Jun
17
2024
How to Invest in Wind Energy

How to Invest in Wind Energy

By | Growing Wealth, invest, Investing | Comments Off on How to Invest in Wind Energy

Investing in wind energy involves putting money into companies or funds focused on some aspect of the wind energy industry. Individuals can invest in the wind energy industry directly by investing in companies that operate wind farms or indirectly by putting money into companies that manufacture wind turbines or components.

Wind energy is one of the cornerstones of the renewable energy industry, providing a cost-effective source of electricity generation. As more attention is paid to the effects of climate change and the need to reduce dependence on fossil fuels, many investors are turning to wind energy investments.

What Are Wind Energy Investments?

Wind energy investments are financial stakes in companies and projects focused on generating electricity through wind power. Wind turbines, sometimes called windmills, harness this power by collecting the energy created by wind and converting it into electricity. Wind energy is often divided into two market segments, distributed wind and utility-scale wind.

💡 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.

Distributed Wind Market Segment

The distributed wind market is usually made up of smaller-scale projects, where wind turbines are used to generate electricity for homes, businesses, and even entire communities.

Utility-scale Market Segment

Utility-scale wind energy, in contrast, consists of turbines that generate more than 100 kilowatts of energy. The power generated by utility-scale wind projects is added to the electrical grid. Companies involved in utility-scale wind energy draw the most interest from individual investors.

Utility-scale wind energy projects can be land-based, where a group of wind turbines is grouped in a wind farm on land. Offshore wind farms built off the coast are another type of utility-scale wind energy, taking advantage of powerful ocean winds to generate large amounts of energy.

Individuals can invest in the wind energy industry by putting money into companies involved in some portion of the wind energy industry or, more rarely, by investing in specific wind energy projects.

Increased Popularity

Wind energy investments, and other socially responsible investments, have grown in popularity in recent years as the focus on the need for sustainable energy grows. Because they rely on wind power rather than fossil fuels, these investments and projects cut down on emissions and pollution.

Further, wind energy is becoming more common because of declining costs, technological improvements, and government tax incentives. In the United States, wind power supplied more than 20% of all electricity to 12 states as of 2022, and in 2023, U.S. wind generation totaled more than 425,000 gigawatt hours of power.

3 Ways to Invest in Wind Energy

Investors can invest in wind energy by putting money into the stocks and bonds of companies in the wind energy industry. Mutual funds and exchange-traded funds (ETFs) with wind energy or renewable energy-focused strategies are also potential investment vehicles for those interested in adding wind energy to their portfolio.

Regardless of the type of investment, investors need to remember that many companies and funds are diversified, meaning that they may be involved in sectors other than wind energy. For investors that want to invest in purely wind energy companies or funds, it’s essential to do research into potential investments.

💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

1. Stocks

Investors can put money into various publicly-traded companies involved in some aspect of the wind energy industry. These companies may include wind farm operators, which own and operate wind turbines to produce energy for customers and end-users, and manufacturers of turbines and other components of wind farms. Some utility companies may also be an option for wind energy investors.

Some companies involved in the wind energy industry include:

•   Orsted : The Denmark-based power company is the largest developer of offshore wind power in the world.

•   Vestas Wind Systems : The Denmark-based company is one of the world’s largest manufacturers of wind turbines

•   GE Vernova : The US-based company that was spun-off from GE’s main business in 2024, specializing in energy equipment manufacturing.

•   NextEra Energy : The American energy company has 119 wind farms in operation

•   Alliant Energy : The American energy company owns and operates wind farms across Wisconsin and Iowa

2. Mutual Funds and ETFs

Investors who don’t want to pick individual stocks to invest in can always look to mutual funds and exchange-traded funds (ETFs) that provide exposure to wind energy companies and investments. A growing number of index funds invest in a basket of companies involved in the wind energy industry.

These funds allow investors to diversify their holdings by investing in one security. However, not all wind energy funds follow the same criteria and may focus on different aspects of wind energy. These funds may also have holdings in traditional energy and utility companies that only are partially involved in the wind energy industry.

3. Bonds

The bonds of corporations involved in wind energy business practices can be a good option for investors interested in fixed-income securities. Green and climate bonds are bonds issued by companies to finance various environmentally-friendly projects and business operations.

Additionally, government bonds used to fund wind energy projects can be an option for fixed-income investors. These bonds may come with tax incentives, making them a more attractive investment than traditional bonds.

💡 Recommended: How to Buy Bonds: A Guide for Beginners

Benefits and Risks of Investing in Wind Energy

The trend of investing in renewable energy sources like wind energy is rising as the public becomes more aware of the environmental and economic benefits of doing so. However, before investing in this sector, there are benefits and risks to consider.

