Investing Archives | Page 168 of 221

Jul

2022

Investing for Beginners: Considerations and Ways to Get Started

By Michael Flannelly | Growing Wealth, Investing | No Comments

Investing can be a great way to secure your financial future, but it can also be an intimidating minefield for the uninitiated. Fortunately, modern technology has made it easier to start an investment portfolio. You could get started today if you have an internet connection and a bank account.

It’s worth understanding what you’re doing before you put your money into the nebulous financial markets. You’ll want to know the basics of investing, from the different types of investments to the various strategies you can make money from them. With this knowledge, you should have a good idea of what sorts of investments are right for you and how to get started.

Table of Contents

Why Is Investing Important?
Things to Consider as a Beginner Investor
How to Start Investing
4 Types of Investments for Beginners
Investment Strategies for Beginners
When Should You Start Investing?
How Much Money Do You Need to Start Investing as a Beginner?
FAQ

Why Is Investing Important?

Investing is important because it helps you build wealth. Investing is simply the process of putting your money into assets that have the potential to grow in value over time. Doing this may increase your wealth and achieve financial goals, like saving for retirement.

You may wonder why you’d want to risk putting your hard-earned money in the financial markets, where it has the chance to decline, rather than simply stashing it in a savings account or even under your mattress. It’s because inflation can eat away at your money’s purchasing power if you don’t invest.

Your money sitting in a savings account earning little interest will eventually decrease in value because of inflation. The money you put into the market may be at risk, but it also has the potential to grow. By investing, you can ensure your money keeps up with inflation or even outpaces it. And historically, the market tends to increase, even accounting for significant stock market crashes like the Great Depression and the 2008 crisis.

💡 Recommended: How to Protect Your Money From Inflation

Of course, that doesn’t mean there’s no place for a healthy savings account, especially for money that you need in the short term.

Many people hold off putting money into the financial markets because they believe common investment myths, like that you have to be an expert or that you need to devote a lot of time to your finances. But even novices can set aside a little time and money to start investing.

Things to Consider as a Beginner Investor

There are a few important pieces of information you want to determine and understand before you begin investing.

Investment Goals

You want to establish your financial goals before you start investing. Since investments have such strong growth potential over time, many people use their portfolio’s gains to fund future financial goals, like purchasing a home or retirement. Figuring out which investment strategy is right for you starts by assessing and understanding your goals, because they’re not the same for everyone.

Time Frame

After establishing your investing goals, you can think about how long it may take you to reach them. For example, investing for your retirement nest egg will likely take longer than investing to save money for a downpayment on a house.

Determining these time horizons for investing involves taking your age into account. A younger investor saving for retirement has a longer runway to achieve their goals and, thus, can take more risks, like investing in stocks or cryptocurrencies, to meet those goals. In contrast, an older investor will likely employ a conservative investment strategy, like investing in low-risk bond funds, to protect their portfolio’s value from declining at a time when they are less able to afford it.

Risk Tolerance

Every investor must determine the amount of investment risk they are willing and able to accept in their investing decisions. This risk tolerance is essentially the loss an investor can withstand in their portfolio. Age, investing goals, and income may contribute to your risk tolerance.

Certain assets, like growth stocks, commodities, and cryptocurrencies, are risky investments, while bonds and blue chip stocks are considered less risky. With increased risk comes the potential for higher returns, albeit with the possibility of significant losses.

Portfolio Diversification

Portfolio diversification involves investing your money across a range of assets, like stocks, bonds, and real estate, rather than concentrating all of it in one area. After all, you don’t want to put all your financial eggs in one basket. By diversifying the assets in your portfolio, you may offset a certain amount of investment risk and thereby improve returns.

How to Start Investing

If you are ready to start investing and want to build a portfolio on your own, you can follow these steps:

Step 1: Open an Investment Account

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

You can also utilize an employer-sponsored retirement plan, like a 401(k), or an individual retirement account to make your investments. One benefit of retirement investment accounts is that they are tax-advantaged, meaning your investments can grow tax-free within the accounts. However, you may have to pay taxes when withdrawing money from the account.

💡 Need more help? Follow our guide on how to open a brokerage account.

Step 2: Do Your Research

It’s important to research different companies, funds, and assets to find a diversified selection of investments that fit your desires and priorities. Diversification will help to reduce your risk and maximize your returns.

Step 3: Invest and Monitor Your Portfolio

Once you’re ready, make your investment and then monitor your portfolio to ensure that the assets in your portfolio are performing well based on your investment strategy.

Keep in mind that investing is a long-term game; it’s important to be patient and resist the urge to sell when the markets are down. If you stick to your plan and invest for the long haul, you’ll be more likely to reach your financial goals.

4 Types of Investments for Beginners

There are a wide variety of investment options available to beginner investors. Some people may invest in cryptocurrencies or commodities, while others may be interested in annuities and penny stocks. However, the following assets are generally best suited for the beginning investor.

