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Jan

2023

Guide to Transferring 401(k) to a New Job

By Jamie Cattanach | Budgeting & Goals, Growing Wealth, invest, Investing | No Comments

It’s easy to forget about old 401(k) plans when changing to a new job. Some people forget about it because the company that manages it never reminds them. On the other hand, others are aware of their old account, but they’ve been putting off the rollover because it sounds hard.

Many companies don’t make the process easy for customers to roll over their 401(k) accounts from previous jobs. But it can be worth the inconvenience.

By not rolling it over, you might be losing some serious cash. That’s right — losing money, so it’s easy to miss. Here are a few key reasons to prioritize a 401(k) rollover.

Key Points

• Rolling over a 401(k) may save you money — if your new 401(k) plan or rollover IRA charge lower fees.

• Another reason to roll over a 401(k) is if your new plan or rollover IRA give you access to better investment options.

• You don’t have to roll over your 401(k) to a new employer’s plan, but consolidating your 401(k) savings may help you manage them better.

• If you request that the funds from a 401(k) rollover be sent to you directly, you have 60 days to send the funds to another plan or IRA account. If you miss the deadline, the IRS will typically consider the rollover a distribution, and you’ll be taxed and possibly fined for the early withdrawal.

• Some 401(k) plans offer financial services, such as financial advisor consultations, to help employees achieve their retirement goals.

3 Reasons to Transfer Your 401(k) to a New Job

It may seem easier to leave your 401(k) as it is and not worry about the hassle of transferring it to a new job. However, the following are three main reasons to rollover a 401(k):

1. You May Be Paying Hidden Fees

All sorts of fees go into effect when you open a 401(k), including record keeping, maintenance, and fund fees. Expressed in a percentage, these fees inform the expense ratio of a plan.

Employers may cover those fees until you leave the company. Once you’re gone, that cost might shift to you without you realizing it. If the fees are too high with your previous employer’s 401(k), rolling over a 401(k) can be advantageous.

Fees matter: When you pay a fee on your 401(k), you’re not just losing the cost of the fee but also all the compound interest that would grow along with it over time. The sooner you roll your plan over, the more you could potentially save.

2. You Might Be Missing Out on Better Investments

If you aren’t happy with the investment options in your old 401(k) and your new employer accepts rollover 401(k)s, you might be able to save money while investing in a broader range of investment vehicles.

401(k) accounts grow at different rates depending on which assets you invest in. If the retirement savings plan at your new company offers a selection of stocks and bonds that better aligns with your financial goals, it might be time to initiate a rollover.

The money sitting in your old 401(k) could grow faster if you roll it over into a new plan — it’s certainly worth investigating the growth rates of each. Keep in mind that investors can lose money when investing, too, so it always makes sense to consider your personal risk tolerance when deciding how to invest in your retirement accounts.

Also, if you leave your 401(k) where it is, you may think about it infrequently, so your portfolio may drift from your desired asset allocation as you age. It’s important to keep tabs on your investments to ensure they are on track and appropriate for your time horizon and goals.

3. You Could Lose Track of Your 401(k) Account

It’s common for people to lose track of old 401(k) accounts. According to some estimates, nearly 20% of all 401(k) assets in the U.S. are lost or missing. Rolling over a 401(k) to your new employer’s plan may be a way to keep track of your retirement assets.

Losing track of a 401(k) account is not necessarily the fault of an investor — it’s just logistics. It’s harder and more time-consuming to juggle multiple retirement accounts than it is to juggle one. Until you retire, you’ll manage two (or more) websites, two usernames and passwords, two investment portfolios, and two growth rates for decades.

And if you leave this next job to go to a third (or a fourth, or a fifth), the 401(k) plans could pile up, creating even more tracking work for you. Plus, when you’re no longer with an employer, you might miss alerts about changes that may occur with an old retirement plan.

Recommended: How to Roll Over Your 401(k)

Do You Have to Rollover Your 401(k) to a New Employer?

You do not necessarily have to roll over your 401(k) to a new employer or rollover your funds into an individual retirement account (IRA). If you are pleased with your old employer’s retirement plan options and fees, you can leave the funds in that 401(k), provided the employer allows it. But if you keep your money in your old employer’s 401(k), you cannot make additional contributions to the account.

If you have between $1,000 and $5,000 in your old employer’s 401(k) account, the employer may roll over your account into an IRA if you do not choose to receive the money or roll it over yourself. If you have less than $1,000 in your 401(k), the employer may send you a check of the funds, with less than 20% income tax withholding, if you do not choose to roll it over within 60 days of leaving the employer.

Recommended: What is an IRA and How Does it Work?

What to Do With Your 401(k) After Getting a New Job

When you get a new job, and you have a 401(k) from your previous employer, you have several options for what to do with the money. As mentioned above, you can leave the money in your old employer’s 401(k) plan. But if you don’t like your old employer’s 401(k) plan and options, you can do one of the following:

Roll Over a 401(k) to Your New Employer’s Plan

If your new employer offers a 401(k) plan and you are eligible to participate, you can roll the money over from your old plan to your new plan. Consolidating your 401(k)s can help you manage all of your retirement savings in one place, but it’s important to compare the fees, investment options, and other features of each plan before making a decision.

Rolling over a 401(k) might seem intimidating or inconvenient at first, especially if you’re moving onto your second job and this is the first time you’ll be rolling over a 401(k). The actual process of rolling over a 401(k) isn’t too complicated once you’ve decided where your existing funds will go.

Roll Over a 401(k) to an IRA

An IRA is another option for your 401(k) funds. Rolling a 401(k) into an IRA can give you more control over your investments and potentially lower fees, but they do not come with employer-provided benefits, such as matching contributions.

Recommended: IRA vs 401(k): What Is the Difference?

Cash Out Early

There is always the option of cashing out your 401(k). Should you choose to cash out your 401(k) and you’re younger than 59 ½ years old, you will have to pay taxes on the money, and perhaps an additional 10% early withdrawal fee.

There are some circumstances when the 10% fee is waived (but not the income tax), such as when the funds will be used for eligible medical expenses, among other circumstances.

What Happens to Your 401(k) if You’ve Been Fired?

If you’ve been fired, your 401(k) account is typically unaffected, and you will still have access to the funds you’ve contributed to the account and vested employer contributions, known as the 401(k) vested balance. However, you lose your right to any remaining unvested funds following voluntary or involuntary termination.

Nonetheless, the rules regarding your access to the funds may depend on the terms of the specific 401(k) plan and the reason for your termination.

How Long Do You Have to Transfer Your 401(k)?

If you are rolling over your 401(k) to a new employer’s plan or an IRA, you generally have 60 days from the date you receive the funds to deposit them into the new account. If you do not complete the rollover within 60 days, the funds will be considered a distribution and subject to taxes and penalties if you are under the age of 59 ½.

Advantages of Rolling Over Your 401(k)

Rolling over your 401(k) to a new plan can benefit your overall financial plan. Here are a few ways this transition might help your financial well-being.

One Place for Tax-Deferred Money

Transferring your 401(k) to your new employer’s plan can help consolidate your tax-deferred dollars into one account. Keeping track of and managing one account may simplify your money management efforts.

