What Is a Divestiture?

What Is a Divestiture?

A divestiture, also known as a divestment, involves the liquidation of a company’s assets, such as building or intellectual property, or a part of its business, such as a subsidiary. This can occur through several different means, including bankruptcy, exchange, sale, or foreclosure.

Divestitures can be partial or total, meaning some or all of the company could be spun off or otherwise divested, depending on the reason for the company getting rid of its assets. Corporate mergers and acquisitions are a common example of one type of divestiture.

What Are Reasons a Company Would Divest Itself?

Often a divestiture reflects a decision by management that one part of the business no longer helps it meet its operational goals. A divestiture can be an intelligent financial decision for a business in certain situations.

If one aspect of a business (e.g., a product line or a subsidiary) isn’t working, has become unprofitable, or is likely to soon consume more capital than it can create, then instead of letting that be a continued drain on resources, a company can divest.

This not only does away with the troublesome aspect of the company, but also frees up some money the company can put toward more productive endeavors, such as new research and development, marketing, or new product lines.

There are many other potential reasons for a company to divest itself of a particular aspect of its business as well. The growth of a rival may prove overwhelming and insurmountable, in which case divesting might make more sense than continuing to compete.

A company may choose to undergo a divestment of some sort, such as closing some store locations, in order to avoid bankruptcy, to take advantage of new opportunities, or because new market developments might make it difficult for part of the company to survive.

Companies also sometimes must divest some of their business because of a court order aimed at breaking up monopolies. This can happen when a court determines that a company has completely cornered the marketplace for its goods or services, preventing fair competition.

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

What Happens in a Divestiture?

When a divestiture involves the sale of part or all of a company, the process has four parts. The first two parts involve planning for the actual divestment transaction itself. Once management decides which part of the company to divest and who will be buying it, the divestment can begin.

1. Monitoring the Portfolio

When pursuing an active divestiture strategy, the company’s management team will review each business unit and try to evaluate its importance to the company’s overall business strategy. They’ll want to understand the performance of each part of the business, which part needs improvement, and if it might make sense to eliminate one part.

2. Identifying a Buyer

Once the business identifies some or all of the company as a potential divestment target, the team moves on to the next problem that logically follows: Who will buy it?

The goal is to find a buyer that will pay enough for the business to cover the estimated opportunity cost of not selling the business unit in question. If the buyer does not have the liquidity to make the purchase with cash, they might offer an equity deal or borrow money to cover the cost.

3. Executing the Divestiture

The divestiture involves many aspects of the business, including a change of management, company valuation, legal ownership, and deciding which employees will remain with the company and which ones will have to leave.

4. Managing the Financials

Once the sale closes, attention turns to managing the transition. The transaction appears on the company’s profit-and-loss statement. If the amount that the company receives for the asset it sells is higher than the book value, that difference appears as a gain. If it’s less the company will record it as a loss.

The company will typically share the net impact of the divestiture in its earnings report, following the transaction.

What Are The Different Types of Divestitures?

There are several different ways companies can define divest for themselves. A few of these options include:

•   An equity carve-out, when a company can choose to sell a portion of its subsidiaries through initial public offerings but still retain full control of them.

•   A split-up demerger, when a company splits in two, and the original parent company ceases to be.

•   A partial sell-off, where a business sells one of its subsidiaries to another company. The funds from the sale then go toward newer, more productive activities.

•   A spin-off demerger, in which a company’s division becomes a separate business entity.

What Causes a Company to Divest?

A divestiture strategy can be part of an overall retrenchment strategy, when a company tries to reinvent itself by slimming down its activities and streamline its capital expenditures. When that happens, the company will divest those parts of the business that are not profitable, consuming too much time or energy, or no longer fit into the company’s big-picture goals.

Factors that could influence a company to adopt a divestiture strategy can be lumped into two broad groups:

External Developments

External developments include things outside the company, such as changing customer behavior, new competition, government policies and regulations, or the emergence of new disruptive technologies.

Internal Developments

Internal developments include situations arising from within the company, such as management problems, strategic errors, production inefficiencies, poor customer service, etc.

