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The Growing Popularity of Dollar Based Investing

Have you ever wondered if you could purchase a fraction of a stock?

With companies like Amazon trading at nearly $2,000 per share , not everyone can afford to purchase even one entire share of stock. These high stock prices have traditionally been a barrier to entry for new investors. Fifty-six percent of millennials feel that they don’t have enough money to start investing.

If you’re new to investing in the stock market, you may feel as though you need thousands of dollars just to get started. This used to be the case, but new investment tools have made it possible for anyone to start buying stocks. The modern view of investing is that anyone should be able to have access to flexible financial tools.

With dollar-based investing, you can start with less than $10 and start growing your portfolio. How is this possible? Through the purchase of fractions of shares.

The fractional method of investing is growing in popularity and comes with a number of benefits. Just as when you’re saving up money for a home, your child’s education, or your retirement, getting started investing early is key.

What Is Dollar-Based Investing?

A fractional share is a portion of one full share of stock equity. Dollar-based, or fractional share investing, is the method of buying these partial shares of stocks. Fractional investments allow you to invest based on a dollar value rather than a share value.

Historically, when a share price got too expensive for most people to afford, the company would split the shares. So if you owned one share worth $1,000, for example, the company might split it into 10 shares each worth $100. You would then own 10 shares instead of one.

Recently, stock splitting has become less common, partly due to the rise of dollar-based investing. Higher stock prices are fine for larger investors, but they make it difficult for small investors to purchase stocks in many popular companies.

The concept of fractional shares is not entirely new. Dividend Reinvestment Plans and exchange-traded funds (ETFs) work similarly. One benefit of dollar-based buys is that they allow direct investing in companies of your choosing, whereas an ETF is a pass-through investment managed by a third party.

There are two ways to purchase fractional shares, depending on the brokerage firm you work with. Brokerage firms that offer fractional shares purchase full shares of stocks then allocate portions of them to the fractional buyers. Some brokerage firms offer fractional shares of single stocks, while others allow you to put your money into a portfolio of stocks all at once.

For example, you might invest in a portfolio of tech stocks or green energy stocks, or conservative stocks that pay regular dividends. The method you choose depends on your personal goals and investment requirements.

Not all brokerage firms offer fractional investing, so you’ll need to find the one that works best for you. One thing you could keep an eye out for as you decide which brokerage firm to work with is the fees they charge for dollar-based buys.

A fee may not be significant when buying large quantities of stock infrequently, but it can add up quickly when applied to many small transactions.

Also, brokerage firms often charge each time you make a transaction, and you may make more transactions if you’re working with smaller amounts of money. Some big box retailers also sell fractional shares in the form of gift cards.

Also important to keep in mind: Just because a company has an expensive share price doesn’t necessarily mean it’s a better investment or a more successful company. There are various factors to consider when deciding whether to invest in a stock.

Some Benefits of Dollar-Based Investing

There are many reasons fractional share investing is becoming more popular and why it may be a good option. As with any type of investing, knowledge is power. Make sure you research the company or portfolio you buy into.
You might want to ensure that you never invest more money each month than you need to pay for your day-to-day living expenses. Now, onto a few of the benefits of dollar-based investing.

Portfolio Diversification

By investing small amounts of money into multiple stocks, you can spread out your risk over a variety of investments. Diversification is one of the keys to building a strong long-term portfolio.

Using dollar-based buys, even with $100 you could purchase portions of five, 10, or even 20 different stocks. Even if you’re starting out with thousands of dollars to invest, you may decide to purchase portions of stocks in order to diversify.

Lower Investments

With many stock prices rising too high to buy entire shares, (for example, Berkshire Hathaway is currently over $300,000 per share,) investors are seeking ways to get involved in the stock market at lower starting prices.

Fractional investing allows you to get started with just a few dollars with some brokerage firms, and to purchase smaller amounts of multiple stocks rather than putting all of your money into one stock.

It may seem like you can’t do much with a small investment, but you actually could be losing money in inflation-adjusted terms if you save it in cash and don’t invest it. It’s important to know the risks and potential return on investment (ROI) of your investments, but investing your cash just might be a better idea than stashing it under your mattress.

Increased Flexibility

With modern investing comes modern tools. Many of the brokerage firms offering fractional shares come with phone apps for quick and easy buying and selling, like SoFi Invest®.

