InvestZ Archives | Page 135 of 160 | SoFi

Jul

20

2023

What Is an Expense Ratio?

By Austin Kilham | Growing Wealth, invest, Investing, Terminology | Comments Off

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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Jul

20

2023

notebook with pencil

How to Apply for Student Loans

By Kayla McCormack | Student Loans, student_loan | No Comments

College students often use a combination of funding including grants, scholarships, student loans, and savings to pay for their college education. Scholarships and grants are helpful because they typically don’t have to be repaid. But in many cases, students rely on borrowed funds to help pay for some college costs.

Student borrowers have two major options available to them — private and federal student loans. While both types can be used by students to help pay for college there are big differences in how a student will apply for them. Continue reading for more details on the differences between private and federal student loans and their application process.

Federal Student Loans vs Private Student Loans

Federal student loans are provided by the federal government. Private student loans are issued by institutions such as banks, some schools, and other private lenders. In order to make an educated borrowing decision it’s important to understand the major differences between federal vs private student loans. These differences include:

Repayment Terms

Federal student loans have a standardized set of repayment options. Borrowers can choose any of the federal plans and can adjust their repayment plan at any time without incurring any costs by contacting their loan servicer.
These repayments include income-driven repayment options which aim to make repaying student loans more affordable by linking monthly payments to your income.

The repayment terms on private student loans are set by the lender at the time the loan is borrowed. Some lenders may offer flexible repayment terms, but they are not required to do so. Thoroughly review the loan terms before borrowing.

Interest Rates

All federal student loans have fixed interest rates, which are determined annually by Congress.

Private student loans may have either fixed or variable interest rates. With variable rates, the starting rate depends on factors such as your credit score, income, and employment history, and it can change as the economy fluctuates. Lenders determine the interest rate on a loan based on reviewing borrower information such as income, credit history and score, among other factors.

In-School Deferment Options

Your choice between federal and private student loans may also determine when you start paying back your loans.

If you have a federal student loan, you generally aren’t required to start making payments until you graduate, leave college altogether, or reduce your course load below half-time. Many federal loans offer a six-month grace period after you leave school or cut back to below half-time, meaning you don’t have to make student loan payments during this time.

Certain private lenders allow you to wait to make payments on your private student loans just as you would with federal loans, but others require you to start paying them while you’re still in school full-time. This varies depending on the lender, so it’s important to check the specifics before taking out a loan.

Recommended: Using In-School Deferment as a Student

Which Type of Student Loan Should You Apply for First?

Federal student loans tend to be more flexible in regards to repayment options and loan forgiveness, and sometimes offer lower interest rates than private student loans. Because private loans are awarded based on borrower criteria including credit history, undergraduate students with limited credit history may need to add a cosigner to strengthen their chances of being approved for a private student loan.

Generally speaking, federal loans are prioritized over private student loans. But, in situations where borrowers have exhausted their federal borrowing options, private student loans can help fill financing gaps.

How Does the Application Process Differ Between Federal and Private Student Loans?

We’ll dive into an overview of how to apply for student loans, broken down by federal and private loans. But you should know that there are two main differences in the processes: where to apply and when to apply.

Federal Student Loan Deadlines

For federal student loans, you’ll fill out the Free Application for Federal Student Aid, better known as the FAFSA®. You will need to fill out the FAFSA each year you are in school.

When it comes to timing, there are important FAFSA deadlines set by the state and sometimes your individual college. Some states offer aid on a first-come, first-served basis, so procrastinating may not be in your best interest. Jumping on the FAFSA® early could make a difference in how much aid you receive.

Private Student Loan Deadlines

To apply for a private student loan, you’ll fill out an application directly with an individual lender. While private student loans are known for being more stringent with their terms and requirements, they can actually be more flexible when it comes to application timing. There’s no universal private student loan deadline. That’s one reason you may prefer to apply for federal student loans before private ones—to see how much federal financial aid you receive first, then, if needed, you can fill in the gaps with private loans.

Recommended: When to Apply for Student Loans: Student Loan Deadlines

Applying for Federal Student Loans

To apply for federal student loans, the first step is to fill out the FAFSA.

