Investing Archives | Page 14 of 221

Mar

2024

Stock Buyback: What It Means & Why It Happens

By Michael Flannelly | Growing Wealth, invest, Investing, Terminology | No Comments

One of the most popular ways a company can use its cash is through a stock buyback. Over the past five years, according to S&P Dow Jones Indices, big companies have spent more than $3.9 trillion repurchasing their own shares to boost shareholder value. Because of this significant activity, investors need to know the basics of stock buybacks and how they work to feel confident in making investment decisions.

Table of Contents

What Is A Stock Buyback?
How Do Companies Buy Back Stock?
Why Do Companies Buy Back Stock?
What Happens to Repurchased Stock?
The Pros and Cons of a Stock Buyback for Investors

What Is A Stock Buyback?

A stock buyback, also known as a share repurchase, is when a company buys a portion of its previously issued stock, reducing the total number of outstanding shares on the market. Because there are fewer total shares on the market after the buyback, each share owned by investors represents a greater portion of company ownership.

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How Do Companies Buy Back Stock?

Companies can repurchase stock from investors through the open market or a tender offer.

Open market

A company may buy back shares on the open market at the current market price, just like a regular investor would. These stock purchases are conducted with the company’s brokers.

Tender offers

A company may also buy back shares through a tender offer. One type of tender offer, the fixed-price offer, occurs when a company proposes buying back shares from investors at a fixed price on a specific date. This process usually values the shares at a higher price than the current price per share on the open market, providing an extra benefit to shareholders who agree to sell back the shares.

Another type of tender offer, the dutch auction offer, will specify to investors the number of shares the company hopes to repurchase and a price range. Shareholders can then counter with their own proposals, which would include the number of shares they’re willing to give up and the price they’re asking. When the company has all of the shareholders’ offers, it decides the right mix to buy to keep its costs as low as possible.

Why Do Companies Buy Back Stock?

Stock buybacks are one of several things a company can do with the cash it has in its coffers, including paying the money out to shareholders as a dividend, reinvesting in business operations, acquiring another company, and paying off debt. There are several reasons why a company chooses to buy back its stock rather than some of these other options.

1. Increases Stock Value

One of the most common reasons a company might conduct a share buyback is to increase the value of the stock, especially if the company considers its shares undervalued. By reducing the supply of shares on the market, the stock price will theoretically go up as long as the demand for the stock remains the same. The rising stock price benefits existing shareholders.

2. Puts Money Into Shareholders’ Hands

A company’s stock buyback program can be used as an alternative to dividend payments to return cash to shareholders, specifically those investors who choose to sell back their shares to the company. With dividend payments, companies usually pay them regularly to all shareholders, so investors may not like it if a company reduces or suspends a dividend. Stock buybacks, in contrast, are conducted on a more flexible basis that may benefit the company because investors do not rely on the payments.

3. Takes advantage of tax benefits

Many investors prefer that companies use excess cash to repurchase stock rather than pay out dividends because buybacks have fewer direct tax implications. With dividends, investors must pay taxes on the payout. But with stock buybacks, investors benefit from rising share prices but do not have to pay a tax on this benefit until they sell the stocks. And even when they sell the stock, they usually pay a lower capital gains tax rate.

4. Offsets dilution from stock options

Companies will often offer employee stock options as a part of compensation packages to their employees. When these employees exercise their stock, the number of shares outstanding increases. To maintain an ideal number of outstanding shares after employees exercise their options, a company may buy back shares from the market.

5. Improves financial ratios

Another way stock buybacks attract more investors is by making the company’s financial ratios look much more attractive. Because the repurchases decrease assets on the balance sheet and reduce the number of outstanding shares, it can make financial ratios like earnings per share (EPS), the price-to-earnings ratio (PE Ratio), and return on equity (ROE) look more attractive to investors.

What Happens to Repurchased Stock?

When a company repurchases stock, the shares will either be listed as treasury stock or the shares will be retired.

Treasury stocks are the shares repurchased by the issuing company, reducing the number of outstanding shares on the open market. The treasury stock remains on its balance sheet, though it reduces the total shareholder equity. Shares that are listed as treasury stock are no longer included in EPS calculations, do not receive dividends, and are not part of the shareholder voting process. However, the treasury stock is still considered issued and, therefore, can be reissued by the company through stock dividends, employee compensation, or capital raising.

In contrast, retired shares are canceled and cannot be reissued by the company.

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The Pros and Cons of a Stock Buyback for Investors

When a company announces a stock buyback, investors may wonder what it means for their investment. Stock buybacks have pros and cons worth considering depending on the company’s underlying reasoning for the share repurchase and the investor’s goal.

Pros of a Stock Buyback

Tender offer premium

Investors who accept the company’s tender offer could have an opportunity to sell the stock at a greater value than the market price.

Increased total return

Investors who hold onto the stock after a buyback will likely see a higher share price since fewer outstanding shares are on the market. Plus, each share now represents a more significant portion of company ownership, which may mean an investor will see higher dividend payments over time. A higher stock price and increased dividend boosts an investor’s total return on investment.

Tax benefits

As mentioned above, a stock buyback might also mean a lower overall tax burden for an investor, depending on how long the investor owned the stock. Money earned through a stock market buyback is taxed at the capital gains tax rate. If the company issued a dividend instead of buying back shares, the dividends would be taxed as regular income, typically at a higher rate.

