Jun
13
2023
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What to Know About a Market Sell-Off

By | Growing Wealth, invest, Investing | Comments Off on What to Know About a Market Sell-Off

A market sell-off occurs when a large pool of investors decide to sell stocks. When they do this, stock prices fall as a result. A market sell-off may be due to external events, such as public health emergencies or natural disasters. But sometimes, sell-offs can be triggered by earnings reports that failed expectations, technological disruption, or internal shifts within an industry.

During a market sell-off, stock prices tumble. That stock volatility might lead other investors to wonder whether they should sell as well, whether they should hold their current investments, or whether they should buy while stock prices are low. There are a lot of things to consider.

Understanding Bull Markets vs Bear Markets

Understanding the overall stock market environment can help investors understand how sell-offs exist within the market.

It’s not uncommon to see references to a bull market and a bear market. A bull market is when the stock market is showing gains. There are no specific levels of increase that indicates a bull market, but the phrase is commonly used when stocks are “charging ahead” — and is generally considered a good thing.

A bear market, on the other hand, is typically used to describe situations when major indexes fall 20% or more from their recent peak, and remain there for at least two months.

💡 Looking for more differences? Check out our bear vs bull market comparison.

There are also “corrections.” This is when the market falls 10% or more from a recent stock market high. Market corrections are called such because historically, they “correct” prices to a longer-term trend, rather than hold them at a high that’s not sustainable. Sometimes, corrections turn into a bear market. Other times, corrections reach a low and then begin to climb back to a more level price, avoiding a bear market.

What to Do During a Market Sell-Off

A sell-off can make news, and can make investors feel on-edge. After all, investors don’t want to lose money and some investors fear that a sell-off portends more bad news, like a bear market.

Other investors see sell-offs as an opportunity to buy stocks at lower prices before the market bounces back. But a sell-off or correction may not trigger a dramatic change in every investor’s portfolio. That’s because a sell-off or correction may be limited to a certain market sector or group of stocks, such as if a tariff impacted select companies.

So, what should an investor do during a market sell-off? That depends on the goals of an investor. Market sell-offs are “normal” fluctuations of the market, and investors who have a diversified portfolio may not do anything. Others may choose to either buy or sell—and neither decision is one-size-fits-all.

Pros & Cons of Selling During a Sell-Off

Some investors may get spooked and sell stocks in fear that the market will slide further. But while taking money out of the market may give investors confidence and cash in their pockets, removing money from the market might make it hard for investors to decide when to re-invest in the market in the future. As a result, they may miss opportunities to take advantage of compounding interest in investments.

Pros & Cons of Buying During a Sell-Off

Other investors may see a sell-off as an opportunity to invest when the market is down. They might buy stocks at a lower price, then wait for the market to bounce back. But a market sell-off may not necessarily be the optimum time to buy stocks, especially if it’s unclear what’s driving the sell-off.

Many investors pride themselves on their perceived ability to “time the market,” or buy stocks right before they begin to rise again. But the truth is that “timing the market” often relies on luck, deep knowledge of the industry, timing, or a combination of all three.

For many investors, the best way to “time” the market may be to invest when they can afford to do so in a diversified portfolio, and allow their money to ride out the highs and lows of market movements.

Why Risk Tolerance Matters During Market Sell-Offs

Understanding your own risk tolerance — and investment goals — can help an investor decide how to handle a market sell-off. Risk tolerance is the amount of risk an investor is willing to take, and depends on several factors.

•   Risk capacity. This is your ability to handle a risk. For example, people who are depending on their investment portfolio to fund their lives, such as retirees, may have a lower risk tolerance than young people who have years for their portfolio to make up losses.

•   Benchmarks. Are there benchmarks their portfolio has to hit at set periods of time so that their portfolio reaches the goals they have set?

•   Emotional tolerance. All investors have different emotional capacity for risk tolerance, that may be independent from the actual amount of money within the portfolio.

Understanding your personal risk tolerance can help you build an investment portfolio that may be less vulnerable to market sell-offs and can also give you less trepidation during a sell-off.


💡 Quick Tip: When people talk about investment risk, they mean the risk of losing money. Some investments are higher risk, some are lower. Be sure to bear this in mind when investing online.