Filling out the FAFSA

You can fill out the FAFSA online at the Student Aid website. You can list up to 10 colleges on your FAFSA® form. If you want to list more than 10, you just have to follow a couple of extra steps.

The FAFSA form will ask for personal and financial information about the student and their parents (if the student is a dependent). These questions cover your age, marital status, level of degree you’re acquiring, military status, and your own dependents.

You’ll provide the necessary financial information. This includes your federal income tax returns and tax documents (and/or your parents’ returns and documents, if you’re considered a dependent). This may sound like a lot of work, but the website makes it relatively easy. It includes an IRS Data Retrieval Tool, and once you enter the relevant information, it should be able to pull up you and/or your parent’s tax return(s).

Just a heads up — you won’t submit the most recent tax return. For example, if you’re applying for aid for the 2023-24 school year, you’ll attach your 2021 tax returns.

If you have any untaxed income from that particular calendar year (the year 2021 from our example), you’ll need to provide records for those earnings. If you’re a dependent, this could include your parent’s income, including sources like child support or disability benefits.

Last but not least, you and/or your parents will provide bank statements. These statements should be current at the time you fill out the application, not from the year of the tax documents and untaxed income reports you submitted.

Recommended: SoFi’s FAFSA Guide

Completing FAFSA Follow-up Steps

After receiving your Student Aid Report, you may want to double-check with the schools you listed on the FAFSA® to make sure they received your information and to ask if they need you to fill out any more documents. Some schools require different documents, so it may be beneficial to contact each one.

Once a school has processed your information, you’ll receive an award letter from the institution that officially reports how much aid you’ll be receiving. Colleges differ in how long they wait to send out award letters, so if you’re feeling antsy, you can call to inquire about their reward deadline.

Now for a huge follow-up step: applying for private student loans if scholarships, grants, and federal loans don’t cover everything.

Types of Federal Student Loans

There are four types of federal student loans: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans for graduate and professional students, and Direct PLUS Loans for parents.

Direct Subsidized vs Unsubsidized Loans

Direct Subsidized Loans are available for undergraduate students. These loans are for students in financial need, and you don’t have to pay the interest until six months after you’ve graduated, left school, or dropped below half-time enrollment. These six months are referred to as the “grace period.” Interest will still accrue while you’re in school, but the government covers interest while you’re enrolled and during the grace period.

Direct Unsubsidized Loans are also for undergraduate students, but they aren’t disbursed based on your financial situation. The government doesn’t cover the cost of interest while you’re in school, so interest will accumulate throughout your time in college. You have the option to pay off the interest while you’re still a student, or you can wait until you start repaying your loans after the grace period—just keep in mind that unlike with Subsidized Loans, you’re responsible for paying the interest from this time period, not the government.

Direct PLUS Loans

The third type of federal student loan is a Direct PLUS Loan for graduate or professional students. The student takes out the loan, which is unsubsidized.

The fourth type is the Direct PLUS Loan for parents. This loan is for the parents of undergraduate students, so the parents would apply for and are held responsible for paying back the loan. Parent PLUS Loans are also unsubsidized.

Direct PLUS Loans require a credit check, unlike Direct Subsidized and Unsubsidized Loans.

Applying for Private Student Loans

As mentioned above, you can typically apply for private student loans directly on the lenders’ websites. If you’re having trouble deciding where to apply for private loans but have already narrowed down your top schools, you can contact those institutions. Some colleges have “preferred lender” lists.

However, you aren’t necessarily bound by those lender lists. You may still want to research private student loans to find the right interest rates, interest rate types (fixed or variable), payment schedules, and included fees for your specific needs. Remember, private student loans tend to vary in their terms, so a little research can’t hurt.

Lender Requirements

Make sure you meet the requirements to receive a private student loan. For example, will you be enrolled in school at least half-time?

You should also make sure you’re attending a school that’s eligible for private student loans. If you’re attending a community college or trade school, you may or may not be able to receive a private loan.

Keep in mind that private student loan lenders tend to check things like your credit, income, and job history when you apply. This step will affect everyone differently, but if you’re fresh out of high school, this step could throw you for a loop. What if you’ve never had a job? What if you didn’t even know credit scores were a thing before this moment?

Considering a Cosigner

One thing that may help in this predicament is finding a student loan cosigner.