Cons of a Stock Buyback

Cash could be spent elsewhere

As mentioned above, when companies have cash, they can either reinvest in business operations, acquire a company, pay down debt, pay out a dividend, or buy back stock. Engaging in a share repurchase can starve the business of money needed in other areas, such as research and development or investment into new products and facilities. This hurts investors by boosting share price in the short term at the expense of the company’s long-term prospects.

Poorly timed

Companies may sometimes perform a stock buyback when their stocks are overvalued. Like regular investors, companies want to buy the stock when the shares are valued at an attractive price. If the company buys at a high stock price, it could be a bad investment when the company could have spent the money elsewhere.

Benefits executives, not shareholders

Stock buybacks might also be a convenient tactic to benefit company executives, who are often compensated by way of stock options. Also, some executives earn bonuses for increasing key financial ratios like earnings per share, so buying back stock to improve those ratios potentially benefits insiders and not all shareholders.

The Takeaway

Like almost everything else to do with the stock market, the benefits and drawbacks of stock buybacks aren’t exactly straightforward. Investors need to ask themselves a few questions when analyzing the share repurchases of a company, like “why is the company conducting the buyback?” and “does the company have a history of delivering good returns?” Answering these questions can help investors decide whether a stock buyback is the best thing for a company.

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FAQ

Is a stock buyback positive or negative?

Stock buybacks have advantages and disadvantages for investors and companies. For instance, buybacks may increase the stock value and increase dividend payments to shareholders over time. However, stock buybacks may not be the best way for a company to spend its money in the long-term, and they may potentially benefit company executives more than shareholders.

When should a company do a stock buyback?

A company may do a stock buyback when it has the cash available and wants to increase the value of the stock, improve financial ratios, consolidate ownership, or drive demand for the stock.

Do I lose my shares in a buyback?

You won’t lose your shares in a buyback unless you want to sell them. The way a buyback works is that a company buys back stock from any investors who want to sell it. But you are under no obligation to sell your stock back to the company — it’s up to you whether to keep your stock or sell it back.

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Mar

2024

Profit Sharing 401(k) Plans Guide: Rules, Limits, Basics: Woman with calculator

What is a 401(k) Profit Sharing Plan?

By Anna Davies | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

Like a traditional 401(k) plan, a profit-sharing 401(k) plan is an employee benefit that can provide a vehicle for tax-deferred retirement savings. But the biggest difference between an employer-sponsored 401(k) and a profit-sharing 401(k) plan is that in a profit share plan, employers have control over how much money—if any—they contribute to the employee’s account from year to year.

In other ways, the profit-sharing 401(k) plan works similarly to a traditional employer-sponsored 401(k). Under a 401(k) profit share plan, as with a regular 401(k) plan, an employee can allocate a portion of pre-tax income into a 401(k) account, up to a maximum of $22,500 in 2023, and up to $23,000 in 2024. Those 50 and older can contribute up to $30,000 in 2023 and $30,500 in 2024, thanks to catch-up contributions.

At year’s end, employers can choose to contribute part of their profits to employees’ plans, tax-deferred. As with a traditional 401(k), maximum total contributions to an account must be the lesser of 100% of the employee’s salary or $66,000 a year in 2023 and $69,000 in 2024, per the IRS. Those numbers jump to $73,500 for older employees who are making catch-up contributions in 2023 and $76,500 in 2024.

How Does 401(k) Profit Sharing Work?

There are several types of 401(k) profit-sharing setups employers can choose from. Each of these distributes funds in slightly different ways.

Pro-Rata Plans

In this common type of plan, all employees receive employer contributions at the same rate. In other words, the employer can make the decision to contribute 3% (or any percentage they choose) of an employee’s compensation as an employer contribution. The amount an employer can contribute is capped at 25% of total employee compensation paid to participants in the plan.

New Comparability 401(k) Profit Sharing

In this plan, employers can group employees when outlining a contribution plan. For example, executives could receive a certain percentage of their compensation as contribution, while other employees could receive a different percentage. This might be an option for a small business with several owners that wish to be compensated through a profit-sharing plan.

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Age-Weighted Plans

This plan calculates percentage contributions based on retirement age. In other words, older employees will receive a greater percentage of their salary than younger employees, by birth date. This can be a way for employers to retain talent over time.

Integrated Profit Sharing

This type of plan uses Social Security (SS) taxable income levels to calculate the amount the employer shares with employees. Because Social Security benefits are only paid on compensation below a certain threshold, this method allows employers to make up for lost SS compensation to high earners, by giving them a larger cut of the profit sharing.

Pros and Cons of 401(k) Profit Sharing

There are benefits and drawbacks for both employers and employees who participate in a profit-sharing 401(k) plan.

Employer Pro: Flexibility of Employer Contributions

Flexibility with plan contribution amounts is one reason profit share plans are popular with employers. An employer can set aside a portion of their pre-tax earnings to share with employees at the end of the year. If the business doesn’t do well, they may not allocate any dollars. But if the business does do well, they can allow employees to benefit from the additional profits.

Employer Pro: Flexibility in Distributions

Profit sharing also gives employers flexibility in how they wish to distribute funds among employees, using the Pro-Rata, New Comparability, Age-Weighted, or Integrated profit sharing strategy.