A Streamlined Investment Strategy

Not only does consolidating your previous 401(k) with your new 401(k) make money management more straightforward, it can also streamline your investment strategies.

Financial Service Offerings

Some 401(k) plans offer financial services, such as financial advisor consultations, to help employees achieve their retirement goals. If your previous employer didn’t provide this service and your new plan does, taking advantage of this offering may help you achieve an investment plan that meets your exact goals rather than a standardized option.

Disadvantages of Transferring 401(k) to a New Job

While there are several advantages to a 401(k) rollover to a new job, there are also some potential disadvantages. Some drawbacks of rolling over a 401(k) from a previous employer to a new employer’s plan include the following:

• Loss of certain investment options: The new employer’s plan may offer different investment options than the previous one, limiting your ability to diversify your portfolio.

• Increased fees: The new employer’s plan may have higher fees associated with it, which could reduce the overall growth of your investment over time.

• Delays: The process of rolling over your 401(k) can take time, which could cause delays in accessing your funds.

How to Roll Over Your 401(k)

So, how do you transfer your 401(k) to a new job? If you decide to roll your funds into your new employer’s 401(k), you’ll most likely need to:

1. Contact the plan administrator to arrange the rollover. You may need to choose the types of investment you would like before you initiate the rollover. If not, you can take a lump-sum transfer and allocate the funds gradually to different investments of your choosing.

2. Complete any forms required by your employer for the rollover.

3. Request that your former plan administrator sends the funds via electronic transfer or a check so you can move the funds directly to the new plan administrator.

You may have to wait until your employer’s next open enrollment period to complete the rollover, but you might consider using that time to research the plan’s investment options so you’ll be ready when the time comes.

401(k) Rollover Rules

You may select a direct, trustee-to-trustee, or indirect rollover when requesting a transfer. With a direct rollover, the check is made out to the financial institution (for your benefit). Because the funds are directly deposited into the new account, no taxes are withheld. Similarly, a trustee-to-trustee transfer occurs between plan administrators but the funds change hands electronically.

With an indirect rollover, the check is payable to you, with 20% withheld for taxes. You’ll have 60 days to roll over the funds (80% of your previous plan) into an IRA or other retirement plan. If you want to contribute the full amount of your previous plan, you can add money to bring the lump contribution back up to the balance before rollover. At that point, you’d be able to count the 20% withheld as taxes paid.

Rolling Over a 401(k) Into an IRA

If you choose to roll your 401(k) funds into an IRA that’s not employer-sponsored, a direct rollover is a method that takes most of the guesswork out of the transfer. This means the funds will be taken from your previous account and rolled directly into the new one.

Doing it this way should prevent your previous lender from sending you a check, resulting in unforeseen early withdrawal tax situations.

Opening a new retirement account online is relatively straightforward, but there are some steps to opening an IRA that might be worth reviewing before you start. Once your funds are rolled over, you can choose the investments that work for your retirement goals.

Here are the general steps to roll over a 401(k) into an IRA:

1. Choose an IRA custodian: This is the financial institution that will hold your IRA account. Some popular choices include brokerage firms, banks, and credit unions.

2. Open an IRA account: Once you have chosen an IRA custodian, you need to open an IRA account. You will need to provide personal information such as your name, address, and Social Security number.

3. Request a 401(k) distribution: Contact the plan administrator of your old employer’s 401(k) and request a distribution of your account balance. You will need to specify that you want to do a “direct rollover” or “trustee-to-trustee” transfer to your new IRA account, since these are the most straight forward transfers.

4. Provide IRA custodian information: Give your old employer’s 401(k) plan administrator the IRA custodian’s name, address, and account information, so they know where to send the funds.

5. Wait for the funds to be transferred: The process of transferring funds can take several weeks, so be patient.

6. Monitor the account: Once the rollover is complete, monitor your IRA account to ensure that it has been funded and that the balance is correct.

7. Invest your funds: Once the funds have been transferred to your IRA account, you will need to invest with the transferred funds.

Remember that your 401(k) plan administrator may have specific procedures for rolling over your account, so be sure to follow their instructions. Also, there are some rules to follow, such as the 60 days rollover rule; it’s essential to consider these to avoid penalties.

The Takeaway

There are many benefits to rolling over a 401(k) after switching jobs, including streamlining your retirement accounts and directing your money to suit your individual financial needs and goals. While some may view it as inconvenient, going through the process, whether you want to roll over a 401(k) into your new employer’s plan or an IRA, may help you build wealth for retirement.

If you have an old 401(k) you’d like to roll over to an online IRA, SoFi Invest® can help. With a SoFi Roth or Traditional IRA, investors can access investment options, member services, and our robust suite of planning and investment tools. And SoFi makes the 401(k) rollover process seamless and straightforward — with no need to watch the mail for your 401(k) check. There are no rollover fees, and you can complete your 401(k) rollover quickly and easily.

Help grow your nest egg with a SoFi IRA.

FAQ

Should I roll over my 401(k) to new employer?

Rolling over your 401(k) to your new employer may be a good idea if the new plan offers better investment choices or if consolidation leads to lower account fees. Another benefit is convenience — it’s easier to manage one account than two. That said, if control is most important to you, rolling over your 401(k) to an IRA may be the better option.

How long do you have to move your 401(k) after leaving a job?

You typically have 60 days from the date of distribution to roll over your 401(k) from your previous employer to an IRA or another employer’s plan. Otherwise, it will be considered a taxable distribution and may be subject to penalties. However, some 401(k) plans may have different deadlines for rolling over your funds, so check with your plan administrator for specific details.

How do I roll over my 401(k) from my old job to my new job?

To roll over your 401(k) from your old job to your new job, you should contact the plan administrator of your new employer’s 401(k) plan and request a direct rollover or trustee-to-trustee transfer from your old plan to your new plan. Provide the necessary account and personal information and follow the instructions provided by the plan administrator to complete the rollover process.

What happens if I don’t roll over my 401(k) from my previous employer?

You generally are not required to roll over a 401(k) from a previous employer to your new employer’s 401(k) or an IRA. However, some experts recommend rolling over a 401(k) to a single account to simplify your retirement investments.

You may also be interested in:

What Is a Stock Market Crash?

What Happens to Your 401(k) When You Leave Your Job?

Can I Roll a 401(k) Into a Roth IRA?

Jan

2023

Delayed vs Real-Time Stock Quotes

By Samuel Becker | Growing Wealth, invest, Investing | Comments Off

Stock quotes, which may be seen on financial news networks or websites, are typically reported in real time, or with a delay. The main difference? Real-time quotes are the most up-to-date, while delayed quotes lag behind real-time quotes by several minutes, in most cases.

Which one is better? For the average investor who isn’t making changes to their portfolio, real-time quotes may be more precise than they need. For those investors, delayed stock quotes may suffice. Here’s what you need to know about the difference between real-time stock quotes and delayed quotes.

What Are Real-Time Stock Quotes?