How Diversification Can Help Protect a Portfolio From Sell-Offs

A portfolio diversification strategy may be different between investors, but the underlying logic of any diversification strategy is that they shouldn’t put all of their eggs in one basket. Since it’s not unusual for a sell-off to affect only parts of the market, a diverse portfolio may be able to better ride out a market sell-off than a portfolio that is particularly weighted toward one sector, industry, or exchange.

Some investors may diversify with a range of assets in their portfolio. Others may diversify their portfolio with a range of domestic and international stocks. And others may see diversification as a way to invest beyond the market, such as investing directly in real estate, art, or other different types of alternative investments that are independent of market movement.

Another way some investors ensure diversification within their portfolio is to focus the majority of their portfolio on exchange-traded funds (ETFs) and mutual funds, instead of individual stocks. ETFs and mutual funds can contain hundreds or even thousands of securities across asset classes, which can potentially make the fund less vulnerable to market dips.

Protecting a Portfolio From Sell-Offs

In addition to building a portfolio that’s less vulnerable to market volatility, investors have several options to further protect their portfolio. These preventative investment measures can remove emotion during a market dip or sell-off, so that an investor knows that there are stopgaps and safeguards for their portfolio.

Stop Losses

This is an automatic trade order that investors can set up so that shares of a certain stock are automatically traded or sold when they hit a price predetermined by an investor. This can protect an investment for an individual stock or for an overall market drop. There are several stop loss order variants, including a hard stop (the trade will execute when the stock reaches a set price) and a trailing stop (the price to trade changes as the price of the stock increases).

Put Options

Put options are another type of order that allow investors to sell at a set price during a certain time frame; “holding” the price if the stock drops lower and allowing the investor to sell at the higher price even if the stock drops further.

Limit Orders

Investors can also set limit orders. These allow an investor to choose the price and number of shares they wish to buy of a certain stock. The trade will only execute if the stock hits the set price. This allows investors freedom from tracking numbers as price points shift.


💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

The Takeaway

A market sell-off is triggered when a large group of investors sell their stocks at once, causing stock prices to drop. A sell-off can be caused by world events, industry changes, or even corporate news.

There is no single smart way to react to a sell-off. Different investors will gravitate toward different strategies. But by researching companies and setting up a portfolio based on risk tolerance, an investor can feel confident that their portfolio can withstand market volatility.

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


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

SoFi Invest®

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

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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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


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

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

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Jun
13
2023
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What Happens If You Die Without a Will?

By | Budgeting & Goals, Financial Independence, money | Comments Off on What Happens If You Die Without a Will?

Did you know that if you die without a will, the court gets to decide how your possessions and your money are distributed? That means that any plans you had about giving items or cash to friends, charities, or other recipients won’t likely be followed. What’s more, your survivors may have a tricky road ahead as they navigate the management of your estate.

Unfortunately, the situation of dying without a will is something that can happen more often than you might think. Many people plan to write a will but just never quite get around to it. Even though the process doesn’t have to be pricey or time-consuming, there are plenty of people who avoid the task or other estate planning duties.

Here, you’ll find out what happens if you haven’t made a will. You’ll also learn how writing a will can save your loved ones stress, time, and, yes, money.

Who Handles Your Estate if You Die Without a Will?

When there is no will to name an executor, state law dictates who will be in charge of handling your estate.

A will is where you designate an executor or personal representative. This is the person who takes responsibility for your estate after you die. They make sure final bills and taxes are paid and your assets are distributed properly.

This is often based on a priority list. For example, most states will make the surviving spouse, if there is one, the executor. Adult children are typically considered next, followed by other family members.

Until the courts decide who will distribute your assets, they will be frozen. That means no one can touch your stuff, even if you had told them they could have it.

If nobody is willing or able to handle your estate, the courts will name a public trustee to represent you. This would mean that a stranger would be in charge of distributing your assets according to the laws in your state.

Recommended: Guide to Safety Deposit Boxes

Who Gets Your Money If You Die Without a Will?

If you were to die without a will (legally called “intestate”), the state would decide how to divide your assets.

This process is called probate. Depending on your financial situation when you die, this can be a complex process that can hold your assets in place and be potentially time-consuming and expensive for your survivors.