Employer Pro: Lower Tax Liability

Another advantage of profit share plans is that they allow employers to lower tax liability during profitable years. A traditional employer contribution to a 401(k) does not have the flexibility of changing the contribution based on profits, so this strategy can help a company maintain financial liquidity during lean years and lower tax liability during profitable years.

Employee Pro: Larger Contribution Potential

Some employees might appreciate that their employer 401(k) contribution is tied to profits, as the compensation might feel like a more direct reflection of the hard work they and others put into the company. When the company succeeds, they feel the love in their contribution amounts.

Additionally, depending on the type of distribution strategy the employer utilizes, certain employees may find a profit-sharing 401(k) plan to be more lucrative than a traditional 401(k) plan. For example, an executive in a company that follows the New Compatibility approach might be pleased with the larger percentage of profits shared, versus more junior staffers.

Employee Con: Inconsistent Contributions

While employers may consider the flexibility in contributions from year to year a positive, it’s possible that employees might find that same attribute of profit-sharing 401(k) plans to be a negative. The unpredictability of profit share plans can be disconcerting to some employees who may have previously worked for an employer who had a traditional, consistent employer match set up.

Employee/Employer Pro: Solo 401(k) Contributions

A profit share strategy can be one way solo business owners can maximize their retirement savings. Once a solo 401(k) is set up with profit sharing, a business owner can put up to $22,500 a year into the account, plus up to 25% of net earnings, up to a total of $66,000 in 2023. In 2024, they can put up to $23,000 into a solo 401(k) account, plus up to 25% of net earnings, for a total of up to $69,000. This retirement savings vehicle also provides flexibility from year to year, depending on profits.

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Withdrawals and Taxes on 401(k) Profit Share Plans

A 401(k) with a generous profit share plan can help you build your retirement nest egg. So what about when you’re ready to take out distributions? A 401(k) withdrawal will have penalties if you withdraw funds before you’re 59 ½ (barring certain circumstances laid out by the IRS) but the money will still be taxable income once you reach retirement age.

Additionally, like traditional 401(k) plans, a profit-sharing 401(k) plan has required minimum distribution requirements (RMDs) once an account holder turns 73.

Investors who anticipate being in a high tax bracket during their retirement years may consider different strategies to lower their tax liability in the future. For some, this could include converting the 401(k) into a Roth IRA when doing a rollover. This is sometimes called a “backdoor Roth IRA” because rolling over the 401(k) generally does not subject an investor to the income limitations that cap Roth contributions.

An investor would need to pay taxes on the money they convert into a Roth IRA, but distributions in retirement years would not be taxed the way they would have if they were kept in a 401(k). In general, any 401(k) participant who qualifies for a Roth IRA can do this, but the additional funds in a 401(k) profit share account could make these moves that much more impactful in the future.

The Takeaway

A 401(k) profit-sharing plan allows employees to contribute pre-tax dollars to their retirement savings, as well as benefit from their employer’s profitability. But because profit share plans can take multiple forms, it’s important for employees to understand what their employer is offering. That way, employees can work to create a robust retirement savings strategy that makes sense for them.

Another step that could also help you manage your retirement savings is doing a 401(k) rollover, where you move funds from an old account to a rollover IRA. You may want to consider this option if you have a 401(k) from a previous employer, for instance.

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FAQ

Can I cash out my profit-sharing?

You can cash out your profit-sharing 401(k) without penalty once you reach age 59 ½. Withdrawals taken before that time are subject to penalty. However, if you leave the company, you can roll over the profit-sharing 401(k) into an IRA without penalty as long as you follow the IRS rollover rules.

How much tax do you pay on profit-sharing withdrawal?

You pay regular income tax on profit-sharing withdrawals. Depending on what tax bracket you’re in, you might pay anywhere from 10% to 37%.

Is profit-sharing 100% vested?

Depending on your company, your profit-sharing contributions may be 100% vested right away, or they may follow a vesting schedule. If your employer requires you to work for the company for two years before you’re eligible to participate in a profit-sharing plan, your contributions must be fully vested right away.

Can I roll my profit-sharing plan into an IRA?

You can roll over your profit sharing plan into an IRA when you leave your company. You can choose to have the funds directly transferred from your profit-sharing plan to an IRA, or you can have the money paid to you and then deposit the funds into an IRA yourself. Just be sure to complete the rollover within 60 days to avoid being taxed.

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Mar

2024

A Beginner’s Guide to Investing in CDs

By AJ Smith | Growing Wealth, invest, Investing | Comments Off

A certificate of deposit (or CD) has many of the same low-risk benefits as a savings account, but a CD holds your money for a fixed time period in exchange for a higher rate of interest than the standard savings account.

You may be familiar with CDs as part of your savings strategy (say, keeping money secure and earning interest until you are ready to buy a house), but they can also be used as a part of a portfolio’s cash allocation. CDs generally pay a higher interest rate than you can get with other cash accounts. Owing to their lower risk profile and modest but steady returns, allocating part of your portfolio to CDs can offer diversification that may help lower your risk exposure in other areas.

Here’s a closer look at the ins and outs of investing in CDs.

