SoFi

When a student loan payment is past due, even by just one day, it becomes a delinquent payment. For instance, if your student loan payment is due by the 15th of each month and the 16th arrives and you haven’t paid the amount you owe, you’re generally considered to be delinquent on that loan.

Once you’re late making a payment, a late fee may be assessed, and the late payments may impact your credit score.

Read on to learn more about student loan delinquency and the potential consequences, as well as ways to help prevent student loans from becoming delinquent.

How Student Loan Delinquency Impacts Your Credit Score

Late student loan payments can negatively impact a borrower’s credit score. In fact, as of the first quarter of 2025, new student loan delinquencies have reduced borrowers’ credit scores substantially, with amounts ranging from about 100 points to more than 150 points, according to a recent report from the New York Federal Reserve.

How Long Do Delinquent Student Loans Stay on Your Credit Report?

If you are delinquent on your student loans for 90 days or more, your loan servicer reports the delinquency to the national credit bureaus. Delinquent student loans appear on your credit report, and they typically remain there for up to seven years.

This can make it harder to get approved for new loans, such as a car loan or mortgage, and credit cards.

Difference Between Delinquency and Default for Student Loans

Your federal student loans are considered delinquent the first day you are late with a payment. They remain delinquent until you pay what you owe or get a deferment or forbearance to temporarily stop your loan payments.

After 270 days, if the loans are still delinquent, they go into student loan default. This means that your loans are now due in full, along with accrued interest and any fees, fines, and penalties.

To collect this amount, the government can garnish up to 15% of your pay, and/or take your tax refund to put towards the debt. They can do the same to your loan cosigner, if you have one. And your loan servicer can even sue you.

Recommended: Student Loan Default Rate

Common Causes of Student Loan Delinquency

There are a number of different causes of student loan delinquency. Some common ones include:

•   The pandemic: The Covid-19 payment pause on student loans meant borrowers were not required to make payments for several years. The pause ended in 2023, but then there was an “on-ramp” to help borrowers prepare to restart their payments until October 2024. At that point, late and missing payments were once again reported to the credit bureaus. According to the New York Federal Reserve, the delinquency rate on student loans soon returned to what it was before the pandemic, with approximately 7 million borrowers in delinquency or default.

•   Higher burden of student debt: The amount of student loan debt in the U.S. more than doubled from 2010 to 2025, and the average borrower’s federal student loan balance is currently $40,467. Large amounts of debt can be challenging to repay.

•   Accumulating interest: The interest on most student loans accrues daily. When a borrower makes a payment, most of that payment goes toward the interest that has accumulated since the last payment, and whatever is left goes to the principal. This makes it difficult for borrowers to chip away at what they owe, because interest continues to accrue on the loan principal.

•   Financial challenges: Financial hardships, such as job loss, a reduction in income, or having a number of other debts to repay, can lead to student loan delinquency.

•   Attendance at for-profit colleges: Students who attend for-profit colleges tend to take on greater student loan debt and have more trouble repaying what they owe. These borrowers are also less likely to get good jobs after graduation and often earn less.

•   Not completing a degree: Borrowers who don’t finish school and earn their degrees are more likely to struggle to repay their student loans. That may be because they earn lower wages.

Late Student Loan Payment

Being late with a student loan payment has consequences, even after just one day. Here are some of the potential ramifications you might face.

What Happens If You Miss a Student Loan Payment?

Missing a federal student loan payment makes you delinquent on your loan. After just one day, your loan is considered delinquent, and in 30 days, you may be charged late fees, depending on your loan servicer.

After 90 days, the delinquency is reported to the credit bureaus where it goes on your credit reports. After 270 days, your loan goes into default. The loans are then due immediately in full, along with interest and any fees, fines, and penalties. To collect what you owe, the government can garnish 15% of your wages and/or take your tax refund. Your loan servicer may also take you to court.

Federal vs Private Student Loan Late Payment Policies

In general, federal student loans offer more options for borrowers who are late with their payments. For example, a borrower could choose deferment or forbearance or switch to another payment plan that lowers their monthly payments, such as income-driven repayment plans. Federal student loans might also offer a loan rehabilitation program.

Policies for late payment on private student loans vary by lender, but overall, private lenders tend to have less flexibility and more stringent rules. For example, a private lender might charge you late fees and send your case to collections when you miss payments. Private lenders can also sue borrowers who stop paying their loans.

Options to Get Back on Track After a Late Payment

If you’re late with a federal student loan payment, contact your student loan servicer and let them know that you’re having trouble paying your loan. They may suggest options to help, such as forbearance or deferment, or you may be able to switch to a different payment plan that could make it easier to repay your loans, such as income-driven repayment.

If you have private student loans, contact your lender immediately to see what they might be able to do to help.

If you simply forgot about the loan payment, make it as soon as you remember. The sooner you get out of delinquency status, the better.

Can You Refinance a Delinquent Student Loan?

It may be possible to refinance a delinquent student loan, depending on the lender. If the delinquency has not yet affected your credit, you may be able to qualify for refinancing. If not, you could ask a creditworthy family member or friend to be your cosigner on the loan, which might help you qualify.

Once a loan goes into default, however, refinancing is much more challenging.

How Refinancing Can Help Prevent Future Delinquency

If you are struggling with high student loan payments, one option that may help you avoid delinquency down the road is refinancing student loans. When you refinance your loans, you exchange them for a new loan from a private lender, ideally with a lower interest rate, which reduces the amount of interest you pay over the life of the loan. Or, you might be able to lower your monthly payments by extending the term of the loan. However, you’ll pay more in interest over the life of the loan with an extended term.

A student loan refinance calculator can help you determine how much you might save to see if refinancing makes sense for you.

Just be aware that if you refinance your federal loans with a private lender, you will forfeit all of your federal benefits, including programs such as income-driven repayment plans and deferment.

Recommended: Student Loan Refinancing Guide

How to Avoid Becoming Delinquent on Student Loans

To keep from becoming delinquent on your student loans and avoid any possible consequences, here are a few steps you can take.

Setting Up Autopay and Budgeting Tips

Enrolling in autopay means your payments will be automatic so that they are always made on time, without you having to think about them. Plus, federal student loan borrowers get a 0.25% discount on their interest rate when enrolling in autopay. Many private student loan lenders offer a discount for autopay as well.