Benefits

A benefit of investing in wind energy is that it is a renewable resource, so it will never run out as long as the sun shines and the wind blows. Additionally, wind energy is cost-effective, and tends to be one of the lowest-priced energy sources. And because the power generated from wind farms is sold at a fixed price over a long period of time, it may provide reliable returns for investors — though there are no guarantees.

Wind power is also a clean energy source, meaning it does not produce emissions that can harm the environment like fossil fuels and power plants. This can be attractive for investors focused on building a portfolio of green investments.

Risks

One primary risk of investing in wind energy is that it is a relatively new technology, so there is little data available on its long-term performance. Wind energy and all renewable energy sources must compete with traditional energy sources like oil, coal, and natural gas. Because of this, the long-term outlook for wind energy investments may change. Wind energy investments may be harder to stomach for investors who are not comfortable with the risk of newer technologies.

Additionally, wind energy projects may get pushback from communities where companies want to operate.

How to Build a Wind Energy Portfolio

If you are ready to start investing and want to build a portfolio of wind energy investments, you can follow these steps:

Step 1: Open a brokerage account

You will need to open a brokerage account and deposit money into it. Once your account is funded, you can buy and sell stocks and other securities.

Step 2: Pick your assets

Decide what type of investment you want to make, whether in a company’s stock, a wind energy-focused ETF or mutual fund, or bonds.

Step 3: Do your research

It’s important to research the different companies and funds and find a diversified selection that fits your desires and priorities.

Step 4: Invest

Once you’re ready, make your investment and then monitor your portfolio to ensure that the assets in your portfolio have a positive social and financial impact.

It is important to remember that you should diversify your portfolio by investing in various asset classes. Diversification may help to reduce your risk and maximize your returns.

The Takeaway

Wind energy is a renewable resource that is becoming increasingly popular and is expected to grow significantly in the coming years. This makes it a potential growth investment for those looking to diversify their portfolios and reduce their reliance on traditional energy sources.

While the outlook for wind energy is promising, investments in wind energy may not always produce positive returns. When considering a wind energy investment, it is important to do your research and understand the risks and rewards involved with this nascent industry.

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

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

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Jun
15
2024
Guide to Callable Certificates of Deposit (CDs)

Guide to Callable Certificates of Deposit (CDs)

By | Budgeting & Goals, Growing Wealth, money | Comments Off on Guide to Callable Certificates of Deposit (CDs)

A callable CD is a certificate of deposit that pays interest like a regular CD, but can be “called” or redeemed by the issuing bank before the maturity date, limiting the return for the investor.

Regular CDs are designed so that investors get back their principal, plus a fixed amount of interest, when the CD matures. But those who own callable CDs may not get the interest they expected if the bank calls the CD early.

Callable CD interest rates tend to be higher because of this potential risk.

What Is a Callable CD?

A callable CD, like a callable bond, means that the bank has the power to terminate the CD before the maturity date. This may happen if there is a drop in interest rates.

For example, if an investor opens a bank account and buys a 2-year callable CD, the bank could close it out as soon as six months after it’s opened, or any time after that, generally at six-month intervals; it depends on the terms of the CD. The investor would then get back their principal and the amount of interest earned up to that point.

It’s important to note that only the issuer has the ability to call the CD early. The investor must leave their money in the CD until it’s called or reaches maturity, or they will likely face an early withdrawal penalty.

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How Does a Callable CD Work?

Callable CDs are similar to regular CDs, which are time-deposit accounts offered by banks, credit unions, and brokerages. These accounts provide a fixed interest rate on the funds the account holder has deposited for a specific term (usually a few months to a few years).

Callable CDs generally offer higher interest rates. But unlike a regular CD, a callable CD has a “call” feature which allows the financial institution to decide whether it wants to stop paying the account holder the higher interest rate. This typically occurs when interest rates begin to drop. At that point, the issuer can close out the CD and return the funds to the investor, plus any interest earned up to that point.

The bank typically offers a premium interest rate to account holders in exchange for the risk that the CD might be called.

Recommended: APY vs. Interest Rate: What’s the Difference?

Callable CD Example

Let’s say an account holder decides to deposit $10,000 into a callable CD that has a three-year maturity with a 5.00% interest rate. The bank, however, decides to call the CD after a year because interest rates dropped, and the bank can now offer CDs at a 4.00% interest rate.

In this case, the account holder would get their $10,000 back along with the interest accrued prior to the bank’s redemption of the CD. That would be about $500 versus more than $1,500 the investor might have earned if they had been able to hold the CD to maturity.

Are Callable CDs FDIC Insured?

Callable CDs, like most types of CDs, are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Association (NCUA) if the CD is issued by a credit union. If there is a bank failure, federal deposit insurance protects the money held in a callable CD up to that amount.