Divestiture Strategy Example

Imagine a fictitious company called ABC was the parent of a pharmaceutical company, a cosmetic company, and a clothing company. After some time and analysis, ABC’s management determines that the company’s financials have begun deteriorating and they need to make a change in the business.

Following the four-step process above, they begin by finding the weakest points of business. Eventually, they decide that the pharmaceutical branch of the company is under-performing and would also be the easiest for the company to divest. It makes more sense to stick to clothing and cosmetics.

After identifying a buyer (perhaps a larger pharmaceutical company or a promising startup looking to expand), the divestment transaction occurs. The employees who work in the pharmaceutical branch either lose their jobs, or they get roles working for the new owner of that part of the business. The cash infusion that ABC gets as a result of the sale of its pharmaceutical branch will go toward new marketing efforts and creating new product lines.

💡 Quick Tip: It’s smart to invest in a range of assets so that you’re not overly reliant on any one company or market to do well. For example, by investing in different sectors you can add diversification to your portfolio, which may help mitigate some risk factors over time.

The Takeaway

Divesting is essentially the opposite of investing. It involves a company selling off parts of its business. A divestiture can have some positive outcomes on the value of a company, and there are several business reasons that a company would choose to divest. Depending on the circumstances, this process could theoretically be either a positive or a negative for shareholders.

Investors could see news of a divestment as a sign that a company is struggling, leading them to sell the stock. While this initial reaction could be one likely outcome, the company could eventually wind up doing even better than before if it manages itself better as a leaner company. In either case, the divestiture is one factor that investors can use in their analysis of that company’s stock.

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.


Photo credit: iStock/NeoLeo

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.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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

Claw Promotion: Customer must fund their Active Invest account with at least $50 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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How to Open a Brokerage Account

When you open a brokerage account with a brokerage firm, you transfer money into the account that you can use to start investing. While some brokerage accounts may set an account minimum, there is typically no limit to how much you can deposit or when you can withdraw your money.

With a brokerage account, investors can invest in a variety of securities, including stocks, bonds, ETFs, and more. There are many brokerages, but the steps to open a brokerage account are similar among most of them.

How Do I Open a Brokerage Account?

There are a few simple steps to opening a brokerage account. We’ll dive deep into each one below.

1.   Choose a brokerage provider.

2.   Sign up for an account.

3.   Transfer money.

4.   Start trading.

Step 1: Choose a Brokerage Provider

There are several types of brokerage accounts, and the type you choose will depend on what you’re trying to accomplish.

•  Full-service brokerage firms not only allow clients to trade securities, they may also offer financial consulting and other services—though the price may be steep, compared to the other options here.

•  Discount brokerage firms typically charge lower fees than full-service, but as a result clients don’t have access to additional financial consulting or planning services.

•  Online brokerage firms are typically online-only, allowing clients to sign up, transfer money, and make trades through their website. These firms typically offer the lowest fees.

The accounts above are known as cash accounts: You must buy securities with funds you put in your account ahead of time. You may also encounter other more complicated types of brokerage accounts known as margin accounts, which allow you to borrow money from your brokerage to make investments, using your case account as collateral. These accounts tend to be for sophisticated investors willing to shoulder the risk that investments bought with borrowed funds will lose value.

Before working with an individual investment advisor or a firm and opening a cash or margin account, it can be a good idea to run a check on their background. The Financial Industry Regulatory Authority (FINRA) offers online broker checks where you can enter a broker’s name, or the name of a firm, to learn whether a broker is registered to sell securities, offer investment advice, or both. And you can learn about a broker’s employment history, regulatory actions, and whether there are past or current arbitrations and complaints.

Step 2: Sign Up for a Brokerage Account

Most brokers of all kinds allow you to open and access your brokerage account online. When you open the account, you will likely be asked to provide your Social Security number or taxpayer identification number, your address, date of birth, driver’s license or passport information, employment status, annual income and net worth. You may also be asked about your investment goals and risk tolerance.

For the most part, they should not charge you a fee for opening an account. While some may require account minimums, others allow you to open an account with no minimum deposit.

There is no limit on the number of brokerage accounts you can open, and you may be able to hold multiple accounts with multiple brokerage firms.

Step 3: Transfer Money

You will need to fund your new brokerage account before you can purchase any types of securities. You can deposit money in a brokerage account like you would in a traditional bank account.