1. Stocks

When you think of investing, you probably think of the stock market. A stock gives an investor fractional ownership of a publicly-traded company in units known as shares. Investing in stocks as a beginner can be an ideal way to build wealth.

Investors make money on stocks through capital appreciation, dividends, or both. Capital appreciation occurs when you buy a stock at one price, then sell it for a higher price in the future. The company may pay dividends if it distributes part of its profits to its shareholders.

💡 Recommended: How to Invest in Stocks: A Beginner’s Guide

2. Bonds

Bonds are loans you make to a company or a government — federal or local — for a fixed period. In return for loaning them money, they promise to pay you periodic interest and, eventually, your principal at the end of the period.

Bonds are typically backed by the full faith and credit of the government or large companies. They’re often considered lower risk than stocks.

However, the risk varies, and bonds are rated for quality and creditworthiness. Because the U.S. government is less likely to go bankrupt than an individual company, Treasury bonds are considered some of the least risky investments. However, they also tend to have lower returns.

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

3. Mutual Funds and ETFs

A mutual fund is an investment managed by a professional. Funds typically focus on an asset class, industry, or region, and investors pay fees to the fund manager to choose investments and buy and sell them at favorable prices.

Exchange-traded funds (ETFs) are similar to mutual funds, but the main difference is that ETFs are traded on a stock exchange, giving investors the flexibility to buy and sell throughout the day.

Mutual funds and ETFs allow investors to diversify their holdings in one investment vehicle.

💡 Recommended: ETFs vs. Mutual Funds: Learning the Difference

4. Real Estate

Many initially invest in real estate by purchasing a home or a rental property.

If owning a home is out of reach for you, you can also invest in a real estate investment trust (REIT), a company that operates in the real estate business. You can trade a REIT on a stock exchange like you would a stock. With a REIT, an investor buys into a piece of a real estate venture, not the whole thing. There’s less responsibility and pressure on the shareholder when compared to purchasing an investment property.

Investment Strategies for Beginners

An investment strategy is a plan that outlines how you will invest your money. An ideal strategy should consider your financial goals, risk tolerance, and time horizon. Here are two recommended strategies for beginner investors.

Buy and Hold

Investors practicing buy and hold strategies tend to buy investments and hang on to them over the long term, regardless of short-term movements in the market. Doing so can help curb the tendency to panic sell, and it can also help minimize fees associated with trading, which can boost overall portfolio returns.

A buy and hold strategy can be difficult as you witness the market’s volatility, where the value of your portfolio declines during certain periods. However, market fluctuations are a natural part of the market cycle. Rather than get nervous and be tempted to sell when prices drop, a buy and hold strategy will keep you in the markets if you can afford it. If you sell when prices are low, you may lock in losses and miss out on a likely market rebound.

Dollar-Cost Averaging

Dollar-cost averaging is a strategy that helps individuals regularly invest by making fixed investments on a regular schedule regardless of price.

For example, say you want to invest $1,000 every quarter in stock ABC. Each quarter, the price of that stock will vary — sometimes it will be up, sometimes it will be down. The amount of money you invest remains the same, so you buy fewer shares when prices are high and more shares when prices are low.

A dollar-cost average strategy can help individuals access a lower average share price and help them avoid emotional investing.

When Should You Start Investing?

It’s ideal to start investing as soon as possible, as long as you have established an emergency fund and paid off high interest debts. The earlier you start, the more time your money has to grow. It’s better to start investing when you’re young, setting aside a little bit of money each month toward your portfolio, rather than wait until you’re older and have to invest a more significant portion of your income to meet your goals.

Additionally, when you start investing when you’re young, you can more easily benefit from compounding returns. Compound returns mean any gains you earn are reinvested to earn additional returns.

How Much Money Do You Need to Start Investing as a Beginner?

You can start investing with as much money that fits your budget and financial goals. The amount of money you need to start investing as a beginner can vary depending on the type of investment you want to make. For example, if you want to buy shares of a company, you will need to have enough money to cover the cost of the shares. If you want to invest in a mutual fund, you will need to have enough money to cover the minimum investment amount.

Fortunately, you can invest with only a few bucks at a time these days because many brokerage firms offer fractional share investing, allowing investors to buy smaller amounts of a stock they like. Instead of purchasing one stock at the value for which the stock is currently trading — which could be $1,000 or more — fractional share investing makes it possible to buy a portion of one stock. Investors can utilize this to use whatever dollar amount they have available to purchase stocks.

The Takeaway

Learning how to invest doesn’t have to be complicated. Like many things in life, it takes time and experience to gain the knowledge to do it successfully. As long as you begin sooner rather than later, you can start building wealth to meet your financial goals.

If you want to learn everything you can about the markets and have control over your portfolio, SoFi’s all-in-one online investing platform might be the choice for you. With SoFi Invest®, you can trade stocks and ETFs with no commissions for as little as $5.