If the CD was issued by a brokerage, which is generally known as a brokered CD, the CD is not technically FDIC-insured. However, the brokerage’s underlying purchase of the CD from a bank typically is FDIC-insured (though it’s a good idea to check to make sure before you open a brokered CD).

Maturity Date vs Callable Date

The maturity date is when the certificate of deposit reaches maturity and the investor can redeem the CD for the principal plus interest accrued during the length of the CD. They can choose to take the earnings or renew the CD.

The callable date is the earliest date at which the CD issuer can close the CD. The first callable date can generally be as soon as six months after the CD was opened, and can typically occur any time after that, at six-month intervals (for example, one year, 18 months, two years, and so on).

Be sure to read the terms of any CD, but especially callable CDs, as the callable date can vary. For example, you could buy a callable CD with a 5-year maturity date and a one-year callable date (the earliest date the issuer can call the CD). That means, at the very least, your money would earn a year’s worth of interest.

Pros of Callable CDs

There are several advantages that may come with opening a callable CD.

•   Callable CDs typically pay higher interest rates compared to regular CDs. Since account holders are taking on the risk of the bank redeeming the callable CD prior to its maturity, the account holder gets a higher interest rate in exchange for taking on this risk.

•   Like most CDs, callable CDs are generally considered lower-risk investments. If the bank decides to terminate the CD before its term, you will typically still receive the original deposit amount as well as the interest that accumulated until that time.

•   In the event of a bank failure, your money is federally insured up to $250,000.

Cons of Callable CDs

While there are positives to callable CDs, these saving vehicles can have some downsides.

•   If the account holder needs access to capital and has to withdraw their money prior to the callable CD’s date of maturity, they are subject to early withdrawal penalties which can eat up some or all of the interest earned.

•   In the event that interest rates decline, there is a possibility that the bank could call the CD early, in which case the account holder would not receive the same return they would have if the callable CD were to finish its full term.

Where to Open a Callable CD

You can open a callable CD with a bank or credit union, or with some brokerages. The financial institution should be FDIC-insured or National Credit Union Administration-insured so your money is protected.

With a brokered CD, the CD should be insured through the bank the brokerage purchased the CD from, but be sure to check that this is the case before opening the CD.

The Takeaway

If you are looking for investments that are generally lower risk, provide predictable returns, and are protected by federal insurance, callable certificates of deposits might fit the bill. Callable CDs could build your savings by paying a higher fixed interest rate for a specific period of time. However, the account holder takes the risk that the bank might exercise the call option, and close the account before the CD matures.

If you’re interested in earning a higher rate on your savings, you may want to consider other savings vehicles as well, such as a high-yield savings account with a competitive APY that’s higher than the rate offered by traditional savings accounts. Explore the options to choose what best suits your needs.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


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FAQ

What is a callable vs a non-callable CD?

Callable CDs are certificates of deposits that pay interest for a specified term like a traditional CD does, but the callable CD rate tends to be higher because the bank can redeem the CD before it reaches maturity. A regular CD does not have a call feature.

Why would a bank call a CD?

Usually, a bank would call a CD in the event of falling interest rates. The bank redeems the CD because with a drop in rates, it can then pay lower rates to its CD holders.

Can you lose money on a callable CD?

Generally, you cannot lose money on a callable CD, but you might get less of a return than you’d hoped. In the event that the CD is called, the account holder receives the principal along with interest that was accumulated up to that point in time, instead of receiving the return for the full term of the CD.

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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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4.00% APY
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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Jun
14
2024
How to Invest in Solar Energy

How to Invest in the Solar Energy Sector

By | Growing Wealth, invest, Investing | Comments Off on How to Invest in the Solar Energy Sector

Solar energy investing focuses on companies or funds focused on some aspect of the solar energy industry. You can invest in the solar energy industry by putting money into companies involved in some part of the solar power supply chain, including manufacturers of solar panels and operators of solar energy facilities. Investors can also profit from solar energy by installing solar panels on their homes.

Solar energy is one of the most popular and growing renewable energy sources. There are several ways to invest in solar energy for investors interested in supporting an industry that may help reduce dependence on traditional fossil fuels and help combat climate change.

What Is Solar Investing?

Solar investing generally refers to investing in companies that produce or sell solar energy products. This can include solar panel manufacturers, installers, or companies operating solar energy facilities. Investors usually invest in solar through traditional products like stocks, mutual funds, and exchange-traded funds (ETFs).

Another common type of solar investing is the installation of solar panels on a home or business. Solar panels can be used to power all or part of a home or business, and the electricity generated can offset the cost of an energy bill. Investors can also use solar panels to generate income by selling their electricity back to a utility company.

💡 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.

💡 Recommended: Beginner’s Guide to Sustainable Investing

What Is Solar Energy?