How to Buy CDs

Investors can buy CDs at many, if not most financial institutions, such as banks, credit unions, or brokerages. Not all institutions might offer CDs, and others may have limited options, but generally, if you’re looking to buy CDs, you might want to start at your bank, where you might hold a savings account.

Again, a certificate of deposit is similar to a savings account in that you can stash your money for a long period of time, but CDs possess some distinct features you need to understand in order to gauge whether they’re a good fit with your plan. Here are some aspects of CDs to keep in mind.

1. A Fixed Deposit for a Set Time Period

Investors purchase a CD for a fixed amount of money: e.g., $1,000, $5,000, or more. Some banks have a required minimum deposit; others don’t. Generally, you cannot increase the amount of your savings (although you can always buy another CD). Some banks offer jumbo CDs, which might require a minimum $100,000 deposit.

Unlike a savings account, which is open-ended (and allows you to access your cash at any time), you typically purchase a CD for a set period of time during which you can’t withdraw the funds without a penalty. Typical CD terms can vary from one month to five years, so check with the institution that issues the CD.

2. Guaranteed Interest Rates and Insurance

Because investing in CDs is less liquid than a savings account, the interest rate tends to be higher. CD rates are quoted as an annual percentage yield (APY). The APY is how much the account will earn in one year, including compound interest. Banks generally compound interest daily or monthly.

When the period is up, also known as the CD maturity date, the CD holder can receive the original investment, plus any interest earned. The interest rate can vary considerably, depending on the institution. Also, longer-term CDs tend to offer higher rates than shorter-term ones.

The money in a CD is protected by the same federal insurance (FDIC) that covers all deposit products, whether at a bank, credit union, or other institution.

3. Early Withdrawal Penalties

CDs can offer higher yields because customers are promising the bank that they will deposit their money for a set period of time. As a result, investing in CDs means the money is usually locked up until it reaches its maturity date. Withdrawing the money before the CD matures may trigger a penalty, which could effectively eliminate any interest rate gains.

The penalty for an early withdrawal on a CD is often stated in terms of interest: e.g. you would owe 60 days’ worth of interest, 150 days’ worth of interest, and so on. The penalty is usually charged according to the simple interest rate on your account, not the compound interest you might have earned over time.

Before purchasing a CD, it’s best to look at its disclosure statement, which should tell you the interest rate, how often interest is paid, the maturity date of the CD, and any early withdrawal penalties.

Note: There are penalty-free or no penalty CDs. These allow you to withdraw funds before the maturity date without a fee, but they typically have lower interest rates than other CDs.

4. Terms Vary Widely

It’s important to shop around for the best CD rates and terms. Brick-and-mortar banks may pay lower rates, while online banks and credit unions may pay higher rates. Because the interest rates on CDs are based on the federal funds rate, similar to mortgages and other financial products, it’s also a good idea to see whether the Federal Reserve is about to raise or lower interest rates before deciding whether it’s a good time to invest in CDs.

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CD Investing Strategies

CDs can be incorporated as part of your financial plan in various ways. They can act as short-term savings vehicles — a way to secure your money for a down payment or a large purchase within five years, say. Or they can be part of a longer-term strategy. Here are some examples.

CD Ladder

A CD ladder uses a combination of shorter-term and longer-term CDs to maximize different rates of return and deliver several years of steady income.

Hypothetically, say you want to invest $10,000 over a 10-year period. You could create a CD ladder by purchasing five CDs of different maturities all at once, and reinvesting them as follows:

• Deposit $2,000 in a 1-year CD. When that CD matures, roll over the money plus interest into a 5-year CD.

• Deposit $2,000 in a 2-year CD. When that CD matures, again roll over those funds into another 5-year CD.

• Do the same for a 3-year, 4-year, and 5-year CD. As each one matures, you roll over the funds, plus any accumulated interest, into a 5-year CD.

The result will be five different CDs that mature one year apart, allowing you to withdraw your funds plus interest. This strategy ensures some diversification of interest rates, so your money isn’t locked into a flat rate for the full 10 years. It can be reassuring to know that, if you need access to cash, you can expect one of the CDs to be on the verge of maturing at regular intervals.

CD Barbell

The CD barbell is like a CD ladder, but without buying any mid-length CDs: Here you invest a certain amount in a short-term CD (say, a 1-year CD), and the rest in a 5-year CD as a way to hedge your bets.

The barbell strategy allows you to take advantage of both short- and long-term rates. When the short-term CD matures, you can either reinvest at the short-term rate, if that makes sense, or shift the money over to a longer-term CD.

CD Bullet

Instead of buying a few CDs of different maturities at the same time, the bullet strategy allows you to invest different amounts at different times, as a way of saving for a specific goal like a down payment.

This strategy could allow you to invest one amount in a CD to start, save up more for a year or two and buy another CD that matures at the same time as the first, and so on. Then you have, say, three CDs that mature at the same time, with interest, allowing you to withdraw the lump sum from each one for your goal.

For example:

• You could invest $5,000 in a 5-year CD today.

• Then, in two years, invest $3,000 in a 3-year CD.

• Last, save up money for another two years and buy a $2,000 1-year CD.

• All three CDs mature at the same time, and you can withdraw all the money, plus compound interest.

Benefits of Investing in CDs

Investing in CDs can offer some investors specific benefits.