Want to learn more about how SoFi may be able to help you reach your long-term financial goals? Get started with SoFi Invest today.

FAQ

What are the most popular investment options for beginners?

Some popular beginner investments include stocks, mutual funds, and exchange-traded funds (ETFs).

What are some simple investment strategies for beginners?

Some common investment strategies for beginners include buy and hold and dollar-cost averaging. Many beginners may also employ an index investing strategy, buying ETFs and mutual funds that track a benchmark index, like the S&P 500.

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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.

SOIN0622032

Jul

2022

All You Need to Know About Variable-Rate Certificates of Deposit (CD)?

By Laurel Tincher | Budgeting & Goals, Growing Wealth, Investing, money | Comments Off

A variable-rate certificate of deposit (CD) is a financial product that locks up your money for a set period of time (or term) and has a fluctuating interest rate. This varying rate of return is what sets it apart from traditional CDs, which pay a fixed rate, so you know exactly how much money your money will earn.

When interest rates are high, a variable-rate CD can help pump up your returns, but the opposite holds true, too. Depending on your financial goals, style, and comfort level, a variable-rate CD may be a good option for you.

Let’s take a closer look. We’ll dig into:

• What a variable-rate CD is

• What to know if you are considering investing in one

• Pros and cons of a variable-rate CD

What Is a Variable-Rate Certificate of Deposit?

Let’s start by answering the question, “What is a variable-rate CD?” A variable-rate certificate of deposit, or CD, is a financial product that you can purchase from a banking institution, broker, or credit union. All types of CDs are a savings account that have fixed investing terms. That means they hold your money for a certain amount of time, be it six months or several years.

You pick a term that suits you best. During that time, your money earns interest, but you are not supposed to withdraw any funds or you are likely to be assessed a penalty fee. When the term ends, your CD is said to have matured, and you may withdraw the funds plus interest or roll them over into a new CD. Usually the total amount of interest is also received at the end of the investment term.

Traditional CDs pay a consistent rate of interest that you are informed of at the start of the term. In the case of variable-rate CDs, however, the interest rate fluctuates throughout the term. This means, you, the investor can potentially earn more on your deposit when interest rates go up. As you might guess, the opposite is also true: You could earn less if interest rates go down. Several market factors influence interest rates. These include the prime rate, treasury bills, a market index, and the consumer price index (CPI); we’ll go into those more in a moment.

One last note: Yes, CDs are insured. Certificates of deposit are time deposits protected by the Federal Deposit Insurance Corporation (FDIC). If the bank holding the CD were to fail, you’d be insured up to $250,000.

Recommended: How Can I Invest in CDs?

Get up to $300 when you bank with SoFi.

Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!

Special Considerations of a Variable-Rate CD

The info above gives you an overview of how variable-rate certificates of deposit work. Beyond those broad strokes, there are a few key things to consider when looking into investing in variable-rate CDs. This type of CD is generally most profitable if purchased when interest rates are low, because it’s more likely that the interest rate will increase during the investment term. For this reason, there is a higher demand for these CDs when interest rates are low.

About those interest rates: There are four main factors that influence them. These are:

• Consumer Price Index (CPI): The federal government uses the Consumer Price Index to calculate changes in the amount that consumers pay for certain products and services. Whatever the current CPI is can affect how interest rates fluctuate.

• Market Index Levels: Another factor that affects interest rates is the performance of investment portfolios, such as major market indices. Some indices that are often analyzed include the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite Index.

• Prime Rate: The prime rate is the interest rate that banks charge customers who have the highest credit ratings. These customers are the least likely to default on loans, so they get the best interest rates.

• Treasury Bill Yields: The U.S. Treasury sells Treasury bonds in order to raise money, and they also pay interest on those bonds. The interest rate associated with Treasury bonds depends on the amount and time period of the bond.

Now that you have a little more insight onto the factors that determine a CD’s variable rate, let’s look at the big picture. It’s worth noting that, during times of high inflation, CDs may not be your best option. If inflation surges, even a variable-rate CD may not be able to keep pace. At the end of your term, you may find that your investment has lost ground versus inflation.

Another factor to consider before you lock in on a variable-rate CD is the fee for early withdrawals. Some variable-rate CDs have higher fees than others. If there’s a good chance you may end up withdrawing funds early, before a CD’s maturity date, you should check those penalties and make sure they aren’t too steep.

Recommended: How Can I Buy a Bond?

Pros of a Variable-Rate CD

All CDs are known to be very safe investments since they are federally insured up to $250,000. In addition to that security, there are several benefits to investing in variable-rate CDs. Let’s take a closer look:

High Yield on Investments

Variable-rate CDs are secure, insured accounts that can provide a higher rate of return than other types of savings accounts. For instance, when you buy a fixed-rate CD, you might miss out on the opportunity to earn a higher interest rate if the market ticks upward. Variable-rate CDs, however, can respond to market conditions. If you buy a variable-rate CD when interest rates are low, you can potentially earn more as rates increase.