In addition, create a budget that prioritizes loan payments and stick to it. Pull together all your bills for the month along with your income. Look to see where you can cut back (such as ordering takeout less or eliminating one or two of your streaming subscriptions), and put the money you save toward your loans.

Exploring Deferment, Forbearance, and Income-Driven Repayment Plans

If you’re struggling to make your federal student loan payments, an income-driven repayment plan may help. On these plans, payments are based on a borrower’s discretionary income and family size, and often result in lower payments.

If you’re undergoing financial hardship, perhaps because of a job loss or medical emergency, you can apply for federal student loan deferment, which can postpone payments or reduce them. Borrowers with qualifying loans are not required to pay the interest that accrues.

Another option is forbearance, which also temporarily allows you to reduce or postpone loan payments. However, with forbearance, borrowers are always responsible for paying the interest that accrues.

The Takeaway

Student loan delinquency begins the first day after you miss a payment. Federal student loans generally go into default after 270 days of missed payments, potentially leading to wage garnishment and tax refund seizure. If you’re struggling to make payments, consider contacting your loan servicer or lender to discuss your options. Setting up autopay and exploring alternative repayment plans can also help you avoid delinquency.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

What is considered a delinquent student loan payment?

A federal student loan is considered delinquent after just one day of missing a payment. After 90 days, the delinquency is reported to the credit bureaus and it goes on your credit report.

How long before a student loan is in default?

After 270 days of student loan delinquency, your loan goes into default. At that point, the consequences can be serious. The loan payments are due immediately in full, along with interest and any fees, fines, and penalties. The government can garnish 15% of your wages or take your tax refund to collect what you owe, and your loan servicer could take you to court.

Can delinquent student loans be removed from your credit report?

Delinquent student loans may eventually be removed from your credit report. Typically, a delinquent student loan remains on your credit report for up to seven years.

How can you fix a delinquent student loan?

If your student loan is delinquent, call your loan servicer or lender right away to see what options you might have. For instance, if you’re struggling to afford your monthly payments, you may be able to switch to an income-driven repayment plan, which is based on your discretionary income and family size and typically lowers your payments. Other possible options include deferment or forbearance to temporarily reduce or postpone your loan payments.

Does a single late student loan payment affect your credit score?

Missing just one federal student loan payment generally shouldn’t affect your credit score, as long as you make the missed payment as soon as possible. After 90 days, delinquent federal student loans are reported to the credit bureaus and go on your credit report. With private student loans, it depends on the policy of the lender, though you generally have up to 30 days before a missed payment ends up on your credit report.

---

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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 .

SOSLR-Q426-019

Read more

As of Q1 2026, 42.6 million Americans collectively have over $1.863 trillion in student loan debt. If you are one of the millions with some form of student debt, you may have asked yourself, “Should I consolidate my student loans?”

Consolidation is a process that allows you to combine your student loans into one loan with one monthly payment. Simplifying the student loan repayment process might seem like a good idea, but there are a few things to consider before you consolidate your loans. In some cases, consolidating loans may disqualify you from certain federal student loan repayment programs and forgiveness. But other times, consolidation can allow you to lower your interest rates or shorten the amount of time it takes you to pay off your loan.

Read on to learn how student loan consolidation works, the pros and cons of the process, and when to consolidate student loans.

What Is Student Loan Consolidation?

Student loan consolidation combines some or all of your student loans into one loan and makes repayment more manageable. There are both federal and private options when it comes to consolidating your student loans.

Private Student Loan Consolidation

Private student loan consolidation is more commonly known as student loan refinancing. This is when a private lender pays off all or some of your student loan debt and creates a new loan, which you will then make payments on. Ideally, when you refinance student loans, the new loan will have a lower interest rate and a better term than your previous student loans.

With a private lender, you can combine both federal and private loans. But if you refinance your federal loans, you will lose access to federal student loan forgiveness programs, such as income-driven repayment plans. If you plan on using one of these programs now or at some point in the future, it’s best to hold off on refinancing federal loans. Instead, you could refinance just your private loans.

Federal Student Loan Consolidation

If you are hoping to consolidate your federal loans only and want to keep access to federal forgiveness programs and other federal benefits, you can consolidate with a Direct Consolidation Loan through the U.S. Department of Education.

Consolidating through the federal student loan system doesn’t usually save you money. It simply combines multiple loans into one. Your new interest rate is a weighted average of all your loans’ interest rates, rounded up to the nearest eighth of a percentage point. Should you consolidate student loans, any unpaid interest on the loans you’re consolidating will be capitalized — that is, added to the principal of the new loan.

Consolidation may be particularly useful for borrowers who are pursuing federal student loan forgiveness or who are enrolled in one of the more flexible federal student loan repayment plans, such as an income-driven repayment plan.

You can also choose to consolidate your federal loans and refinance your private loans. If you go this route, you may be able to get the possible benefits of refinancing (lower interest rates, a better term) without losing the perks of having federal loans.

Before you consolidate or refinance your loans, you should consider the pros and cons of the process. Getting clarity on whether consolidation is right for you will help you make the right decision for your financial needs.

Benefits of Consolidating Student Loans

As you’re considering when to consolidate student loans, either with a Direct Consolidation Loan or refinancing through a private lender, there are several advantages to keep in mind.

Simplified Repayment

Whether you choose a Direct Consolidation Loan or choose to refinance through a private lender, your loan repayment may be simplified. Managing multiple student loan payments might increase your chances of missing a payment. If you miss even one payment, you may risk damaging your credit score. Late payments may also stay on your credit profile for up to seven years.

Consolidating loans into one may help eliminate some of the stress of juggling multiple loan payments and may make repayment more manageable.

Fixed Interest Rate

When you refinance your loans through a private lender, your interest rate and terms will be based on your credit score, your payment history, the type of loan you’re seeking, and other financial factors. While requirements may vary by lender, applicants who meet or exceed the lender’s criteria may qualify for better interest rates and terms and save money over the life of the loan.