These apps can allow you to purchase portfolios of stocks within a certain industry or risk tolerance.

Automated Investing

Using investment apps like SoFi Invest, you could set up an automated investing profile to fit your parameters.

Whether you want to invest a small amount each month or invest one time into a portfolio of different stocks, with dollar-based investing, you have many options.

You can choose to invest in pre-selected groups of stocks organized by industry or risk level. Automated investing allows you to set up your account once and potentially grow your portfolio steadily over time, without the time and energy of checking and adjusting it regularly.

Potential Downsides to Dollar-Based Investing

As you can see, there is a lot of potential upside to fractional shares investing. However, there are potential downsides you might want to keep in mind.

Voting in Company Elections

If you own less than one share of a stock, you typically won’t be able to vote in company elections.

Ability to Receive Dividends

If a company pays dividends and depending on how much of a share you own and what dividend that stock pays, you may not receive any dividends at all. For example, if you own 10% of a share, and that stock pays a 1 cent dividend, you won’t receive anything.

Transferability

Some investment apps and brokerage firms may not allow you to transfer your fractional shares. If you begin investing with a different firm or choose to close your account, you may need to sell your fractional shares within the same platform you purchased them through.

Trading Fees

Some brokerage firms that allow dollar-based investing charge additional fees for the service. Choosing a platform such as SoFi Invest, which charges zero transaction fees, could help keep a few more dollars in your investing account.

Dollar-Based Investing With Fractional Trading

There are many attractive benefits to dollar-based investing. If you’re interested in getting started with fractional shares investing, SoFi allows you to start with as little as $5. Using SoFi’s active investing tools, you can purchase portions of shares of your favorite companies.

There are zero SoFi fees for trading stocks on SoFi’s platform, and no account minimums. You can also create a personal watchlist of stocks you’re trading or interested in. As a member of SoFi Invest, you’ll receive real-time investing news and tips to help improve your investor knowledge.

By starting to make dollar-based buys with SoFi’s Fractional Shares, you could experience the many benefits of being a fractional investor. You could build a flexible portfolio that’s easily trackable and tailored to your goals. The same diversification that large investors achieve could be available to you at a fraction of the cost.

Get started with SoFi Invest today and see what your dollar-based investing can buy.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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How Much Should I Put Towards My 401k?

When it comes to personal finance, one question that often pops ups is “how much should I contribute to my 401(k)?” While there is no one-size-fits-all plan for saving for retirement, there are a few steps you can take to help make sure you’re making smart saving decisions.

Although this is by no means financial or investment advice, the ideas given in this article may help get you thinking.

401(k) Fundamentals for Investors

A 401(k) is a retirement savings account that many employers offer their staff. With 401(k) plans, your employer typically provides a list of investments (usually mutual funds) you can choose to invest in.

It’s worth noting that 403(b), 457(b), and SIMPLE IRA plans are similar options also offered through employers. One significant benefit of an employer-sponsored 401(k) and similar plans is that your employer may provide partial or full contribution matching.

If your employer offers a match, it means they will match all or part of your contributions. However, those employer contributions may be subject to vesting requirements, which are sometimes based on how long you’ve been with the company. Further, 401(k) plans can also carry tax benefits that may also help you build your retirement fund.

How Much Can You Put In a 401(k)?

Employee contributions to 401(k) accounts increased to $19,000 in 2019 . This means that you can contribute $1,583.33 a month if you want to max out your 401(k) retirement savings this year.

For a lot of folks, however, putting more than $1,500 a month toward retirement isn’t possible. (So, don’t worry if the idea of saving that much is making your eye twitch.)

Saving for retirement is a long-term goal, and starting small is much better than not starting at all, even if you’re only contributing the equivalent of a daily latte.

How Much Should I Contribute To My 401(k)?

There is no universal answer to how much you should contribute to your 401(k), and many people find that maxing out their 401(k) with $1,583.33 a month isn’t financially feasible. But there are some smart guidelines you can follow to help make sure that you’re saving responsibly.

If you’re left wondering “what percent I should contribute to my 401(k)?”, the simplest answer is if your employer offers a match, it may be worth contributing enough to take advantage of the match—because that’s essentially free money. And one in five workers who are offered a match don’t take advantage of it.

After you contribute the amount your employer matches, it’s up to your unique financial situation how much additional money you put in your 401(k). For example, if you’re paying down credit card debt, you may not want to contribute additional funds right now. But if you’re living a debt-free life, perhaps you could consider upping your contribution.