Real-time stock quotes relay price information for various securities in real-time, or instantaneously. In other words, a real-time stock quote is the actual and immediate stock price at any given point in time. The quotes reflect demand for a security on stock markets around the world.

How Real-Time Quotes Work

Stock quotes include ticker symbols that denote the stock of a specific company or firm, and the price of a stock’s current (real-time) valuation. Those values are determined by trading activity — supply and demand, in other words. Those values also fluctuate during the trading day.

The letters and numbers comprising a quote — either real-time or delayed — reflect different types of investments or commodities and their prices — the price at which they’re currently trading. Typically the ticker symbol is similar in some way to the company name, and you can use it to look up the stock price.

For example, the ticker AAPL is Apple; XOM is the ticker for ExxonMobil; JNJ is the ticker for Johnson & Johnson; UDMY is Udemy; LULU is Lululemon.

Those symbols, when displayed on a ticker tape, are generally followed by or attached to their current trading price.

Real-time quotes are provided by many sources, including financial news networks and websites. Many online trading brokerages also offer their clients access to them as well. Real-time stock quotes provide traders and active investors with more accurate information.

What Are Delayed Quotes?

Delayed stock quotes are valuations of securities that are not in real-time — they’re delayed, as the name indicates. Depending on the source of the quote, the information relating to stock or share prices can be delayed by several minutes, or even up to 20 minutes.

It’s not unusual, for instance, you may login to your investment brokerage and see delayed stock quotes relaying information about the value of your current investments. There will likely be a note telling you how delayed the data is (15 minutes, for example), so that you know the pricing isn’t in real-time.

Most people should be able to tell if a quote is delayed, too, if the price remains static for minutes at a time. Real-time quotes, on the other hand, can fluctuate second-by-second, depending on the security and the source.

For investors involved in day trading, delayed quotes wouldn’t be sufficient; these investors require up-to-the-minute (or to the second) price quotes in order to execute their strategies. But for the majority of buy-and-hold investors, knowing the very latest price of a security may not matter to their long-term plans.

How Delayed Quotes Work

Delayed stock quotes work the same way that real-time quotes do, in that they reflect current market conditions and data relating to security values. But the reporting is delayed for a variety of reasons.

The most common reason that you may come across a site or information source with delayed stock quotes is that fetching and reporting real-time quotes is costly and resource-consuming. As such, companies may opt to report delayed quotes instead.

Real-Time vs Delayed Stock Quotes

Real-time streaming stock quotes change second to second, and can showcase the volatility of stock prices. When stock exchanges are open, trading is constant, and the dynamics of supply and demand for specific stocks change their prices rapidly. So, watching real-time streaming stock quotes means seeing those price fluctuations occur in real time, as the name implies. That can have implications for how traders and investors make decisions.

Using real-time stock quotes can be useful for active traders or investors, or high-frequency traders — professionals who are making numerous stock trades every day or week and may be managing other people’s portfolios, too. For these traders, knowing stock prices down to the minute helps inform their decision to buy or sell. That real-time price, ultimately, determines their stock trading profit (or loss).

There’s also after-hours trading to keep in mind, too. Stock markets have trading hours — the New York Stock Exchange (NYSE) and NASDAQ are open between 9:30 am and 4 pm, for example. At other times, investors may still be able to swap securities, but prices are much more volatile after-hours, and because it’s difficult to get real-time quotes after-hours, values can change dramatically before stock markets reopen.

Investors can also execute a market-on-open trade, during which a transaction completes as soon as the markets do open.

While security prices do fluctuate, they generally don’t fluctuate all that much over a relatively short interval (15 minutes, for example). And since the average investor may not be all that interested in minute-by-minute price fluctuations, using a delayed stock quote could provide all the information they need.

Think about it this way: If an investor were looking to rebalance their portfolio — something they may only do two or three times per year — a real-time stock quote isn’t going to give them much more actionable information than a delayed stock quote to help them make an informed decision.

Delayed stock quotes also don’t relay the second-by-second volatility of the market, which can be hard for some investors to digest.

Why Do Stock Quotes Get Delayed?

As mentioned, delayed stock quotes are lagging because they require resources to gather and report. The information is out there, and is collected by firms that supply quotes and pricing information to other companies. Depending on the individual security and the source of the information, a delay is likely the result of a company opting to supply delayed quotes rather than real-time quotes to consumers in order to save on costs.

As such, a small percentage of quote-providers offer consumers real-time market information — and often only to those who pay for it. That’s not to say that real-time data isn’t available for free, but the gathering and reporting can be costly, which is why some providers use delayed quotes.

How Real-Time Quotes Affect Your Investment Strategy

One big question investors may have: How do these two different types of stock quotes actually affect someone’s investment strategy? That depends largely on whether you’re into active investing, and how often they’re swapping positions in their portfolio.

Real-time stock quotes are mainly used by day traders, or active investors who are executing trades on a daily or hourly basis. In those cases, the relatively small fluctuations in price due to market volatility, which occur in real time, can determine whether a trade is profitable or not.

Real-time stock quotes are mainly used by day traders, or active investors who are executing trades on a daily or hourly basis.

For example, if a trader was trying to time a trade to execute at a specific price, a delayed quote might be useless. The time lag could cause them to miss their window, and bobble the trade.

How Delayed Quotes Affect Your Investment Strategy

As noted, if investors are only rebalancing their portfolios every so often, real-time quotes won’t matter all that much to their investing strategies. They aren’t trying to turn a profit from day-trading, in other words, and are taking a longer-term approach to their investing.

As such, for long- or medium-term investors who may only occasionally buy or sell securities, delayed quotes will do the trick. If you’re not checking on your portfolio every day and are only considering asset allocation every few months, there isn’t much of an advantage to looking at real time quotes over delayed ones.

Real-time quotes do provide more information than delayed quotes, though, in that they’re more precise. That can help you if you’re weighing decisions regarding eithershort-term vs long-term investments.

Deciding Which Stock Quote is Right for You

Most investors may not give much thought to real-time versus delayed stock quotes, unless they are active traders, as discussed. Whether or not you need up-to-the-minute quotes really depends on whether you’re doing a lot of trading, and doing that trading within tight time frames in which seconds or minutes matter. So, real-time quotes can give you more insight as to when it’s time to buy, sell, or hold.

Accordingly, if you’re more of a passive investor, you can probably stick to delayed stock quotes to get a broader idea of a security’s value.

The Takeaway

Real-time stock prices are updated to the second; delayed stock prices might be updated every 15 minutes, every hour, or every day, depending on the provider and the security involved.

For investors who aren’t looking to profit from small price fluctuations, it won’t make much of a difference if the quotes they’re using are delayed or not. That said, it’s never a bad idea to use real-time trading data, if an investor has access to it.

Investors can put their knowledge of real-time stock market information to use today. Using SoFi Invest®, investors can set up an Active Invest account to harness the power of real-time trading. Whether an investor is checking their holdings every day, or trying to make the best decision to align with long-term financial plans, SoFi Invest provides fast and accurate data that can be used to empower investors of all levels.

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FAQ

What is a delayed stock quote?