How an estate will be distributed will depend on state law. Typically, however, the bulk of the estate will go to a spouse. If you have children, they will also likely get a share or, if there are no children, your parents. Next, the state will typically look for siblings, nieces, nephews, aunts, uncles, and cousins. Some relatives might have to claim unclaimed money from the deceased (aka, you).

The probate process can mean that your belongings are inherited by those you didn’t necessarily intend. For example, if you are single and you die, your parents may get all of your possessions. This may not have been your wishes if you have a partner, or if you and your parents don’t get along.

If you are in a relationship but have no marriage certificate, your significant other may not be able to inherit any of your assets.

You also don’t have an opportunity to give anything to charity, your alma mater, or create a legacy.

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What if I Die With Credit Card Debt or Loans?

Your estate typically has to pay any creditors before anything is passed down to those named in your will or determined by the court. If you have a mortgage or credit card debt alongside other assets, the process can take time and can lead to confusion and frustration for your loved ones.

If you die, federal student loan debt will be discharged, but private loan debt is dependent on your policy. If someone cosigned the loan, they may be responsible for future payments.

If you have credit card debts and not enough assets to cover them, your survivors are not responsible for payment, according to the Consumer Federal Protection Bureau (CFPB).

But despite your loved ones not being legally obligated to pay the debts, it may also lead to creditors contacting your family.

Recommended: What Happens if Direct Deposit Goes to a Closed Account?

Who Gets My Children if I Die Without a Will?

Guardianship, or who takes care of children who are minors in the event of your death, can be the most pressing concern for many parents.

If you die without a will, the state will appoint a guardian for your children. The state will choose guardians that they believe are in the best interest of the children, but these guardians may not be the same people you would have chosen.

Having the state assign guardians can also be stressful for your loved ones during what would already likely be a tough time.

A will can establish both a personal and financial guardian for your children. While this can be the same person, some parents like the flexibility in dividing guardianship.

For example, a relative may be chosen to be a financial guardian because they are skilled at managing money and have positive net worth. However, a personal guardian could be a family member who lives nearby and could ensure that the children are well cared for and their daily routines stay consistent.

You can also appoint a backup guardian in your will in case your primary choice is unable or unwilling to take on the role. You might also look into putting your house in a trust for your children, which could help ease the transfer process.

Writing a Will Can be Easier (and Cheaper) Than You May Think

If you have a lot of property or assets and may want to set up trusts for your heirs, it can be wise to hire an experienced estate attorney to help you write a will, as well as any other estate planning documents. They can also advise you on the best way to handle a will if you are married.

For many people, however, online templates can be sufficient and, provided the documents are signed appropriately, will be legally binding. A will is an important part of an estate-planning checklist.

After you write your will, you may need witnesses and a notary in order to make sure it’s legal in the state where you live. Once you have a will, there are a few other steps you may want to take, including:

•   Keeping your will in a safe place. This may include having a digital copy and also a physical copy.

•   Letting someone know where copies of the will are kept (say, the person you appointed as executor of your will).

•   Creating other end-of-life documents, including a living will and power of attorney. These documents can be invaluable if you were to become incapacitated and needed people to make medical decisions for you.

•   Talking about your decision with others. Many people put off creating a will, which can lead to confusion and uncertainty if the worst were to happen. Encouraging your loved ones to draft their own wills can help give peace of mind to the entire family.

•   Updating it regularly. It can be a good idea to consider looking at your will every year or so, or after a major event, such as a marriage, divorce, death in the family, home purchase, or the birth of a child.

The Takeaway

Creating a will may seem overwhelming, but it can also be a financially prudent move that helps protect your assets — and creates a legacy based on your wishes.

If you die without a will, you will have no say in how your assets will be distributed and, if you have children, who will care for them. You also risk putting your survivors in a difficult situation.

You may be able to create your own will relatively quickly online simply by plugging in your information. The rest is done for you, and the results are legally binding.

While you’re tackling the to-dos you’ve long been putting off, you may also want to also work on getting your financial life in order. SoFi Checking and Savings makes it easy to manage your money by allowing you to save and spend, all in one account, while earning a competitive annual percentage yield (APY).

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.


