Stock vs. Share: What’s the Difference?

Essentially, a stock is the actual asset you are investing in. An asset is something that has “economic value and can act as a store of wealth.” A share is the unit of measurement for that asset. So, a stock tells you what you are investing in, and a share tells you how much of that stock you own.

InvestLL Archives | Page 10 of 73

Q: What Are Shares?

A share is the smallest whole piece of the company an individual investor can own. A share is a unit of ownership (e.g. you own 10 shares), whereas stock is a measurement of equity (e.g. you own 10% of the company).

Q: What Are Stocks?

Stocks, which are also referred to as equities, are a type of security that give investors a stake in a publicly traded company. A publicly traded company is one that trades on stock exchanges. Privately owned companies are not traded on the stock exchange.

Jul

2024

Shares vs Stocks: What’s the Difference?

By Inyoung Hwang | Growing Wealth, Investing, Terminology | No Comments

The difference between the terms stock and shares is a simple one. An investor buys shares of stock in a company. The stock represents the company, and is sold in units called shares.

Thus, an investor can own a certain number of shares of a company’s stock: e.g., they might own 100 shares of Company A. But it’s incorrect to say an investor owns 100 stocks in Company A. If an investor owns 100 stocks, that would mean they own shares of stock in 100 different companies.

Key Points

• The terms “shares” and “stock” are often used in tandem, but they refer to different aspects of an equity investment.

• A stock is a broad term for the asset, while a share is the unit of ownership.

• Owning 100 shares implies you have 100 units of one company’s stock, while owning 100 stocks means you have stakes in 100 different companies.

• Ordinary shares are the same as common stock, and preference shares are the same as preferred stock.

• Common stockholders have voting rights and may receive dividends; preferred stockholders usually don’t have voting rights, but they often receive dividends before common stockholders.

Stock vs Share: Comparison

A stock is the actual asset you purchase, while a share is the unit of measurement for that asset.

So, investing in a certain stock means you’re investing in that company. A share tells you how much of that stock you own.

Differences Between Stocks and Shares

Stocks	Shares
A stock refers to the publicly-traded company that issues shares	A share is the unit of measurement of ownership in a company
Stocks can refer to the ownership of many different companies	Shares usually refer to the specific ownership stake in a company
Stock is a more general term	Share is a more precise term

For example, if you are interested in investing in Company A, you will buy 100 shares of Company A stock. Owning 100 shares of Company A would give you a specific ownership stake in the company.

In contrast, if you said you wanted to buy 100 stocks, that would generally mean you wanted to buy shares of 100 different companies.

You could buy 10 shares of one company’s stock, 50 shares of another, 1,000 shares of another, and so on. Shares represent the percentage of ownership you have in that company.

What Are Stocks?

Stocks, also called equities, are a type of security that gives investors a stake in a publicly traded company. A publicly traded company trades on a stock exchange, like the New York Stock Exchange or Nasdaq.

When you buy stock, you buy a share or fractional shares of a publicly traded company. You essentially own a small piece of the company, hoping to get a return on your investment.

Companies typically issue stock to raise capital. Usually, the goal is to grow the business or launch a new product, but the company could also use the money to pay off debts or for another purpose.

Why Should I Buy Stocks?

Generally, people buy stocks with the hope that the company they invest in will earn money, and as a result, the investor will see a return or growth. There are two ways to earn money through stock ownership: dividends and capital appreciation.

Dividends are payouts a company makes to its shareholders. When a company is profitable, it can choose to share some of its profits with its shareholders through dividend payments. Typically, companies pay dividends on a specified schedule, often quarterly, although they can pay them at any time.

The second way to earn money is through capital appreciation, which is when a stock’s price increases above the purchase price. However, capital appreciation doesn’t lock in your gains; you don’t realize your profits until you sell your stock. And there is no guarantee that a stock will appreciate. Sometimes, owing to a range of factors, a stock’s price may drop, and investors may incur a loss.

If you sell stock and realize a profit, you must pay capital gains taxes on the earnings. The amount of tax you owe on your earnings depends on the type of asset, and how long you held it before selling.

Types of Stocks

There are two main types of stocks that investors can buy and sell.

• Common stock: The type of stock most people invest in, common stockholders have voting rights and may receive dividends.

• Preferred stock: Investors of this type of stock usually don’t have voting rights, but they often receive dividends before common stockholders. Preferred stock also gives investors a higher claim to assets than common stockholders if the company is liquidated.

Recommended: Preferred Stock vs. Common Stock

How Are Stocks Categorized?

Beyond common and preferred stocks, investors can buy and sell many different types of stocks. Usually, investors break down the various categories of stocks based on investing styles and company size, among other factors.

By Different Styles of Investing

Investors may divide up stocks of different companies into value and growth stocks.

Growth stocks have the potential for high earnings that may outpace the market. Growth stocks don’t usually pay dividends, so investors looking at these stocks hope to make money through capital gains when they sell their shares after the price increases.

Growth stocks are often tech, biotech, and some consumer discretionary companies. As the name suggests, consumer discretionary companies sell goods or services that consumers don’t consider essential.

Value stocks, in contrast, are stocks that investors consider to be trading below a price that accurately reflects the company’s strength. Value stocks usually have a lower price-to-earnings ratio.