A delayed stock quote is a quote that does not relay real-time value information regarding stock or security values. Instead, the information is delayed by around 15 or 20 minutes, in many cases.

What are real-time stock quotes?

Real-time stock quotes reflect the current market value of a security in real time — meaning up-to-the-minute, or second. Real-time quotes fluctuate constantly based on supply and demand for a security on the market.

Are real-time quotes better than delayed quotes?

Real-time quotes aren’t necessarily better than delayed quotes, but they do reflect more current information which can be better for active investors or day traders.

Jan

2023

Why you need to invest when the market is down

What You Need to Know When the Market Is Down

By Inyoung Hwang | Growing Wealth, invest, Investing | No Comments

What do you do with your stocks when the market drops? If you’re like most people, your first instinct is to sell. It’s human nature, and behavioral finance studies bear this out. When your investments go up in value, it feels great. But when they decline, selling everything can seem like the best way out of a bad situation.

But instinctively selling when stocks drop is often counterproductive, and it may make more sense to invest while the market is down.

Should You Invest When the Market Is Down?

It’s generally a good idea to invest when the stock market is down as long as you’re planning to invest for the long term. Seasoned investors know that investing in the market is a long-term prospect. Stock market dips, corrections, or even bear markets are usually temporary, and, given enough time, your portfolio may recover.

When the market is down, it provides an opportunity to buy shares of stock at a lower price, which means you can potentially earn a higher return on your investment when the market recovers.

For example, in late 2007, stocks began one of the most dramatic plunges in their history. From October 2007 to March 2009, the S&P 500 Index fell 57%. During that time, many investors panicked and sold their holdings for fear of further losses.

However, the market bottomed out on March 9, 2009, and started a recovery that would turn into the longest bull market in history. Four years later, in 2013, the S&P 500 surpassed the high it reached in 2007. While that historic plunge of over 50% was terrifying, if you panicked and sold, rather than employ bear market investing strategies, you would have locked in your losses — and missed the subsequent recovery.

If, on the other hand, you had kept your investments, you would have seen stock values fall at first, but as the market reversed course, you may have seen portfolio gains again.

Consider the recent example of how the markets performed during the early stages of the Covid-19 pandemic. The S&P 500 fell about 34% from February 19, 2020, to March 23, 2020, as the pandemic ravaged the globe. However, stocks rebounded and made up the losses by August. Nearly three years later, stocks are still above their pre-pandemic high, even considering the bear market of 2022.

These examples illustrate why timing the market is rarely successful, but holding stock over the long term tends to be a smart strategy.

It’s still important to keep in mind that the stock market can be volatile and can fluctuate significantly in the short term. Therefore, you must be prepared for short-term losses and have a long-term investment horizon.

4 Things to Do During a Market Downturn

When the stock market is down, it can be a worrying time for investors. But it’s important to remember that market downturns are a normal part of the investing process and that the market may eventually recover. Here are a few things to do during a market downturn.

1. Stay Calm and Avoid Making Impulsive Decisions

It’s natural to feel worried or concerned when the stock market is down, but it’s essential to maintain a long-term perspective and not make rash decisions based on short-term market movements.

Buying and selling stocks based on gut reactions to temporary volatility can derail your investment plan, potentially setting you back.

You likely built your investment plan with specific goals in mind, and your diversified portfolio was probably based on your time horizon and risk tolerance preferences. Impulsive selling (or buying) can throw off this balance.

Instead of letting emotions rule the day, consider having a plan that includes investing more when the market is down (aka buying the dip). These strategies involve buying stocks on sale, and the hope is that the downturn is temporary and you’ll be able to ride any upturn to potential earnings.

So, when markets take a tumble, your best move is often to stay calm and continue investing.

That said, any investment decisions you make should be based on your own needs. Just because the market is down doesn’t mean you have to buy anything. Buying stocks on impulse just because they’re cheaper might throw a wrench in your plan, just like rushing to sell. Taking time to consider your long-term needs and doing research typically pays off.

2. Evaluate Your Portfolio

Review your portfolio and make sure it’s properly diversified. Portfolio diversification may reduce the overall risk of your portfolio by spreading your investments across different asset classes, like stocks, bonds, real estate, and cash. Investing in various assets and industries can protect your portfolio during a market downturn.

However, even if you have a well-diversified portfolio, you may also need to pay attention to your portfolio’s asset allocation during volatile markets. For example, during a down stock market, your stock holdings may become a lower percentage of your portfolio than desired, while bonds or cash become a more significant part of your overall holdings. If your portfolio has become heavily weighted in a particular asset class or sector, it could be strategic to sell some of those holdings and use the proceeds to buy securities to rebalance your portfolio at your desired asset allocation.

3. Take Advantage of Low Prices With Dollar-Cost Averaging

To help curb your impulse to pull out of the market when it is low — and continue investing instead — you may want to consider dollar cost averaging.

Here’s how it works: On a regular schedule — say every month — you invest a set amount of money in the stock market. While the amount you invest each month will remain the same, the number of shares you’ll be able to purchase will vary based on the current cost of each share.

For example, let’s say you invest $100 a month. In January, that $100 might buy ten shares of a mutual fund at $10 a share. Suppose the market dips in April, and the fund’s shares are now worth $5. Instead of panicking and selling, you continue to invest your $100. That month, your $100 buys 20 shares.

In June, when the market rises again, the fund costs $25 a share, and your $100 buys four shares. In this way, dollar cost averaging helps you buy more shares when the markets are down, essentially allowing you to buy low and limiting the number of shares you can buy when markets are up. This helps protect from “buying high.”

After ten years of investing $100 a month, the value of each share is $50. Even if some shares you bought cost more than that, your average cost per share is likely lower than the fund’s current price.

Steady investments over time are more likely to give you a favorable return than dumping a large amount of money into the market and hoping you timed it right.

4. Consider Tax-Loss Harvesting

If you’ve already experienced losses, you may want to consider tax-loss harvesting — the practice of selling investments that experienced a loss to offset your gains from other investments.

Imagine that you invest $10,000 in a stock in January. Over the year, the stock decreases in value, and at the end of the year, it is only worth $7,500. Instead of wishing you’d had better luck, you can sell that position and reinvest the money in a similar (but not identical) stock or mutual fund.

You get the benefit of maintaining a similar investment profile that will hopefully grow in value over time, and you can write off the $2,500 loss for tax purposes. You can write off the total amount against any capital gains you may have in this year or any future year, helping to lower your tax bill. This is tax-loss harvesting.

You can also deduct up to $3,000 of capital losses each year from your ordinary income. However, you must deduct your losses against capital gains first before using the excess to offset income. Losses beyond $3,000 can be rolled over into subsequent years, known as tax loss carryforward.

During major market downturns, this technique can ease the pain of capital losses — but it’s important to consider reinvesting the money you raise when you sell, or you’ll risk missing the recovery. But remember that with investing comes risk, so there’s no assurance that a recovery will occur.

SoFi has built a Recession Help Center
that provides resources to help guide you
through this uncertain time.

4 Things to Avoid When the Market Is Down

Feeling anxious when the stock market is down is natural, but it’s important to remain calm and not let fear drive your investment decisions. Here are a few things to avoid when the stock market is down.