Paying Off Debt While Saving For Retirement

What about if you’re trying to pay off debt while also saving for retirement? It’s easy to ignore savings in favor of paying off debt as fast as possible, but it may still be possible to save while paying off debt.

If you’re going to contribute to a 401(k) while paying off any type of debt, then it may be a good idea to at least contribute the amount your employer matches.

Beyond that, it depends what type of debt you’re paying off. If you have high-interest debt, you’ll potentially want to focus your efforts on getting rid of that. However, if you have a relatively low-interest student loan, you may be able to increase your retirement contribution while still making your minimum monthly payments.

One big no-no is missing loan payments in order to save for retirement. With student loans, for example, your first financial obligation is to make at least the minimum payment due. If you stick your money in a retirement account instead of paying your student loans, you could risk default, which could tank your credit score and lead to higher interest rates over time.

But paying off debt and saving at the same time isn’t impossible. If anything, you may at least want to strive to put away enough retirement savings to take advantage of the employer match programs discussed above.

Otherwise, you may be leaving free money on the table. If you still have some spare cash leftover after meeting your other obligations, one potential option is to add that to your 401(k), or an individual retirement account.

Other Ways To Save For Retirement

No 401(k)? No problem. Not all employers offer 401(k)s, so you may find yourself needing other retirement savings vehicles. One other option may be an IRA.

An IRA (or individual retirement account) is opened and controlled by you, not your employer. You can use IRAs to invest in a variety of things, unlike 401(k)s, which may restrict you to certain portfolios.

Like 401(k)s, IRAs may offer tax-free growth. Some people may qualify for both an IRA and a 401(k). Freelancers and self-employed folks may find that a SEP IRA (Simplified Employee Pension sometimes chosen by freelancers, which often have higher limits for annual contributions than a standard IRA) or Solo 401(k) (a recently established retirement plan that’s only for sole proprietorships) may offer more generous contribution limits for their specific circumstances.

If you’re interested in an IRA, check out SoFi Invest®. You can quickly open a Traditional, Roth, or SEP IRA online and transfer money from your bank electronically.

If you are leaving a job with an employer-sponsored retirement plan, you can also rollover your old 401(k) into an IRA with SoFi in order to potentially access more investment options and/or possibly lower your investment fees.

Learn more about IRAs from SoFi Invest®.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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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Bull vs Bear Market: What’s the Difference?

When you first hear the expression “Bull vs. Bear market,” it’s easy to think it has something to do with zoology, or a foreign delicacy sold in the open air. But these terms are related to something much less exotic: investing.

The animal metaphors help describe the general direction of the stock market over a given period. A bull market is seen as a good thing: It refers to a period when stock prices are on the upswing. In other words, the market is charging ahead. The designation is a bit vague, as there’s no specific amount of time or level of increase that defines a bull market.

So what is a bear market? It’s thought of as a negative for many stock market investors, and it has a more specific definition. This phrase refers to a period of time when the major indexes fall by 20% or more from their most recent peak and remains there for two months or longer.

Some define the recent high as one occurring within the last 52 weeks or the last two months. Generally a bear market is tied to a specific major index, such as the S&P 500 or Dow Jones, which represent broad US markets.

Don’t confuse a bear market with a correction , which refers to a 10% decline from a recent peak, or a dip, which is a fall of less than 10%. Bear markets typically precede recessions—which is a substantial decline in the economy that lasts at least a couple quarters—55% of the time, but not always.

Just like anything in life, ups and downs are unavoidable when it comes to the stock market. But understanding these terms and potentially adjusting your investment strategy accordingly can put you on solid footing to weather the rollercoaster in the long run.

Why the Bear Market Can Be Unnerving

Just like encountering a grizzly on a hike, a bear market can be terrifying. Falling stock prices likely mean that you watch the value of your retirement account or other investment portfolios plummet.

The average bear market lasts nearly two years and sees stock prices decline by 41%.

Those losses can be psychologically brutal, and if your investments don’t have time to recover, they can have serious effects on your life.

Bear markets are a fact of life. They occur every three to four years, on average. In fact, there have been at least eight since 2006. But part of what makes them nerve-wracking is that it’s difficult to see them coming.

Some of the signs that a bear market may be looming include a slowing economy, increasing unemployment, declining profits for corporations, and decreasing consumer confidence, among other things.