Solar energy is a form of renewable energy that comes from the sun; it is an abundant source of energy that can be used to generate electricity, heat water, and provide other forms of energy for homes, businesses, and communities.

Solar energy is generally generated by solar panels, which are made up of photovoltaic (PV) cells that convert sunlight into electricity. Solar panels can be installed on an individual’s home or business or arrayed across open spaces that experience strong sunlight.

Though solar panels are common for most consumer and business applications, thermal solar is another type of solar energy. Thermal solar energy utilizes mirrors to reflect and concentrate sunlight onto receivers that collect the energy and convert it to heat, which can then be used to produce electricity or stored for later use. It is used primarily in large power plants.

Solar energy is considered a clean and sustainable energy source that can help reduce the dependence on fossil fuels to combat climate change. Analysts expect renewable energy sources like solar will make up a more significant portion of all energy generation in the coming decades.

Benefits and Risks of Investing in Solar

The trend of investing in renewable energy sources like solar energy is rising as the public becomes more aware of the environmental and economic benefits. However, before investing in this sector, there are benefits and risks to consider.

Benefits

A benefit of investing in solar is that it provides a renewable energy source that can help reduce your carbon footprint. This can be appealing to investors interested in environmentally friendly and socially responsible investing.

Solar energy is also sustainable, especially compared to fossil fuels and traditional energy sources. The amount of oil and coal in the ground is limited, but the sun, hopefully, isn’t going anywhere. Investors interested in investments with long-term growth potential may prefer solar energy to other energy stocks.

Additionally, if you install solar panels on your home, it can increase the value of your property.

💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

Risks

A primary risk of solar energy is that it is intermittent, meaning that solar energy is only generated when the sun is shining. Solar energy is only available during daylight, and a cloudy day may interfere with energy production. While this is a problem, technology is advancing so solar energy can be more adequately captured and stored during periods of extreme sunshine.

Another downside to solar energy is that many technologies in the sector require rare earth materials in the production process. The solar industry must compete with other industries for these scarce resources. Because there can be supply and demand issues for these commodities, it can increase costs for solar energy producers.

And though solar energy is a renewable resource, that doesn’t mean it doesn’t create any harm to the environment. The materials used in solar technologies are difficult to dispose of and recycle, which cuts into the sustainability claims of solar energy investments.

💡 Recommended: What Every New Investor Should Know About Risk

4 Ways to Invest in Solar Energy

Investors can invest in solar energy by putting money into the stocks and bonds of companies in the solar energy industry. Mutual funds and exchange-traded funds (ETFs) with solar energy or renewable energy-focused strategies are also potential investment vehicles for those interested in adding solar energy to their portfolio.

Regardless of the type of investment vehicle, investors need to remember that many companies and funds are diversified, meaning they may be involved in sectors other than solar energy. For investors that want to invest in purely solar energy companies or funds, it’s essential to do research into potential investments.

Stocks

Investors can put money into various publicly-traded companies involved in some aspect of the solar energy industry. Solar energy companies may include manufacturers of components for solar technologies, installers of solar panels, and firms that operate solar energy facilities.

Some companies involved in the solar energy industry include:

•   Enphase Energy (ENPH): This company designs and manufactures technologies that turn sunlight into energy

•   SolarEdge Technologies (SEDG): This firm creates products that help photovoltaic systems convert solar energy into power

•   First Solar (FSLR): This company is a manufacturer of solar panels and a provider of utility-scale photovoltaic power plants

•   Sunrun (RUN): This firm is a leading provider of residential solar panels

•   Daqo New Energy (DQ): This company manufactures monocrystalline silicon and polysilicon, primarily for use in solar photovoltaic systems

Mutual Funds and ETFs

Investors who don’t want to pick individual stocks to invest in can always look to mutual funds and exchange-traded funds (ETFs) that provide exposure to solar energy companies and investments.

Several index funds invest in a basket of companies in the solar energy industry. These funds allow investors to diversify their holdings by investing in one security. However, not all solar energy funds follow the same criteria and may focus on different aspects of solar energy. These funds may also have holdings in traditional energy and utility companies that only are partially involved in the solar energy industry.

Bonds

The bonds of corporations involved in solar energy business practices can be a good option for investors interested in fixed-income securities. Green and climate bonds are bonds issued by companies to finance various environmentally-friendly projects and business operations.

Additionally, government bonds used to fund solar energy projects can be an option for fixed-income investors. These bonds may come with tax incentives, making them a more attractive investment than traditional bonds.

Install Solar Panels

As mentioned above, investors who want to profit from solar energy can purchase solar panels and install them on a home or business. This may be an appealing way to save money on your energy bills, generate income by selling electricity to a utility company and helping reduce your carbon footprint.