Profitable When Interest Rates Are Low

When interest rates are low, demand for variable-rate CDs increases, as does the profit potential. That’s because it is more likely that interest rates will increase after you purchase one. The interest rate can tick upwards and earn you more money on your money.

Lower Withdrawal Fee

Generally, variable-rate CDs come with lower penalties on early withdrawals than other types of CDs.

Cons of a Variable-Rate CD

While there are several reasons variable-rate CDs make good investments, they do come with a few downsides to consider before you invest.

Low Interest Rates

Although a variable-rate CD provides the opportunity to snag higher interest rates, it also creates a significant risk of earning a lower rate if market rates go down. If you buy a variable-rate CD when interest rates are low with the hopes that they will increase, there is no guarantee that this will happen. This means they will continue to earn a low interest rate for some or all of the duration of the CD term. In this case, you’re stuck! You may have lost out on the possibility of earning a higher return elsewhere.

Paying Extra for “Bump-Up” Feature

Although interest rates can increase or decrease with most variable-rate CDs, there are some kinds that have a “bump-up” feature. This allows for a one-time rate boost (or possibly a few rate hikes) during the CD’s term, but you may well have to pay extra for this “bump-up.” This is because the initial interest rates is typically lower than it would be on a fixed-rate CD.

Inflation Can Outpace Your Rate and Wipe Away Profit

There is a chance that inflation will increase during the term of a variable-rate CD. If this happens, inflation could end up being higher than the interest rate you’re earning. Let’s spell out what that means: Your earnings would be canceled out.

Variable-Rate CD: Real World Example

All this talk of varying interest rates can be hard to get a handle on without a concrete example. So let’s consider a CD that has a three-year term and a guaranteed repayment of the principal deposit. The starting rate is based on the prime rate, which is 4% at press time. During the term of the investment, let’s suppose that the prime rate drops from 4% down to 2%. To determine the amount of interest you’d receive, you’d take the difference between the initial prime rate and the final prime rate, which is 2%. So at the end of the term the investor would receive their initial deposit plus 2% interest. That’s half what it was when you started. Obviously, you, the CD account owner, would be happier if the reverse were true, which it could be!

What Happens if I Redeem a CD Before It Matures?

Most CDs have fees for early withdrawal; these typically involve losing interest that’s been earned, and occasionally a bit of the principal. (Generally speaking, you don’t receive earned interest until a CD matures). However, some variable-rate CDs do offer early withdrawals with no penalties for fees. These CDs usually have a lower interest rate, so you are paying for this flexibility.

The Takeaway

If you’re looking for safe, reliable, and flexible financial securities, you may want to consider adding variable-rate CDs to your portfolio. CDs provide choices in terms of how long money is invested and can provide strong returns. But, that said, they do come with some risks. It’s important to understand the factors that affect interest rates when considering buying variable-rate CDs. Time things right, and you could earn a healthy return on your investment. But if rates don’t head in a positive direction, you may not even be able to keep up with inflation.

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FAQ

Are variable-rate CDs issued by the government?

Variable-rate CDs are not issued by the government, but the FDIC insures them up to $250,000. They are issued by FDIC-insured financial institutions.

What determines the rate on a variable-rate CD?

Several factors affect the interest rate of variable-rate CDs. These include the prime rate, market indices, treasury bills, and the consumer price index.

Do CDs have fixed interest rates?

Many CDs have fixed interest rates, but variable-rate CDs have interest rates that fluctuate throughout their term.

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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.

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Jul

2022

Should You Open a Joint Brokerage Account?

By Michael Flannelly | Family Finances, invest, Investing | No Comments

Determining whether to open a joint brokerage account with another person, whether a romantic partner, business associate, or relative, can be a difficult decision. Couples often use joint brokerage accounts to simplify household finances and build wealth together. However, this doesn’t mean they are suitable for everyone.

Two or more people may own and manage joint brokerage accounts. These accounts are used to combine investment activities with multiple people. But before investing together using a joint brokerage account with a spouse or partner, it’s essential to understand how joint ownership works and its potential impacts on your finances.

Investing Together

The reason many couples decide to invest together is fairly simple: they live together, manage a household, and are planning a future together. It can make sense then, not just from a financial perspective but for a healthy relationship, to invest together to build wealth for future goals.

If you’re planning for these long-term financial goals together, like retirement or buying a house, then that might mean having a joint brokerage account in order to plan for your shared desires. But that doesn’t mean couples have to invest together; it could make sense for you to share some accounts as a couple and to keep some separate.

But opening a joint brokerage account and investing together can also be practical in terms of financial returns. Combining your money to invest can potentially help your money grow faster than if investing individually; as you invest a larger pool of funds, the gains can accumulate and go further as you benefit from compounding returns.