Another potential sign can be when the Federal Reserve raises interest rates after it has been reducing them.

The idea is that developments like these can cause investors to have negative expectations, driving them to sell and stock prices to fall. But these factors don’t necessarily mean a bear market will emerge. As the great economist Paul Samuelson once said, “the stock market has predicted nine out of the last five recessions.”

Investing During a Bull Market

Some people choose to adopt different investment strategies depending on whether we’re experiencing a bull market or a bear market. During a bull market, some suggest holding off on the urge to sell stocks even after you’ve had gains, since you could miss out on even higher prices (although of course, no one knows exactly when a peak will arrive).

If you think you’re in the tail end of a bull market, stocks that performed well in similar periods in the past, such as technology, industrial sectors, and energy, might be worth looking into.

When the economy is doing well, consumers typically have more money to spend, so investing in companies that sell furniture, cars, watches, or other discretionary items might seem more attractive.

One thing to avoid during a bull market is getting too confident. Because investors have seen their holdings gaining value, they might think they’re better at picking stocks than they actually are and could feel tempted to make riskier moves.

Another common mistake is believing that the gains will continue; in reality, it’s often hard to predict a downswing and market timing is challenging for even professional investors.

One thing to avoid during a bull market is getting too confident . Because investors have seen their holdings gaining value, they might think they’re better at picking stocks than they actually are and could feel tempted to make riskier moves.

Another common mistake is believing that the gains will continue ; in reality, it’s often hard to predict a downswing and market timing is challenging for even professional investors.

Investing During a Bear Market

A great way to get ready for a bear market is before it happens. One option could be to make sure your assets aren’t allocated in a way that’s more risky than you’re comfortable with—for example, by being overly invested in stocks in one company, industry, or region—when times are good.

Buying stock during a bear market can be advantageous, since investors might be getting a better deal on stocks that could rise in value once the market recovers. However, there can be danger in trying to predict when certain stocks will hit bottom and buying them then with the expectation of future gains.

No one has a crystal ball, so there’s always a chance the price will keep plummeting. Another option might be to use dollar-cost averaging —investing a fixed amount of money over time—so that chances of buying at high vs. low points are spread out over time. Investing in companies with strong and dependable earnings can also be a potentially good idea, since they’re more likely to weather the storm better than others.

Once the bear market arrives, a common mistake investors make is getting spooked and selling off all their stocks . But selling when prices are low means they could be likely to suffer losses and may miss the subsequent rebound.

In general, as long as investors are comfortable with their portfolio mix and are investing for the long haul, dumping all their stocks due to panic is likely unnecessary. It’s worth remembering that market cycles are normal, and the same dynamism responsible for downturns allows investors to experience gains at other times.

Investing Your Way

The everyday investor probably shouldn’t worry too much about evaluating the market and trying to find the perfect time to jump in. What’s more important than trying to predict overall returns is investing as early as possible. The more time money spends in the market, the more likely investors are to more comfortably weather short-term dips and take advantage of compounding returns.

And the more diverse an investor’s holdings, generally speaking, the less risk is taken on, since downturns that impact some assets don’t necessarily affect others.

If you’re investing for decades down the road, once you have an investment mix that is diversified and matches your comfort with risk, it’s often wisest to leave it alone regardless of what the market is doing.

With SoFi Invest ®, you don’t have to spend a lot of time or money to keep your investments organized. Whether you’re setting up a retirement account or an individual investment account, you can get started with no SoFi management fees. We offer two options, active and automated investing.

With our automated investing product, your funds go into a portfolio of exchange-traded funds (ETFs), which offer a low-cost way to invest in a diversified range of stocks and bonds. And with SoFi active investing “>active investing, you can make your first trade yourself without fees.

By choosing from one of five automated investment strategies, you can ensure that your holdings reflect your goals and tolerance for risk. Your portfolio will be readjusted automatically to keep it in line with your preferences. If you have questions or need help planning your financial future, a complimentary licensed financial advisor is on hand for SoFi members.

Whether it’s a bull market or a bear market, you can start investing now. Find out more about SoFi Invest.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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Reading an Earnings Report

When it comes to investing in stocks, “buy what you know” is hardly a starting point anymore.

Sure, recognizing or loving a product is a great introduction to that company (e.g., I love Chicken McNuggets so I’m buying shares of McDonald’s), but fandom alone may not be enough to justify purchasing that company’s stock.