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SoFi members with direct deposit activity can earn 4.20% 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 4.20% 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 4.20% 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 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

This article is not intended to be legal advice. Please consult an attorney for advice.

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Jun
12
2023
Top Bathroom Trends of 2022

Top Bathroom Trends of 2022

By | Budgeting & Goals, Home Ownership, personal_loan | Comments Off on Top Bathroom Trends of 2022

Today’s burgeoning bathroom trends range from bold color palettes to high-tech functions. Whether you’re gut-renovating a primary bathroom or freshening up a powder room, you’re bound to find plenty of inspiration at all price points and levels of difficulty.

Keep reading to find bathroom remodel ideas for 2022, plus tips on how to budget for the home spa of your dreams.

8 Bathroom Ideas for 2022

The dominant bathroom trends for 2022 skew modern in nature with clean lines, organic materials, and a lot of warm, natural wood. At the same time, some homeowners are taking cues from their grandmothers, incorporating throwbacks to the 1960s with pink tile and patterned wallpaper. Whichever route you take, there’s little denying these bathroom ideas 2022 have a little something for everybody.

For a deeper dive into the topic, check out our guide to bathroom remodels.

1. Opt for an All-in-One Shower and Bath

Price: Moderate
Difficulty: High
Style: Contemporary

Functionality is at the forefront of many homeowners’ minds. And what’s more functional than a bathtub that doubles as a shower? It saves space and can be more economical than adding two separate bathing areas. Prepare to spend $1,100-$5,500 to remodel a shower alone, whereas a shower-tub combo costs around $1,400-$1,600, including fixtures and modifications.

Recommended: The Cost To Repair a Plumbing Leak

2. Choose Earthy, Organic Styles

Price: Low to Moderate
Difficulty: Moderate
Style: Contemporary

Gone are the days when subway tile was the only way to decorate a shower enclosure. In 2022 bathroom trends, tile is more tactile and natural. To mix things up, consider stacking tile vertically during layout, then enclosing it with a horizontal border.

Homeowners are opting for wooden tile for an organic look, often complementing it with white floor tile. Also on the rise: other natural materials in earthy tones that give the bathroom a sense of warmth.

3. Bring the Outdoors In

Price: Low
Difficulty: Easy
Style: Contemporary

In addition to earthy tones, homeowners are adding more plants to their bathroom spaces. Lush greenery is an economical way to mimic the feel of a resort spa. In addition to floor and counter planters, consider hanging plants from the ceiling in locations that enjoy natural light.

If you’ve got the budget to spare, merge indoors and out via a glass wall and outdoor rain shower.

4. Add Twin Showerheads

Price: Low
Difficulty: Moderate
Style: Contemporary

Adding side-by-side showerheads is one of many shower remodel ideas you may choose to add to your bath remodel. Not only does it add symmetry to your shower, but it allows more than one person to shower at a time. That can come in handy if you have children you’re trying to bathe simultaneously, or spouses who get ready for work at the same time.

5. Incorporate Creative Storage Solutions

Price: Moderate
Difficulty: Easy to Moderate
Style: Contemporary

If you live in an apartment or own a home with smaller bathrooms, finding new ways to add storage is at the top of many homeowners’ priority list. Perhaps you have an unused nook where you can add built-ins for toiletries and linens. Or you can replace a floating vanity with one that has under-sink storage. Built-ins and custom cabinetry can cause your bathroom budget to balloon, but they’re often worth the investment if space elsewhere in your home is at a premium.

6. Switch to a Bold Black Palette

Price: Varies
Difficulty: Easy to moderate
Style: Contemporary

Black is back in bathroom trends 2022. Taking a page out of Scandinavian design (which is fond of mixing black with natural wood), interior designers are using black walls, floors, and stone to make a strong statement. Even bathroom fixtures are skewing dark with matte black tubs and faucets.

Love black but don’t want your entire bathroom to be a single color? Use black sparingly instead — on floor tile, a wooden wall covering, or a sink and toilet combo — and incorporating gold fixtures.