Step 4: Start Trading

Many brokerage firms will offer a way for you to earn interest on uninvested funds so that your money continues to work for you even when not invested in the market.



💡 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.

How Do Brokerage Accounts Work?

The brokerage firm with which you hold your account maintains the account and acts as the custodian for the assets you hold. In other words, the custodian provides a space for investors to use their account in the way that it was intended.

However, you own the investments in the account and can buy and sell them as you wish. The brokerage firm acts as a middleman between you and the markets, matching you with buyers and sellers, and executing trades based on your instructions.

For example, if you place an order with your brokerage to buy a certain number of shares of stock, the brokerage will match you with a seller looking to sell those shares and make the trade for you.

What’s the Difference Between Brokerage Accounts and Retirement Accounts?

Brokerage accounts are also known as taxable accounts, because profits on sales of securities inside the account are potentially subject to capital gains taxes. Generally speaking, these accounts offer no tax advantages for investors.

Retirement accounts, on the other hand, offer a number of tax advantages that may make them preferable to taxable accounts if you’re planning to save for retirement. Retirement accounts place limits on how much money you can contribute and when you can withdraw funds.

If retirement planning is your main concern, you may consider saving as much as you can in both a 401(k) if your employer offers one, and a traditional or Roth IRA. If you have funds left over, you may choose to invest those in your taxable brokerage account.



💡 Quick Tip: How much does it cost to set up an IRA? Often there are no fees to open an IRA, but you typically pay investment costs for the securities in your portfolio.

Is My Money Safe in a Brokerage Account?

The money and securities held in a brokerage account are insured by the Securities Investor Protection Corporation (SIPC) . The SIPC protects against the loss of cash and securities held at failing brokerage firms. If your brokerage firm goes bankrupt, the SIPC covers $500,000 worth of losses, including $250,000 in cash losses.

The SIPC only provides protection for the custody function of a brokerage firm. In other words, they work to restore the cash and securities that were in a customer’s account when the brokerage started its liquidation proceedings. The organization does not protect against declines in value of the securities you hold, nor does it protect against receiving and acting upon bad investment advice.

It is important that any investor realizes and accepts that investment comes with a certain amount of risk. While security prices may gain in value, it is also possible that you could lose some or all of your investment.

The Takeaway

Opening a brokerage account is a simple process that allows you to invest in securities. Effectively, you’re depositing money at a brokerage, which will allow you to buy investments such as stocks, bonds, or ETFs. There are numerous brokerages out there, and different types of brokerage accounts.

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

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.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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

Claw Promotion: Customer must fund their Active Invest account with at least $50 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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Angel Investors: What They Are and How to Find Them

An angel investor is typically a high-net-worth individual or a group of wealthy individuals who invest their money in a venture at an early stage in return for an equity share.

There are several ways a new small business might try to secure money for expansion or growth, from friends to bank lenders to joining a startup accelerator program. Angel investors are another option that can provide a capital infusion, but there are trade offs when accepting funds in exchange for a stake in a new company.

What Is an Angel Investor?

If you’ve ever watched the show Shark Tank, you’ve seen one type of angel investor in action. On the show, a group of wealthy investors listen to pitches from entrepreneurs who are looking for funding for their small business or startup. In exchange for funding, these investors generally ask for an ownership share in the business.

Angel investors can also be personal friends or colleagues of the entrepreneur. Typically they’re wealthy enough to provide a significant amount of money, despite the risks the startup could fail.

Recommended: What Is Active Investing?

That said, angel investors typically invest in startups that have the potential to grow and have minimal downside risk in the long term. An angel investor may provide a one-time investment in a company, or they may provide ongoing support. They may also be called private investors, seed investors, or just “angels,” for short.


💡 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.

Who Can Be an Angel Investor?

Angel investors were once required to be accredited investors, which demanded, among other things, that they have a net worth of $1 million in assets, not including personal residences — or yearly income greater than $200,000 alone, or $300,000 for a household for the previous two years. (Anyone who holds a Series 7, Series 65, or Series 82 in good standing also qualifies).

This was meant to limit angel investing — which is a risky practice — to those who ostensibly had enough assets to safely dabble in it. In recent years, however, anyone can be an angel investor.