Value investors are hoping to buy a stock when its price is low relative to its earnings, holding it until the market corrects and the stock price goes up to the point that better reflects the company’s underlying value.

Recommended: Value vs. Growth Stocks

By Market Cap

Market capitalization, often referred to as market cap, is a common way to categorize stocks. Market cap is a measure of a company’s value. Below is a breakdown of market cap categories:

• Micro-Cap: $50 million to $300 million

• Small-Cap: $300 million to $2 billion

• Mid-Cap: $2 billion to $10 billion

• Large-Cap: $10 billion or higher

• Mega-Cap: $200 billion or higher

Generally speaking, companies with larger market capitalizations are older, more established, and have greater international exposure. Meanwhile, smaller-cap stocks tend to be newer, less established, and more domestically oriented. Smaller-cap companies can be riskier but also offer more growth potential.

What Are Shares?

A share is a piece of the company an investor can own. A share is a unit of ownership (e.g., you own 10 shares), whereas stock is a measurement of equity (e.g., you own 10% of the company).

Think of shares as a small portion of a company. So, if a company were a pie, a share would be a slice of said pie: the more slices, the more shares.

Shares play a role when calculating a company’s market cap. To find the market cap of a publicly traded company, you multiply the stock’s price by the number of outstanding shares, which is the number of shares currently owned by shareholders. This can also be referred to as shares outstanding, and the exact number can fluctuate over time.

Changes in the number of shares available can occur for various reasons. For example, if a company decides to release more shares to the public, the number of shares would increase.

Additionally you can own shares in a variety of assets other than stocks, like mutual funds, exchange-traded funds (ETFs), limited partnerships (LPs), and real estate investment trusts (REIT).

Types of Shares

Like with stock, investors may own different types of shares.

• Ordinary shares are the same as common stock. Holders of ordinary shares are entitled to vote on corporate matters and may receive dividends.

• Preference shares are the same as preferred shares. Holders of preferred shares usually receive dividends before common stock dividends are issued. If the company enters bankruptcy, shareholders of preference shares may be paid from company assets before common stockholders.

• Deferred shares are shares usually issued to company founders and executives where they are the last in line to be paid in bankruptcy proceedings, following preferred and common stockholders.

• Non-voting shares, as the name suggests, do not confer voting rights to the shareholder. Non-voting shares may have different dividend rights and rights to company assets in the event of liquidation compared to holders of voting shares.

Stock Splits Definition

A stock split is a decision made by the board of directors of a company to adjust the price of their stock without changing the company’s overall value. It is one of the ways how the number of a company’s outstanding shares can change.

A company usually initiates a stock split when its stock price gets too high. For example, if a company’s stock is trading at over $1,000, it can be difficult for some investors to purchase and limits the availability of buyers.

To remedy this problem, a company will issue new shares through a stock split, lowering the price of each share but maintaining its market cap. A 10-for-1 stock split, for instance, would exchange 1 share worth $1,000 into 10 shares, each worth $100. Your total investment value remains the same, but the number of shares you own increases.

Other Ways to Own Stock

Trading company stocks or shares isn’t the only way to own equities. One alternative is to invest in shares of a mutual fund, a managed investment fund that pools money from several different investors. The money is then invested in various securities, including stocks and bonds.

Another option for investors is exchange-traded funds (ETFs). Like mutual funds, ETFs are baskets of securities packaged into a single investment vehicle. But unlike mutual funds, investors can trade shares of ETFs all day in the stock market.

One significant benefit that mutual funds and ETFs offer is portfolio diversification. A mutual fund and ETF can either be actively managed by a financial professional or passively managed, which means the fund tracks an index like the S&P 500.

Another way besides stocks or shares to get exposure in the market is through options trading. Options are contracts giving the purchaser the right — but not always the obligation — to buy or sell a security, like stock or (ETF), at a fixed price within a specific period of time.

The Takeaway

The difference between stocks and shares is that a share represents a unit of ownership in a company, while stocks refer to the ownership of one or more companies. It’s common to use both terms when discussing equity investments. But knowing the distinction between the two terms can help you better understand the stock market and investing.

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

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

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

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

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

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

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

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.

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Jul

2024

Margin Trading: What It Is and How It Works

By Carla Tardi | Growing Wealth, invest, Investing | No Comments

In the investing ecosystem, the term “margin” is used to describe the money that may be borrowed from a brokerage to execute trades or a strategy. Buying assets on margin can help magnify gains and returns, but it can do the same with your losses.

When you buy on margin, you’re purchasing assets using money that you borrow from your broker. Margin trading might seem more complicated than some other ways to invest in the stock market, but it’s a method that many investors favor — especially experienced investors. If there’s one thing to know about margin trading, though, it’s that it can cut both ways, and may incur serious risks.

Table of Contents

What Is Margin Trading?
How Does Margin Trading Work?
Example of Margin Trading (Buying on Margin)
Potential Benefits of Margin Trading
Potential Risks of Margin Trading
How to Get Started With Margin Trading
FAQ

What Is Margin Trading?

Margin trading, or “buying on margin,” is an advanced investment strategy in which you trade securities using money that you’ve borrowed from your broker to potentially increase your return. Margin is essentially a loan where you can borrow up to 50% of your security purchase, and as with most loans, a margin loan comes with an interest rate and collateral.