There are a lot of factors to take into consideration regarding the financial health and potential prosperity of a company, For example, is this company able to consistently bring in more revenue than they spend?

Luckily, this is information that investors have easy access to via earnings reports.

By learning how to read an earnings report, you could unlock invaluable information about the state of a company over time, as well as come to your own conclusions about whether the company’s stock is a worthwhile buy for you.

Reading an earnings report isn’t always intuitive—there’s a lot going on there. That said, it’s not hard to learn the key numbers and information necessary to make an assessment of a company.

Here are some important elements to look for in a company earnings report.

What Is an Earnings Report?

When you invest in a stock, you are investing in a small sliver of ownership in a publicly traded company. To be publicly traded, companies are required to file quarterly (and annual) financial statements with the U.S. Securities and Exchange Commission (SEC).

These financial filings keep shareholders and regulators apprised of the financial and legal standing of a company. Financial transparency also allows current and potential investors to make decisions about the company through their own analysis and judgment.

Generally, when you hear someone speaking of a general “earnings report,” they are referring to the forms 10-Q and 10-K, which are quarterly and annual financial filings, respectively. Both disclose a company’s revenue, expenses, profit, and other financial information each quarter.

These documents can be dozens of pages long and will have an index at the beginning to help with navigation. Here’s what is included in a typical 10-Q report:

Part 1: Financial Information

Financial Statements

•   Management’s Discussion and Analysis of Financial Condition and Results of Operations

•   Quantitative and Qualitative Disclosures of Market Risk

•   Controls and Procedures

Part 2: Other Information

•   Legal Proceedings

•   Risk Factors

•   Other Information and Exhibits

You can find a company’s form 10-Q or 10-K through the SEC’s filings database called EDGAR . There, you can also find other filings, such as 8-K filings, which notifies the public of corporate changes.

Once you have an understanding of how to review earnings reports, find a couple of companies that consistently beat projections. Then consider setting up auto invest with SoFi and relieve some of that stress.

Also, know that while each company is required by law to report accurate numbers, the numbers are not necessarily audited by the SEC.

What Is Earnings Season?

Companies reporting their earnings via a 10-Q or 10-K tend to do so in the weeks following the close of each quarter, so the weeks following the close of each March, June, September, and December. This is a very exciting time for investors as dozens of companies report their earnings numbers per day at the peak of each earnings season.

When analyzing statements during earnings season, it’s important to remember that often, one 10-Q filing alone doesn’t tell the whole story. You may find it helpful to compare the most recent report to previous reports to get an idea of a company’s history.

You may also find it compelling to compare against earnings expectations, building a case as to whether this is a company that is growing with a strategic business plan. SoFi offers self directed trading for individuals interested in doing research and managing their own portfolio. We provide you with real—time investing news, curated content, and other relevant data, so you can be confident and prepared.

How to Read an Earnings Report

Many potential investors will spend a substantial amount of time looking at a company’s financial statements, which make up the first part of the earnings report.

This is arguably the most sought-after part of the earnings report because it states whether or not the company is making money, which might be the key piece of data that investors are seeking.

Here’s what you can find within the financial statements section:

Income Statement: How much money a company made over a period of time. Usually, the current quarter’s information is compared to previous quarters or multiple quarters.

Balance Sheet: What a company owns and what they owe—its assets and liabilities.

Cash Flow Statement: This section details the exchange of money between the company and the outside world over a given period of time.

Statement of Shareholder Equity: Changes of interest for the company’s shareholders over a given period of time. Here, you’ll find information on the value of all outstanding shares along with the potential dividend payment made by the company during the previous quarter(s).

For many investors, the income statement is of particular interest. This document details how much a company earns, how much it spends, and how profitable it is over a certain period of time. These numbers can reveal a lot about where a business is at and where they’re headed.

Here are some important figures you could look for in the income statement:

Revenue: A company’s sales. This is also known as the “top line,” because it sits at the top of the cash flow statement. This figure does not take into account the costs of running a business, so may not be the best indicator as to the overall financial health of a company.

Cost of Revenue/Cost of Sales: Directly under the revenue or sales figure you’ll find a section that details the costs of producing the goods sold, such as production and manufacturing. To be clear, these are not all of the costs associated with running a business, only the costs directly associated with the sale of the product or service.