Peace of Mind

CDs are generally considered one of the safer options for investors. Like traditional savings accounts or high-yield savings accounts, CDs are insured for up to $250,000 per depositor, per account ownership category, per insured institution, when they are purchased through an FDIC-insured bank or an NCUA-insured credit union. In the very rare instance of the CD-issuing bank failing, your deposits would be covered up to $250,000.

Predictability

CD interest rates are usually fixed and will deliver a predictable yield at the end of their term. The same is not necessarily true of traditional savings accounts, which may lower the amount they pay if interest rates drop. The ability to calculate exactly how much you’ll be paid at the end of the CD’s term makes it easier to know how that CD will fit into a financial plan.

A Variety of Options

Thousands of banks and credit unions across the country offer a diverse selection of CDs, which come with many interest rate options and with maturity lengths from a month to a decade.

There also may be different styles of CDs to choose from (you’ll learn about bump-up and add-on CDs in a moment). But, as always, be sure to check the terms.

Drawbacks of Investing in CDs

Of course, like any other investment, CDs can come with their share of potential downsides.

Illiquidity

One of the main drawbacks of a CD is that most of them are relatively illiquid, meaning you can’t access the funds whenever you like. An investor’s money is tied up until the maturity date, and early withdrawals may trigger penalties in the form of lost interest payments or, in some cases, lost principal.

Though there are some CDs that offer penalty-free withdrawals, investors must often accept lower interest rates in trade.

When choosing a CD, it’s best to carefully consider a maturity date you know you will be able to meet. An emergency fund can help you avoid the temptation to tap CD investments when the unexpected happens.

Inflation Risk

Despite the fact that CDs tend to offer higher returns than traditional savings accounts, they can still be subject to the same inflation risk. When inflation is high, CD returns may be unable to outpace it. That means the money sitting in the CD may lose purchasing power before reaching maturity.

Taxes

When investors withdraw money from CDs after the maturity date, they pay no taxes on the principal withdrawn, but the money earned is taxable on state and federal levels as interest income.

The taxes will reduce the amount of money a CD investor will actually get to take home. It’s a good idea to carefully consider taxes when shopping for a CD and deciding on an APY.

Opportunity Cost

Money that’s tied up in a CD can’t be put to work anywhere else — a problem known as opportunity cost. CD interest rates may be higher than some other bank products, but stocks, bonds, and other investments may offer much higher returns. That said, higher returns are often associated with higher risk.

CD investors may be opting to avoid risk or using the accounts to diversify a portfolio that already holds a mix of stocks and bonds.

Types of CDs to Invest In

Above, you learned about the basic structure of a traditional CD, but there are a few other types that may offer features that are more desirable. In some cases, these may come with tradeoffs or additional risk factors, so be sure to weigh the pros and cons and terms of each.

1. Liquid CDs

If you’d prefer a CD that allows you to access your savings before the maturity date without paying a penalty, a liquid CD may offer a solution. These CDs don’t charge a penalty for early withdrawals, but they may offer lower interest rates as a result.

2. Bump-up CDs

Some investors dislike the idea of locking up their cash at a fixed rate, when in theory rates could rise, and you’d lose out on the higher rate of return. A bump-up CD may help address that concern by allowing you a chance to “bump up” to a higher rate.

3. Add-on CDs

If you don’t have the specific amount required to open a CD, another option could be to open an add-on CD, which allows you to make additional deposits.

4. Variable Rate CDs

Like a variable rate loan, a variable rate CD doesn’t pay a fixed interest rate. Having a variable rate may give you higher or lower rates at some points, but the point is that the rate isn’t guaranteed, so you have to be willing to take your chances.

5. Uninsured CDs

If you’re willing to forgo federal insurance on your deposits, you might be able to get a higher interest rate.

In all cases, be sure to check the terms of the CD you’re about to buy, in case there are restrictions or caveats that might make a certain CD less desirable. For example, there are some CDs offered by foreign banks, but denominated in US dollars, which may offer competitive rates but they are not federally insured.

6. Brokered CDs

A brokered CD is a lot like a traditional CD but is purchased through a broker, typically using a brokerage account. This setup can provide access to a wide range of CDs from different financial institutions.

It is also possible to trade brokered CDs on the secondary market. Finding a buyer may be difficult, however, which could mean accepting a lower price for the sale. Brokered CDs may come with additional fees.

The Takeaway

Although CDs are sometimes dismissed as simple savings vehicles, in fact investing in CDs can offer a steady if modest rate of return, and some peace of mind — factors that may appeal to some investors, especially over time. It’s also possible to use different strategies like a CD ladder to create an income stream or maximize different interest rates over time.

If, however, the idea of locking up your money for a set period of time doesn’t suit your needs, you might consider a high-yield checking and savings account instead.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Where do you go to invest in CDs?

Investors can purchase CDs at many financial institutions, such as banks, credit unions, or brokerages, although not all institutions will offer them.

How much does a $10,000 CD make in a year?

The ultimate yield on a $10,000 CD in a year will depend on the associated interest rate and compounding frequency, which can vary. But assuming the interest rate is 3.00%, an investor could earn $300 after one year if compounded annually.

Are CDs considered low-risk?

CDs are generally considered to be lower-risk investments, especially compared to assets like stocks.

How much money do you need to invest in a CD?