Trading on margin is similar to “buying on credit.” Using margin for a trade is also known as leveraging. Margin interest rates are determined by your broker, and collateral types can be stock holdings or cash. Traders must also maintain a margin balance, known as the maintenance margin, in their accounts to cover potential losses.

As noted, margin trading is a bit more complicated (and risky) than some other ways to invest in the stock market, but it’s a tactic used by many investors.

How Does Margin Trading Work?

While margin trading may seem straightforward, it’s important to understand all the parameters.

For all trades, your broker acts as the intermediary between your account and your counterparty. Whenever you enter a buy or sell trade on your account, your broker electronically executes that trade with a counterparty in the market, and transfers that security into/out of your account once the transaction is completed.

To execute trades for a standard cash account vs. margin account, your broker directly withdraws funds for a cash trade. Thus every cash trade is secured 100% by money you’ve already deposited, entailing no risk to your broker.

In contrast, with margin accounts, a portion of each trade is secured by cash, known as the initial margin, while the rest is covered with funds you borrow from your broker.

Consequently, while margin trading affords you more buying power than you could otherwise achieve with cash alone, the additional risk means that you’ll always need to maintain a minimum level of collateral to meet margin requirements.

While margin requirements can vary by broker, we’ve defined and outlined the minimums mandated by financial regulators.

Term	Amount	Definition
Minimum margin	$2,000	Amount you need to deposit to open a new margin account
Initial margin	50%	Percentage of a security purchase that needs to be funded by cash
Maintenance margin	25%	Percentage of your holdings that needs to be covered by equity

💡 Quick Tip: Options can be a cost-efficient way to place certain trades, because you typically purchase options contracts, not the underlying security. That said, options trading can be risky, and best done by those who are not entirely new to investing.

Increase your buying power with a margin loan from SoFi.

Borrow against your current investments at just 12%* and start margin trading.

*For full margin details, see terms.

Example of Margin Trading (Buying on Margin)

Here’s an example of how margin trading works, or could work, in the real world. Imagine you open a margin account with $2,000 at a brokerage firm. It’s helpful to keep the maintenance margin in mind, too, when reading through this example.

Now, say you have your eyes set on Stock X, that’s trading at $100 per share. You can afford to buy 10 shares with the cash in your account. But, you want to buy more — margin allows you to do that. Given your margin account’s 50% initial margin requirement, that means you can effectively double your purchasing power.

So, you can buy 20 shares of Stock X for a total of $2,000, and $1,000 of that purchase would be buying on margin.

If Stock X appreciates in value by, say, 100% (it’s now worth $200 per share), you could sell your holdings and end up with $4,000. You could then pay back your brokerage for the margin loan, and have realized a greater return than you would have without using margin.

But the opposite can happen, too. If Stock X depreciates by 50% (it’s now worth $50) and you sold your holdings, you’d have $1,000, and owe your broker $1,000. So, you’ve wiped out your cash reserves by using margin — one of its primary risks.

To recap: In both scenarios, the margin loan balance remains the same ($1,000), while the equity value took the entire gain or loss.

Bear in mind, too, that for simplicity, this example ignores interest charges. In a real margin trade, you would need to also back out any interest expense incurred on the margin loan before calculating your return; this would act as an additional drag on earnings.

Potential Benefits of Margin Trading

As noted, margin trading has some pretty obvious benefits or advantages. Those may include the following:

• Potential to enhance purchasing power. A primary benefit of margin trading is the potential expansion of an investor’s purchasing power, sometimes exponentially. This could possibly help boost returns if the price of the stock or other investment purchased with a margin trade goes up.

• Possible lower interest rates. Benefits of margin loans might include lower interest rates relative to other types of loans, such as personal loans, if the investor is borrowing money to make trades. Plus, there typically isn’t a repayment schedule.

• Diversification. You could also use margin trading to diversify your portfolio.

• Selling short. Another potential advantage might be a complicated trading method called short selling. Margin trading might make it possible for you to sell stocks short. Short selling differs from most other investment strategies in that investors make a bet that a stock’s price will fall.

Note, however, that the rules for short selling with a margin account can get even more complicated than a traditional margin trade. For instance, Regulation T of the Federal Reserve Board requires margin accounts to have 150% of the value of the short sale when the trade is initiated.

While the benefits of being able to buy more investments — and potentially generate larger returns — might seem appealing to some investors, there are also some potential risks to using margin. It might be worth considering these before you decide if trading on margin is right for you.

Potential Risks of Margin Trading

There are potential benefits, and there are potential risks associated with margin trading. Here are some of those risks:

• Possible loss beyond initial investment. While a primary benefit of margin trading may be increased buying power, investors could lose more money than they initially invested. Unlike a cash account, the traditional way to buy stocks or other investments, losses in a margin account can actually extend beyond the initial investment.

For example, if an investor purchases $20,000 worth of stock with a cash account, the most they can lose is $20,000. If that same investor uses $10,000 of their own money and a margin — essentially a loan — of $10,000 and the stock loses value, they may actually end up owing more money than their initial $10,000.

• Possibility of margin call. Another potential negative aspect of margin trading is getting a margin call. Investors might need to put additional funds into their account on short notice if a margin call is triggered because the investment lost value. Moreover, a drop in value might mean an investor needs to sell off some or all of the investment, even at an inopportune time.