Below this figure, you will find the section referred to as “gross profit” or “gross margin,” which is the cost of revenue subtracted from the revenue. It is called “gross” because the figure is not net of all costs associated with running a business—only the costs associated with sales.

Operating Expenses: These are the costs of running a business that cannot necessarily be attributed to a company’s operations for a given period. Research and development, marketing expenses, and salaries of administrative personnel are all examples.

Here, it is possible to account for depreciation expenses, such as the wear and tear on assets such as machinery and tools or other assets that are used over long periods of time.

At this point in the cash flow statement, a company may account for adjustments to income due to interest earnings or expenses (such as earning interest in a savings account or paying interest on debts) or income taxes. Sometimes, this information is listed separately.

Earnings: This is a company’s profits, also known as the net income or “bottom line,” because earnings exist at the bottom of the cash flow statement after all costs are subtracted. This is the money that the company made in the previous quarter after all costs of running the business are accounted for. Ultimately, this is going to be the number that most concerns shareholders, as a profitable business model is what attracts many investors.

Not all businesses are profitable all of the time, so it is possible that an earnings number can reflect a loss. When a company is recording a loss, the number is written inside of parentheses.

Earnings Per Share (EPS): While the earnings figure is certainly important, it’s helpful to have some context as to what that means to investors. The EPS calculation divides the earnings figure by the number of outstanding shares to derive a figure that represents what it would look like if those earnings were to be evenly spread across all shareholders.

For example, an EPS number of $1 would indicate a $1 earning per share of outstanding stock. However, a $1 EPS does not necessarily mean that’s what the company pays out to each shareholder.

Instead, it’s a way for investors to compare profitability across businesses within the same industry, to a business’s past profitability, or to expectations for a company’s future profitability. More than anything, it is used as a tool for analysis.

For a more qualitative look at a business, you could take a look at the section titled Management’s Discussion and Analysis. Here, executives summarize both the numbers detailed in the financial statements and what’s going on in the business that might not be outwardly obvious simply by looking at the numbers.

For example, executives could take this time to discuss a merger or other market factors that may have led to skewed numbers for that quarter.

The Effect on Stock Prices

The idea of “earnings per share” being an absolute measure of a company’s performance can be somewhat misleading to potential investors. Yes, it is an important and easy way to compare performance, but it does not necessarily indicate the direction that the stock price is headed.

An improvement in any metric on a balance sheet, including EPS, will not necessarily cause a unilateral move in the price of that stock.

That’s because stocks are for sale in the global stock marketplace, and it’s the buying and selling (supply and demand) of that stock that gives it its value.

Let’s look at a hypothetical example of how this might manifest. Say that analysts forecasted the EPS for a company to come in at $0.80 for the quarter. Instead, EPS came in at $0.45 for the quarter. Because the hypothetical company “missed its earnings estimates,” the open market may react negatively.

Investors may sell their stock, and it could cause the price of the stock to fall.

But this is still a profitable hypothetical company with positive earnings—it’s just not as profitable as analysts had predicted. And so you can see from this example, a number like an EPS is a way to gauge a company’s growth trajectory, but can’t necessarily predict how the market will react.

This may be especially true in the short-term, where the market can shift on sentimental factors.

Of course, there are other intangible elements that aren’t in the earnings report that could have an effect on the future value of the stock. Examples could include brand cache or an unexpected merger or acquisition.

On the flip side, a company’s stock price could take a beating because of a company scandal or legislation that affects the way they can do business. Though important, a company earnings report may not paint a complete picture of that stock.

Buying Stocks

You’ve done your research and are ready to buy a stock. Congratulations, the hardest part is done. Now, where can you can purchase the stock? This could be done within a brokerage account or on an online trading platform, like SoFi Invest®.

One of the great things about SoFi Active Investing is that there are no trading costs, so you can buy and sell stocks with ease. Plus, there are no account minimums. With SoFi Invest, you don’t have to worry about costs eating away at your potential profits.

If picking your own stocks seems like a job you don’t want, not to worry—there are still some great options for getting invested.
Instead, you could consider buying into a big pool of stocks by using funds such as exchange-traded funds (ETFs). ETFs can help take some of the guesswork out of the process and get you invested in a diversified portfolio with ease.