There are minimums to purchase a CD, which vary, but a ballpark figure is around $500, depending on where you buy them.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Mar

2024

What Happens When a Public Company Goes Private?

What Happens When A Company Goes Private?

By Brian O'Connell | Growing Wealth, invest, Investing | Comments Off

While there are plenty of benefits to going public, there are also some downsides to being listed on a major stock exchange. Public companies must abide by strict government compliance and corporate government statutes and answer to shareholders and regulatory bodies. Plus they’re subject to the whims of the broader stock market on a regular basis.

So, public companies can opt to go private and delist from a public stock exchange. What happens when a public company goes private? Here’s what you need to know about that process.

Table of Contents

What Is Going Private?
What Happens if You Own Shares of a Company That Goes Private?
Why a Company May Go Private
How to Take a Company Private
Pros and Cons of Going Private

What Is Going Private?

When a company goes from public to private, the company is delisted from a stock exchange and its shareholders can no longer trade their shares in a public market. It also means that a private company no longer has to abide by the Sarbanes-Oxley Act of 2002. That legislation required publicly-traded companies to accommodate expansive and costly regulatory requirements, especially in the compliance risk management and financial reporting areas. (The legislation was created by lawmakers to help protect investors from fraudulent financial practices by corporations.)

Going private may also mean less pricing and financial stability, as private company shares typically have less liquidity than a public company traded on a stock exchange. That can leave a private company with fewer financing options to fund operations.

Going private also changes the way a company operates. Without public shareholders to satisfy, the company’s founders or owners can control both the firm’s business decisions and any shares of private stock. Private companies can consolidate power among one or a few owners. That can lead to quicker business decisions and a clear path to take advantage of new business opportunities.

By definition, a private company, or a company that has been “privatized”, may be owned by an individual or a group of individuals (i.e., a consortium) that also has a specific number of shareholders.

Unlike traditional stocks, investors in a private company do not purchase shares through a stock broker or through an online investment platform. Instead, investors purchase private equity shares from the company itself or from existing shareholders.

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

What Is Privatization?

Privatization is the opposite of an initial public offering. It’s the process by which a company goes from being a publicly traded company to being a private one. A private company may still offer shares of stock, but those shares aren’t available on public market exchanges. There’s no need to satisfy public shareholders and the company has less governmental oversight into its governance and documents.

(Note that privatization is also a term used to describe when a public or government organization switches to ownership by a private, non-governmental group.)

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What Happens if You Own Shares of a Company That Goes Private?

If shareholders approve a tender offer to take a public company private, they’ll each receive a payment for the number of shares that they’re giving up. Typically, private investors pay a premium that exceeds the current share price and shareholders receive that money in exchange for giving up ownership in the company.

This is the opposite of IPO investing, in which the public buys stock in a newly listed company, and private owners have a chance to cash out.

Why a Company May Go Private

Likely the biggest reason why a company would choose to go private are the costs associated with being a public company (largely to accommodate regulatory demands from local, state, and federal governments).

Those costs may include the following potential corporate budget challenges:

• The legal, accounting, and compliance costs needed to accommodate company financial filings and associated corporate governance oversight obligations.

• The costs needed to pay compliance, investor relations, and other staffing needs – or the hiring of third-party specialty firms to handle these obligations.

• The costs associated with paying strict attention to company share price – a public company always has to keep its eye on maximizing its stock performance and on keeping shareholders satisfied with the firm’s stock performance.

In addition, going private enables companies to free up management and staff to turn their attention to firm financial growth, instead of regulatory and compliance issues or shareholder concerns. Some public companies struggle to invest for the long-term because they’re worried about meeting short-term targets to keep their stock price up.

Going private also enables companies to keep critical financial and operational data away out of the public record — and the hands of competitors. Privatization could also help companies avoid lawsuits from shareholders and curb some litigation risk.

How to Take a Company Private

Typically, companies that go private work with either a private-equity group or a private-equity firm pooling funds to “buy out” a public company’s entire amount of publicly-traded stock. This typically requires a group of investors since, in most cases, it takes an enormous amount of financial capital to buy out a company with hundreds of millions (or even billions) of dollars linked to its publicly-traded stock.

Often a consortium of private equity investors gets help financing with a privatization campaign from an investment bank or other large financial institution. The fund usually comes in the form of a massive loan — with interest — that the consortium can use to buy out a public company’s shares.

With the funding needed to close the deal on hand, the private equity consortium makes a tender offer to purchase all outstanding shares in the public company, which existing shareholders vote on. If approved, existing shareholders sell their stock to the private investors who become the new owners of the company.

The goal is that the private investors will take the gains accrued through stronger company revenues and rejuvenated stock, to pay down the investment banking loan, pay off any investment banking fees accrued, and begin managing the income and capital gains garnered from their investment in the company. While this can take some time, the process of going private is much less intensive than the IPO process.

Company executives, meanwhile, can focus on growing the company. In many instances, newly-minted private companies may roll out a new business plan and prospectus that firm executives can share with potential shareholders, hopefully bringing more capital into the company. Sometimes private owners will plan to IPO the business again in the future.

💡 Quick Tip: Keen to invest in an initial public offering, or IPO? Be sure to check with your brokerage about what’s required. Typically IPO stock is available only to eligible investors.

Pros and Cons of Going Private

Taking a company private has both benefits and drawbacks for the company.