The SEC warns investors that they must sell some of their stock, or deposit more funds to cover a margin call. If you get a margin call, it is your responsibility to deposit more funds, add securities or sell holdings in your account. If you don’t meet the margin call after a number of warnings from your broker, then the broker has the right to sell all or some of the current positions to bring the account back up to minimum value.

💡 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.

How to Get Started With Margin Trading

Typically, the first step to getting started with margin trading is to open a margin account with a brokerage firm.

Even if you already have a stock or investment account, which are cash accounts, you still need to open a margin account because they are regulated differently. First-time margin investors need to deposit at least $2,000 per FINRA rules. If you’re looking to day trade, this dollar figure goes up to $25,000 according to FINRA rules. This is the minimum margin when opening a margin trading account.

Once the margin account has been opened and the minimum margin amount deposited, the SEC advises investors to read the terms of their account to understand how it will work.
The SEC advises investors to hedge their risks by making sure they understand how margin works, understanding that interest charges may be levied by your broker, knowing that not all assets can be purchased on margin, or even communicating with your broker to get a sense if a margin account is the right tool for you.

The Takeaway

Margin trading, as discussed, means that investors are trading securities with borrowed funds from their brokers. This allows them to potentially increase their returns, but also carries the risk of ballooning losses. As with most investing strategies and vehicles, margin trading comes with a unique set of potential benefits, risks, and rewards.
Margin trading can seem a little more complicated than some other approaches to investing. As the investor, it is up to you to decide if the potential risks are worth the potential rewards, and if this strategy aligns with your goals for the future.

If you’re an experienced trader and have the risk tolerance to try out trading on margin, consider enabling a SoFi margin account. With a SoFi margin account, experienced investors can take advantage of more investment opportunities, and potentially increase returns. That said, margin trading is a high-risk endeavor, and using margin loans can amplify losses as well as gains.

Get one of the most competitive margin loan rates with SoFi, 12%*

FAQ

Is margin trading profitable?

Margin trading can be profitable, but there are no guarantees for investors that it will be. It can also lead to outsized and substantial losses for investors, so it’s important to consider the risks and potential benefits.

What happens if you lose money on margin?

If you lose money on margin, you may have a negative balance with your brokerage, and owe the broker money. You may also be subject to interest charges on that balance, too.

Should beginners trade on margin?

It’s best to consult with a financial professional before trading on margin, but generally, it’s likely that professionals would recommend beginners do not trade on margin.

How do you pay off margin?

Typically, if you have a negative balance in your margin account, you can reduce or pay it off by simply depositing cash into your account, or selling assets.

SoFi Invest®

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

Jul

2024

Financial Planning Tips for Your 40s

By Caroline Banton | Budgeting & Goals, money, Preparing for Retirement | Comments Off

Your 40s can be a pivotal decade in your life. It’s typically a time of peak earnings, growing family responsibilities, and an increased focus on long-term financial stability. You may have a house, kids, and a busy job. College expenses may be looming. Maybe you’re hatching a plan to start your own business or buy a beach house that’ll one day be your empty-nester home.

To navigate these years successfully, it’s essential to make strategic financial moves that can secure your future and make your plans and dreams a reality. Here are some critical financial planning tips to consider as you move through your 40s.

7 Financial Moves to Make During Your 40s

In your 40s, you’re old enough to know what you want and likely have enough earning years ahead to achieve your goals — if you manage your money right. The following strategies can help you build wealth in your 40s.

1. Maintain or Replenish Emergency Funds

Life is full of unexpected twists and turns. Not all of them are fun, such an expensive car or home repair, a medical emergency, or losing your job. An emergency fund offers financial stability during a stressful time. It also saves you from running up expensive debt that could derail your financial goals.

A general rule of thumb is to have six to 12 months’ worth of living expenses stashed away for the unexpected. If you already have an emergency fund but it has been partly or fully depleted, you’ll want to prioritize replenishing it to maintain financial security.

Consider setting up automatic transfers into savings to build your emergency fund consistently. Keep these funds in a liquid, easily accessible account, such as a high-yield savings account, to ensure you can access the money quickly when needed.

2. Manage Your Debt

Debt management is a crucial aspect of financial planning at any age, but it becomes even more critical in your 40s. Since high-interest debts, like credit card balances, can significantly hinder your ability to save and invest for the future, you’ll want to prioritize paying them off as quickly as possible.

One strategy that can help is the avalanche payoff method. Here, you list your debts in order of interest rate from highest to lowest, then put extra money toward the highest-interest debt, while continuing to pay the minimum on the others. Once that debt is paid off, you put your extra funds toward the debt with the next-highest rate, and so on.

Alternative approaches to paying down high-interest debt include getting a low- or no- interest balance transfer credit card or taking out a personal loan for debt consolidation with a lower rate than you are paying on your cards.

3. Revisit Retirement Saving

In your 40s, you’re roughly at the midpoint between entering the workforce and traditional retirement age. How you invest and save for retirement at this point in your career can strongly impact your future assets and ability to one day retire comfortably.

If you’re not currently contributing to a retirement plan, such as a 401(k) or individual retirement account (IRA), now’s a good time to start. If you have been, it’s time to assess your progress. Consider how much of a nest egg you will need to retire and, using an online retirement calculator, whether your current plan will get you there.

If you’re behind on your savings, consider stepping up your contributions or, if you’re already contributing the max allowed, making “catch-up” contributions down the road. Starting at age 50, the IRS allows higher maximums designed to help people catch up on their retirement savings goals.