Your options for a cosigner are fairly flexible, but many borrowers choose someone they trust, such as a parent, close relative, or trusted friend.

Cosigners can also come in handy if you aren’t a U.S. citizen. Maybe someone from your host family or study abroad program can cosign for you.

Still, it may be possible to get a private loan without a cosigner if you have low credit and/or income. Just be prepared to possibly pay more in interest!

Other Ways to Finance Your Education

Yes, federal and private student loans are tools for receiving money to pay for college. But they aren’t the only options! Remember, you can always apply for scholarships and grants.

Scholarships and Grants

Scholarships are “gift aid,” which means they don’t usually need to be repaid, and are typically merit-based. You can search for scholarships based on skill, such as academic, athletic, or music scholarships.

There are also scholarships available for people of certain demographics, such as ones for minorities or for women. You could even find scholarships for people of a certain religion/denomination or for those who’ve engaged in community service.

Grants are gift aid awarded based on your financial need. Some grants are provided by the government (state or federal), while others may be offered by your school or a private company.

Work-Study Program

The federal work-study program awards students with financial need the option to work part-time jobs to help pay for college. If you are interested in participating in the work-study program, you can indicate your interest when you fill out the FAFSA.

If you do not qualify for work-study, you may consider getting a part-time job.

The Takeaway

To apply for a federal student loan, and other forms of federal financial aid, students will fill out the FAFSA annually. Students interested in private student loans will fill out applications directly with private lenders.

Private student loans can be a tool when all other forms of aid have been exhausted. But if scholarships, grants, and federal student loans don’t cover your cost of attendance, finding a suitable private student loan could be the final step to supplementing your education costs. SoFi offers fee-free private student loans with competitive interest rates for qualifying borrowers. Plus, SoFi members can access even more benefits like career coaching.

Ready to get started? SoFi offers private undergraduate, graduate, and parent student loans, and student loan refinancing with flexible repayment options.

Ready to get started? SoFi offers private undergraduate, graduate, parent student loans, and student loan refinancing with flexible repayment options.

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).

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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.

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

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Jul

19

2023

Tips on How to Choose The Right ETF

By Inyoung Hwang | invest, Investing | Comments Off

ETFs are tradable funds that investors can buy and sell on stock exchanges all day. They typically hold a basket of assets, such as stocks or bonds, and mirror the moves of another underlying index. Since its start almost three decades ago, the ETF industry has taken the financial world by storm, and there are thousands of different ETFs on the market that investors can choose from.

But each investor is different, and some ETFs likely won’t be a good fit for their portfolio or strategy. Learning to choose or pick ETFs that do fit your strategy can take some practice, but it’s good to have some guidelines in mind.

How Do I Pick an ETF?

There’s no right or wrong way to pick an exchange-traded fund (ETF), but you can follow a process to help you determine which securities may be the best fit for you. It starts with picking an asset class.

Step 1: Pick the Asset Class

Because the performance of an ETF is so closely tied to an underlying index, investors need to first decide which underlying asset class they want exposure to. The main asset classes are stocks, bonds, currencies, and commodities.

Risk is generally inversely correlated to return. So riskier assets have the potential to deliver greater returns, while safer assets tend to deliver reliable, albeit smaller, returns. Stocks are considered to be a riskier, more volatile asset class. Commodities even more so. Meanwhile, bonds tend to be safer but also deliver more muted returns.

Keep in mind, just because an investor buys an ETF that gives them exposure to one asset class, that doesn’t preclude them from buying another that invests in another market. In fact, it’s a healthy portfolio diversification strategy to allocate one’s money into different asset classes, a practice known as asset allocation.

Step 2: Narrow the Focus

Once an investor has chosen their asset class, they can dive deeper within that market. When it comes to stock ETFs, this usually involves picking an industry – like technology or financial – that they’d like to get greater exposure to. Equity ETFs may also focus on a specific attribute a stock can have. Or dividend ETFs, which hold shares of companies with regular payouts.

For bond ETFs, investors can decide between funds that invest in U.S. government-bond versus bonds issued by countries abroad, as well as investment-grade (higher quality) company debt versus high-yield (junk) bonds.