Borrowers can also switch from a variable to a fixed interest rate when refinancing through a private lender if they’d like a payment that stays the same every month (variable rates can fluctuate with market conditions).

With federal Direct Loan Consolidation, as mentioned earlier, a borrower’s interest rate is a weighted average of current loan rates rounded up to the nearest one-eighth of a percentage point, which means this doesn’t typically result in savings for the borrower. The borrower does, however, keep their access to federal loan forgiveness programs.

Recommended: Student Loan Consolidation Rates

Flexible Loan Terms

Student loan consolidation may allow you to change the duration of your loan. If you currently have a 10-year repayment plan, for example, you may choose to shorten or lengthen the term of your loan when you consolidate or refinance. Typically, lengthening the term of your loan will reduce your monthly student loan payment but add up to more total interest in the long run.

Recommended: Refinancing Student Loans After Consolidating

Drawbacks of Student Loan Consolidation

Even though there are benefits of student loan consolidation, there are also drawbacks. Here are a few considerations to be aware of before consolidating student loans.

You Can’t Lower Interest Rates on Federal Student Loans When Consolidating

If you choose the Direct Consolidation Loan, generally you won’t see any savings. Because your new interest rate is a weighted average of your current loans, rounded up to the nearest one-eighth of a percentage point, you will probably pay around the same amount you would have paid if you didn’t consolidate. In addition, any unpaid interest on the loan you’re consolidating will be capitalized.

If you extend your term, you may see your monthly payment decrease, but your total interest payments will increase.

However, if borrowers choose to refinance with a private lender, they may qualify for a lower interest rate, thus saving money over the term of the loan. They could also opt for lower monthly payments by extending their loan term. But they may pay more interest over the life of the loan if they refinance with an extended term.

Possible Disqualification From Federal Repayment Programs

Refinancing federal student loans with a private lender means you lose access to federal repayment programs, including the Public Service Loan Forgiveness Program (PSLF) and income-driven repayment plans.

Borrowers will also be disqualified from federal benefits such as student loan forbearance and deferment options, which allow qualifying borrowers to pause payments in the event of financial hardship.

Some private lenders may offer their own hardship programs, but policies are determined by individual lenders.

Student Loan Refinancing vs Consolidation

Consolidating or refinancing student loans are terms that are used interchangeably, but they actually apply to two different types of loans. A federal student loan consolidation is when you combine federal loans through a Direct Consolidation Loan. This is done by the U.S. Department of Education.

A student loan refinance allows you to combine private and/or federal loans into one new loan and is done by a private lender. While this does effectively “consolidate” your loans, it’s different in some important ways from federal student loan consolidation.

Below are some differences and similarities between student loan consolidation vs. refinancing.

Student Loan Refinancing vs. Consolidation
Refinance	Consolidation
It combines multiple loans into one	It combines multiple loans into one
You can refinance federal and private loans	You can only consolidate federal loans
Private refinance lenders may charge a fee	There are typically no fees
A credit check is required	No credit check is needed
Your interest rate could be lowered	The interest rate is a weighted average of prior loan rates, rounded up to nearest one-eighth of a percent
Terms can be lengthened or shortened	Terms can be lengthened or shortened
Once refinanced, federal loans will no longer qualify for federal forgiveness or repayment programs	Loans remain eligible for federal forgiveness and repayment programs
You can save money if the interest rate is lowered	Typically, this is not a money-saving option

The Takeaway

Understanding the benefits and drawbacks of student loan consolidation, as well as the difference between federal student loan consolidation and private refinancing, can help you make an informed decision about repaying student loans.

If you decide to consolidate your loans through student loan refinancing, you might want to consider evaluating a few options from different lenders, because requirements, interest rates, and loan terms can vary from lender to lender.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

✓ Checking your rate will not affect your credit score †.

FAQ

Can your student loans still be forgiven if you consolidate them?

If you consolidate your federal student loans with a Direct Loan Consolidation, you are still eligible for federal loan forgiveness programs. However, if you choose to consolidate your federal loans through a private lender, which is known as refinancing, you will no longer be eligible for forgiveness programs and other federal student loan benefits.

When is consolidating student loans worth it?

Consolidating student loans is worth it if you’re looking to combine multiple student loan payments into one. You can use a Direct Consolidation Loan for your federal loans and keep your access to federal benefits such as income-based repayment programs or forgiveness.

Another option is to refinance your student loans through a private lender, which may give you a lower interest rate and lower monthly payment, but if you refinance federal loans, you lose access to federal benefits such as forgiveness and income-driven repayment plans.

What are some advantages of consolidating student loans?

The biggest advantage of consolidating your student loans is that you combine them into one loan so you only have one payment every month, which makes it easier to track your loans.

If you choose to refinance your loans with a private lender, you may also receive a lower interest rate, which can help you save money. But if you refinance federal loans with a private lender, you lose access to federal programs such as forgiveness and forbearance.

What types of student loans are eligible for consolidation?

The types of federal student loans eligible for consolidation through federal Direct Loan Consolidation include Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans, Federal Stafford Loans from the Federal Family Education Loan (FFEL) program, FFEL PLUS Loans, and Federal Perkins Loans.

The types of student loans eligible for refinancing are federal student loans and private student loans. But refinancing federal student loans makes them ineligible for federal benefits such as income-driven repayment and federal forgiveness programs.

---

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

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 .

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOSLR-Q426-013

Read more

Investment funds offer a way to pool money with other investors to purchase a collection of securities or other assets. They can make investing more accessible by allowing individuals to gain exposure to a range of investments without having to select and manage each one independently.

There are several types of investment funds, including mutual funds, exchange-traded funds (ETFs), and money market funds. Some focus on stocks or bonds, while others combine different asset classes or follow a particular investment strategy. Funds also vary in how they are managed, how much they cost, and how investors buy and sell shares.

Understanding how investment funds work and how different types compare can help investors evaluate their options and determine whether a particular fund aligns with their financial goals, time horizon, and risk tolerance.

What Is an Investment Fund?

An investment fund pools money from multiple investors to purchase a portfolio of financial securities or other assets. Investors own shares or units representing a proportional interest in the fund’s holdings.

Investment funds can provide access to a broader range of investments than an individual might be able to purchase independently. They also allow investors to share certain costs associated with managing a portfolio.