To pick your own ETFs, you can look to using a service like SoFi Active Invest. For help picking ETFs that match your goals for the money, SoFi Automated Investing has you covered. And no matter which service you choose, you’ll have access to financial planners who can answer questions about your investments and more.

Ready to put those stock-picking skills to use? Get started with SoFi Invest today.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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What Is Impact Investing?

Making profits on your investments is, typically, the main goal of investing. But what if you could make a positive difference in the world at the same time as potentially growing the value of your portfolio? It turns out you can, and this investment strategy is gaining in popularity.

Although there have previously been opportunities to invest in companies and organizations which serve the greater good of society, the traditional focus of investing has mostly been on profits. Recently there has been a rise in impact investing, which has the potential to benefit investors, companies, and create a positive impact on the world.

Profits With a Purpose

Impact investing is defined by the International Finance Corporation (IFC) as “investments made into companies, organizations, vehicles, and funds with the intent to contribute to measurable positive social, economic, and environmental impact alongside financial returns.”

Investors have become increasingly aware of potential negative societal effects to which their investments may contribute.

These can include effects on health, the environment, and human rights. Impact investments can benefit both developed and emerging markets.

Some investors may choose to avoid investments in industries they feel to be damaging, such as gambling, weapons, or tobacco. But in addition to preventing harm, impact investing goes a step further with investors putting money toward causes that create a positive impact.

Some of the most pressing issues being addressed through impact investing are renewable energy, conservation, microfinance, housing, and education.

Although there is a growing demand for socially responsible investing, and many companies are claiming to offer positive investments, there is currently no universal system in place to rank investments in terms of their potential impact.

In order to address this issue, the Global Impact Investing Network (GIIN) released “The Core Characteristics of Impact Investing” in April 2019. This document aims to further clarify and define what makes an impact investment. And the IFC published a document titled “Operating Principles for Impact Management.”

The goal of these documents is to enable the mobilization of more funds and increase the impact of investments by creating a market consensus around what constitutes an impact investment and setting guidelines for how best to manage impact investments.

As impact investing becomes better defined, both investors and companies will hopefully be able to have more confidence in the potential outcomes of their financial and impact goals.

The Core Characteristics of Impact Investments

As outlined in the documents put together by GIIN and the IFC, the following are considered characteristics of credible impact investments:

Investor Intentionality

An investor must intend to make a measurable positive impact with their investment. This requires a certain level of transparency about both financial and impact goals. The investor’s intent is one of the main differentiators between traditional investments and impact investments.

Use Evidence and Impact Data to Structure Investments

Impact investments must use data and evidence to make informed decisions which will lead to measurable benefits.

They must also use a systematic approach to predict the impact of each investment as well as its financial return. This includes identifying a need and designing an investable solution to that need.

Impact Performance

Specific goals for both financial returns and impact must be established and managed. This requires communications throughout the investment chain in order to make any adjustments over time. It also includes an assessment of investment and impact risk, and disclosure of performance to investors.

Contribute to the Growth of the Industry

The goal of impact investments is to further social, economic, or environmental causes. Measurement and reporting of the ultimate impact of the investment needs to be carried out. Impact investing must be intentional and measured, not just guesswork.

Impact at Exit

Investors need to consider the timing of their exit from an impact investment. Removal of funds from a project may have long-term effects on its impact. The goal upon exit is both for the funds to have increased in value and for the investment to have had a positive impact on its designated sector.

The level of positive versus negative impact accepted by an investor is still somewhat arbitrary. For example, certain investment funds that label themselves as having a positive impact may invest in controversial companies.

The Increasing Popularity of Impact Investing

Impact investing is not a new concept; it has been done by philanthropic organizations, foundations, and impact fund managers for years. John Wesley, the founder of the Methodist movement, has been credited with first preaching the concept of socially responsible investing.

He urged his religious community not to profit at the expense of their neighbors, so they avoided investing in the alcohol, tobacco, gambling, and weapons industries.

Due to the recent increased demand for impact investment opportunities, as well as new types of investing tools, these investments are now more widely available to the general public.

Many types of investors are now engaged in impact investing, including fund managers, NGOs, pension funds, and individual investors.

More than one in every five U.S. dollars invested under professional management are now invested in responsible, sustainable, and impact investments.

Women and millennials have been shown to be especially interested in impact investing. More than 70% of millennials and Gen Xers have made impact investments, compared to only 30% of baby boomers. 67% of millennials surveyed said they would prioritize making investments which have an impact over those which purely make a profit.