Ways to Become an Angel Investor With Less Cash

Angel investing is undoubtedly risky — businesses fail all the time. However, lately it is possible to get involved in angel investing without putting tens of thousands of dollars on the line. (A smaller investment won’t reduce the risk, but it may potentially reduce an investor’s total loss.) These crowdfunding platforms enable smaller investors to dip their toes in the water:

•   WeFunder is an equity crowdfunding site that allows you to invest as little as $100 in startups and small businesses. The site encourages investors to invest in companies and products they love and believe in. Although the investment is smaller than might be typical, the site still describes these investments as risky and advises that people don’t invest money they can’t afford to lose.

•   SeedInvest is an equity crowdfunding site that allows users to get started with $1,000. The company vets all startups on the platform and offers a variety of investment opportunities. The site notes that early-stage investors should expect to hold their investments for at least five years, and that there is no guarantee on returns.

Recommended: Tips for Investing in Tech Stocks

What Are the Pros of Using Angel Investors?

There are a number of benefits to using angel investors to help finance a venture.

Less risk

If you take out a loan to finance your business, you’ll still be expected to pay it back, whether or not your venture is a success. Angel investors generally understand the risk of investing in a startup business, and may not expect any return on capital if the business goes south.

Expertise

If angel investors also happen to be experts in your business, they can offer advice and guidance based on their years of experience.

Credibility

Angel investors are often well-known in their field, and if they invest in your idea, it can boost your reputation and status to have them on board.

They’re Willing to Take a Leap

Unlike a bank, which may need more concrete proof that you’re onto something big, an angel investor might be more willing to gamble on your great idea.

Better Chance of Success

Companies with angel investor interest stand a greater chance of survival than those with less angel investor interest, according to findings from the National Bureau of Economic Research. Having angel investment doesn’t mitigate the risk of starting a business, but it’s possible that having angel investors on board can provide some oversight or accountability that might be beneficial.

What Are the Cons of Angel Investors?

There are also some potential disadvantages to having angel investors.

Loss of Full Ownership

Angel investors often provide funding in return for a share of the business, so involving angel investors means giving up some of your control. It also means that if the business succeeds, they’ll share in the proceeds.

They May Add Pressure

Angel investors aren’t giving you money out of kindness and good will. They may be aggressive investors who expect to see a high return on their investment. If they’re sinking money into your venture, it may feel there’s more riding on your success or failure.

Funding May Be Slow

Finding angel investors can take time, and the process of securing backers — and for the cash to find its way to your venture — can take even longer.

It’s a Competitive Market

Even if you have a brilliant idea, there’s no guarantee that you’ll be able to find backers for it. Although there were 334,680 active angel investors in 2021, only 64,480 entrepreneurial ventures received angel funding, according to an analysis by the University of New Hampshire Center for Venture Research.


💡 Quick Tip: Are self directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

Where to Find Angel Investors

Startups looking for early-stage investors can look in several places.

Friends and family

Most commonly, startups get much of their initial investment from friends and family who believe in their idea and want to support the venture.

High-Net-Worth Individuals

Networking within your business community may allow you to make connections with people who’d be interested in helping to back your idea. It can be helpful to join local business, trade, and community organizations. Attend meetings and trade fairs, and have your elevator pitch well-honed.

Angel Funding Groups

There are a number of sites that seek to match entrepreneurs with angel investors, including:

Angel Capital Association : A collective of accredited angel investors

Golden Seeds : A group whose members focus on women-led ventures

Angel Investment Network : A network that seeks to connect entrepreneurs with business angels

Crowdfunding sites

While traditional angel groups seek to match entrepreneurs with accredited investors, crowdfunding sites allow lots of smaller investors to pitch in to move your venture along. (Picture a GoFundMe for your business idea.) These include SeedInvest, LocalStake, WeFunder, and Fundable.

You’ll likely have to apply to have your idea or business vetted by the site before they’ll present your project to their members.

The Takeaway

Angel investors are typically high-net-worth individual or group backers that support startup and early-stage business ventures. But lately, opportunities have opened up for individuals of all types to invest in companies that have recently launched.