Common types of investment funds include mutual funds, exchange-traded funds (ETFs), money market funds, and alternative funds. Some funds are actively managed by professional investment managers who select investments based on the fund’s objectives. Others follow a passive strategy designed to track a market index.

Investors generally pay fees and expenses associated with operating a fund. These costs vary depending on the fund’s structure, investment strategy, and management approach.

Types of Investment Funds

Investment funds can be categorized by how they are structured, what they invest in, or the strategies they follow. Some categories overlap, meaning a single fund may fit into more than one.

Mutual Funds

A mutual fund pools money from investors to purchase a portfolio of securities, such as stocks, bonds, and short-term debt instruments.

Mutual funds can provide investors with access to a diversified portfolio through a single purchase. Rather than buying individual securities and managing them independently, investors can purchase shares in a fund that holds a collection of investments.

For example, an individual with $1,000 may find it difficult to purchase every stock in the S&P 500 and maintain the same proportions as the index. A mutual fund that tracks the S&P 500 can provide exposure to those companies through a single investment, subject to the fund’s minimum investment requirements and fees.

Mutual funds can follow different investment strategies. Some are actively managed, meaning a portfolio manager selects and adjusts investments in an effort to achieve the fund’s objective. Others are passively managed and seek to track a particular market index.

Exchange-Traded Funds (ETFs)

Like mutual funds, ETFs can provide exposure to multiple investments through a single purchase. They may hold stocks, bonds, commodities, or other assets, depending on their objectives.

One key difference is how investors buy and sell shares. ETFs trade on stock exchanges throughout the trading day, much like individual stocks. Their market prices can fluctuate during the day and may differ slightly from their net asset value (NAV).

ETFs can be actively or passively managed. Some track market indexes, while others follow specific investment strategies.

Index Funds

Index funds are designed to track the performance of a particular market index, such as the S&P 500 or the Russell 2000. Rather than attempting to outperform a benchmark through individual security selection, an index fund generally seeks to replicate the index’s holdings or performance, before fees and expenses.

Index funds can invest in stocks, bonds, or other assets. They are often passively managed, which can result in lower operating expenses and less portfolio turnover than some actively managed funds.

Index funds may provide exposure to broad markets or narrower segments, such as large-cap stocks, small-cap stocks, particular sectors, or international markets.

Although index funds are often diversified, their level of diversification depends on the index they track. A fund that follows a narrow sector index, for example, may be more concentrated than one that tracks a broad market index.

An index fund can be structured as either a mutual fund or an ETF. For example, an S&P 500 index fund may be available as a traditional mutual fund or an ETF.

Bond Funds

Bond funds invest primarily in bonds and other debt securities issued by governments, corporations, and other entities. Depending on their objectives, bond funds may hold short-term or long-term bonds, government securities, corporate bonds, municipal bonds, or a combination of these investments.

Bond funds can provide income through interest payments received from their underlying holdings. However, unlike an individual bond held to maturity, a bond fund does not promise to return a specific principal amount on a particular date.

Bond funds carry risks, including interest rate risk and credit risk. Their share prices can decline when interest rates rise or when the credit quality of their underlying holdings deteriorates.

Bond funds may be structured as mutual funds or ETFs.

Balanced Funds

Balanced funds, also known as asset allocation funds, invest in a combination of stocks and bonds. Some also hold cash or other assets. These funds generally maintain a relatively consistent allocation between asset classes, such as 60% stocks and 40% bonds, although the specific allocation varies by fund.

By combining different types of investments, balanced funds seek to provide a mix of growth potential and income while reducing reliance on any single asset class. However, diversification does not eliminate the risk of loss.

Balanced funds can be structured as mutual funds or ETFs.

Target-Date Funds

Target-date funds are designed for investors with a particular goal or time horizon, such as retirement in a specific year. These funds typically hold a mix of stocks, bonds, and other investment funds. Their investment allocation generally becomes more conservative as the target date approaches, although the specific strategy varies by fund.

For example, a target-date retirement fund designed for someone retiring in 2060 may initially hold a relatively high allocation to stocks. Over time, it may gradually shift toward a larger allocation to bonds and other less volatile investments.

Target-date funds, which may be structured as mutual funds or ETFs, can simplify portfolio management by automatically adjusting their asset allocation. However, they do not guarantee a particular return or retirement income, and investors can still lose money.

Money Market Funds

Money market funds are mutual funds that invest in short-term, high-quality debt securities, cash, and cash equivalents. Depending on the fund, holdings may include U.S. Treasury securities, certificates of deposit, commercial paper, or short-term municipal securities.

Money market funds generally have lower risk than many other types of mutual funds, but they are not risk-free. They typically seek to maintain a stable net asset value, often $1 per share, but their share price can fluctuate.

Money market funds are also different from money market accounts offered by banks and credit unions. Money market funds are investments and are not FDIC-insured.

Alternative Funds

Alternative funds invest in assets or use strategies that differ from traditional stock and bond investing. Depending on the fund, these investments may include real estate, commodities, private equity, private debt, or other specialized assets. Some alternative funds also use strategies such as short selling or derivatives.

Alternative funds can diversify your risk and potential returns, but they often come with higher fees, complex structures, and less liquidity.

Some funds focus on real estate investment trusts (REITs), companies involved in commodities production, or other specialized markets. The risks vary considerably depending on the fund’s holdings and strategy.

What Are the Benefits of Investment Funds?

Investment funds offer several features that may appeal to investors. However, their benefits depend on the fund’s structure, investment strategy, and costs.

Diversification

Investment funds can provide exposure to a range of investments through a single purchase. Rather than relying on the performance of one company or security, investors may own shares in a fund that holds securities from multiple companies, industries, or asset classes.

Diversification can help reduce the impact of poor performance by an individual investment. For example, losses in one stock may be offset by gains or smaller losses in other holdings. However, diversification does not guarantee a profit or eliminate the risk of loss. A fund that focuses on a single sector or market segment may also offer less diversification than a broad-market fund.

Access to Different Markets

Investment funds can make it easier for investors to gain exposure to different types of securities, markets, and investment strategies. For example, a fund may focus on international stocks, corporate bonds, real estate, or a particular market index.