4. Plan for Childrens’ College Expenses

If you have kids, planning for their future education expenses may be top of mind. College costs continue to rise, and early planning can alleviate future financial stress. If you haven’t started saving for college expenses, you may want to explore opening a 529 college savings plan, which offers tax advantages and can be a flexible way to save for educational expenses.

An online college cost estimator can help you determine how much you need to stash away each month or year, based on the year your child will likely attend college and the type of school they might choose.

Just keep in mind that it’s important to balance college savings with other financial goals, like retirement. As kids get closer to leaving the nest, you may also want to encourage them to apply for scholarships and grants, and explore financial aid options.

5. Choose or Reevaluate Insurance Coverage

Insurance is an important component of financial planning in your 40s. You’ll want to evaluate your current insurance coverage and make sure it’s adequate to meet your family’s needs. This includes not only health and home insurance, but also life and disability insurance.

Life insurance provides financial security for your family should you die prematurely. If you don’t currently have a life insurance policy, consider purchasing one. If you do have one, you’ll want to make sure your policy’s coverage amount is sufficient to cover your family’s current living expenses, outstanding debts, and future financial needs, such as college tuition for your children.

It’s also a good idea to review your disability insurance, which protects your income if you’re unable to work due to illness or injury. Many companies provide a policy through work. However, you may want to consider supplementing employer-provided coverage or, if you’re self-employed, getting your own policy. This offers a different, but equally important, safety net for you and your family.

6. Invest Outside of Retirement

While retirement accounts are crucial, investing outside of retirement can diversify your portfolio and help you achieve goals that may be five or 10 or more years away, such as a downpayment on a vacation home or a child’s wedding.

Though investing carries risk and can be volatile in the short term (which is why you generally don’t want to invest funds you’ll need in the next few years), an investment account has the potential to grow more than other types of accounts over the long term. Consider taxable investment accounts that align with your risk tolerance and financial objectives.

7. Meet with a Financial Professional

Getting expert advice on managing your finances can be invaluable at this stage of life. Whether you opt for regular meetings or simply go for a one-time consultation, a financial professional can provide valuable insights and help you navigate complex financial decisions.

An advisor will typically look at your whole financial picture and assist you with creating a comprehensive financial plan. This may include optimizing your investment strategy and ensuring you’re on track to meet your goals, including retirement, investments, and college savings.

The Takeaway

It’s never too late to take control of your finances. In your 40s, you are likely entering your prime earning years, so it’s a good time to focus on paying down debt, preparing for the next chapter of your children’s lives, and saving and investing for your future retirement. With some wise money moves, you’ll be set to make the most of this decade and beyond.

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FAQ

What financial goals should a 40-year-old have?

Ideally, a 40-year-old will want to focus on several financial goals. These include:

• Establish or maintain an emergency fund with three to six months’ worth of essential living expenses.

• Reduce financial burdens by paying off high-interest debt.

• Ensure you’re on track with retirement savings by maximizing contributions to retirement accounts.

• Start or continue saving for children’s college expenses through plans like 529s.

• Consider investing outside of retirement to diversify your portfolio and build wealth.

How much should a 40-year-old have saved?

By age 40, financial advisors often recommend having three times your annual salary saved for retirement. This benchmark ensures you’re on track to meet long-term financial goals and maintain your desired lifestyle in retirement.

In addition, you’ll want to maintain an emergency fund with three to six months’ worth of living expenses.

Savings outside of emergency and retirement, such as investments in taxable accounts, can further enhance financial security. The exact amount can vary based on individual circumstances, income, lifestyle, and future goals.

How can I build my wealth in my 40s?

To build wealth in your 40s, you’ll want to focus on several strategies:

• Maximize retirement account contributions, taking full advantage of employer matches.

• Pay off high-interest debts to free up resources for savings and investments.

• Establish or maintain an emergency fund to cover unexpected expenses without derailing financial goals.

• Consider additional income streams, such as side businesses or rental properties.

• Diversify investments across stocks, bonds, real estate, and other assets to balance risk and growth potential.

Photo credit: iStock/shapecharge

SoFi members with direct deposit activity can earn 4.30% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.30% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.30% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/8/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SOBK-Q224-1920632-V1

Jul

2024

Safe Deposit Box: Key Things to Know

By Alice Garbarini Hurley | Family Finances, money, Terminology | Comments Off

Safe deposit boxes are storage units located in banks that offer a secure way to store important items you may not want to keep at home, such as critical documents, collectibles, and family heirlooms.

Due to the growth of online banking and digital storage, safe deposit boxes aren’t as popular as they once were. However, there are some situations where these boxes can be useful. Here are key things to know about safe deposit boxes.

What Is a Safe Deposit Box?

A safe deposit box (also called a safety deposit box) is a secure locked box, usually made of metal, that stays in the safe or vault of a federally insured bank or credit union. They are typically used to keep valuables, important documents, and sentimental keepsakes protected from theft or damage.

Safe deposit boxes often come in two different sizes, usually 3” by 5” or 10” by 10,” and can be rented for an annual fee. In exchange for the fee, banks provide security measures to protect your valuables, such as alarms and surveillance cameras. In addition, the safe deposit boxes are stored in vaults that are designed to withstand natural disasters such as fires, floods, hurricanes, and tornadoes.