7. Go All Out with Color and Pattern

Price: Varies
Difficulty: Moderate
Style: Traditional

On the flip side of the sleek black trend is Grandma’s bubblegum-pink bathroom. Adding a splash of color to your bathroom is one way to up the wow factor. Dare to go all pink — from a clawfoot tub to dusty rose floor tile to a blush-dominant floral wallpaper. Or simply add a pink toilet as a statement piece. Want to test out this bathroom trend but wary of going too pink? Modern wallpaper patterns (think: flamingos and palm leaves) and geometric tile are two ways to walk the line between traditional and modern.

8. Go High-Tech

Price: Moderate
Difficulty: Moderate
Style: Contemporary

As home technology continues to advance, so do homeowners’ desires to operate everything via apps and devices. Many homeowners opt for wall-mounted digital interfaces that operate everything from the shower heads to stereo speakers. Adding heated flooring and high-tech bidets are also among the top bathroom ideas 2022.

Recommended: How To Pay for Emergency Home Repairs

How To Budget for Your Bathroom Reno

When researching materials, start with what you know you need: tile, faucet, paint, etc. For things like tile and paint, plan on purchasing 20% more than your square footage requires. Then consult DIY sites to make sure you include all the necessary incidentals to complete the project. For a DIY tiling project, for example, you’ll need grout, a grout float, thinset, sealant, drop cloths, etc. (Here’s some info on how to keep inflation from blowing your reno budget.)

The most expensive part of a bathroom reno is labor. If you’re hiring a contractor to do the work, expect 75% of your budget to go to the contractor(s). That’s because full bathroom updates require a number of specialists, such as plumbers, electricians, and tile installers. Even for smaller updates, a general contractor can cost $50-$75 an hour. (Learn more about how to find the right contractor.)

Finally, experts recommend adding a 20%-30% cushion to your overall budget to cover any unforeseen issues.

Keep Resale Value in Mind

The good news is that bathroom updates do increase your home’s value — but there are limits. Typical updates recoup about 70% of their cost, while upscale renos have a lower ROI of about 60%, according to the 2022 State of Remodeling in the U.S. survey.

The upshot: You’ll enjoy a better bang for your buck by keeping updates modest and avoiding anything too trendy or unique (ahem, black bathtub).

Consider Your Financing Options

Before you commit to any of these bathroom remodel ideas, you’ll need to figure out how you’re going to finance your home improvement project. A personal loan, credit card, savings, or HELOC are all ways you might finance your bathroom remodel. No matter how you pay for your bathroom upgrades, it’s wise to weigh your options and compare terms, conditions, and interest rates upfront.

The Takeaway

Some bathroom trends for 2022 are on the practical side, such as creative storage and side-by-side showerheads. Others are more daring, like switching to matte black fixtures. Whichever way your tastes lean, make sure you have the budget to do things right. It’s what’s behind the walls that really matters — to your family and potential homebuyers.

Don’t rely on credit cards to fund your reno. With a home improvement loan from SoFi, you can borrow up to $100,000 at a competitive fixed rate, and with no fees. So there’s no need to cut corners on your dream bathroom.

Check your rate in 60 seconds, and get your loan funded as soon as the same day you’re approved.*

Personal Loan Tips

Tip 1

If you don’t have the cash to renovate or remodel your home, one financing option is a personal or home improvement loan, which can be faster and easier to secure than a construction loan.

Tip 2

In a climate where interest rates are rising, you’re likely better off with a fixed interest rate than a variable rate, even though the variable rate is initially lower. On the flip side, if rates are falling, you may be better off with a variable interest rate.

Tip 3

Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.

Photo credit: iStock/LeoPatrizi

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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Jun
07
2023
Pros & Cons of Sector Investing

Pros & Cons of Sector Investing

By | Growing Wealth, invest, Investing | Comments Off on Pros & Cons of Sector Investing

Sector investing simply refers to targeted investing in a particular market sector or industry. Finance, real estate, utilities, and retail are a few examples of common sectors.

Many institutional investors use a sector investing strategy, but it’s one that individual investors can use as well, either by selecting individual stocks according to a theme or to describe different exchange-traded funds (ETFs) or mutual funds that focus their investments on a single sector.

Common Investing Sectors

Investors who want exposure to the following sectors can either invest directly in companies or assets, or invest in ETFs or mutual funds composed of securities within that sector.