💡 Wondering about compounding returns? Here’s our investors guide to compounding returns.

What Is a Joint Brokerage Account?

A joint brokerage account is a brokerage account shared by two or more people. Couples, relatives, and business partners typically use joint brokerage accounts to manage investments and finances together. However, any two adults can open a joint brokerage account.

Joint brokerage accounts typically allow anyone named on the account to access and manage its investments. There are multiple ways people can establish joint brokerage accounts, each with specific rules for how account owners can access funds or how the account contents are handled after one of the joint holders passes away.

In contrast, retirement accounts like 401(k)s or individual retirement accounts (IRAs) do not allow joint ownership, unlike many taxable brokerage accounts.

Advantages of Joint Brokerage Accounts for Couples

There are several advantages that couples may benefit from by establishing and using joint brokerage accounts.

Single Investment Manager

One person can be responsible for all of the investment decisions and transactions within the account. This can be useful when only one member of a couple has interest in managing financial affairs.

💡 Recommended: Should I Hire a Money Manager?

Combined Resources

As mentioned above, combining resources can be beneficial as investment decisions are made with a larger pool of money that can be used to increase compounding returns. Additionally, combining resources into a single account may help reduce costs and investment fees, as opposed to managing multiple brokerage accounts.

Simplified Estate Planning

A joint brokerage account can simplify estate planning. With certain types of joint brokerage accounts, the surviving account owner will automatically receive the proceeds of the account if one account holder dies. This significantly simplifies estate planning and may allow the surviving account holder to avoid a costly legal battle to maintain ownership.

Challenges of Joint Brokerage Accounts for Couples

There are a few challenges that come with joint brokerage accounts for couples.

Transparency and Trust

Both parties who own a joint brokerage account need to be comfortable with the level of transparency that comes with shared ownership. This means that both partners need to be comfortable with sharing information about their investment objectives, financial goals, and risk tolerance.

Additionally, owners of a joint brokerage account must trust one another. Because the other account holder is an equal owner of the assets and can make changes to the account without your permission, they can make unadvised investment decisions or empty out the account without your consent.

Breaking Up

It’s important to remember that a joint brokerage account is a joint asset. This means that if the relationship ends, the account will need to be divided between the two parties. This can be a complex and time-consuming process, so it’s important to be sure that both partners are prepared for this possibility.

Tax Issues

If you open a joint brokerage account with someone other than a spouse, any deposits you make into the joint account could be deemed a gift to the other account holder, which could trigger gift tax liabilities.

💡 Recommended: A Guide to Tax-Efficient Investing

Things to Know About Joint Brokerage Accounts

Before opening a brokerage account with a partner, business associate, or relative, it’s important to understand the differences between the types of accounts.

There are several types of joint brokerage accounts, each with specific nuances regarding ownership. If you are planning on opening a joint brokerage account, pay close attention to these different types of ownership so you can open one that fits your particular circumstances.

Type of Account	Ownership	Death of Owner	Probate Treatment
Tenancy by Entirety	Only married couples can utilize this type of account. Each spouse has equal ownership rights to the account.	If one spouse dies, the other spouse gets full ownership of the account.	Avoids probate.
Joint Tenants With Rights of Survivorship	Each owner has equal rights to the account.	If one owner dies, the ownership interest is passed to surviving owners.	Avoids probate.
Tenancy in Common	Owners may have different ownership shares of account.	If one owner dies, the ownership share passes to their estate or a beneficiary.	May be subject to probate court.

Ownership

How the ownership of a joint brokerage account is divided up depends on the type of account a couple opens.

• Tenancy by Entirety: If the couple is married, they can benefit from opening an account with tenancy by the entirety. Each spouse has an equal and undivided interest in the account. It is not a 50/50 split; the spouses own 100% of the account.

• Joint Tenants with Rights of Survivorship: This type of joint account gives each owner an equal financial stake in the account.

• Tenancy in Common: A joint brokerage account with tenancy in common allows owners to have different ownership stakes in the account. For example, a couple may open a joint account with tenancy in common and establish a 70/30 ownership split of the account.

Death of Owner

When an owner of a joint brokerage account passes away, their share of the account may pass on to the surviving owners or a beneficiary, depending on the type of account.

• Tenancy by Entirety: If a spouse dies, their ownership stake passes on to the surviving spouse.

• Joint Tenants with Rights of Survivorship: If one owner dies, the ownership interest is passed onto surviving owners.

• Tenancy in Common: If one owner dies, the ownership share passes to their estate or a beneficiary.

Probate Court

In many financial dealings, it can be challenging to determine who owns what when someone passes away. These questions are often brought into the legal system, with probate courts often resolving issues of ownership for financial accounts and property. This can also occur with joint brokerage accounts, depending on the type of account a couple may open.

• Tenancy by Entirety: This type of account avoids the need for probate court, as ownership stays with one spouse if the other spouse passes away.