How to Start a Solar Investment Portfolio

If you are ready to start investing and want to build a portfolio of solar energy investments, you can follow these steps:

Step 1: Open a brokerage account

You will need to open a brokerage account and deposit money into it. Once your account is funded, you can buy and sell stocks and other securities. SoFi Invest® offers an active investing platform where you can start building your solar energy portfolio.

Step 2: Pick your assets

Decide what type of investment you want, whether in a company’s stock, a solar energy-focused ETF or mutual fund, or bonds.

Step 3: Do your research

It’s important to research the different companies and funds and find a diversified selection that fits your desires and priorities.

Step 4: Invest

Once you’re ready, make your investment and then monitor your portfolio to ensure that the assets in your portfolio have a positive environmental and financial impact.

It is important to remember that you should diversify your portfolio by investing in various asset classes. Diversification may help to reduce your risk and maximize your returns.

The Takeaway

Solar investing has become increasingly popular in recent years as the cost of solar panels has fallen and the technology has become more efficient. Solar panels are now available for a fraction of the cost of traditional electric power, and they are becoming more efficient at converting sunlight into electricity.

Investing in the solar energy industry may be a way to profit from the growth outlook for solar energy. However, it’s necessary to do your homework before investing in any solar company or fund or installing solar panels on your home.

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/deepblue4you

SoFi Invest®

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

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

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

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.
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Jun
13
2024
Avoid These 12 Common Retirement Mistakes

12 Common Retirement Mistakes You Should Avoid

By | invest, Investing, Preparing for Retirement | Comments Off on 12 Common Retirement Mistakes You Should Avoid

Part of planning for a secure future is knowing what retirement mistakes to avoid that could potentially cost you money. Some retirement planning mistakes are obvious; others you may not even know you’re making.

Being aware of the main pitfalls, or addressing any hurdles now, can help you get closer to your retirement goals, whether that’s traveling around the world or starting your own business.

Planning for Retirement

Knowing what not to do in retirement planning is just as important as knowing what you should do when working toward financial security. Avoiding mistakes when creating your retirement plan matters because of how those mistakes could affect you financially over the long term.

The investment choices someone makes in their 20s, for example, can influence how much money they have saved for retirement by the time they reach their 60s.

The younger you are when you spot any retirement mistakes you may have made, the more time you have to correct them. Remember that preparing for retirement is an ongoing process; it’s not something you do once and forget about. Taking time to review and reevaluate your retirement-planning strategy can help you to pinpoint mistakes you may need to address.

12 Common Retirement Planning Mistakes

There’s no such thing as a perfect retirement plan — everyone is susceptible to making mistakes with their investment strategy. Whether you’re just getting started or you’ve been actively pursuing your financial goals for a while, here are some of the biggest retirement mistakes to avoid — in other words, what not to do in retirement planning.

1. Saving Too Late

There are many retirement mistakes to avoid, but one of the most costly is waiting to start saving — and not saving automatically.

Time is a vital factor because the longer you wait to begin saving for retirement, whether through your 401(k) or an investment account, the less time you have to benefit from the power of compounding returns. Even a delay of just a few years could potentially cost you thousands or even hundreds of thousands of dollars in growth.

Here’s an example of how much a $7,000 annual contribution to an IRA that’s invested in mutual funds might grow by age 65. (Estimates assume a 7% annual return.)

•   If you start saving at 25, you’d have $1,495, 267

•   If you start saving at 35, you’d have $707,511

•   If you start saving at 45, you’d have $307,056

As you can see, waiting until your 40s to start saving would cost you more than $1 million in growth. Even if you get started in your 30s, you’d still end up with less than half the amount you’d have if you start saving at 25. The difference underscores the importance of saving for retirement early on — and saving steadily.

This leads to the other important component of being an effective saver: Taking advantage of automatic savings features, like auto transfers to a savings account, or automatic contributions to your retirement plan at work. The less you have to think about saving, and the more you use technology to help you save, the more money you may be able to stash away.

2. Not Making a Financial Plan

Saving without a clear strategy in mind is also among the big retirement planning mistakes. Creating a financial plan gives you a roadmap to follow because it requires you to outline specific goals and the steps you need to take to achieve them.

Working with a financial planner or specialist may help you get some clarity on what your plan should include.

3. Missing Out on Your 401(k) Match

The biggest 401(k) mistake you can make is not contributing to your workplace plan if you have one. But after that, the second most costly mistake is not taking advantage of 401(k) employer matching, if your company offers it.

The employer match is essentially free money that you get for contributing to your plan. The matching formula is different for every plan, but companies typically match anywhere from 50% to 100% of employee contributions, up to 3% to 6% of employees’ pay.

A common match, for example, is for an employer to match 50% of the first 6% the employee saves. If the employee saves only 3% of their salary, their employer will contribute 50% of that (or 1.5%), for a total contribution rate of 4.5%. But if the employee saves 6%, they get the employer’s full match of 3%, for a total of 9%.