For entrepreneurs, an angel investor can be an enormous help, both in terms of financing their dream as well as providing guidance if they have relevant business experience. On the flip side, some entrepreneurs may find there is added pressure to deliver when an angel investor is backing their startup.

Whether you’re interested in finding an angel investor for your own startup idea, or thinking of becoming one, there are a number of risks associated with this type of business. Consider the pros and cons in light of your own financial goals, as there are many different paths forward.

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

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.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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

Claw Promotion: Customer must fund their Active Invest account with at least $50 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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What to Bring to College—The Ultimate Packing List

Congratulations: You’re on your way to college. You can put all the standardized tests, the applications, and the rest of the stress behind you and embark on this new adventure. Education and independence await, but you have to prepare for it.

And that starts with packing. Which clothes, books, and artwork are coming with you? What do you need to go shopping for?

To help you prepare, follow this list of what every new student might need.

Key Points

•   Essential school supplies include physical planners, notebooks, and specific tools like calculators, depending on class requirements, in addition to digital devices.

•   Students living in dorms must pack shower supplies, including shower shoes, a caddy for toiletries, towels, and possibly a robe for convenience.

•   Packing a suitable wardrobe involves considering personal style, weather conditions, and budget-friendly shopping options like thrift stores and couponing.

•   Comfortable walking shoes are crucial for navigating large college campuses, with a focus on bringing only necessary pairs to save space.

•   Essential dorm items include bedding and checking school restrictions on what can be brought, while planning to share items with roommates can reduce costs.

School Supplies

Don’t be fooled into thinking that the only necessary supplies are a laptop and phone. Additional supplies can help students manage their college courses.

Even though phones and laptops have built-in calendars, having a physical planner can be a good idea as well. Writing information down can help you remember it better, and it can be less distracting having school information in a physical planner, away from all those social media apps.

When it comes to taking notes, some professors don’t want everyone on their computers during class, and some don’t mind. It’s a good idea to have a notebook for each class just in case, along with pens, pencils, and highlighters.

Check the specific course requirements as well. You’ll likely need some textbooks (you may be able to pay for books with student loans, if you have taken any out). Also check the syllabus for each class should be available early enough to read through and see if the professor lists any required materials. If you’re taking a math class, for example, a specific type of calculator may be required.

(Tip: Since paying for college can be a stretch, look into renting books and equipment instead of buying them outright.)

Depending on how many books you have to lug around campus, you may want to invest in a new backpack or messenger-style bag. Some students like a small bag with roll-aboard-style wheels if they have to lug it long distances. The most suitable bag will likely depend on students’ schedule, how big their campus is, and how many classes they have in a row.

It might be good to wait to choose this item after you’ve selected your courses and can see what each day is going to require.

💡 Quick Tip: With benefits that help lower your monthly payment, there’s a lot to love about SoFi private student loans.

Shower Supplies

Students who choose to live in the dorms will need to bring shower supplies with them. Sharing a bathroom is going to be another adjustment in starting college. There are a few must-haves for a comfortable experience.

•  Shower shoes are one of these musts. A cheap pair of flip-flops will do the trick. These are shoes that are worn only while taking a shower. What’s the deal? They help to prevent athlete’s foot, a fungal infection that can result from public showers. Just make sure to rinse and dry off the shoes after each use.

•  A shower caddy is another essential. Most students will likely be walking from the dorm room to the shower, so they’ll have to bring all shower supplies with them. A portable container makes this much easier.

•  The caddy will have room for your shampoo, conditioner, body wash, and so on, and some of them also come with hangers, so they could potentially be hung up in the shower. In choosing a shower caddy, look for one that is waterproof and has holes in it so it doesn’t fill up with water.

•  Don’t forget the towels. At home, there’s always a stack of clean towels ready to be used. This won’t be the case in the dorms.

•  You might also want to have a robe that can be thrown on while walking from the dorm room to the bathroom and back.

Recommended: A Student’s Guide to Money

Wardrobe

This can be one of the most fun parts of packing: Thinking about what you’re going to wear. After all, it’s an opportunity to present your best self or a whole new you on campus.

You may have a stellar closet full of clothes you can’t wait to take with you. Or you may want to go shopping and take a break from the looks that you loved in high school. You’ll also have to consider the weather. If you grew up in Florida and are heading to Maine for freshman year, you are going to have to get gear that’ll keep you warm.