Health Care

This section focuses on companies that contribute to health care needs and related endeavors.These may include hospitals and related real estate, health insurance companies, pharmaceutical companies, companies that make medical devices, and more.

Precious Metals

The precious metals sector is historically seen as a safe haven asset that investors flock to in times of crisis. Even outside of a crisis, companies involved in the exploration of new metal deposits and mining of those deposits can sometimes provide significant returns.

Investors may be keen to find ways to invest in gold, but other examples include mining companies, direct investments in commodities, or in funds ETFs that purchase them.

Real Estate

This sector includes real estate developers and property owners, as well as mortgage-backed securities.

Real estate investors may also choose to put money into real estate investment trusts (REITs), which use investor money to acquire income-producing properties like data centers, office builds, shopping malls, or apartment buildings. One attractive feature of REITs is that they pay out a large portion of their income in the form of dividends to investors.

Utilities

Utility investing focuses on companies that provide utilities like phone and internet service, electricity, or natural gas. Utilities are considered to be a defensive or safe haven sector, since they tend to do well during a recession because people almost always need the services they provide.

Tech

Technology companies have become an increasingly large part of the economy as more organizations continue to undergo digital transformation. Investments in the tech sector might include streaming video providers, computer companies, or social media companies.

Consumer Staples

This sector focuses on the companies that make or sell items that people need to buy, such as supermarkets, food producers, and convenience stores.

Consumer Discretionary

This sector includes companies that make or sell goods that people like to purchase but don’t need, such as e-commerce companies, home improvement, apparel, or sporting goods retailers. This sector tends to perform well during times of economic expansion and to lag during a recession.

Energy

This sector focuses on companies that produce or supply energy. That may include oil drillers, coal miners, and pipeline operators. Some energy investors might focus only on stocks in the renewable energy space, such as wind farms or solar panel producers.

Recommended: Investing in Low Carbon Stocks: What to Know

Pros of Sector Investing

Some of the benefits involved in sector investing include diversification and the ability to invest with market cycles.

Diversification

Investing in multiple sectors of the economy is one method of attaining diversification within a portfolio, which involves investing in many different types of stocks. If some sectors produce outsize gains, they can help offset lower returns in other sectors.

Rotation Strategy

One of the more common sector investing strategies is sector rotation, meaning that investors change their allocation to certain sectors depending on the economic cycle. For example, they might invest more heavily in the utility sector during a recession, when utilities tend to outperform, and move those funds into consumer discretionary goods during a recovery.

Cons of Sector Investing

While sector investing may prove beneficial, it also has its potential drawbacks. Some of the same features that make this strategy profitable or appealing can also make it risky.

Potential Volatility

Things that impact one sector as a whole tend to affect most or all companies within that sector. As a result, a single relevant event or news headline could have dramatic consequences for those heavily invested. This could result in large moves upward or downward.

For example, imagine being heavily invested in the oil and natural gas sector. Suddenly, the demand for energy plummets because of restrictions on travel, decreased consumer spending, and overall lack of demand for petroleum products. This would likely have a dramatic effect on nearly all companies in the oil and gas sector, leading to potentially large losses for investors with a large exposure to this sector.

On the other hand, if markets became optimistic that a future event would restore demand, or something happened to decrease supply, then volatility could swing the other way pushing up the value of investments.

Recommended: How Investors Can Manage Stock Volatility

Concentration risk

Concentration risk is a form of investment risk in which investors over-allocate a portion of their portfolio to a single sector and lose the downside protection that may come with a properly diversified portfolio, which spreads investments across different types of assets to minimize risk.

It is notoriously difficult for individual investors to sustainably engage in stock market timing, in which they can precisely determine the most optimal time to buy and sell a specific investment.

Sector ETF Investing

Investing in sector-focused ETFs is one of the easiest and most common ways to invest in sectors. Sector-specific exchange-traded funds hold dozens or hundreds of stocks within a specific sector, allowing investors to get exposure to the entire sector without having to make investments in individual companies.

Choosing an ETF takes less time and research than choosing many individual stocks. While ETFs may not experience the same level of gains as individual stocks, they also have less volatility.