1. Trying to Time the Market

Timing the market is the idea that you will somehow beat the market by attempting to predict future market movements and buying and selling accordingly.

However, it’s difficult to predict with certainty when the stock market will go up or down, so trying to time the market is generally a futile endeavor. As they say: No one has a crystal ball in this business.

As a result, timing the market is not a strategy that works for most investors. Even during a down market, you should not wait until the market hits bottom to start investing in stocks again.

2. Selling All Your Stocks

You should resist the temptation to sell all of your stocks or make other rash decisions when the market is down. While it may be tempting to sell all of your stocks during a down market, it’s important to remember that the stock market usually recovers. If you sell all of your stocks when the market is down, you may miss out on the opportunity to participate in the market’s recovery.

3. Chasing After High-Risk Investments

When stocks are down, you may be inclined to try to earn quick profits by investing in high-risk assets — like commodities or >cryptocurrencies — but these investments can be particularly volatile and are not suitable for everyone.

Moreover, riskier investment strategies like options and margin trading may be an appealing way to amplify returns in down markets. But if you are not comfortable using these strategies, you could end up with even bigger losses.

4. Abandoning Your Long-Term Financial Plan

It’s important to remember that the stock market is just one part of your overall financial plan. Keep your long-term financial goals in mind, and don’t let short-term market movements distract you from your larger financial objectives.

Risks to Investing in Down Markets

While the stock market generally recovers after a decline, there are exceptions to the idea that the market tends to snap back quickly or always trends upward.

Take the stock market crash of 1929. Share prices continued to slide until 1932, as the Great Depression ravaged the economy. The Dow Jones Industrial Average didn’t reach its pre-crash high until November 1954.

In addition, as of early 2023, the Nikkei 225 — the benchmark stock index in Japan — has yet to reach the peak of over 38,000 it hit at the end of 1989. Back then, the index went on to lose half its value in three years as an economic bubble in the country burst. However, the Nikkei did touch the 30,000 level at various points in 2021 for the first time since 1990.

So, investors need to remember that just because stock markets have recovered in the past doesn’t mean that it will always be that way. As the saying goes, past performance is not indicative of future results.

The Takeaway

Almost everyone feels a sense of worry (or fear) when the market is down. It’s only natural to find yourself swamped with doubts: What if the market keeps sliding? What if I lose everything? What if it’s one of those rare occurrences when the recovery takes ten years?

Rather than succumb to panic, the best investment advice is not to give in to your impulses to sell or scrap your entire investment strategy, but to stay the course. Using strategies like dollar-cost averaging, which allow you to invest in a down market sensibly, can be a part of a balanced investment strategy that helps grow wealth over time.

So put aside what the market is doing today, and remember the long game. If you’re ready to start investing, you can open an online brokerage account with as little as $5 on SoFi Invest®. You can buy and sell stocks, exchange-traded funds (ETFs), and fractional shares — all from the convenience of your phone or laptop.

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.

Jan

2023

Investing Survey: 85% of Investors Plan to Change How They Invest in 2023

By Brandon Lee | Growing Wealth, invest, Investing | Comments Off

We don’t need to tell you that 2022 has been a challenging year for investors — what with interest rates soaring, the stock market plummeting, and the onset of another crypto winter.

What you might be surprised to know: There’s some good news here. In a recent survey, we asked 1,000 investors how they managed their portfolios in 2022, how they’re feeling about the market, and what their predictions are for 2023*.

While you might expect some anxiety or pessimism (and there was some), investors overall remain positive after a difficult year. Here’s what they had to say about stocks, crypto, how they coped with investing stress — and more.

Note: We rounded percentages to the nearest whole number, so some data sets may not add up exactly to 100%.

*The survey was completed on October 5, 2022 and was conducted using a general U.S. population data set of 1,000 adults age 18 and older. Survey did not include known SoFi members or a SoFi member data set.

Key survey facts and findings

2022 SoFi Investing Survey

Before we dig into the details, here are some of the standout results.

• 93% of survey respondents continued to invest, despite the current market conditions.

• Men were more likely to invest than women, and invest more money as well.

• 78% of crypto investors are generally optimistic that values will rebound.

• And remarkably: 1 in four (25%) of investors had no regrets about 2022

Last highlight: How did investors cope with stress in 2022? Hobbies!

In general, investors stayed the course in 2022.

While the market hasn’t been kind to investors over the past year, it certainly hasn’t stopped many of them from investing. 93% of our respondents kept invested in 2022.

2022 SoFi Investing Survey

93% of respondents have invested in 2022

When it comes to the amount people have invested so far this year, men were more likely than women to invest — and invest more money when they did:

• $0 – $499: 24%

◦ Male: 44%

◦ Female: 56%

• $500 – $999: 23%

◦ Male: 50%

◦ Female: 49%

• $1000 – $4999: 26%

◦ Male: 57%

◦ Female: 43%

• $5000+: 21%

◦ Male: 68%

◦ Female: 32%

Many investors are still hoping to cash in on crypto.

It’s no secret that the crypto market has taken a beating, especially with the crash of FTX . Nonetheless, people are still holding on to their crypto investments.

45% of respondents say they have cryptocurrency in their portfolios. 65% of them even said they invested more than $500 in 2022. Most crypto investors (65%) are male and under the age of 55.

45% of respondents have cryptocurrency in their investment portfolio.

Over the past few years, cryptocurrency has become a more widely-accepted investment vehicle. Many investors have invested in crypto this year. Of these investors:

• 65% have invested $500 or more in 2022

• Less than 3% haven’t invested any money into crypto in 2022

• Only 7% of respondents aged 55 or older are invested in crypto

• 65% are male

And of those who invested $5000 or more in crypto in 2022, 80% are male.

While the crypto market is currently in a steep decline, most investors with cryptocurrency in their portfolios have invested at least $500 in 2022. Here’s what crypto investing looks like in 2022.

• $0 – $499: 32%

• $500 – $999: 23%

• $1000 – $4999: 26%

• $5000+: 16%

Only 3% of investors who have cryptocurrency in their portfolio haven’t invested anything into cryptocurrency this year.

78% of investors are either confident or cautiously optimistic the crypto market will bounce back

2022 SoFi Investing Survey
The crypto market remains volatile as rumors of a global recession continue to swirl. Despite this financial climate, most investors are hopeful of the future.

Of the 45% of respondents who have crypto in their portfolio:

• 78% of investors are at least “cautiously optimistic” that the crypto market will bounce back

• Only 5% of respondents believe crypto is “dead.”

Overall, the crypto market still has plenty of believers. Whether that optimism will pay off remains to be seen.

Nearly 90% of people have invested in non-stock market-related assets.

2022 SoFi Investing Survey

Non-traditional market assets are on the rise due to stock market volatility. In fact, nearly 90% of our respondents invested money into a non-stock-market-related asset. Crypto was the most common non-traditional investment choice.

Certificate of deposits (CDs), Real estate investment trusts (REITs), and gold were the next most popular options. One respondent even told us they invested in Magic the Gathering trading cards—definitely a niche investment choice, but representative of investments that aren’t directly impacted by the stock market.