More recently, thematic ETFs have taken off. These are stock funds that tend to be much narrower than the traditional sector ETF. They can focus on a niche subsector, like robotics, electric cars or blockchain, or even modern trends, like the gig economy or working from home.

There are pros and cons to thematic ETFs: while they’re often marketed as a convenient way to wager on an investment story, they also tend to underperform the broader market. Thematic ETFs have also been criticized for being too narrow and not offering the wide breadth that ETFs were originally designed to offer.

Step 3: Explore Different ETF Strategies

ETFs began as a way to provide investors access to broad markets with a single investment. Since then however, the popularity of the industry has led to the creation of numerous different kinds of ETFs, some of which employ complex strategies.

Here are some of the different ETF types:

• Leveraged ETFs allow investors to make magnified bets on different assets or markets. So instead of replicating the move of the underlying index exactly, leveraged ETFs will produce a move that’s 2x or 3x.

• Inverse ETFs let investors wager against an asset, so shorting or betting that the price of a market will go down. So if on a given day, the underlying market goes down, the inverse ETF’s price will go up.

• Actively Managed ETFs invest in assets without following an index. While ETFs are usually a form of passive investing–the strategy of tracking another index–actively managed ETFs are like stock-picking strategies packaged into a tradable fund.

• Smart-Beta & Factor ETFs use a rules-based system — such as stock weightings, valuations, or volatility trends — to choose the investments in a fund. These funds are often considered a hybrid between passive and actively managed ETFs.

• Currency-Hedged ETFs are funds that let investors wager on a basket of overseas stocks, while mitigating the risk that stems from currency fluctuations.

Step 4: Look at ETF Costs

A fundamental reason why ETFs have become so influential is their low cost. Low ETF fees have compressed costs across the board in asset management. The average expense ratio of most ETFs has fallen over time. Expense ratios are a percentage of assets subtracted each year. So, an expense ratio of 0.45% means that the charge is $4.50 for every $1,000 invested each year.

Because the vast majority of ETFs tend to be passive, they tend to be much cheaper than mutual funds, many of which are still actively managed. More complex ETFs like leveraged funds, or actively managed ones, tend to have higher expense ratios. But some passive ETF fees have hit rock-bottom levels.

Step 5: Other Ways to Analyze ETFs

What about how well an ETF has done? Should that matter? While profitability can make an investment look more attractive, it shouldn’t be the only factor investors use when determining which ETF to buy. That’s because in investing, past performance is not indicative of future results.

For ETFs, another key measure of performance is how well it tracks the underlying index. Tracking errors, when a move in the ETF veers from one by the market it’s designed to track, can come up from time to time, particularly in leveraged funds or ones that invest in stocks overseas.

Looking at the assets under management (AUM) can be a helpful way to pick an ETF. A larger AUM can signal an ETF’s popularity, which in turn makes it more likely that it’s liquid, or easy to trade without impacting prices.

💡 Quick Tip: If you’re opening a brokerage account for the first time, consider starting with an amount of money you’re prepared to lose. Investing always includes the risk of loss, and until you’ve gained some experience, it’s probably wise to start small.

How to Find an ETF’s Holdings, Prospectus, and Fact Sheet

Another touted perk of ETFs is their transparency. Investors can look up what’s exactly in a fund by going to the ETF provider’s website and searching for the fund. Contacting the ETF provider directly for this information is also possible. ETF providers are required to update this information regularly.

Securities and Exchange Commission (SEC) regulation also requires that ETF providers make easily available an ETF’s prospectus. The prospectus has information about the ETF including its investment objective, the risks, fees, as well as expenses. For investors interested in an ETF, one of the most important things they can do is research the fund by carefully reading the prospectus.

Similarly, ETF fact sheets act like quick summaries of the fund, giving key information like performance, the top holdings, and other portfolio characteristics. ETF providers typically produce fact sheets every quarter and make them available on their website.

The Takeaway

Choosing an ETF from the thousands out there can seem daunting, but taking a step-by-step approach can help individuals sort through the multitude of options. A key step investors can take in researching ETFs is reading the fund’s prospectus, where they’ll find vital information on the investment objectives as well as potential risks.