The Pros

In addition to lower costs, there are several other advantages to delisting a company.

• Establishing privacy. When a company goes public, it relinquishes the right to keep the company private. By taking a company private, it makes it easier to operate outside of the public eye.

• Fewer shareholders. Public companies don’t have to deal with external company sources that may make life difficult for company executives and may result in a loss of operational independence. Once a company goes private, the founders or new owners retain full control over the business and have the last word on all company decisions.

• A private company doesn’t have to deal with financial regulators. A private company doesn’t need to file financial disclosures with the U.S. Securities and Exchange Commission and other government regulatory bodies. While a private company may have to file an annual report with the state where it operates, the information is limited and financial information remains private.

The Cons

There are some disadvantages to taking a company private.

• Capital funding challenges. When a company goes private, it loses the ability to raise funds through the publicly-traded financial markets, which can be an easy and efficient way to boost company revenues. Yet by privatizing the company, publicly-funded capital is no longer an option. Such companies may have to borrow funds from a bank or private lender, or sell stock based on a state’s specific regulatory requirements.

• The owner may have more legal liability. Private companies, especially sole proprietorships or general partnerships, aren’t protected from legal actions or creditors. If a private company is successfully sued in court, the court can garnish the business owner’s personal assets if necessary.

• More powerful shareholders. While there are not as many shareholders at a private company, new owners, such as venture capitalists or private equity funds, may have strong feelings about the operational business decisions, and as owners, they may have more power over seeing their wishes carried out.

The Takeaway

Going private can be an advantage for companies that want more control at the executive level, and no longer want their shares listed on a public exchange. However, taking a company private may impact the company’s bottom line as corporate financing options thin out when public shareholders can no longer buy the company’s stock.

If a company you own stock in goes private, you will no longer own shares in that company or be able to buy them through a traditional broker. For investors, having different types of assets in an investment portfolio may be helpful in case something happens to or changes with one of them.

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

FAQ

Is it good for a public company to go private?

Going private can have benefits for a public company, including lower costs related to legal, accounting, and compliance obligations, as well as costs associated with maximizing stock performance and keeping shareholders happy. In addition, going private may allow a company’s staff to focus more fully on financial growth, and keep critical company data out of the public record (and the hands of competitors).

However, there are potential drawbacks as well. For instance, a company may face capital funding challenges once it goes private since it can no longer raise funds through publicly-traded financial markets.

What happens to my private shares when a company goes public?

Once a company goes public (typically done through a process called an IPO, or initial public offering), your private shares become public shares, and they become worth the public trading price of the shares.

How long does it take for a public company to be private?

How long it takes for a public company to become private depends on the time it takes to complete the steps involved. For instance, the company has to buy out all of its publicly-traded stock; it usually works with a group of private investors to do this since the process is costly. Once they have the founding secured, a tender offer is made to purchase all outstanding shares in the public company, which the existing shareholders vote on. If that is approved, the shareholders sell their stock to the owners of the company. How long all this takes generally depends on the company and the specific situation.

Photo credit: iStock/Olezzo

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

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

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.

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Mar

2024

Active vs Passive Investing: Differences Explained

By AJ Smith | Growing Wealth, invest, Investing | No Comments

Active investing vs. passive investing generally refers to the two main approaches to structuring mutual fund and exchange-traded fund (ETF) portfolios. Active investing is a strategy where human portfolio managers pick investments they believe will outperform the market — whereas passive investing relies on a formula to mirror the performance of certain market sectors.

Which approach is better, active investing vs. passive? There seems to be no end to this debate, but there are factors that investors can consider — especially the difference in cost. Because active investing typically requires a team of analysts and investment managers, these funds are more expensive and come with higher expense ratios. Passive funds, which require little or no involvement from live professionals because they track an index, cost less.

Also, there is a body of research demonstrating that indexing typically performs better than active management. When you add in the impact of cost — i.e. active funds having higher fees — this also lowers the average return of many active funds. Following are a few more factors to consider when choosing active investing vs. passive strategies.

Active vs Passive Investing: Key Differences

The following table recaps the main differences between passive and active strategies.

Active Funds	Passive Funds
Many studies show the vast majority of active strategies underperform the market on average, over time.	Most passive strategies outperform active ones over time.
Higher fees can further lower returns.	Lower fees don’t impact returns as much.
Human intelligence and skill may capture market upsides.	A passive algorithm captures market returns, which are typically higher on average.
Typically not tax efficient.	Typically more tax efficient.
Potentially less tied to market volatility.	Tied to market volatility and more vulnerable to market shocks.

💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.

Get up to $1,000 in stock when you fund a new Active Invest account.*

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

Active Investing Definition

What is active investing? Active investing is a strategy where an investor attempts to beat the market by trading individual stocks, bonds, or other securities.

With active investing, either an individual investor could be the one trading securities in their own portfolios, or portfolio managers of actively managed exchange-traded funds (ETFs) and mutual funds could be the one buying and selling assets to outperform the market or a specific sector.

Active investors and actively-managed funds often trade stocks and securities to profit in the short term. Short-term trading, like day trading, can be difficult as it requires the investor to be an expert on the financial markets and the factors impacting stock prices. It also requires the investor to have a good deal of discipline, as short-term stock picking can be a volatile and risky endeavor.