Here’s a full list of all the responses we received:

• Certificate of deposits (CDs): 24%

• Real estate investment trusts (REITs): 20%

• Gold or other commodities: 20%

• Crypto: 48%

• Private equity funds: 22%

• Government bonds: 19%

• Other or none: 11%

Here’s what investors’ portfolios look like right now.

2022 SoFi Investing Survey

Nearly a third (32%) of respondents have less than $25,000 in their investment portfolio. Here’s a breakdown:

• $0 – $24,999: 32%

• $25,000 – $49,999: 22%

• $50,000 – $99,999: 21%

• $100,000 – $199,999: 12%

• $200,000+: 14%

Most investors (nearly 75%) also invest highly into stocks. Cryptocurrency, mutual funds, and cash were the next most popular investment types.

• Stocks: 72%

• Cryptocurrency: 45%

• Mutual funds: 41%

• Cash or cash equivalents: 38%

• Bonds: 31%

• Exchange-traded funds (ETFs): 30%

• Real estate: 23%

• Index funds: 21%

• Private equity: 14%

• Other: 2%

Market volatility has impacted investors’ purchase and investment decisions.

Market volatility has impacted investors at all ages and stages, but it hasn’t slowed them down. Not only have many people continued to invest during these uncertain times, market volatility has inspired investors to adjust their strategies and spending.

More than a third of respondents (37%) say market volatility has caused them to make impulsive investment decisions.

2022 SoFi Investing Survey
Market volatility has caused some investors to respond emotionally, with over a third of respondents (37%) saying market volatility has caused them to make impulsive investment choices.

31% of these impulse decisions were made by investors aged 18-24. In fact, the younger you are, the more likely you are to make impulsive or emotion-driven financial decisions. Here’s the age breakdown of those who made an impulse move due to market volatility:

• 18-24: 31%

• 25-34: 23%

• 35-44: 23%

• 45-54: 17%

• Older than 54: 7%

Of all the people who made impulsive investment decisions, 54% of our respondents say they’re happy with their choice. Specifically, only 20% of them regret them.

Maybe these rash decisions taught investors important lessons about the market. Maybe some are confident they’ll rebound.

One third of respondents (33%) had to cancel or delay plans or purchases in 2022 because of money lost on investments.

Many investors’ finances were impacted by the bear market: 33% said they had to cancel or delay plans in 2022 because they lost money on investments.

Ultimately, these mistakes prevented some investors from going on vacations, buying homes, and starting businesses. When we asked those who had to cancel or delay plans specifically which plans were impacted, here’s what they said:

• Going on a trip: 27%

• Making a major purchase (home, vehicle, etc.): 22%

• Home renovations: 19%

• Starting a business: 15%

• Growing my family (getting married, having a baby, etc.): 10%

• Retiring: 6%

• Other: 2%

Over half of respondents did not make any major investment changes.

2022 SoFi Investing Survey
Market volatility still isn’t scaring investors away. Over half, or 55% of respondents held on to their assets during this year’s economic crisis.

When we asked investors how they reacted to market swings this year:

• 29% said they bought a lot of investment

• 17% said they sold a lot of investments

• 55% said they did not buy or sell investments

The investors that did sell some of their assets (45%) ultimately relinquished less than half of their portfolio. Only 7% sold 76% or more of their total investments.

Many investors have investment regrets about 2022 and are looking toward 2023.

With 2023 on the horizon, many investors are planning to adjust their strategies based on the lessons they learned this year.

People are split on how inflation makes them feel about their investment strategies in 2022:

Inflation can be a thorn in the side of investors. Our respondents were split in how they approached inflation in 2022:

• 39% of respondents said they want to invest more, despite inflation.

• 33% said inflation makes them want to leave their investments alone.

• 28% said inflation makes them want to invest less.

Of the 39% who want to invest more, Gen Z appears to be the most optimistic (27% of that subgroup are between the ages of 18 and 24).

One thing is for certain — confident investors will continue to engage with the market despite inflation.

In general, people have mixed emotions about their investments in 2022, but the most common feeling was optimism (26%).

2022 SoFi Investing Survey

There was also some variance in how respondents feel about their investments. Most were optimistic, and fewer felt stressed, disappointed, and content.

• Optimistic: 26%

• Stressed: 19%

• Disappointed: 19%

• Content: 15%

• Excited: 14%

• Regretful: 5%

• Angry: 3%

Very few felt regretful or angry, which could be welcome signs of more market participation in the coming year.

While 5% of respondents feel regretful, a full 25% — or one in four investors — have zero regrets about 2022.

That said, 75% of respondents have some type of investment regret this year. And many have learned major lessons this year. Mainly, many wish they had bought more assets at lower prices.

Some of the most common investing regrets respondents expressed:

• They should’ve bought more crypto when prices were at their lowest (18%)

• They should’ve bought more stock when the market started to decline (16%)

• They should’ve sold stock before the market started to decline (15%)

Not everyone was regretful about their investing activities: As noted, 25% of respondents have no regrets at all. And of those that have no regrets, 60% are 45 or older.

Here’s the breakdown of the investment regrets respondents had this year:

• I have no regrets: 25%

• I should have bought more crypto while prices were their lowest: 18%

• I should have bought more stock when the market started tanking: 16%

• I should have sold stock before the market started tanking: 15%

• I should have sold my crypto early in the year: 10%

• I should have bought gold: 9%

• I should have held onto stock when the market started tanking: 7%

People use a variety of tactics to cope with the stress of market fluctuations:

We got a lot of interesting responses about how investors have dealt with the stress that came from market fluctuation.

• 41% took their mind off their portfolios by engaging in hobbies.

• 37% did their own investment research.

• 31% of them simply stopped checking their balances.

• 22% of respondents talked with their brokers for reassurance. 17% participated in online forums.

And on a positive note, 14% said the markets simply didn’t stress them out.

Nearly a third of respondents (30%) check their investment portfolios every day. And 75% check at least once a week.

Although one coping mechanism of market stress was to avoid checking balances, 30% of our respondents (65% of whom were male) check their investments every day.

Most respondents check their portfolio’s performance at least once a week. Here’s how often investors are checking their investment performance.

• Every day: 30%

• 2 to 3 times a week: 29%

• Once a week: 17%

• A few times a month: 12%

• Once a month: 7%

• Less than once a month: 7%

Looking forward to 2023

2022 is almost over and many investors are already looking forward to next year. Let’s see how our respondents plan to adjust their strategies in 2023.

85% of respondents plan to make some changes to how they invest in 2023.

While most respondents have agreed to change their plans, 21% of them want to invest more into the market.

Here are other ways people plan to change their investment strategies next year:

• 19% plan to do more of their own investment research

• 14% plan to work with a financial advisor

• 10% plan to buy into a new type of investment

• 9% plan to change the asset allocations in their portfolio

• 6% plan to decrease how much they invest overall

• 5% plan to use a robo-advisor or automated investing

• 15% don’t plan to change anything.