Considerations include which asset class an investor wants to invest in; how broad or narrow of an exposure they want; costs — which are usually shown as expense ratios; and lastly, an ETF’s size can give clues on the popularity and liquidity of the fund. One ETF, on its own, can provide some diversification. However, some people choose to use a number of ETFs as building blocks to assembling a well-balanced portfolio.

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

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Jul

18

2023

Renovation vs. Remodel What’s the Difference_780x440: If you’re a homeowner considering a range of home improvements, you may not know if what you’re planning is a renovation or a remodel.

Renovation vs Remodel: What’s the Difference?

By Lucy Maher | Growing Wealth, Home Ownership, mortgage | Comments Off

If you’re a homeowner considering a range of home improvements, you may not know if what you’re planning is a renovation or a remodel. Does it matter? Yes, because there are key differences.

A renovation is an update of an existing room or structure, while a remodel affects the design and purpose of an area. The more extensive work in a remodel will influence the cost and length of your project.

What Is a Renovation?

During a renovation, one or more rooms are updated and repaired. This might include new cabinets, flooring, and paint.

The bones of the room are typically left intact, though some structural issues may be fixed in a renovation, such as replacing rotting wood or swapping out window frames suffering from water damage.

A kitchen renovation might include replacing appliances, faucets, and knobs, while a bedroom reno might call for paint, new rugs, or new lighting.

Bathroom renovations often involve installing new tile, towel racks, and faucets.

Recommended: Home Improvement Cost Calculator

Advantages of a Renovation

Renovations are typically less costly than remodels, thanks to several factors.

You Can DIY

If you’re handy, you can slash some of the cost of hiring someone to undertake your renovation by doing some of the work yourself.

Because most renovations don’t require structural changes, you likely won’t be on the hook to hire licensed professionals to get it done. That means anything that you’re capable of — painting, wallpapering, floor sanding — you can do and pocket what it would have cost to hire help.

Just make sure you are skilled enough; hiring a professional to redo what you couldn’t complete may cost you money you didn’t plan on spending.

You May Get a Better Return on Investment

Since a renovation doesn’t call for major expenses like hiring licensed professionals or other construction-related outlays, in some cases the project offers more bang for the buck than a renovation does.

Renovation-related tweaks will still improve the look and feel of your home, and thus increase the value of your home, without the major expense a renovation entails.

You Can Expect Fewer Hidden Costs

When you’re renovating a room, your action plan is pretty cut and dry, and there aren’t likely to be surprises that require you to spend more than you planned.

Not so with a remodel, which, due to its scope, may result in additional costs to fix unforeseen problems such as hidden water damage, termites, or asbestos. These surprises can also lengthen the time of your project.

What Is a Remodel?

Remodels are typically more extensive than renovations. They include altering the function and sometimes the structure of an area of the house.

If your project calls for tearing down or adding walls, or changing the layout of a room, you’re planning a remodel.

Some examples of remodels: changing a powder room into a laundry room, knocking down a wall between a dining room and kitchen to create a great room, building an addition to your existing home, or expanding a closet into a dressing room.

Even if you’re not tearing down or adding walls, your project may be a remodel. This might include moving kitchen appliances around to improve room flow for a kitchen remodel, tearing out a tub and installing a walk-in shower in a bathroom, or turning a small guest bedroom into a home office.

Advantages of a Remodel

Many homeowners find there are pluses to a remodel as opposed to a renovation.

You Have the Opportunity to Customize Your Home

As homeowners grow with their home, they may find that their needs change.

Some may want an addition to accommodate an aging parent, while others may have expanded their families and need to convert a home office into a nursery or finish an attic and turn it into a bedroom. Empty-nesters may want to use one of their bedrooms as a study or gym.

A remodel affords them more options than a renovation does because they can make the necessary changes — however major — to achieve their needs.

You May Experience Hidden Benefits

Adding an island to a kitchen and removing a wall to create a larger space might mean more than increased room to prepare meals. You may find your family spends more time together in rooms that are spacious and inviting.

Similarly, retrofitting your heating and cooling system, adding under-floor heating, and replacing insulation might result in lower utility bills, freeing up money for hobbies or vacations.

Recommended: Guide to Buying, Selling, and Updating Your Home

Why a Remodel May Cost More Than a Renovation

All of that means remodels are costlier than renovations. Here’s why.