If you’re the sort of person who wants an entirely new wardrobe for college, it’s wise to learn how to save money on clothes, and uncover the joys of everything from couponing to hitting thrift stores.

Recommended: What Is the Average Cost of College Tuition

Don’t Forget Shoes

College campuses are much bigger than most high schools, so investing in a good pair of walking shoes is important. Classes may end up being a solid 15- to 20-minute walk away from each other.

It’ll take a toll on a student’s mood and physical comfort if they try to handle that walk in heels, unsupported sandals, or ill-fitting shoes.

Shoes take up a lot of space while packing, so trying to bring just the necessary pairs is wise. If your college is in a state that will experience cold or snowy winters, make sure to invest in some warm boots.

Recommended: Guide to Private Student Loans

Bedding and Room Necessities

What else do students need to bring to a college dorm? Most dorm rooms will come with a bed but not sheets. Pack a couple of sets of sheets and a nice comforter. Some college students also recommend bringing a mattress pad and backrest pillow because you may spend more time in that bed than expected. Not living on campus? If you’ll be staying off-campus, look for furnished apartments to minimize your costs.

One important note: It’s vital to look into the school’s list of restricted items so you know what you should not bring to college. The college may also list the furnishings that come with the room. Check out your school’s website first so you don’t buy something that’s already there.

It can also be helpful for students to contact their roommates ahead of time and see if they’re planning to bring anything that could be shared. That could be a move that helps make college more affordable.

It’s not a bad idea to pack on the light side; it can help you avoid overbuying and spending too much on things you don’t need. If you get there and need things, most items can be ordered online anyway.

Planning how to make the most of the small space provided in a college dorm is going to be great practice for when students are ready to move into apartments.

💡 Quick Tip: Parents and sponsors with strong credit and income may find much lower rates on no-fee private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.

The Takeaway

The packing list has been made and the shopping trip planned, so what’s next? Paying for everything. There are a lot of options for financing the entire college experience, and students can try to get help from more than one avenue if they need to.

Students seeking financial aid should look into scholarships and grants and then federal aid. If federal student loans do not cover the full need, or if a student is not eligible for federal aid, private loans may be an option.

Private loans are issued by private financial institutions. A co-signer is often necessary. Look for loans that don’t have origination fees and offer extra services like co-signer release and hardship deferment.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.



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.


SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

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.


External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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What Is an Expense Ratio?

The expense ratio is the annual fee that mutual funds and exchange-traded funds (ETFs) charge investors, to cover operating costs. The fee is deducted from your investment, reducing your returns each year — which is one reason why expense ratios have been shrinking.

Typically, investors may look for funds that offer lower expense ratios, as high expense ratios can take a substantial bite out of long-term returns, affecting investors’ financial plans.

Here’s a look at how expense ratios are calculated, what they encompass, and other factors worth considering when choosing a mutual fund or ETF to invest in.

How Expense Ratios Are Calculated

Though individual investors typically won’t find themselves in a situation where they need to calculate an expense ratio, it’s helpful to know how it’s done. To calculate expense ratios, funds use the following equation:

Expense Ratio = Total Fund Costs/Total Fund Assets Under Management

For example, if a fund holds $500 million in assets under management, and it costs $5 million to maintain the fund each year, the expense ratio would be:

$5 million/$500 million = 0.01

Expressed as a percentage, this translates into an expense ratio of 1%, meaning you would pay $10 for every $1,000 you have invested in this fund.

As you research funds you may come across two terms: gross expense ratio and net expense ratio. Both have to do with the waivers and reimbursements funds may use to attract new investors.

•   The gross expense ratio is the figure investors are charged without accounting for fee waivers or reimbursements.

•   The net expense ratio takes waivers and reimbursements into account, so it should be a lower amount.

Recommended: How Taxes, Fees, and Other Expenses Impact Your Investments

How Expense Ratios Are Charged

A fund’s expense ratio is expressed as a percentage of an individual’s investment in a fund. For example, if a fund has an expense ratio of 0.60%, an investor will pay $6.00 for every $1,000 they have invested in the fund.