• Joint Tenants with Rights of Survivorship: This type of account avoids the need for probate court, as ownership interest is passed to the surviving owners when one owner dies.

• Tenancy in Common: In this type of account, if one owner passes away without a will or a state beneficiary, their ownership share will likely have to pass through probate court.

However, regardless of the type of joint brokerage account, if all owners of an account pass away at the same time, the assets in the account may still be subject to probate court if a will does not clearly state beneficiaries.

Tips for Opening a Joint Brokerage Account

Here are some tips that couples may consider before opening a joint brokerage account with a spouse or partner. These tips apply to almost everything; in the end, it’s all about communication and compromise.

• Decide on your investment goals for your joint brokerage account upfront. That means deciding what you want to build wealth for, like a house, vacation, or retirement. This can also mean determining how much money you may be willing to set aside for investing.

• Having goals for your joint brokerage accounts is advisable, but it’s also acceptable to have individual financial goals as long as you’re on the same page. You can set aside some of your discretionary income, like 1%, for each of you to spend as individual fun money. Some couples may also maintain smaller separate accounts in addition to your joint accounts.

• Take a long view of your joint financial goals. While you may disagree about buying a new couch or how to remodel a kitchen, you should agree on when you want to retire.

• Establish a system for resolving disputes before you get started investing. Even in the healthiest of relationships, there are bound to be disagreements. Before you open a joint brokerage account, decide how you will resolve disputes about whether to invest in one asset or rebalance your portfolio.

The Takeaway

Just because you’re in a relationship doesn’t mean you have to open a joint brokerage account with a partner. For some couples, combining finances to build wealth for shared goals makes sense, while other couples may benefit from keeping money issues separate from one another. What matters most is determining what’s best for you and your partner, whatever that may look like for your specific financial needs.

If you’re ready to open a joint brokerage account, SoFi can help. With SoFi Invest®, you can open a joint automated investing account with a partner. SoFi automated investing builds a portfolio for you based on your financial goals with no SoFi management fee.

Ready to get started investing as a couple? Learn more about joint brokerage accounts with SoFi Invest

FAQ

Can couples open a joint brokerage account?

Yes, couples can open a joint brokerage account. However, couples are not the only people who can open a joint brokerage account. Any two people, like relatives or business partners, can open joint accounts.

What are the benefits for couples opening a joint brokerage account?

The benefits of opening a joint brokerage account for couples are that they can pool their money and resources to make investments, and they can also make joint decisions about how to manage the account.

How can you start a joint brokerage account?

There are a few ways to start a joint brokerage account. The most common way is to go to a broker and open an account together. Another way is to open an account online.

Jul

2022

10 Options Trading Strategies for Beginners

By Inyoung Hwang | Growing Wealth, invest, Investing | Comments Off

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

While the options market is risky and not suitable for everyone, these contracts can be a tool to make a speculative bet or offset risk in another position.

Many option strategies can involve one “leg,” meaning there’s only one contract that’s traded. More sophisticated strategies involve buying or selling multiple options contracts at the same time in order to minimize risk.

Here’s a guide that covers 10 important options trading strategies–from the most basic to the more complex and advanced.

10 Important Options Trading Strategies for Beginners

When trading options, investors can either buy existing contracts, or they can “write” or sell contracts for securities they currently hold. The former is generally used as a means of speculation, while the latter is most often used as a way of generating income.

Here’s a closer look at important options strategies for beginner, intermediate and more advanced investors to know.

Long Calls
Long Puts
Covered Calls
Short Puts
Short Calls or Naked Calls
Straddles and Strangles
Cash-Secured Puts
Bull Put Spreads
Iron Condors
Butterfly Spreads

1. Long Calls

Level of Expertise: Beginner

Being long a call option means an investor has purchased a call option. “Going long” calls are a very traditional way of using options. This strategy is often used when an investor has expectations that the share price of a stock will rise but may not want to outright own the stock. It’s therefore a bullish trading strategy.

Let’s say an investor believes that Retail Stock will climb in one month. Retail Stock is currently trading at $10 a share and the investor believes it will rise above $12. The investor could buy an option with a $12 strike price and with an expiration date at least one month from now. If Retail Stock’s price rises to hit $12 within a month, the value or “premium” of the option would likely rise.

2. Long Puts

Level of Expertise: Beginner

Put options can be used to make a bearish speculative bet, similar to shorting a stock, or they can also function as a hedge. A hedge is something an investor uses to make up for potential losses somewhere else. Here are examples of both uses.

Let’s say Options Trader wants to wager shares of Finance Firm will fall. Options Trader doesn’t want to buy the shares outright so instead purchases puts tied to Finance Firm. If Finance Firm stock falls before the expiration date of the puts, the value of those options will likely rise. And Options Trader can sell them in the market for a profit.