Adjusting your contribution limit so you get the full match can help you avoid leaving money on the table.

4. Bad Investing Strategies

Some investing strategies are designed to set you up for success, based on your risk tolerance and goals. A buy-and-hold strategy, for example, might work well for you if you want to purchase investments for the long term.

But bad investment strategies can cause you to fall short of your goals, or worse, cost you money. Some of the worst investment strategies include following trends without understanding what’s driving them, or buying high and selling low out of panic.

Taking time to explore different investment strategies can help you figure out what works for you.

5. Not Balancing Your Portfolio

Diversification is an important investing concept to master. Diversifying your portfolio means holding different types of investments, and different asset classes. For example, that might mean a mix of stocks, bonds, and cash.

So why does this matter? One reason: Diversifying your portfolio is a form of investment risk management. Bonds, for instance, may act as a balance to stocks as they generally have a lower risk profile. Real estate investment trusts (REITs) may be a hedge against inflation and has low correlation with stocks and bonds, which might provide protection against market downturns. However, it’s important to understand that diversification does not eliminate risk.

Balancing your holdings through diversification — and rebalancing periodically — could help you maintain an appropriate mix of investments to better manage risk. When you rebalance, you buy or sell investments as needed to bring your portfolio back in line with your target asset allocation.

💡 Quick Tip: For investors who want a diversified portfolio without having to manage it themselves, automated investing could be a solution (although robo advisors typically have more limited options and higher costs). The algorithmic design helps minimize human errors, to keep your investments allocated correctly.

6. Using Retirement Funds Too Early

Although the retirement systems in the U.S. are generally designed to help protect your money until you retire, it’s still possible to take early withdrawals from personal retirement accounts like your 401(k) or IRA, or claim Social Security before you’ve reached full retirement age.

•   Your 401(k) or IRA are designed to hold money you won’t need until you retire. Take money from either one before age 59 ½ and you could face a tax penalty. For example, 401(k) withdrawal penalties typically require you to pay a 10% early withdrawal tax on distributions. You’re also required to pay regular income tax on the money you withdraw, regardless of when you withdraw it.

Between income tax and the penalties, you might be left with a smaller amount of cash than you were expecting. Not only that, but your money is no longer growing and compounding for retirement. For that reason, it’s better to leave your 401(k) or IRA alone unless it’s absolutely necessary to cash out early.

And remember that if you change jobs, you can always roll over your 401(k) to another qualified plan to preserve your savings.

•   Similarly, your Social Security benefits are also best left alone until you reach full retirement age, as you can get a much higher payout. Full retirement age is 67 for those born in 1960 or later.

That said, many retirees who need the income may feel compelled to take Social Security as soon as it’s available, at age 62 — but their monthly check will be about 30% lower than if they’d waited until full retirement age. If you can, wait to claim your benefits and you’ll typically get substantially more.

7. Not Paying Off Debt

Debt can be a barrier to your retirement savings goals, since money used to pay down debt each month can’t be saved and invested for the future.

So should you pay off debt or invest first? As you’ve seen, waiting to start saving for retirement can be a mistake if it potentially costs you growth in your portfolio. However, it’s critical to pay off debt, too. If you’d like to get rid of your debt ASAP, consider how you can still set aside something each payday for retirement.

Contributing the minimum amount allowed to your 401(k), or putting $50 to $100 a month in an IRA, can add up over time. As you get your debts paid off, you can begin to divert more money to retirement savings.

8. Not Planning Ahead for Future Costs

Another mistake to avoid when starting a retirement plan is not thinking about how your costs may change as you get older. Creating an estimated retirement budget can help you get an idea of what your day to day living expenses might be. But it’s also important to consider the cost of health care, specifically, long-term care.

Medicare can cover some health expenses once you turn 65, but it won’t pay for long-term care in a nursing home. If you need long-term care, the options for paying for it include long-term care insurance, applying for Medicaid, or paying out of pocket.

Thinking ahead about those kinds of costs can help you develop a plan for paying for them should you require long-term care as you age. How do you know if you’ll need long-term care? You can consider the longevity factors in your family, as well as your own health, and gender. Women tend to live longer than men do, almost 6 years longer, which often puts older women in a position of needing long-term care.

9. Not Saving Aggressively Enough

How much do you need to save for retirement? It’s a critical question, and it depends on several things, including:

•   The age at which you plan to retire

•   Your potential lifespan

•   Your cost of living in retirement (i.e. your lifestyle)

•   Your investment strategy

Each of these factors requires serious thought and possibly professional advice in order to come up with estimates that align with your unique situation. Investing in the resources you need to understand these variables may be one of the most important moves you can make, because the bottom line is that if you’re not saving enough, you could outlive your savings.