Unlike a bank account, however, the contents of a safe deposit box are not protected by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA). As a result, there is still a small risk that you could lose the items in your container due to theft or damage.

What You Should and Shouldn’t Keep in a Safe Deposit Box

Safe deposit boxes can be a good place to keep hard-to-replace documents and small valuables that you won’t need to access frequently. However, you generally don’t want to keep any items that you may need to grab in a hurry in the box, and certain items are prohibited.

Here’s a breakdown of things to keep — and not to keep — in a safe deposit box.

Items Typically Kept in a Safe Deposit Box

• Important documents: Documents that are difficult to replace and often needed for legal purposes are commonly stored in safe deposit boxes. These include: birth certificates, marriage licenses, car titles, divorce records, citizenship papers, property deeds, and mortgage documents.

• Valuables: Jewelry, rare coins, stamps, and other valuable collectibles can be safely stored away from potential theft.

• Financial Instruments: Stock certificates, bonds, and other financial instruments that require safekeeping can be securely stored in a safe deposit box.

• Backup data: You might store external hard drives or USB drives containing sensitive personal or business information here to protect against data loss.

• Personal keepsakes: Irreplaceable items like family heirlooms, photos, and memorabilia can be stored to ensure they don’t get lost or damaged.

Items to Avoid Putting in a Safe Deposit Box

• Cash: While you may be tempted to store some cash in your safe deposit box, you’re likely better off putting the money in a high-yield savings account at a bank or credit union, which will allow your money to grow. The cash will also be insured (up to certain limits) by the FDIC or NCUA.

• Original copies of wills: Original wills should not be stored in a safe deposit box because they may be difficult to access immediately after the owner’s death, delaying probate. You might instead store a copy of a will.

• Durable power of attorney: Similar to wills, these documents might be needed quickly in emergencies, and delays could cause significant issues. Consider storing a copy.

• Passport: If you need to travel urgently, accessing your passport from a bank vault could be problematic due to limited bank hours.

• Frequently used items: Any items you need regular access to should not be kept in a safe deposit box due to limited accessibility.

• Prohibited items: Banks and credit unions generally prohibit the storage of firearms, explosives, weapons, hazardous materials, illegal substances (such as drugs), alcohol, perishable items, and cremated remains.

How Much Does a Safe Deposit Box Cost?

Rental fees vary by the box’s size and financial institution. The average cost to rent a box at a commercial U.S. bank runs between $15 and $350 per year. Additional costs may include fees for lost keys or late payments.

Some banks and credit unions will offer discounts on a safe deposit box cost if you have a relationship with the bank. In some cases, an institution may offer free access to a safe deposit box as a perk to their customers.

How to Get a Safe Deposit Box

To rent a safe deposit box, you’ll generally need to follow these steps:

1. Research your options. Not all banks and credit unions offer safe deposit boxes. You’ll want to find an institution that both provides this service and is conveniently located.

2. Meet the requirements. Many banks require you to be an existing customer with a checking or savings account. However, some banks may allow noncustomers to rent boxes for an additional fee.

3. Provide identification. You’ll need to bring valid identification, such as a driver’s license or passport, to verify your identity. If you plan to allow another person access to your safe deposit box, they will need to be present and show ID as well.

4. Sign a rental agreement. You (and, if applicable, your corenter) will need to sign a rental agreement outlining the terms and conditions of the box rental.

5. Make a payment. You generally need to pay the initial rental fee upfront. Some banks may offer discounts for long-term rentals or automatic payments.

6. Get your key. Upon completing the paperwork, you will receive a key to your safe deposit box. The bank retains a second key. Both keys are required to access the box. If the bank offers keyless access, they will likely scan your finger or hand.

Keep in mind that every time you wish to access your safe deposit box, you’ll need to present your photo ID, as well as your key (if it’s not keyless). The bank may also require your signature before allowing you to open your box.

How Safe Is a Safe Deposit Box?

Safe deposit boxes are generally very secure. They are housed in a bank vault, which offers robust protection against theft, fire, flood, and other disasters. Banks employ multiple layers of security, including surveillance cameras, alarms, and restricted access to the vault area.

When you rent a safe deposit box, the bank typically gives you a key to use. The bank also retains a second “guard key” which must be used by a bank employee in tandem with your key. Some banks now use a keyless biometric entry system, where you scan your finger or hand instead.

However, it’s important to note that the contents of a safe deposit box are not insured by the bank or the FDIC. As a result, you may need to obtain separate insurance or add a rider to your homeowners or renters insurance for coverage.

Recommended: Are Online Savings Accounts Safe?

Pros and Cons of Safe Deposit Boxes

Safe deposit boxes can be a good way to protect your valuables. Here are some of the upsides of renting one:

• Security: Safe deposit boxes offer a high level of security, since they are stored in areas with limited access and stepped-up surveillance.

• Environmental protection: They can protect your valuables from environmental damage, such as a flood or fire.

• Privacy: The contents of a safe deposit box are known only to the renter, offering a high degree of privacy.

• Organization: Safe deposit boxes help keep important documents and valuables in one secure location, making it less likely you will misplace them.

But safe deposit boxes also come with downsides. Here are some to consider:

• Limited access: Access is restricted to bank hours, which can be inconvenient, especially in an emergency.

