically check in on your portfolio to make sure your asset allocation is still on track. If it’s not, it may be time to rebalance your portfolio.
This could occur, for example, if the stock market does really well over a given period, upping the portion of your portfolio taken up by stocks.
If this is the case, you might consider selling some stocks and purchasing bonds to bring your portfolio back in line with your goals. Periodic check-ins can also provide opportunities to examine fees and other costs (like taxes) and their impact on your portfolio.
💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.
Long-term investing is a strategy of investing for years. A long-term investment is an asset that’s expected to generate income or appreciate in value over a longer time period, typically five years or more. Long-term investments often gain value slowly, weathering short- to medium-term fluctuations in the market, and (ideally) coming out ahead over time.
Short-term investments are those that can be converted to cash in a few weeks or months, but they’re generally held for less than five years. Some investors trade these assets in short periods, like days, weeks, or months, to profit from short-term price movements.
However, a short-term investing strategy can be highly risky and volatile, resulting in losses in a short period.
It’s also worth noting that for tax purposes, the IRS considers long-term investments to be investments held for more than a year. This is another important consideration when developing a longer-term strategy.
Investments sold after more than a year are subject to the long-term capital gains rate, which is equal to 0%, 15%, or 20%, depending on an investor’s income and the type of investment. The long-term capital gains rate is typically much lower than their income tax rate, which can help incentivize investors to hang on to their investments over the long run.
Long-term investing can be beneficial for the three reasons noted above:
• Holding investments long-term may allow certain securities to weather market fluctuations and, ideally, still see some gains over time. While there are no guarantees, and being a long-term investor doesn’t mean you’re immune to all risks, this strategy may help your portfolio recover from periods of volatility and continue to gain value.
• In the case of bigger financial goals, such as saving for retirement or for college tuition, embracing a long-term investment plan may help your savings to grow and better enable you to reach those larger goals.
• Last, there may be tax benefits to holding onto your investments for a longer period of time.
The most important tips for long-term investing involve setting financial goals, understanding your time horizon and risk tolerance,diversifying your holdings, minimizing taxes and fees, starting early so your portfolio can benefit from compounding, and understanding how tax-advantaged accounts can be part of a long-term plan.
These strategies can help you build an investment plan to match your financial situation.
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.
A realistic long-term investment return will ultimately depend on the investments you choose, how long you hold them, as well as the fees and taxes you pay. To give some perspective, the average historical return of the U.S. stock market is about 10% (or 7% with inflation taken into account), but that’s an average over about a century. Different years had higher or lower returns.
All investments come with some degree of risk. One lower-risk way to invest for the long-term might be with fixed-income securities like bonds, which pay a set return over a period of time. Money market accounts and certificates of deposit (CDs) generally also have fixed rates. But remember, there is always some risk involved. Also, generally, the lower the risk, the lower the return.
Long-term investments, like all investments, are vulnerable to market changes. Even when investing for the long haul, it’s possible to lose money. Another threat is the risk of inflation. As inflation rises, your money doesn’t go as far. So even if you save and invest for decades, if inflation is also rising at the same time, your money may have less purchasing power than you expected.
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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.
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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.
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.
Mutual Funds (MFs): 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 clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
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.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
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.
Dollar Cost Averaging (DCA): Dollar cost averaging is an investment strategy that involves regularly investing a fixed amount of money, regardless of market conditions. This approach can help reduce the impact of market volatility and lower the average cost per share over time. However, it does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals, risk tolerance, and market conditions when deciding whether to use dollar cost averaging. Past performance is not indicative of future results. You should consult with a financial advisor to determine if this strategy is appropriate for your individual circumstances.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
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