10. Making Unnecessary Purchases

If you need to step up your savings to keep pace with your goals, cutting back on spending may be necessary. That includes cutting out purchases you don’t really need to make — but also learning how to be a smarter spender.

Splurging on new furniture or spending $5,000 on a vacation might be tempting, but consider what kind of trade-off you could be making with your retirement. Investing that $5,000 into an IRA means you’ll miss the trip, but you’ll get a better return for your money over time.

11. Buying Into Scams

Get-rich-quick schemes abound, but they’re all designed to do one thing: rob you of your hard-earned money. Investment and retirement scams can take different forms and target different types of investments, such as real estate or cryptocurrency. So it’s important to be wary of anything that promises “free money,” “200% growth,” or anything else that seems too good to be true.

The Federal Trade Commission (FTC) offers consumer information on the most common investment scams and how to avoid them. If you think you’ve fallen victim to an investment scam you can report it at the FTC website.

12. Gambling Your Money

Gambling can be risky as there’s no guarantee that your bets will pay off. This is true whether you’re buying lottery tickets, sitting down at the poker table in Vegas, or taking a risk on a new investment that you don’t know much about.

Either way, you could be making a big retirement mistake if you end up losing money. Before putting money into crazy or wishful-thinking investments, it’s a good idea to do some research first. This way, you can make an informed decision about where to put your money.

Investing for Retirement With SoFi

Retirement planning isn’t an exact science and it’s possible you’ll make some mistakes along the way. Some of the most common mistakes are just not doing the basics — like saving early and often, getting your company matching contribution, paying down debt, and so on. But even if you do make a few mistakes, you can still get your retirement plan back on track.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Help build your nest egg with a SoFi IRA.

FAQ

Why is it important to start saving early?

Getting an early start on retirement saving means you generally have more time to capitalize on compounding returns. The later you start saving, the harder you might have to work to play catch up in order to reach your goals.

What is the first thing to do when you retire?

The first thing to do when you retire is review your budget and financial plan. Consider looking at how much you have saved and how much you plan to spend to make sure that your retirement is off to a solid financial start.

Photo credit: iStock/Morsa Images

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.

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.

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.


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

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

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Jun
12
2024
What Hard Money Personal Loans Are & How They Work

What Hard Money Personal Loans Are & How They Work

By | Financial Independence, Home Ownership, personal_loan | Comments Off on What Hard Money Personal Loans Are & How They Work

You want to flip a house, but you don’t have enough money for a down payment — and your credit isn’t where it needs to be for a personal loan. Or, maybe you’re a small business owner who wants to own a piece of commercial real estate. People who are investing in real estate beyond their primary residence may consider a hard money loan as an option, especially if a traditional mortgage isn’t.

A hard money loan is a short-term loan commonly used by investors, such as house flippers or developers who renovate properties to sell. The loan typically uses the property as collateral. Hard money loans are usually funded by private lenders, individuals, or investor groups, rather than banks.

A hard money loan may make sense on paper, but because it typically has a shorter term than other types of loans and interest rates can be high, paying back the loan can be challenging. Defaulting on a hard money loan could mean losing the property.

Key Points

•   Hard money personal loans are short-term loans secured by property, primarily used by investors like house flippers, and funded by private lenders instead of banks.

•   These loans typically have higher interest rates and shorter payback periods than traditional mortgages, making repayment potentially challenging and risky.

•   Approval for hard money loans can be quicker and less stringent regarding credit scores compared to traditional loans, benefiting those with limited credit histories.

•   Weighing the pros and cons is crucial before pursuing a hard money loan, including potential high costs and the risk of losing the collateral property.

•   Alternatives to hard money loans include personal loans, credit cards, or home equity lines of credit, each with distinct benefits and risks based on individual financial situations.

What Is a Hard Money Personal Loan?

A hard money personal loan is a type of personal loan that uses collateral. While a mortgage is also a type of loan that uses property as collateral, a hard money loan is very different.

First of all, a hard money loan doesn’t come from a bank. It comes from a private lender, which may be a company or an individual. The loan will likely have higher interest rates and a shorter payback period than a traditional mortgage.

It can also be a much shorter process to be approved for a hard money loan. While a mortgage may take weeks for approval, it’s not atypical to have cash in hand within a few days of a hard money loan application.

A hard money loan also may be more lenient in terms of credit scores or assets than a traditional loan. This can be beneficial for people who are wanting to flip a house or buy an additional piece of property, who may not have enough assets on paper to be approved for a traditional mortgage, or who need a larger down payment than they have.

How Do Hard Money Personal Loans Work?

Hard money personal loans are often advertised to — and used as a tool for — house flippers, but other people may pursue a hard money personal loan as well.