An example of a hedge might be an investor who buys shares of Tech Stock C that are currently trading at $20. But the investor is also nervous about the stock falling, so they buy puts with a strike price of $18 and an expiration two months from now.

One month later, Tech Stock C stock tumbles to $15, and the investor needs to sell their shares for extra cash. But the investor capped their losses because they were able to sell the shares at $18 by exercising their puts.

3. Covered Calls

Level of Expertise: Beginner

The covered call strategy requires an investor to own shares of the underlying stock. They then write a call option on the stock and receive a premium payment.

The tradeoff is that if the stock rises above the strike price of the contract, the stock shares will be called away from them, and the shares (along with any future price rises) will be forfeit. So, this strategy works best when a stock is expected to stay flat or go down slightly.

If the stock price of Company Y stays below the strike price when the option expires, the call writer keeps the shares and the premium and can then write another covered call if desired. If Company Y rises above the strike price when the option expires, the call writer must sell the shares at that price.

4. Short Puts

Level of Expertise: Beginner

Being short a put is similar to being long a call in the sense that both strategies are bullish. However, when shorting a put, investors actually sell the put option, earning a premium through the trade. If the buyer of the put option exercises the contract however, the seller would be obligated to buy those shares.

Here’s an example of a short put: Shares of Transportation Stock are trading at $40 a share. An investor wants to buy the shares at $35. Instead of buying shares however, the investor sells put options with a strike price of $35. If the shares never hit $35, the investor gets to keep the premium they made from the sale of the puts.

Should the options buyer exercise those puts when it hits $35, the investor would have to buy those shares. But remember the investor wanted to buy at that level anyways. Plus by going short put options, they’ve also already collected a nice premium.

5. Short Calls or Naked Calls

Level of Expertise: Intermediate

When an investor is short call options, they are typically bearish or neutral on the underlying stock. The investor typically sells the call option to another person. Should the person who bought the call exercise the option, the original investor needs to deliver the stock.

Short calls are like covered calls, but the investor selling the options don’t already own the underlying shares, hence the phrase “naked calls”. Hence they’re riskier and not for beginner investors.

Here’s a hypothetical case: Investor A sells a call option with a strike price of $100 to Trader B, while the underlying stock of Energy Stock is trading at $90. This means that if Energy Stock never rises to $100 a share, Investor A pockets the premium they earned from selling the call option.

However, if shares of Energy Stock rise above $100 to $115, and Trader B exercises the call option, Investor A is obligated to sell the underlying shares to Trader B. That means Investor A has to buy the shares for $115 each and deliver them to Trader B, who only has to pay $100 per share.

6. Straddles and Strangles

Level of Expertise: Intermediate

With straddles in options trading, investors can profit regardless of the direction the underlying stock or asset makes. In a long straddle, an investor is anticipating higher volatility, so they buy both a call option and a put option at the same time. Short straddles are the opposite–investors sell a call and put at the same time.

Straddles and strangles are used when movement in the underlying asset is expected to be small or neutral.

Let’s look at a hypothetical long straddle. An investor pays $1 for a call contract and $1 for a put contract. Both have strikes of $10. In order for the investor to break even, the stock will have to rise above $12 or fall below $8. This is because we’re taking into account the $2 they spent on the premiums.

In a long strangle, the investor buys a call and put but with different strike prices. This is likely because they believe the stock is more likely to move up than down, or vice versa. In a short strangle, the investor sells a call and put with different strikes.

Here’s an example of a short strangle. An investor sells a call and put on an exchange-traded fund (ETF) for $3 each. The maximum profit the investor can make is $6 — the total from the sales of the call and the put options. The maximum loss the investor can incur is unlimited since the underlying ETF can potentially climb higher forever. Meanwhile, losses would stop when the price hit $0 but still be significant.

7. Cash-Secured Puts

Level of Expertise: Intermediate

The cash-secured put strategy is one that can both provide income and let investors purchase a stock at a lower price than they might have been able to if using a simple market buy order.

Here’s how it works: an investor writes a put option for Miner CC they do not own with a strike price lower than shares are currently trading at. The investor needs to have enough cash in their account to cover the cost of buying 100 shares per contract written, in case the stock trades below the strike price upon expiration (in which case they would be obligated to buy).

This strategy is typically used when the investor has a bullish to neutral outlook on the underlying asset. The option writer receives cheap shares while also holding onto the premium. Alternatively, if the stock trades sideways, the writer will still receive the premium, but no shares.

8. Bull Put Spreads

Level of Expertise: Advanced

A bull put spread involves one long put with a lower strike price and one short put with a higher strike price. Both contracts have the same expiration date and underlying security. This strategy is intended to benefit from a rising stock price. But unlike a regular call option, a bull put spread limits losses and can also profit from time decay.

Let’s say a stock is trading at $150. Trader B buys one put option with a strike of $140 for $3, while selling another put option with a strike of $160 for $4. The maximum profit is $1, or the net earnings from the two options premiums. So $4 minus $3 = $1. The maximum profit can be achieved when the stock price goes above the higher strike, so $160 in this case.