If this year has taught investors anything, it’s to adapt their strategies and stay optimistic. When asked how they planned to change their strategies, here is how investors responded.

Key Takeaways

Historically, market volatility tends to even itself out, and investment values typically rebound. Investors’ attitudes and behaviors tend to mirror this pattern. While markets have been low in 2022, there are signs of recovery as the year draws to a close, and people appear to be optimistic about an upswing and plan to continue investing.

If you’re ready to take advantage of buying when the market is low, online investing with SoFi Invest is an easy way to get started.

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.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

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.

SOIN1122042

Jan

2023

What Are Futures? A Guide to Futures Trading

Exploring Futures in Financial Markets: A Comprehensive Guide

By Colin Dodds | Growing Wealth, invest, Investing | Comments Off

Some investors may trade futures contracts in order to hedge against risk, or to speculate on the price movements of a given asset or security — or because their business will benefit if they lock in a commodity at a certain price. Trading futures can provide opportunities for a range of investors.

A futures contract requires both parties to honor the terms, no matter what the price is in the market when the contract expires. If you want to trade futures, there are various ways they can fit into your portfolio or plan.

What are Futures?

Futures are derivatives that take the form of a contract in which two traders agree to buy or sell an asset for a specified price at a future date. Popular underlying assets for futures may include physical commodities like gold, corn, or oil, as well as currencies, or financial instruments like stocks.

The most commonly traded futures contracts use standardized terms, and are traded on a futures exchange. For example, if you want to buy or sell corn futures, one contract would equal 5,000 bushels and be traded via the Chicago Board of Trade (CBOT). Oil is traded on the Chicago Mercantile Exchange (CME), and one oil futures contract equals 1,000 barrels of oil.

Traders buy and sell in increments specified by the contract. To buy 50,000 bushels of corn or 10,000 barrels of oil, you’d buy 10 contracts of each. Given the quantities and dollar amounts of these trades, investors often use leverage, thereby paying only a fraction of the total cost of the position.

💡 Quick Tip: Options can be a cost-efficient way to place certain trades, because you typically purchase options contracts, not the underlying security. That said, options trading can be risky, and best done by those who are not entirely new to investing.

Understanding How Futures Work

Futures work by obligating a buyer or seller to purchase or offload an asset — it’s a contract.

Mechanism of Futures Trading

A futures contract obliges the buyer to buy a certain asset, or the seller to sell an asset, at an agreed-upon price, by a certain date. Each party must fulfill the terms of the contract, no matter what the market price or spot price is when the contract expires (or trade the contract before the expiration).

Futures contracts are standardized, as noted above, and each contract also spells out the contract terms, which includes among other things:

• The unit of the trade (e.g., tons, gallons, bushels, etc.).

• The grade or quality of the commodity, where relevant. For example, there are different types of corn, oil, soy, etc.

• Terms of settlement (e.g., physical delivery or a cash settlement).

• Quantity of goods covered by the contract.

• Currency in which the contract is priced.

Recommended: How Does a Margin Account Work?

The Role of Futures in Markets

A futures contract allows investors to speculate on the direction of the underlying asset, either long or short, using leverage. (Leverage means the trader doesn’t have to put up the full amount of the contract. Instead, futures traders use a margin account.) As such, they’re a tool that allows investors to use leverage and speculation.

Types of Futures Contracts

There are numerous types of futures contracts, including those tied to underlying assets such as equities and commodities. They can even be tied to other futures.

Equity, Commodity, and Other Futures

Futures contracts allow investors to make bets on the prices of a wide array of assets:

• Commodity futures, which allow investors to buy or sell physical goods like crude oil, pork bellies, natural gas, orange juice, corn, wheat, and more.

• Financial futures, including index contracts and interest rate or debt contracts.

• Precious metal futures allow investors to bet on the future prices of gold, platinum, and silver.

• Currency futures for fiat currencies like the euro, yen, the British pound, and more.

• U.S. Treasury futures allow investors to make bets on the future value of government bonds.

What are stock futures? Like futures contracts where the underlying is a physical commodity, some futures are tied to shares of a single stock or ETF. Stock index futures, however, are tied to the price movements of an index like the S&P 500 index.

Trading and Speculating with Futures

There are two key aspects to futures trading, which are hedging and speculating. Both play an important role in the markets, and determining whether futures are actually traded or not. There are also trading strategies to keep in mind, too.

Strategies for Futures Trading

There are many strategies for trading futures contracts, just as there are many strategies for trading almost any other type of security or derivative. To name a few of the basic strategies, investors can look at strategizing around price pullbacks, breakout trading, or even spread trading — each requires its own gameplan, and some background research to get started.

Futures as Speculation and Hedging Tools

Hedging is a big reason why investors buy futures contracts: It’s a way to protect against losses resulting from price changes in commodities.

Among the businesses that hedge using futures, the goal is to reduce the risk they face from unexpected price movements, and to guarantee the price they pay or receive for a particular asset.

If a large food manufacturer wants to lock in the price of corn, for example, they might enter into a contract for $10 a bushel. Since corn contracts are typically standardized at 5,000 bushels per contract, the total amount of the futures contract would be $50,000 ($10 x 5,000), to be delivered in six months. Entering into this futures contract would offer the buyer some protection against the possibility of rising corn prices in the future.

Let’s say the price of corn does rise to $12/bushel by the time the contract expires. In that case, the buyer still only pays the agreed-upon price of $10/bushel, even though the spot price is now $12/bushel.

For the corn producer in this scenario, even though it turned out that the futures contract terms weren’t quite as favorable as the actual market price — the contract guaranteed they would get at least $10/bushel, which provided a hedge against a potentially bigger loss.

Although it’s possible to settle a futures contract for the physical asset specified in the contract, most futures contracts are cash-settled. That’s because speculation on price movements is one of the main reasons that investors purchase futures contracts. A futures contract gives traders the opportunity to speculate whether a commodity will go up or down and potentially profit from the price change.

If the underlying asset of the futures contract — such as gold, oil, or corn — is above the price specified in the futures contract, then the investor can sell that contract for a profit before it expires. In that case, the contract would sell for the difference between the market price of the underlying commodity and the purchase price as specified in the contract.

In such a transaction, the underlying commodities don’t change hands between the counterparties of the contract. Instead, the trade would be cash-settled in the brokerage account of the investor.

Alternatively, an investor using futures for speculation could lose money if the price of the commodity is lower than the purchase price specified in the futures contract.

Risks and Benefits of Trading Futures

Futures trading has some significant risks and potential rewards — investors would be wise to know what they’re getting into, accordingly.

Understanding the Risks

Owing to the nature of futures trading, i.e., the binding nature of the contracts and the use of leverage, there are some obvious risks to bear in mind.

In a speculative trade, a futures contract allows you to bet on a commodity’s price movement. If you bought a futures contract, and at expiration the price of the commodity was trading above the original contract price, you’d see a profit. However, you could also lose if the commodity’s price was lower than the purchase price specified in the futures contract.

The potential risks here can be greater than they seem, because trading on margin permits a much larger position than the actual amount held by the brokerage. As a result, margin investing can amplify gains, but it can also magnify losses.