Let’s say someone wants to buy a house to flip, or a piece of land to use as a rental property. They may still be building their credit, or they may not have enough money for a down payment. They may have been turned down for a mortgage, or they may not want to apply for a mortgage, knowing that it’s a time-intensive process and their finances might not be as strong on paper as they know the bank would like.

In this case, the person might turn to a hard money personal loan. Individuals, groups of investors, or private companies may specialize in offering hard money loans. Terms vary but are often less than one year, compared to 20 or more years for a mortgage. But the one constant: If you can’t pay back the loan, then you lose the collateral, which would be the property.

Other things to be aware of regarding a hard money personal loan: Interest rates may be high and the loan term is much shorter than a mortgage. This comes with a fair amount of risk.

Pros and Cons of Hard Money Personal Loans

As with any personal loan, it’s important to consider the pros and cons of the loan. It can also be a good idea to consider what-ifs, and how you might pay back the money if the original plan doesn’t work. Here, some pros and cons to think about before applying for a hard money personal loan.

Pros of a hard money personal loan

 Cons of a hard money personal loan
Receive money fast Short loan payback period
Flexibility in terms of credit score and overall financial picture High interest rates
Can use hard money for whatever you need the money for Possibility of losing property if you cannot fulfill the terms of the loan

Personal Loans Versus Hard Money Loans

The primary difference between an unsecured personal loan and a hard money loan is that a hard money loan is secured. Both are personal loans, but using collateral for a personal loan means the loan is secured.

Collateral can be anything of value. But in the case of a hard money loan, it’s in the form of property. A personal loan typically does not require collateral. If you were unable to pay back a personal loan, the lender could not take away your house, for example. Both types of personal loans have specific terms and conditions, and both can provide cash relatively quickly. However, many personal loans are backed by a bank or other financial institution.

Hard money loans

 Personal loans
Backed by a private individual or company Backed by a bank or other financial institution
Credit checks and financial picture play a limited role in approval Credit check plays a large role in approval
Provides cash Provides cash

Is a Hard Money Personal Loan Right For You?

Hard money personal loans may be an option for certain financial needs. But, as with any personal loan, it’s important to weigh the pros and cons, and consider what-ifs. Questions to ask may include:

•   What other avenues can I follow to raise the money I need?

•   What happens if I don’t pursue this loan?

•   If I do get this loan and plan to do a specific thing with it, what happens if that specific thing doesn’t happen the way I anticipated?

•   Can I afford this loan, including interest?

•   Could I afford this loan if my financial circumstances changed?

These questions can help you assess worst-case scenarios. You also may want to ask your potential lender any questions you have as well.

Recommended: Personal Loan Alternatives and Options

Hard Money Personal Loan Alternatives

There are potential alternatives to hard money personal loans. Some may require collateral, and others, like a personal loan, may not. Each comes with pros and cons. Your financial situation may also determine which loans you might be eligible for. If you’re building your credit, you may not have access to certain loans.

Credit Cards

If you’re purchasing land or property, you likely need cash. But for other purchases, using a credit card could be an option. If you don’t need a lump sum of money, using the line of credit that a credit card offers may work well for making periodic purchases.

However, credit cards may have high, variable interest rates. Plus, the more of your available credit you use, the higher your credit utilization ratio, which could impact your credit score.

Recommended: What Is A Personal Line of Credit & How Do You Get One?

Personal Loans

Can you buy land with a personal loan? You could. Generally, once you’re approved for a personal loan, you receive money in your account and can then use it for virtually any purpose. Some people use personal loans to pay for renovations or other home improvement projects.

But it could be challenging to get mortgage approval if you were planning on using a personal loan for a down payment, for example. A personal loan may affect mortgage eligibility.

Recommended: Do Personal Loans Affect Getting a Mortgage?

HELOC

A home equity line of credit (HELOC) is a type of revolving debt. For example, if you apply for a HELOC and are approved for $10,000, you can draw up to $10,000. Once that money is paid back, you can draw from it again for the set period of time defined in the terms of the loan.

A HELOC is a popular option for people who are doing home improvement projects. They may not need a lump sum of cash but may have ongoing expenses. Generally, interest rates on a HELOC are variable, not fixed.

Since a HELOC is a loan secured by the borrower’s home, there is a risk of losing the home if the loan is not repaid.

Recommended: How Do Home Equity Lines of Credit Work?

The Takeaway

For some people, hard money personal loans can allow them to realize their real estate goals. But hard money loans typically have high interest rates and short payback periods, which can make them risky. It can be a good idea to carefully weigh the pros and cons of a hard money loan.

A SoFi Personal Loan may be an alternative to consider. Since unsecured personal loans from SoFi do not require collateral, they could be a good option for those just entering the real estate market. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

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

Photo credit: iStock/JLco – Julia Amaral

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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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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