This can allow investors to access investments that may otherwise be more difficult or expensive to purchase individually. The types of investments available depend on the fund’s objectives and holdings.

Simplified Portfolio Management

Investment funds can simplify investing by allowing investors to purchase a collection of securities through a single investment. Depending on the fund, professional managers may select investments, monitor the portfolio, and make adjustments as needed. Passively managed funds generally require less frequent portfolio trading because they follow an index.

Some funds also allow investors to set up recurring purchases and automatically reinvest dividends or capital gains distributions. Reinvesting distributions can increase the number of shares an investor owns over time. However, distributions are not guaranteed, and the value of the investment can still decline.

Different Management Strategies

Investment funds offer a range of approaches to managing money. Actively managed funds use investment selection and portfolio management in an effort to achieve a particular objective. Passively managed funds generally seek to track a market index.

Investors can compare these approaches based on their objectives, costs, and investment strategies. Neither approach guarantees positive returns or outperformance.

Liquidity

Many investment funds allow investors to buy or sell shares relatively easily, although the timing and process vary. Traditional mutual funds generally process purchases and redemptions at the next calculated net asset value (NAV), typically determined after the market closes. ETFs trade on stock exchanges throughout the trading day. Their prices may fluctuate during market hours and can differ slightly from their NAV.

Some alternative funds may have limited liquidity or restrictions on when investors can redeem their shares. Investors will want to review a fund’s terms before purchasing shares.

What Are the Costs of Investment Funds?

Investment funds generally charge fees and expenses for operating and managing the fund. These costs vary depending on the fund’s structure and strategy.

One common cost is the expense ratio, which represents a fund’s annual operating expenses as a percentage of its assets. Expense ratios vary widely. Actively managed funds often have higher expense ratios than comparable passively managed funds, although this is not always the case. Some funds may also charge sales loads, transaction fees, redemption fees, or other expenses.

Investors can review a fund’s prospectus and fee information to understand its costs before purchasing shares. Comparing expenses can help investors understand how fees may affect investment returns over time.

Can I Lose Money in an Investment Fund?

Yes. Investment funds are investments, and their value can decline. Investors may lose some or all of the money they put into a fund if the value of its underlying holdings falls significantly. The level of risk depends on the fund’s investments and strategy.

For example, a stock fund may experience substantial losses during a market downturn, while a bond fund may lose value when interest rates rise or issuers experience financial difficulties. Even money market funds carry some risk.

Before purchasing an investment fund, investors can review its prospectus, investment objectives, holdings, historical performance, fees, and risks. Understanding these details can help investors evaluate whether a fund is consistent with their financial goals, time horizon, and risk tolerance.

The Takeaway

Investment funds offer a way to pool money with other investors and gain exposure to a collection of securities or other assets. Mutual funds, ETFs, index funds, and other investment funds come in many forms, with different objectives, strategies, costs, and levels of risk.

Understanding how these funds work and what they hold can help investors evaluate their options and make informed decisions about how investment funds may fit into their broader financial plans.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest®. You can trade stocks, ETFs, or options through self-directed investing with SoFi Securities, or simply automate your investments with a robo advisor from SoFi Wealth. You'll gain access to alternative investments and upcoming IPOs, and can plan for retirement with a tax-advantaged IRA. With SoFi, you can manage all your investments, all in one place.

Take a step toward reaching your financial goals with SoFi Invest.

Options involve substantial risk of loss and the possibility an investor may lose the entire amount invested. Before starting options trading, investors should be familiar with the Characteristics and Risks of Standardized Options . TTax implications with options should be considered. Consult your tax advisor to understand any impacts to your taxes.

FAQ

What are the four types of investment funds?

Four common types of investment funds are mutual funds, exchange-traded funds (ETFs), index funds, and money market funds. Mutual funds and ETFs pool money to purchase a portfolio of securities, while index funds seek to track a particular market index and can be structured as mutual funds or ETFs. Money market funds invest in short-term, high-quality debt securities and cash equivalents. Other types include bond funds, balanced funds, and target-date funds.

What is an example of an investment fund?

An S&P 500 index fund is an example of an investment fund. It pools money from investors to purchase stocks that track the S&P 500, an index of large U.S. companies. Investors can gain exposure to a broad group of companies through a single fund rather than purchasing shares of each company individually. Other examples include bond funds, money market funds, and target-date retirement funds.

How does an investment fund work?

An investment fund pools money from multiple investors to purchase a collection of securities or other assets. Investors purchase shares or units representing a proportional interest in the fund’s holdings. Depending on the fund’s strategy, a professional manager may select investments, or the fund may passively track a market index. Investors may receive income through dividends or interest, and the value of their shares can fluctuate based on the performance of the underlying assets. Funds generally charge fees and expenses for their operation and management.

What are the top five investment funds?

There is no universal ranking of the top five investment funds. The right fund depends on an investor’s financial goals, time horizon, risk tolerance, and investment strategy. Five common categories to research include:

•   S&P 500 index funds: Track large U.S. companies.

•   Total stock market index funds: Provide exposure to a broad range of U.S. stocks.

•   International stock funds: Offer exposure to companies outside the United States.

•   Bond funds: Invest in debt securities and may provide income.

•   Target-date funds: Adjust their asset allocation over time based on a specified goal date.

Investors can compare individual funds within these categories by reviewing their objectives, holdings, fees, and risks.

---

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

Mutual Funds (MFs): Investors should read and carefully consider the information contained in the prospectus, which contains the Mutual Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or SoFi's customer service at: 1.855.456.7634. Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risks. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may have tax implications.

Investment Risk: Diversification can help reduce some investment risk, but cannot guarantee profit nor fully protect in a down market.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOIN-Q426-079

Read more

Oil is valuable, and one of the most widely used and widely traded commodities in the world. Despite the growth of many forms of alternative energy, oil remains essential to the global economy. But there are many variables that factor into oil prices, and that makes them fairly volatile, often changing numerous times on a daily basis.

The price of oil has an impact on a wide range of industries, and ultimately on the prices that consumers pay at the pump, in the supermarket, and beyond. That also means it may be attractive to some investors, though it also comes with risks to be aware of.