You May Need Permits

Thanks to the extensive nature of most remodels, many cities require homeowners to secure a permit before they begin work, especially if the project involves creating an addition to the home, or if new walls or new roofs are being installed. This is to ensure that building codes are followed.

If you need permits, you will want to factor the time it takes to secure them into your timeline. Once the permits are approved, the project may begin. And once it is completed, it will likely need to be approved by a local inspector.

You May Need Professional Help

If your remodel requires electrical, duct, or plumbing work, you will likely need to hire a licensed professional to complete it.

You may also need a general contractor to hire and oversee these workers and others for larger remodels like adding a guest suite to the home or converting an attic to a home office with an en-suite bathroom.

These vendors, while necessary, can be costly since you are paying for their time in addition to any materials.

You May Be Dealing With Construction

While it can be exciting to imagine what your home will look like after a remodel, getting there can be taxing. That’s because you may be living in a construction zone as the project is underway.

It can be difficult to have to eat multiple takeout meals because your kitchen is being worked on, or deal with dust from work being done in the next room over.

If their remodel is especially extensive, some homeowners find they need to rent a home nearby until the remodel has been completed.

Recommended: 15 Ways to Keep Inflation from Blowing Your Home Reno Budget

Paying for a Remodel or Renovation

Whether you’re undertaking a renovation or remodel, you’ll want to have a budget and a payment plan. Some renovations are small enough that homeowners can pay upfront.

Those tackling remodels and larger renovations might tap a home equity loan or home equity line of credit, when the home is used as collateral.

An unsecured, fixed-rate home improvement loan is another option.

A cash-out refinance also can free up part of the difference between the mortgage balance and the home’s value.

Recommended: Home Equity Loans vs Personal Loans for Home Improvement

The Takeaway

Undertaking home improvements can be exciting for homeowners. But before you embark on a project, know whether you’re looking at a renovation or a remodel, how much inconvenience you’re willing to put up with, and what you are willing to pay.

SoFi offers personal loans of up to $100,000. If a cash-out refinance makes more sense, SoFi offers that as well.

Or if you’re in the market for a home loan, SoFi has that covered, too, with competitive rates and flexible terms.

With SoFi, you can find the right loan option for your remodel or renovation needs.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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.

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

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Jul

18

2023

mother and child on stairs

7 Ways to Build Equity in Your Home

By Austin Kilham | Budgeting & Goals, Home Ownership, personal_loan | Comments Off

Homeownership comes with plenty of perks, But one important financial benefit is the opportunity to build home equity, which is considered a common way to generate wealth over time.

Read on to learn how homeowners can help build equity and increase the value of their home.

What Is Home Equity?

In order to understand how building home equity works, it’s important to understand exactly what it is.

Equity is the amount of your home you actually own. More specifically, it’s the difference between how much you owe your lender and how much your home is worth.

To calculate home equity, simply subtract the amount of the outstanding mortgage loan from the price paid for the home. So if a home is worth $350,000, and the homeowner owes $250,000 on their mortgage, they have $100,000 of equity built up in their house. Their mortgage lender still has an interest in the home to the tune of $250,000 and will continue to have an interest in the home until the mortgage is paid off.

7 Smart Ways to Build Your Home Equity

1. Making a Big Down Payment

Homeowners can get a jump on building home equity when they’re buying a home by making a large down payment.

Typically, homebuyers using a conventional loan will put down at least 20% as a down payment to avoid having to pay mortgage insurance. That means that right off the bat, the homeowner has a 20% interest in their home. They can increase this amount by putting even more down. A down payment of 30%, for instance, will increase equity and potentially give the homebuyer more favorable mortgage payments and terms.

If making a large down payment means having less in emergency savings, however, the home buyer may want to use other methods to build equity.

2. Prioritizing Mortgage Payments

Each mortgage payment a homeowner makes increases the amount of equity they have in their home. Making mortgage payments on time will avoid potential late fees.

Keep in mind that a portion of each mortgage payment goes toward interest and sometimes escrow. You’ll want to take these amounts into account when calculating how much equity is accruing.