Global frameworks such as the Sustainable Development Goals have given the public a roadmap of industries to invest in to create a positive impact. The current market for impact investing is estimated to be $228 billion , and it quintupled between 2013 and 2017.

More than 1,300 organizations are involved in impact investing around the world. Impact investing shows no signs of slowing down.

What Are Some Benefits of Impact Investing?

In the past, environmental and social issues were typically tackled using philanthropic donations. Impact investing creates opportunities for companies working to solve problems to receive additional funds, and enables investors to put their money into causes they believe in.

Motives for engaging in impact investing vary depending on the type of investor. Government investors, for example, can show proof of financial viability for a project by opening it up to private investors.

Some foundations can access significantly greater funding to grow their endowment and create a larger impact. Individual investors may have a personal passion for a specific issue, such as gender equality or land conservation. With impact investing it’s possible to make a positive difference in whatever area you feel most passionate about.

What Are Some Drawbacks of Impact Investing?

Like with any other investments, impact investing has its share of risk. Due to business model execution and management, some investors have found that their investments didn’t perform the way they hoped.

Additionally, investors may find themselves more drawn to the ethical aspect of impact investing than to the financial bottom line. And if the socially-responsible companies they’ve invested in don’t do well, they’re stuck deciding between their ethical and financial goals—a true life version of the rock vs. the hard place.

And although you may sleep better at night, you could be missing out on other great investment opportunities.

And it may be worthwhile to keep in mind that although a number of companies may say they’re socially or environmentally responsible, the fancy marketing campaign they’ve assembled may not reflect their actual business practices.

As with anything else, it’s important for investors to do their research, and really consider what’s important to them individually.

Examples of Impact Investments

Socially responsible investments can be made in any industry. Some of the more popular sectors for impact investing are social justice issues, environmental sustainability, and alternatives to drugs and alcohol. The following are a few examples of recent impact investments:

The rise of impact investing is also influencing business leaders. Companies are recognizing that consumers and investors are interested in supporting impactful products and services.

This is causing some to make changes to ensure they keep their businesses running successfully—for example, Starbucks is phasing out their use of plastic straws.

Does Impact Investing Pay Off Financially?

Just as with any type of investment, each investor has unique goals and tolerance for risk. In a 2018 survey conducted by GIIN, 64% of investors had sought market rate returns through their impact investments. More than 90% of respondents reported that their expectations for both impact and financial performance either met or exceeded their expectations.

The greatest risk reported in the survey was in business model execution and management, although fewer than one-third of respondents reported this as a severe risk.

Impact investments have shown to be resilient through tough times in the market, and have often outperformed other market investments over the past decade.

The bottom line is that you may not have to sacrifice your financial goals to make a positive impact with your investments. In fact, it’s possible that impact investments might be better for both your pocketbook and the world.

Getting Started With Impact Investing

In order to become an impact investor, it’s wise to consider both the financial potential of an investment, as well as its social, environmental, or economic impact.

Some investors have a higher risk tolerance than others, and some might be willing to take a lower profit in order to maximize the positive impact of their investments.

For example, you could either choose individual companies to invest in, or invest through a socially conscious mutual fund or exchange-traded fund (ETF.) These types of funds group together investments by category, such as industry, financial goal, or impact goal.

In the past, it may have taken a lot of time to research and vet impact investing funds. Now, investing tools, such as SoFi’s active investing account and automated investing, do much of the legwork for you.

If you’re interested in impact investing, consider which sectors you’d like to get involved in. Are you interested in having an impact in environmental conservation, gender equality, education, healthcare, or another issue?

Once you decide what type of impact you’d like to have and what your financial goals are, SoFi can work with you to help build your impact investment portfolio.

Modern Tools for the Modern Investor

Making decisions about how you should invest your money can be overwhelming, especially when you’re just getting started. Whether you’re interested in traditional investing or growing an impact investment portfolio, SoFi can help.

SoFi Invest® offers a modern range of investment options, from new IPOs to cryptocurrencies to impact investments. SoFi offers one-on-one interactions with financial advisors to help you achieve your financial goals—and there are no management fees.

You can get started with as little as $1 and adjust your risk tolerance as needed. The SoFi investment app is easy to use and access using your mobile device.

Get started investing in what you love and making a positive impact while potentially growing your portfolio.


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.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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