Active Investing Pros and Cons

Active investing is what live portfolio managers do; they analyze and then select investments based on their growth potential. Active strategies have a number of pros and cons to consider when comparing them with passive strategies.

Pros and Cons of Active Investing
Pros	Cons
May be fun to follow the market and make your own investment decisions	Difficult to beat the market
May profit in up, down, and sideways markets	Time consuming
Can tailor a strategy based on your goals and risk tolerance	Higher fees and commissions

Pros

• One potential advantage of having a real person crunching numbers and making investment decisions is that they may be able to spot market opportunities and take advantage of them. A computer algorithm is not designed to pivot the way a human can, which might benefit the performance of an actively managed ETF or mutual fund.

• Whereas a passive strategy is designed to follow one market sector index (e.g. the performance of large cap U.S. companies via the S&P 500® index), an active manager can be more creative and is not limited to a single sector.

• The number of actively managed mutual funds in the U.S. stood at about 6,585 as of June 2023 vs. 517 index funds, according to Statista. Given that there are many more active funds than passive funds, investors may be able to select active managers who have the kind of track record they are seeking.

Cons

• The chief downside of active investing is the cost. Hedge funds and private equity managers are one example, charging enormous fees (sometimes 10%, 15%, 20% of returns) for their investing acumen.

But even standard actively managed funds, which may charge 1% or 1.5% or even 2% annually, are far higher than the investment fees of most passive funds, where the annual expense ratio might be only a few basis points.

• The majority of active strategies don’t generate higher returns over the long haul. According to the well-known SPIVA (S&P Indices vs. Active) 2022 year end scorecard report, 95% of U.S. active equity funds underperformed their respective S&P indexes over the last two decades. So investors who are willing to pay more for the insight and skill of a live manager may not reap the rewards they seek.

• A professional manager may create more churn in an actively managed fund, which could lead to higher capital gains tax.

💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

Passive Investing Definition

Passive investing strategy is when an investor buys and holds a mix of assets for an extended period. Many passive investors will invest in passively-managed index funds, which attempt to replicate the performance of a benchmark index. Passive investors are not necessarily trying to beat the market.

Passive Investing Pros and Cons

The term “passive investing” may not have a strong positive connotation, yet the funds that follow an indexing strategy typically do well vs. their active counterparts.

Pros

• Passive strategies are more transparent. Because index funds simply track an index like the S&P 500 or Russell 2000, there’s really no mystery how the constituents in the fund are selected nor the performance of the fund (both match the index).

• As noted above, index funds outperformed 79% of active funds, according to the SPIVA scorecard.

• Passive strategies are generally much cheaper than active strategies.

• Passive strategies can be more tax efficient as there is generally much less turnover in these funds.

Cons

• Because passive funds use an algorithm to track an existing index, there is no opportunity for a live manager to intervene and make a better or more nimble choice. This could lead to lost opportunities.

• Passive strategies are more vulnerable to market shocks, which can lead to more investment risk.

Which Should You Pick: Active or Passive Investing?

Deciding between active and passive strategies is a highly personal choice. It comes down to whether you believe that the active manager you pick could be among the few hundred who won’t underperform their benchmarks; and that the skill of an active manager is worth paying the higher investment costs these strategies command.

You could also avoid treating the active vs. passive investing debate as a forced dichotomy and select the best funds in either category that suit your goals.

The Takeaway

Active vs. passive investing is an ongoing debate for many investors who can see the advantages and disadvantages of both strategies. Despite the evidence suggesting that passive strategies, which track the performance of an index, tend to outperform human investment managers, the case isn’t closed.

After all, passive investing may be more cost efficient, but it means being tied to a certain market sector — up, down, and sideways. That timing may or may not work in your favor. Active investing costs more, but a professional may be able to seize market opportunities that an indexing algorithm isn’t designed to perceive.

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

FAQ

What is the difference between active and passive investing?

The main difference between active and passive investing is that active investing is when a portfolio manager — or the investor themselves — manages their portfolio, buying and selling investments to try to outperform the market. Passive investing is when an investor buys assets and holds onto them for a long period. Passive investing usually means investing in index funds, which track the performance of an index.

What are the examples of active funds?

According to a Morningstar February 2024 analysis, some examples of actively managed ETFs include the Avantis U.S. Equity ETF (AVUS), the Capital Group Dividend Value ETF (CGDV), and the Dimensional Core U.S. Equity 1 ETF (DCOR). Note that these are just examples. An investor should always do their own research before making any investments.

Does active investing have high risk?

Active investing is considered higher risk. Active investors and actively-managed funds often trade stocks and securities to profit in the short term. Short-term trading typically requires knowledge about financial markets and the factors impacting stock prices. It can be volatile and risky.

Should I invest in active or passive funds?

Deciding whether to invest in active or passive funds is a personal choice that only you can make. It depends on your personal situation, goals, and risk tolerance, among other factors. In general, passive investing is better for beginners, and active investing is better for experienced investors with knowledge of the market and who understand the risk involved.

Are ETFs active or passive?

ETFs can be active or passive. Passive ETFs track indexes such as the S&P 500 and may make sense for investors pursuing a buy and hold strategy. Active ETFs rely on portfolio managers to select and allocate assets in an effort to try to outperform the market.

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

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

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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