3. Making Extra Payments

Extra payments chip away at a loan’s principal, help build equity faster, and potentially save thousands of dollars in interest payments. Even if it’s only a little bit each month, paying more than your regular mortgage payment amount can help you increase how much home equity you build.

If adding some extra cash each month isn’t feasible, perhaps making one-time payments whenever possible — when you get a bonus at work, for instance — would be an option.

To ensure those payments are applied correctly, be sure to notify the lender that any extra or lump-sum payments should be put toward the loan’s principal.

Beware that some lenders may charge a prepayment penalty to borrowers who make significantly large payments or completely pay off their mortgage before the end of the term. Before making extra payments, consider asking the lender about a prepayment clause.

4. Refinancing to a Shorter Term

You may also consider refinancing with a loan that offers a shorter term. For example, a homeowner could refinance their 30-year mortgage to a 20-year mortgage, shaving off up to a decade of mortgage payments. However, doing so means they will also be increasing the amount they pay each month.

Still, shorter-terms loans may have the added benefit of lower interest rates, which could soften the blow of higher monthly payments.

Mortgage refinancing is not necessarily a simple process, nor is it guaranteed that a lender will offer a new loan. Homeowners can increase their chances of securing a refinanced mortgage by maintaining healthy credit and a low debt-to-income ratio. It may also help to have equity built up in the home already.

5. Renovating Your Home

Making home improvements typically increases the value of a home, which will likely increase equity. Renovating a home’s interior can be a good place to start.

Minor renovations like updating light fixtures and repainting can add some value to a home. Larger projects such as updating the kitchen, adding bathrooms or finishing the basement may yield good returns on the investment.

Weighing present cost against potential future gain may be a good thing to do before tackling a big project. The idea is that making these improvements now, and then being able to sell at a premium will mean recouping your expenses and then some. An online home improvement project calculator can help you estimate the cost of projects and how much value they could potentially add.

6. Sprucing Up the Outside

Similarly, adding to a home’s curb appeal may also increase its value. A fresh coat of paint, a well-maintained lawn, and tasteful landscaping could help increase a home’s desirability and the amount that buyers are willing to pay.

Mature trees, for example, can potentially add thousands of dollars to a home’s resale value. If you’re thinking of selling in a decade or more, planting a tree now could have a big effect on sale price later.

Increasing usable outdoor space by adding a deck or patio and installing good outdoor lighting may increase the value of your home.

7. Waiting for Home Values to Rise

The real estate market is always evolving, and sometimes, playing the waiting game could help you build equity. For instance, if your neighborhood becomes more popular, home prices could start to rise. If that happens, it may be worth keeping a home there longer to take advantage of the trend. Of course, the flip side is that housing prices may drop over time, which could mean a loss in equity.

Why Build Home Equity?

Building home equity is important because it gives the homeowner the opportunity to convert that equity into cash when the need arises. This is commonly done when a home is sold. But the equity in a home can also be important when taking out a home equity loan, which could allow the homeowner to use the value of their home while still living there.

For a home equity loan, a lender provides a lump-sum payment to the borrower. The amount must be repaid over a fixed time period with a set interest rate. As with a personal loan, home equity loans can be used for a variety of purposes. The loan is backed by the value of the home and typically must be repaid in full if the home is sold.

A home equity line of credit, or HELOC, is a revolving line of credit that uses the value of the home as collateral. Unlike lump-sum loans, a HELOC allows the homeowner to borrow money as needed up to an approved credit limit. That amount is paid back and can be drawn on again throughout the course of the loan’s draw period. While a person’s home is likely to be their most valuable asset, it’s also valuable purely because of its provision of shelter.

Researching and understanding all of the risks involved with loans that use a home as collateral, including that it could be lost if the loan is not paid back, is important before considering this option.

The Takeaway

There are many ways to build equity in a home. Different strategies include making a large down payment or extra monthly mortgage payments, refinancing to a shorter term, renovating your home, or waiting for home values in your area to rise. Whatever your strategy, home equity can provide you with a valuable resource that can be used when a financial need arises. Often this resource is tapped into by means of a loan that is secured by the home. However, this means if the loan is not repaid, a homeowner could lose their home.

If you want to avoid using a home as collateral for a loan, consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. And checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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 Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance 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.

SOPL0623050

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

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