How Do You Invest in Oil?

For those who are interested in incorporating crude oil investing in their portfolio, there are many ways to get started.

How to Buy Oil Stocks

In addition to the massive, well-known companies in the fossil fuel industry, there are other companies that specialize in different aspects of energy production, oil exploration, drilling, equipment, delivery and more. There are also smaller oil companies with vertical operations, but only in specific parts of the world. Each of those types of companies may perform differently depending on the many geopolitical, economic, technological, and other factors that drive the price of oil up and down.

Recommended: Investing in the Energy Sector: What Any Investor Should Know

Oil Mutual Funds and ETFs

Not every investor has the time or interest to research a host of oil companies. For those investors, another approach might be investing in a mutual fund or exchange-traded fund (ETF) that focuses on the oil sector, or more broadly on the energy sector.

Since thematic ETFs and mutual funds hold many securities, they offer investors a level of diversification within their portfolio. At the same time, diversification would be more limited in an oil fund than in a broader index fund — if the entire industry is in a downturn, an oil fund may fall, as well. Diversification can also never fully protect investors from downside risks.

Recommended: Key Differences between Mutual Funds and ETFs

Oil Futures and Derivatives

More sophisticated investors may also consider investing in the derivatives markets, trading futures and options. Purchasing crude oil barrels may require tens of thousands of dollars, but investors may gain exposure to oil investments through options and futures. Crude oil options trade on the New York Mercantile Exchange (NYMEX) and on the ICE exchange, for example.

Derivatives are complex financial instruments that allow traders to speculate on the price movements of an underlying asset. They can be used to increase purchasing power through leverage. With leverage, investors can essentially take a bigger position with less money. Leverage has the potential to amplify returns, but it can also amplify losses if prices move in an adverse direction, making these investments high-risk and generally used by experienced investors.

Oil Exchange-Traded Notes (ETNs)

Exchange-traded notes are unsecured debt securities issued by financial institutions that track the performance of underlying assets, such as indexes or, in this case, oil commodity futures or another oil commodity benchmark. ETNs promise to pay investors the return (if any) on the underlying asset over a specified period of time, plus return the principal investment.

ETNs are considered higher-risk due to the credit risk involved — it’s possible the issuers could default on the payments they owe. In addition, the structure of oil ETNs could in of themselves be riskier. Some, for example, utilize leverage (or inverse leverage) to speculate on the daily performance of an underlying asset, which could scale both rewards and losses.

Alternative Investments

Investors interested in alternative investments — investments outside of traditional stocks, ETFs, bonds, and cash-equivalents — might get exposure to oil by purchasing mineral rights or buying into Limited Partnerships (LPs) that invest throughout the sector. Alternatives are also generally considered higher risk than traditional assets due to potential factors such as valuation complexity, illiquidity, and possible lack of transparency, depending on the asset.

Trends in Oil Investing

Oil prices plummeted in 2020, as pandemic-associated lockdowns drove U.S. oil prices into negative territory for the first time in history. In April 2020, investors bid the price for West Texas Intermediate (WTI) from $18 per barrel, down to roughly negative $37 a barrel.

Later that year, oil prices began to normalize. Demand returned in 2021, and oil prices shot back up in 2022, when they reached levels not seen in decades. Then, in 2023, prices did fall a bit again, and bounced around $60 or $80 for a while. In early 2026, military conflicts in the Middle East caused another spike, and prices rose above $100 – as of late September 2026, prices are hovering around the $100 mark.

Forces That Drive Oil Prices

There are many factors that determine oil prices. That, in turn, could affect prices for gasoline and more. Here are some of the forces at play.

The Organization of Petroleum Exporting Countries (OPEC)

Another important contributor to oil prices is the Organization of Petroleum Exporting Countries (OPEC), a group of 12 oil-producing countries, including Algeria, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, the United Arab Emirates, and Venezuela.

Together, they’re responsible for nearly 80% of the planet’s oil reserves. As an organization, OPEC meets regularly to set production levels. And its decisions could directly change the price of oil and gas. And while it has a massive influence on the price of oil, it doesn’t control the price.

Market Fundamentals

The global oil market is a force in its own right, as supply and demand tend to fluctuate sharply and unpredictably. There might be too much supply, causing prices to fall. Within OPEC, members don’t always follow through on the limits they agreed upon limits. There are also major oil suppliers, such as the United States, who are not OPEC members who may produce more oil than expected. That could cause high levels of supply relative to demand, which could drive down prices.

Production Costs

Oil in Canada’s oil sands or American shale reserves is far more labor-intensive and expensive to extract and refine than the oil in the Middle East. Those extraction costs contribute to the price of the oil, which might drive the oil prices higher or lower, depending on where the bulk of supply is coming from at any given time.

Natural Disasters

Oil prices are also susceptible to change as a result of natural disasters. Hurricanes, for example, regularly shut down oil production in the Gulf of Mexico, which could reduce the supply of oil and drive prices up.

International Relations

The headlines, especially international ones, could also drive oil prices. A significant amount of the world’s oil comes from the Middle East. Political instability in that region creates investor uncertainty, which might lead to price fluctuation. The same goes for countries like Russia, which produces a lot of oil, but is often involved in geopolitical conflicts, and several countries in the Middle East.

Economic Factors

While not always the case, recessions and economic turmoil could push oil prices lower.

The relative strength of the U.S. dollar also plays a role in the price of oil. The thinking is that a strong dollar allows American oil companies to buy more oil, and cut the cost to U.S. consumers, who buy a good percentage of the oil on the market.

However, while oil does not typically perform well during a recession, it does typically become more attractive to investors later in the business cycle.

Is an Oil Investment Safe?

While there may be longstanding demand for oil, it’s important to keep in mind that no investment is “safe.” Oil is volatile, and there are many factors and variables that can influence its supply and demand. Investors should remember that just because oil prices are up one day, they may fall the next. That could affect oil investments, as well as the broader economy.

Investors have different options to choose from to gain exposure to oil, from oil-related stocks, ETFs, and mutual funds to potentially higher risk choices, such as exchange traded notes (ETNs) and oil derivatives. Each has its own risk profile, and it’s important to understand the potential for both rewards and losses before investing in any type of oil asset.