The Takeaway

Sector investing involves making investments in specific parts, segments, or sectors of the economy. There can be pros and cons to doing so, and investors should consider all factors or even speak with a financial professional before making a decision.

To determine the best investing strategy for you, you’ll need to consider your long-term goals, your risk tolerance, financial objectives, and the amount of time and effort you want to spend choosing investments.

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

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

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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.

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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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.
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2023
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How to Calculate a Dividend Payout Ratio

By | Growing Wealth, invest, Investing | Comments Off on How to Calculate a Dividend Payout Ratio

The dividend payout ratio is the ratio of total dividends paid to shareholders relative to the net income of the company. Investors can use the dividend payout formula to gauge what fraction of a company’s net income they could receive in the form of dividends.

While a company will want to retain some earnings to reinvest or pay down debt, the extra profit may be paid out to investors as dividends. As such, investors will want a way to calculate what they can expect if they’re a shareholder.

Understanding Dividends and How They Work

Before calculating potential dividends, investors will want to familiarize themselves with what dividends are, exactly.

A dividend is when a company periodically gives its shareholders a payment in cash, or additional shares of stock, or property. The size of that dividend payment depends on the company’s dividend yield and how many shares you own.

Many investors look to buy stock in companies that pay them as a way to generate regular income in addition to stock price appreciation. A dividend investing strategy is one way many investors look to make money from stocks and build wealth.

Investors can take their dividend payments in cash or reinvest them into their stock holdings. Not all companies pay dividends, and those that do tend to be large, established companies with predictable profits — blue chip stocks, for example. If an investor owns a stock or fund that pays dividends, they can expect a regular payment from that company — typically, each quarter. Some companies may pay dividends more frequently.


💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Pros and Cons of Investing in Dividend Stocks

Since dividend income can help augment investing returns, investing in dividend stocks — or, stocks that tend to pay higher than average dividends — is popular among some investors. But engaging in a strategy of purchasing dividend stocks has its pros and cons.

As for the advantages, the most obvious is that investors will receive dividend payments and see bigger potential returns from their holdings. Those dividends, in addition to stock appreciation, allow for two potential ways to generate returns. Another benefit is that investors can set up their dividends to automatically reinvest, meaning that they’re holdings grow with no extra effort.

Potential drawbacks, however, are that dividend stocks may generate a higher tax burden, depending on the specific stocks. You’ll need to look more closely at whether your dividends are “ordinary” or “qualified,” and dig a little deeper into qualified dividend tax rates to get a better idea of what you might end up owing.

Also, stocks that pay higher dividends often don’t see as much appreciation as some other growth stocks — but investors do reap the benefit of a steady, if small, payout.

What Is the Dividend Payout Ratio?

The dividend payout ratio expresses the percentage of income that a company pays to shareholders. Ratios vary widely by company. Some may pay out all of their net income, while others may hang on to a portion to reinvest in the company or pay off debt.

Generally speaking, a healthy range for payout ratios is from 35% to 55%. There are certain circumstances in which a lower ratio might make sense for a company. For example, a relatively young company that plans to expand might reinvest a larger portion of its profits into growth.

How to Calculate a Dividend Payout

Calculating your potential dividend payout is fairly simple: It requires that you know the dividend payout ratio formula, and simply plug in some numbers.

Dividend Payout Ratio Formula

The simplest dividend payout ratio formula divides the total annual dividends by net income, or earnings, from the same period. The equation looks like this:

Dividend payout ratio = Dividends paid / Net income

Again, figuring out the payout ratio is only a matter of doing some plug-and-play with the appropriate figures.

Dividend Payout Ratio Calculation Example

Here’s an example of how to calculate dividend payout using the dividend payout ratio.

If a company reported net income of $120 million and paid out a total of $50 million in dividends, the dividend payout ratio would be $50 million/$120 million, or about 42%. That means that the company retained about 58% of its profits.

Or, to plug those numbers into the formula, it would look like this:

~42% = 50,000,000 / 120,000,000

An alternative dividend payout ratio calculation uses dividends per share and earnings per share as variables:

Dividend payout ratio = Dividends per share / Earnings per share

A third formula uses retention ratio, which tells us how much of a company’s profits are being retained for reinvestment, rather than paid out in dividends.