The cost of an expense ratio is automatically deducted from an investor’s returns. In fact, when an investor looks at the daily net asset value of an ETF or a mutual fund, the expense ratio is already baked into the number that they see.


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

The Components of an Expense Ratio

The fees that make up the operating costs of a mutual fund or ETF can vary. Generally speaking, the investment fees included in an expense ratio will include the following:

Management Fees

The management fee is the amount paid to the person/s managing the money in the investment fund — they make decisions about which investments to buy and sell and when to execute trades. Management fees can vary depending on how much activity is required of these managers to maintain the fund.

Custodial Fees

Custodial fees cover the cost of safekeeping services, the process by which a fund or other service holds securities on an investor’s behalf, guarding the securities from being lost or stolen.

Marketing Fees

Also known as 12b-1 fees, marketing fees are used to pay for the advertising of the fund, some shareholder services, and even employee bonuses on occasion. FINRA caps these fees at 1% of your assets in the fund.

Other Investment Fees

Investors may be forced to pay other investment fees when they buy and sell mutual funds and ETFs, including commissions on trades to a broker. The cost of buying and selling securities inside the fund is not included as part of the expense ratio. Additional costs that are not considered operating expenses include loads, a fee mutual funds charge when investors purchase shares. Contingent deferred sales charges and redemption fees, which investors pay when they sell some mutual fund shares, are also paid separately from the expense ratio.

How to Research Expense Ratios

Luckily, you do not have to spend your time calculating expense ratios on your own. The Securities and Exchange Commission (SEC) requires that funds publish their expense ratios in a public document known as a prospectus. The prospectus reports information important to mutual fund and ETF investors, including investment objectives and who the fund managers are.

Online brokers often allow you to look up expense ratios for individual investment funds, and they may even offer tools that allow you to compare ratios across funds.

Average Expense Ratios

Expense ratios vary by fund depending on what investment strategy it’s using. Passively managed funds that frequently track an index, such as the S&P 500 index, and require little intervention from managers, tend to have lower expense ratios. ETFs are usually passively managed, as are some mutual funds. Other mutual funds may be actively managed, requiring a heavier touch from managers, which can jack up the expense ratio.

Expense ratios have been falling for decades, according to the most recent Morningstar Annual U.S. Fund Fee study, released in June 2022. “In 2021, the asset-weighted average expense ratio of U.S. open-end mutual funds and ETFs was 0.40%, compared with 0.87% in 2001,” the report states.” While that difference may seem slight, investors saved an estimated $6.9 billion in fund expenses in just one year.


💡 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.

What’s a Good Expense Ratio?

When considering expense ratios across mutual funds and ETFs, it’s helpful to use average expense ratios as a benchmark to get an idea of whether a specific expense ratio is “good.”

Investors may want to target funds with expense ratios that are below average. The lower the expense ratio, the less expensive it is to invest in the fund, meaning more profits would go to the investor vs. the fund.

That said, some investors may prefer to invest in actively managed funds, which typically charge higher fees than passive or index funds.

Looking Beyond Expense Ratios

When comparing mutual funds and ETFs, an investor might choose to consider other factors in addition to expense ratios.

It can be a good idea to consider how a particular fund will fit in their overall financial plan. For example, individuals looking to build a diversified portfolio may want to target a fund that tracks a broad index like the Nasdaq or S&P 500. Or, investors with portfolios heavily weighted in domestic stocks may be on the hunt for funds that include more international stocks.

And it’s also a good idea to know the key differences between mutual funds and ETFs. ETFs, for example, are generally designed to be more tax efficient than mutual funds, which can also have a big impact on an investor’s ultimate return. ETFs are generally lower in cost than mutual funds as well.

The Takeaway

Expense ratios seem small, but they can have a big impact on investor returns. For example, if an individual invested $1,000 in an ETF with a 6% annual return and a 0.20% expense ratio, and continued making a $1,000 investment each year for the next 30 years, they would earn $81,756.91, and spend $3,044.76 on the fund’s expenses.

But expense ratios are only one of many factors to consider when choosing a mutual fund or ETF. Fundamentally your investment choices have to fit into your larger financial plan. But cost should always be a concern.

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

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.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by 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.


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

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

Claw Promotion: Customer must fund their Active Invest account with at least $50 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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