• Cost: There is an ongoing rental fee, which varies based on the size of the box.

• Not insured: Contents are not insured by the bank or FDIC. Separate insurance may be needed for valuable items.

• Delayed access for loved ones: In the event of the renter’s death, accessing the box may require legal processes that could delay access to important documents.

The Takeaway

If you’re looking for a safe place to stash vital papers or valuable possessions, you might consider renting a safe deposit back at a brick-and-mortar bank or credit union. Items stored in these containers are protected against theft, loss, or damage due to a flood, fire, or other disaster.

But the protection has limits: Unlike regular bank accounts, safe deposit boxes are not insured by the FDIC. Also keep in mind that safe deposit boxes aren’t ideal for items you may need to grab in a hurry, since access is limited to banking hours.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.30% APY on SoFi Checking and Savings.

FAQ

What can I use instead of a safe deposit box?

Alternatives to a safe deposit box include:

• A fire-rated personal home safe: This can offer protection from environmental damage (such as fire or flood). However, a thief could potentially steal the whole safe.

• Digital storage solutions: Cloud services can securely store important documents and data backups.

• An attorney’s office: For legal documents, a trusted lawyer’s office may offer secure storage.

• Private vault facility: These are a viable alternative to a safe deposit box but tend to cost more.

Can safe deposit boxes be jointly shared?

Yes. When you open a safe deposit box, you can designate one or more corenters who will have equal access to the box. This is useful for couples, business partners, or family members who need shared access to important documents and valuables. Each renter typically receives a key, and all corenters’ signatures are required on the rental agreement.

Is it safe to keep money in a safe deposit box?

While it is physically safe to keep money in a safe deposit box, it is not recommended. Cash stored in a safe deposit box does not earn interest and is not insured by the Federal Deposit Insurance Corporation (FDIC). You’re generally better off keeping cash in a high-yield savings account or other insured financial instrument that offers safety, liquidity, and interest earnings.

Do banks know what you put in a safety deposit box?

No. The contents of a safe deposit box are private, and bank employees do not have access to the items stored inside. When you rent a safe deposit box, you receive a key, and the bank retains a second key. Both keys are required to open the box, but only you can open it and see its contents. This ensures privacy and confidentiality.

Photo credit: iStock/AlexSecret

Jun

2024

Electronic Check (E-Check): What It Is and How It Works

By Jacqueline DeMarco | Budgeting & Goals, Family Finances, money | Comments Off

An electronic check, or eCheck, is an electronic version of a paper check. Instead of writing out a check and handing (or mailing) it to the recipient, you enter your banking information and the payment amount online and authorize a transfer of funds from your bank account to the payee’s bank account.

Electronic checks are a fast, safe, and convenient form of payment, but they do have a few downsides. Here’s what you need to know.

What Is an Electronic Check (eCheck)?

An electronic check, or eCheck, is an electronic money transfer designed to perform the same function as a traditional paper check. You can often use an eCheck to pay bills, shop on an online marketplace, or make other types of payments.

To issue an eCheck, you need to provide your bank account number, bank’s routing number, and payment amount, then authorize the transaction by accepting a website’s terms and conditions. The eCheck is then processed by the Automated Clearing House (ACH), a secure system that facilitates electronic payments and money transfers between banks. Once authorized, the funds leave your checking account and get deposited into the payee’s checking account.

Since an eCheck is in an electronic format, it can be processed in fewer days than a traditional paper check. Electronic checks also generally have more security features than standard checks, including authentication, digital signatures, and encryption.

How Does an eCheck Work?

The process of paying by eCheck involves three basic steps:

• Authorization: First, you need to fill out your eCheck through an online payment portal. You then click “Submit,” which authorizes the payee to withdraw the payment amount from your checking account. In some cases, you can provide your banking information and authorize an eCheck over the phone.

• Processing: The business’s payment processor receives the eCheck and sends a payment request to the ACH network. The ACH network confirms that the funds are available in your account.

• Settlement: Once the transaction is verified and approved by the ACH network, the funds are transferred from your account to the payee’s account.

How Long Does an eCheck Take to Clear?

The time it takes for an eCheck to clear can vary, but it generally takes between three to five business days. The reason for the delay is the ACH network processes payments in batches, not one by one. Once they start processing the eCheck, the network has to verify your bank information and perform security checks, which can take a few days.

Also keep in mind that eChecks aren’t processed on weekends and holidays. So if a you send an eCheck on a Friday, the payee may not receive the funds until the middle or end of the following week

Advantages and Disadvantages of eChecks

EChecks have a number of advantages, but also a few drawbacks. Here are some things to keep in mind.

Advantages

• Cost-effective: Electronic checks are often more cost-effective than paper checks, since you don’t need to pay for paper checks or stamps. And unlike using a credit card (which may come with a surcharge), eChecks generally don’t trigger a processing fee.

• Convenience: Electronic checks eliminate the need for physical checks, reducing the time and effort required for writing, mailing, and processing paper checks. They can be easily initiated and authorized online or over the phone.

• Security: Electronic checks offer enhanced security features, such as encryption and authentication, to protect sensitive financial information. This reduces the risk of fraud and unauthorized transactions.

• Environmentally friendly: By reducing the need for paper checks, eChecks contribute to environmental sustainability by minimizing paper waste and the resources required for printing and mailing.