Dividend payout ratio = 1 – Retention ratio

You can determine the retention ratio with the following formula:

Retention ratio = (Net income – Dividends paid) / Net income

You can find figures including total dividends paid and a company’s net income in a company’s financial statements, such as its earnings report or annual report.

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Why Does the Dividend Payout Ratio Matter?

Dividend stocks often play an important part in individuals’ investment strategies. As noted, dividends are one of the primary ways stock holdings earn money — investors also earn money on stocks by selling holdings that have appreciated in value.

Investors may choose to automatically reinvest the dividends they do earn, increasing the size of their holdings, and therefore, potentially earning even more dividends over time. This can often be done through a dividend reinvestment plan.

But it’s important to be able to know what the ratio results are telling you so that you can make wise decisions related to your investments.

Interpreting Dividend Payout Ratio Results

Learning how to calculate dividend payout and use the payout ratio is one thing. But what does it all mean? What is it telling you?

On a basic level, the dividend payout ratio can help investors gain insight into the health of dividend stocks. For instance, a higher ratio indicates that a company is paying out more of its profits in dividends, and this may be a sign that it is established, or not necessarily looking to expand in the near future. It may also indicate that a company isn’t investing enough in its own growth.

Lower ratios may mean a company is retaining a higher percentage of its earnings to expand its operations or fund research and development, for example. These stocks may still be a good bet, since these activities may help drive up share price or lead to large dividends in the future.


💡 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.

Dividend Sustainability

Paying attention to trends in dividend payout ratios can help you determine a dividend’s sustainability — or, the likelihood a company will continue to pay dividends of a certain size in the future. For example, a steadily rising dividend payout ratio could indicate that a company is on a stable path, while a sudden jump to a higher payout ratio might be harder for a company to sustain.

That’s knowledge that may be put to use when trying to manage your portfolio.

It’s also worth noting that there can be dividend payout ratios that are more than 100%. That means the company is paying out more money in dividends than it is earning — something no company can do for very long. While they may ride out a bad year, they may also have to lower their dividends, or suspend them entirely, if this trend continues.

Dividend Payout Ratio vs Dividend Yield

The dividend yield is the ratio of a stock’s dividend per share to the stock’s current price:

Dividend yield = Annual dividend per share/Current stock price

As an example, if a stock costs $100 and pays an annual dividend of $7 the dividend yield will be $7/$100, or 7%.

Like the dividend payout ratio, dividend yield is a metric investors can use when comparing stocks to understand the health of a company. For example, high dividend yields might be a result of a quickly dropping share price, which may indicate that a stock is in trouble. Dividend yield can also help investors understand whether a stock is valued well and whether it will meet the investor’s income needs or fit with their overall investing strategy.

Dividend Payout Ratio vs Retention Ratio

As discussed, the retention ratio tells investors how much of a company’s profits are being retained to be reinvested, rather than used to pay investors dividends. The formula looks like this:

Retention ratio = (Net income – Dividends paid) / Net income

If we use the same numbers from our initial example, the formula would look like this:

~58% = (120,000,000 – 50,000,000) / 120,000,000

This can be used much in the same way that the dividend payout ratio can, as it calculates the other side of the equation — how much a company is retaining, rather than paying out. In other words, if you can find one, you can easily find the other.

The Takeaway

The dividend payout ratio is a calculation that tells investors how much a company pays out in dividends to investors. Since dividend stocks can be an important component of an investment strategy, this can be useful information to investors who are trying to fine-tune their strategies, especially since different types of dividends have different tax implications.

In addition, the dividend payout ratio can help investors evaluate stocks that pay dividends, often providing clues about company health and long-term sustainability. It’s different from other ratios, like the retention ratio or the dividend yield.

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

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

FAQ

How do you calculate your dividend payment?

To calculate your exact dividend payment, you’d need to know how many shares you own, a company’s net income, and the number of total outstanding shares. From there, you can calculate dividend per share, and multiply it by the number of shares you own.

Are dividends taxed?

Yes, dividends are taxed, as the IRS considers them a form of income. There may be some slight differences in how they’re taxed, but even if you reinvest your dividend income back into a company, you’ll still generate a tax liability by receiving dividend income.

SoFi Invest®

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

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

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

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

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