The Takeaway

Oil is always in demand and important to the global economy, which makes it an attractive investment to some investors. Oil is also a volatile and higher risk investment, however, and risk exposure may also vary depending on how you may choose to invest in it, such as through stocks, ETFs, or derivatives. Given that many people are focused on renewable energy sources, too, investing in oil may not be quite as attractive as it once was.

It’s worth considering what role the different types of oil investments might have in your portfolio, and whether they align with your objectives.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

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

Options involve substantial risk of loss and the possibility an investor may lose the entire amount invested. Before starting options trading, investors should be familiar with the Characteristics and Risks of Standardized Options . TTax implications with options should be considered. Consult your tax advisor to understand any impacts to your taxes.

FAQ

What are the best ways to start an oil investment?

There are several ways to potentially invest in oil either directly or indirectly, including oil company stocks, mutual funds, ETFs, and exchange-traded notes that track oil prices directly.

What factors determine oil prices?

There’s a long list of variables that may affect oil prices, including the goals of cartels like OPEC, production costs, natural disasters, and international relations or military conflicts.

What is OPEC?

OPEC is the Organization of Petroleum Exporting Countries (OPEC), a group of 12 oil-producing countries, including Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC makes up nearly 80% of the planet’s oil reserves.

How much money do you need to start investing in oil?

It may be possible to start investing in oil with very little capital, as investors may be able to buy shares of oil-related ETFs or fractional shares of oil-related stocks, with as little as $1 to $100 dollars. Mutual funds often have a higher minimum than ETFs. The amount required to invest in oil derivatives could be substantially higher depending on the contract size and type.

Are there sustainable alternatives to investing in oil?

There are many potential sustainable alternatives to investing in oil, and those could include renewable energy stocks, clean energy funds, or even green bonds. These all have their own pros and cons, of course, so investors should do their research before investing in them.

---

Photo credit: iStock/kckate16

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

Before investing, carefully consider the investment objectives, risks, charges, and expenses detailed in a Fund’s prospectus. This document contains important information and must be read carefully prior to investing; you can find the current prospectus by clicking the link on the Fund’s respective page.
Alternative investments are highly risky and may not be suitable for all investors. These investments often involve leveraging, speculative practices, and the potential for complete loss of investment. They typically charge high fees, lack diversification, and can be highly illiquid and volatile. Be aware that both registered and unregistered alternative investments, including Interval Funds, are not subject to the same regulatory requirements as mutual funds, and their illiquid nature may restrict your ability to trade on your timeline. Always review the specific fee schedule for Interval Funds within their prospectus.

Mutual Funds (MFs): Investors should read and carefully consider the information contained in the prospectus, which contains the Mutual Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or SoFi's customer service at: 1.855.456.7634. Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risks. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may have tax implications.

SOIN-Q326-144

Read more

Dividend yield is a financial ratio that shows how much a company pays in dividends each year relative to its stock price. It’s expressed as a percentage and helps investors evaluate income potential from dividends.

Dividend yield concerns how much an investor potentially realizes from their investments over the course of a year as a result of dividends. Dividends, which are payouts to investors as a share of a company’s overall profit, could help investors generate returns, and some investors even formulate entire strategies around maximizing dividends.

But it’s important to have a good understanding of dividends, dividend yields, and other related concepts before going too far into the weeds.

What Does Dividend Yield Mean?

A stock’s dividend yield is how much the company annually pays out in dividends to shareholders, relative to its stock price. The dividend yield is a financial ratio (dividend/price) expressed as a percentage, and is distinct from the dividend itself.

Dividend payments are expressed as a dollar amount, and supplement the return a stock produces over the course of a year. For an investor interested in total return, learning how to calculate dividend yield for different companies might help to decide which company may be a better investment.

But bear in mind that a stock’s dividend yield will tend to fluctuate because it’s based on the stock’s price, which rises and falls. That’s why a higher dividend yield may not be a sign of better value. This can all be important to understand if you plan to buy stocks online or otherwise start investing.

For more background, it may be helpful to review a beginner’s guide to the stock market.

How Does Dividend Yield Differ From Dividends?

It’s important to really drive home the difference between dividend yield and dividends in general.

Dividends are a portion of a company’s earnings paid to investors and expressed as a dollar amount. Dividends are typically paid out each quarter (although semi-annual and monthly payouts are common). Not all companies pay dividends.

Dividend yield, on the other hand, refers to a stock’s annual dividend payments divided by the stock’s current price, and expressed as a percentage. Dividend yield is one way of assessing a company’s earning potential.

How to Calculate Dividend Yield

Calculating the dividend yield of an investment is useful for investors who want to compare companies and the dividends they pay. For investors looking for investments to help supplement their cash flow, or even to possibly live off dividend income, a higher dividend yield on a stock would be more attractive than a lower one.

It may be helpful to experiment with a stock profit calculator to try and develop a deeper understanding of how this may affect overall potential returns.

What Is the Dividend Yield Formula?

The dividend yield formula is more of a basic calculation than a formula: Dividend yield is calculated by taking the annual dividend paid per share, and dividing it by the stock’s current price.

Annual dividend / stock price = Dividend yield (%)

How to Work Out Dividend Yield Step-by-Step

Investors can calculate the annual dividend of a given company by looking at its annual report, or its quarterly report, finding the dividend payout per quarter, and multiplying that number by four. For a stock with fluctuating dividend payments, it may make sense to take the four most recent quarterly dividends to arrive at the trailing annual dividend.

It’s important to consider how often dividends are paid out. If dividends are paid monthly vs. quarterly, you want to add up the last 12 months of dividends.

This is especially important because some companies pay uneven dividends, with the higher payouts toward the end of the year, for example. So you wouldn’t want to simply add up the last few dividend payments without checking to make sure the total represents an accurate annual dividend amount.

Example of Dividend Yield

If Company A’s stock trades at $70 today, and the company’s annual dividend is $2 per share, the dividend yield is 2.85% ($2 / $70 = 0.0285).

Compare that to Company B, which is trading at $40, also with an annual dividend of $2 per share. The dividend yield of Company B would be 5% ($2 / $40 = 0.05).