Disadvantages

• Clearing time: Electronic checks can take several days to clear, which may be longer than other electronic payment methods. This can be a drawback for those who require immediate access to funds.

• Possibility for errors: While eChecks reduce the risk of errors compared to paper checks, there is still a possibility of making a mistake in entering your bank account information or routing numbers. Such errors can delay the transaction process.

• Limited acceptance: Not all businesses or individuals accept eChecks as a form of payment. This can limit the usability of eChecks in certain situations.

• Potential for fraud: As with any electronic payment method, eCheck payment may be subject to fraud or unauthorized transactions. You want to be sure to share your bank account information only with trusted merchants.

What’s the Difference Between ACH and eChecks?

The terms ACH and eCheck are often used interchangeably, but they refer to different aspects of the electronic payment process.

ACH (Automated Clearing House): ACH is a network and system used for processing a wide range of electronic payments, including electronic checks. The network facilitates the transfer of funds between banks and ensures the secure processing of transactions.

Electronic check: An eCheck is a specific type of payment that is processed through the ACH network. It is an electronic version of a traditional check and involves the transfer of funds from one bank account to another.

In short, the ACH network is the infrastructure that enables various types of electronic payments, including eChecks. An eCheck is a type of transaction that utilizes the ACH network for processing.

Is Paying by eCheck Safe?

Yes, paying by eCheck is generally considered safe, thanks to several security measures that are in place. Most notably, eChecks use encryption to protect your sensitive financial information during transmission. This ensures that the data is secure and cannot be intercepted by unauthorized parties. Electronic checks also require timestamped digital signatures to help prevent fraud.

Recommended: Are Mobile Payment Apps Safe?

The Takeaway

Electronic checks are essentially the digital version of traditional paper checks. These checks are facilitated by the Automated Clearing House (ACH) network, an electronic network used by U.S. financial institutions. Funds are electronically withdrawn from the payer’s checking account, transferred over the ACH network, and deposited into the recipient’s checking account.

Electronic checks are a safer alternative than paper checks, and also faster to clear and cheaper to issue. However, eChecks take longer to process than paying with a debit or credit card and they aren’t accepted everywhere.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.30% APY on SoFi Checking and Savings.

FAQ

How do I pay with an eCheck?

The process of paying with an eCheck mirrors that of writing a traditional check, but in a digital format. If the business you’re paying accepts eChecks, you simply need to enter your bank account number, bank’s routing number, and the payment amount on a secure online payment portal. You then authorize and submit the eCheck.

Does it cost money to send an eCheck?

Not typically. Merchants generally have to pay a small processing fee for accepting eChecks but this cost is not usually passed on to the consumer.

Can you reverse an eCheck?

Yes, but you have to act quickly. To reverse an eCheck, you generally want to notify your bank as soon as you know you need the payment halted, ideally within the same day. Once the payment clears, your bank may not be able to reverse the process.

Photo credit: iStock/kazuma seki

Shares vs Stocks: What’s the Difference?

Stock vs Share: Comparison

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What Are Stocks?

Why Should I Buy Stocks?

Types of Stocks

How Are Stocks Categorized?

By Different Styles of Investing

By Market Cap

What Are Shares?

Types of Shares

Stock Splits Definition

Other Ways to Own Stock

The Takeaway

Margin Trading: What It Is and How It Works

What Is Margin Trading?

How Does Margin Trading Work?

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Example of Margin Trading (Buying on Margin)

Potential Benefits of Margin Trading

Potential Risks of Margin Trading

How to Get Started With Margin Trading

The Takeaway

FAQ

Is margin trading profitable?

What happens if you lose money on margin?

Should beginners trade on margin?

How do you pay off margin?

Financial Planning Tips for Your 40s

7 Financial Moves to Make During Your 40s

1. Maintain or Replenish Emergency Funds

2. Manage Your Debt

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3. Revisit Retirement Saving

4. Plan for Childrens’ College Expenses

5. Choose or Reevaluate Insurance Coverage

6. Invest Outside of Retirement

7. Meet with a Financial Professional

The Takeaway

FAQ

What financial goals should a 40-year-old have?

How much should a 40-year-old have saved?

How can I build my wealth in my 40s?

Safe Deposit Box: Key Things to Know

What Is a Safe Deposit Box?

What You Should and Shouldn’t Keep in a Safe Deposit Box

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Items Typically Kept in a Safe Deposit Box

Items to Avoid Putting in a Safe Deposit Box

How Much Does a Safe Deposit Box Cost?

How to Get a Safe Deposit Box

How Safe Is a Safe Deposit Box?

Pros and Cons of Safe Deposit Boxes

The Takeaway

FAQ

What can I use instead of a safe deposit box?

Can safe deposit boxes be jointly shared?

Is it safe to keep money in a safe deposit box?

Do banks know what you put in a safety deposit box?

Electronic Check (E-Check): What It Is and How It Works

What Is an Electronic Check (eCheck)?

How Does an eCheck Work?

How Long Does an eCheck Take to Clear?

Advantages and Disadvantages of eChecks

Advantages

Disadvantages

Get up to $300 when you bank with SoFi.

What’s the Difference Between ACH and eChecks?

Is Paying by eCheck Safe?

The Takeaway

FAQ

How do I pay with an eCheck?

Does it cost money to send an eCheck?

Can you reverse an eCheck?

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