Imagine a trader who has $5,000 in their brokerage account and is in a trade for a $50,000 position in crude oil. If the price of oil moves against the trade, the losses could far exceed the account’s $5,000 initial margin amount. In this case, the broker would make a margin call requiring additional funds to be deposited to cover the market losses.

Speculators can also take a short position if they believe the price of the underlying asset will decline. An investor would realize a gain if the underlying asset’s price was below the contract price, and a loss if the current price was above the contract price. Again, using leverage to place these bets, long or short, can potentially expose investors to more risk than they intended.

Potential Benefits and Rewards

Some of the potential benefits of trading futures include the fact that investors can use leverage to try and generate outsized returns, the markets are liquid (meaning there’s plenty of trading action) and it offers up a chance to make some relatively quick (and potentially large) returns. That should, of course, be weighed against the aforementioned risks.

Futures vs Other Derivative Instruments

There are other financial derivatives with similar characteristics to futures contracts, such as options and forwards.

Comparing Futures with Options and Forwards

American-style options grant the buyer the right, but not the obligation, to buy or sell the contract’s underlying asset at any time until the contract expires.

Unlike a futures contract, however, option contracts don’t require the investor to purchase or sell the underlying asset. The investor can simply let the option expire. A futures contract, on the other hand, obligates the buyer to purchase the underlying asset, or to pay the seller of the futures contract the cash equivalent of that asset at the time of the contract’s expiration.

Similarly, a forward contract looks and functions a lot like a futures contract, with the primary difference being that forward contracts are only settled once — on their expiration date. Forwards are also often settled in the underlying asset (as opposed to cash), and the forwards market tends to be less liquid.

💡 Quick Tip: In order to profit from purchasing a stock, the price has to rise. But an options account offers more flexibility, and an options trader might gain if the price rises or falls. This is a high-risk strategy, and investors can lose money if the trade moves in the wrong direction.

Opening and Managing Futures Positions

Opening and managing futures positions can be relatively simple, granted you’re using a platform that allows for futures trading, and can follow a few steps.

Steps to Start Trading Futures

It’s common for some brokerages to have their own futures-trading capabilities, as well as their own rules about what an investor needs in terms of assets in order to trade futures contracts. Be sure to verify what those requirements are before selecting a broker.

Once you’re eligible to open a margin account and trade futures, those contracts trade on different exchanges, such as the Chicago Mercantile Exchange (CME), ICE Futures U.S. (Intercontinental Exchange), and the CBOE Futures Exchange (CFE).

From there, depending on the brokerage or platform being used, investors should be able to open and swap futures positions.

Managing Futures Contracts Effectively

Most investors in futures contracts have no interest in either receiving or having to deliver the physical commodities that underlie these contracts. Rather, they’re interested in the cash profit. The means of doing so is to trade the futures contract before its expiration date.

The standardized nature of most futures makes it so that a great many (but not all) futures contracts will expire on the third Friday of each month. Some commodities are seasonal, and only trade during specific months. High-grade corn trades on the CBOT in March, May, July, September, and December, for example.

As with any type of trading or investing, making sure you know what you’re dealing with when it comes to futures — and paying attention to the market — is going to be paramount to finding success as a trader. There are risks at play, and there’s no guarantee that the chips will fall your way. But for some, futures trading has proven fruitful.

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/hopeist

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.

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SOIN1023183

3 Reasons to Transfer Your 401(k) to a New Job

1. You May Be Paying Hidden Fees

2. You Might Be Missing Out on Better Investments

3. You Could Lose Track of Your 401(k) Account

Do You Have to Rollover Your 401(k) to a New Employer?

What to Do With Your 401(k) After Getting a New Job

Roll Over a 401(k) to Your New Employer’s Plan

Roll Over a 401(k) to an IRA

Cash Out Early

What Happens to Your 401(k) if You’ve Been Fired?

How Long Do You Have to Transfer Your 401(k)?

Advantages of Rolling Over Your 401(k)

One Place for Tax-Deferred Money

A Streamlined Investment Strategy

Financial Service Offerings

Disadvantages of Transferring 401(k) to a New Job

How to Roll Over Your 401(k)

401(k) Rollover Rules

Rolling Over a 401(k) Into an IRA

The Takeaway

FAQ

Should I roll over my 401(k) to new employer?

How long do you have to move your 401(k) after leaving a job?

How do I roll over my 401(k) from my old job to my new job?

What happens if I don’t roll over my 401(k) from my previous employer?

You may also be interested in:

What Are Real-Time Stock Quotes?

How Real-Time Quotes Work

What Are Delayed Quotes?

How Delayed Quotes Work

Real-Time vs Delayed Stock Quotes

Why Do Stock Quotes Get Delayed?

How Real-Time Quotes Affect Your Investment Strategy

How Delayed Quotes Affect Your Investment Strategy

Deciding Which Stock Quote is Right for You

The Takeaway

FAQ

What is a delayed stock quote?

What are real-time stock quotes?

Are real-time quotes better than delayed quotes?

Should You Invest When the Market Is Down?

4 Things to Do During a Market Downturn

1. Stay Calm and Avoid Making Impulsive Decisions

2. Evaluate Your Portfolio

3. Take Advantage of Low Prices With Dollar-Cost Averaging

4. Consider Tax-Loss Harvesting

SoFi has built a Recession Help Center that provides resources to help guide you through this uncertain time.

4 Things to Avoid When the Market Is Down

1. Trying to Time the Market

2. Selling All Your Stocks

3. Chasing After High-Risk Investments

4. Abandoning Your Long-Term Financial Plan

Risks to Investing in Down Markets

The Takeaway

Key survey facts and findings

In general, investors stayed the course in 2022.

93% of respondents have invested in 2022

Many investors are still hoping to cash in on crypto.

45% of respondents have cryptocurrency in their investment portfolio.

78% of investors are either confident or cautiously optimistic the crypto market will bounce back

Nearly 90% of people have invested in non-stock market-related assets.

Here’s what investors’ portfolios look like right now.

Market volatility has impacted investors’ purchase and investment decisions.

More than a third of respondents (37%) say market volatility has caused them to make impulsive investment decisions.

One third of respondents (33%) had to cancel or delay plans or purchases in 2022 because of money lost on investments.

Over half of respondents did not make any major investment changes.

Many investors have investment regrets about 2022 and are looking toward 2023.

People are split on how inflation makes them feel about their investment strategies in 2022:

In general, people have mixed emotions about their investments in 2022, but the most common feeling was optimism (26%).

While 5% of respondents feel regretful, a full 25% — or one in four investors — have zero regrets about 2022.

People use a variety of tactics to cope with the stress of market fluctuations:

Nearly a third of respondents (30%) check their investment portfolios every day. And 75% check at least once a week.

Looking forward to 2023

85% of respondents plan to make some changes to how they invest in 2023.

Key Takeaways

What are Futures?

Understanding How Futures Work

Mechanism of Futures Trading

The Role of Futures in Markets

Types of Futures Contracts

SoFi has built a Recession Help Center
that provides resources to help guide you
through this uncertain time.

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