In theory, the higher yield of Company B may look more appealing to some investors. But investors can’t necessarily determine a stock’s worth by yield alone.

Dividend Yield: Pros and Cons

For investors, there are some advantages and disadvantages to using dividend yield as a metric that helps inform investment choices.

Pros

•   From a valuation perspective, dividend yield may be a useful point of comparison. If a company’s dividend yield is substantially different from its industry peers, or from the company’s own typical levels, that could be an indicator of whether the company is trading at the right valuation.

•   For some investors, the primary reason to invest in dividend stocks is for income. In that respect, dividend yield could be an important metric. But dividend yield might change as the underlying stock price changes. So when using dividend yield as a way to evaluate income, it’s important to be aware of company fundamentals that provide assurance as to company stability and consistency of the dividend payout.

Cons

•   Sometimes a higher dividend yield could indicate slower growth. Companies with higher dividends are often larger, more established businesses. But that could also mean that dividend-generous companies are not growing very quickly because they’re not reinvesting their earnings. You can also learn more about dividend reinvestment plans.

Smaller companies with aggressive growth targets are less likely to offer dividends, but rather spend their excess capital on expansion. Thus, investors focused solely on dividend income could miss out on some faster-growing opportunities.

•   A high dividend yield could indicate a troubled company. Because of how dividend yield is calculated, the yield is higher as the stock price falls, so it’s important to evaluate whether there has been a downward price trend. Often, when a company is in trouble, one of the first things it is likely to reduce or eliminate is that dividend.

•   Investors need to look beyond yield to the type of dividend they might get. An investor might be getting high dividend payouts, but if they’re ordinary dividends vs. qualified dividends they’ll be taxed at a higher rate. Ordinary dividends are taxed as income; qualified dividends are taxed at the lower capital gains rate, which typically ranges from 0% to 20%. If you have tax questions about your investments, it may be helpful to consult with a tax professional.

The Difference Between Dividend Yield and Dividend Rate

A dividend is a way for a company to distribute some of its earnings among shareholders, as noted earlier. Dividends might be paid monthly, quarterly, semi-annually, or even annually (although quarterly payouts tend to be common in the U.S.). Dividends are expressed as dollar amounts. The dividend rate is the annual amount of the company’s dividend per share.

A company that pays $1 per share, quarterly, has an annual dividend rate of $4 per share.

The difference between this straight-up dollar amount and a company’s dividend yield is that the latter is a ratio. The dividend yield is the company’s annual dividend divided by the current stock price, and expressed as a percentage.

What Is a Good Dividend Yield?

Two companies with the same high yields are not created equally. While dividend yield is an important number for investors to know when determining the annual cash flow they might expect from their investments, there are deeper indicators that investors may want to investigate to see if a dividend-paying stock will continue to pay in the future.

A History of Dividend Growth

When researching dividend stocks for a self-directed investment account, one place to start is by asking if the stock has a history of dividend growth. A regularly increasing dividend is an indication of earnings growth and typically a good indicator of a company’s overall financial health.

The Dividend Aristocracy

There is a group of S&P 500 stocks called Dividend Aristocrats, which have increased the dividends they pay for at least 25 consecutive years. Every year the list changes, as companies raise and lower their dividends.

As of writing, there are 69 companies that meet the basic criteria of increasing their dividend for a quarter century straight. They include big names in energy, industrial production, real estate, defense contractors, and more, which often resembles a list of blue chip stocks.

Dividend Payout Ratio (DPR)

Investors could calculate the dividend payout ratio by dividing the total dividends paid in a year by the company’s net income. By looking at this ratio over a period of years, investors may learn to differentiate among the dividend stocks in their portfolios.

A company with a relatively low DPR is paying dividends, while still investing heavily in the growth of its business. If a company’s DPR is rising, that’s a sign the company’s leadership likely sees more value in rewarding shareholders than in expanding. If its DPR is shrinking, it’s a sign that management sees an abundance of new opportunities abounding. In extreme cases, where a company’s DPR is 100% or higher, it’s unlikely that the company will be around for much longer.

Other Indicators of Company Health

Other factors to consider include the company’s debt load, credit rating, and the cash it keeps on hand to manage unexpected shocks. And as with every equity investment, it’s important to look at the company’s competitive position in its sector, the growth prospects of that sector as a whole, and how it fits into an investor’s overall plan. Those factors will ultimately determine the company’s ability to continue paying its dividend.

---

---

The Takeaway

Dividend yield is a simple calculation: You divide the annual dividend paid per share by the stock’s current price. Dividend yield is expressed as a percentage, versus the dividend (or dividend rate) which is given as a dollar amount. The dividend yield formula may be a valuable tool for investors, and not just ones who are seeking cash flow from their investments.

Dividend yield could help assess a company’s valuation relative to its peers, but there are other factors to consider when researching stocks that pay out dividends. A history of dividend growth and a good dividend payout ratio (DPR), as well as the company’s debt load, cash on hand, and credit rating could help form an overall picture of a company’s health and probability of paying out higher dividends in the future.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

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

Options involve substantial risk of loss and the possibility an investor may lose the entire amount invested. Before starting options trading, investors should be familiar with the Characteristics and Risks of Standardized Options . TTax implications with options should be considered. Consult your tax advisor to understand any impacts to your taxes.

FAQ

Can a stock’s dividend yield be negative?

Dividend yield cannot be negative, as that would effectively be shareholders paying a tax or fee – a stock may have no dividend yield, however. But if yield is below zero, then there is no yield at all.

Why do some profitable companies pay no dividends?

There can be a variety of reasons that profitable companies choose not to pay or issue dividends, but generally, it’s because they’re reinvesting earnings and profits in an effort to fuel further growth or expansion.

Are high dividend yield stocks always safe investments?

There is no such thing as a safe investment, but stocks with high dividend yields tend to be older or more established and stable, which some investors may translate as being associated with lower relative risk.

How often do companies update their dividend yields?

Dividend yields are often updated continuously, and in real-time, though it depends on the specific company or stock.

Does a stock split affect the dividend yield?

A stock split should not affect dividend yields as dividend per share and the actual share price should change or adjust proportionately.

---

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.
S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.

SOIN-Q326-085

Read more