Meanwhile, the maximum loss equals the difference between the two strikes minus the difference of the premiums. So ($160 minus $140 = $20) minus ($4 minus $3 = $1) so $20 minus $1, which equals $19. The maximum loss is achieved if the share price falls below the strike of the put option the investor bought, so $140 in this example.

Recommended: A Guide to Options Spreads

9. Iron Condors

Level of Expertise: Advanced

The iron condor consists of four option legs (two calls and two puts) and is designed to earn a small profit in a low-risk fashion when a stock is thought to have little volatility. Here are the four legs. All four contracts have the same expiration:

1. Buy an out-of-the-money put with a lower strike price

2. Write a put with a strike price closer to the asset’s current price

3. Write an call with a higher strike

4. Buy a call with an even higher out-of-the-money strike.

If an individual makes an iron condor on shares of Widget Maker Inc., the best case scenario for them would be if all the options expire worthless. In that case, the individual would collect the net premium from creating the trade.

Meanwhile, the maximum loss is the difference between the long call and short call strikes, or the long put and short put strikes, after taking into account the premiums from creating the trade.

10. Butterfly Spreads

Level of Expertise: Advanced

A butterfly spread is a combination of a bull spread and a bear spread and can be constructed with either calls or puts. Like the iron condor, the butterfly spread involves four different options legs. This strategy is used when a stock is expected to stay relatively flat until the options expire.

In this example, we’ll look at a long-call butterfly spread. To create a butterfly spread, an investor buys or writes four contracts:

1. Buys one in-the-money call with a lower strike price

2. Writes two at-the-money calls

3. Buys another higher striking out-of-the-money call.

The Takeaway

Options trading strategies offer a way to potentially profit in almost any market situation—whether prices are going up, down, or sideways. The market is complex and highly risky, making it not suitable for everyone, but the guide above lays out different trading strategies based on the level of expertise of the investor.

Investors who are ready to dip their toe into options trading might consider SoFi’s options trading platform, where they’ll have access to a library of educational content about options. Plus, the platform has a user-friendly design.

Pay low fees when you start options trading with SoFi.

Photo credit: iStock/Rockaa
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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.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Jul

2022

How to Calculate Stock Profit

By Inyoung Hwang | Growing Wealth, invest, Investing | Comments Off

If you’re wondering how to calculate stock profit, it’s simple: Take the original price you paid for the stock and subtract it from the price at which you sold it. So if you paid $50 per share and the stock is now worth $55, your profit would be $5 per share.

If you bought 100 shares of the stock and realized a gain of $5 per share, that would be $500 in profit (not including any trading fees or commissions).

If the stock price has dropped since you bought it, you would subtract the current price from the original price, to arrive at the amount of your loss.

Understanding the implications of those gains (or losses) in terms of dollar amounts as well as percentages — and what to do next — is another matter. In most cases you’ll owe taxes on your gains, and/or you can use losses to offset gains. But when and how is where investors need to pay attention.

How Do You Calculate Stock Profit?

Given the history of the stock market, and the constant price fluctuations of almost every company, most investors should expect the price of the shares they buy to change over time. The question is: Is the change positive (a profit) or negative (a loss).

Realized Gains vs Unrealized Gains

Another question: Are those gains/losses realized or unrealized?

When a stock in your portfolio gains or loses value, but you hold onto it, that is considered an unrealized gain or loss. You wouldn’t pay additional trading fees and you wouldn’t (yet) face any tax implications because you haven’t actually sold the shares.

If you sell the shares, that’s when you realize (or take) the actual cash profit or loss in your account. At that point trading fees and taxes would likely come into play.

Formula to Calculate Percentage Gain or Loss of Stocks

Calculating stock profit can be done as a dollar amount or as a percentage change. The same is true of losses. While knowing the dollar amount that you’ve gained or lost is relevant for long-term planning and tax purposes, calculating the percentage change will help investors gauge whether one stock had good return when compared with another.

Percentage change = (Price sold – Purchase price) / (Purchase price) x 100

The important thing about this formula is to always have the purchase price in the denominator. That way the percentage change in the shares is always divided by what an investor paid for them.

Calculating Stock Profit Example

Here’s a hypothetical example using the formula above, but incorporating the number of shares an investor may hold. This will give the total dollar profit as well as the percentage move.

1. Let’s say an investor owns 100 shares of Stock A, which they bought at $20 a share for a total of $2,000.

2. The investor sells all of their shares when the stock is trading at $23, for $2,300.

3. Ignoring any potential investment fees, commissions, or taxes in this hypothetical example, the investor would see a gain of $3 per share or $300 in profit.

4. What’s the percentage gain? ($23 – $20) / $20 = 0.15 x 100 = 15 or a 15% gain.

Calculating Stock Loss Example

Now let’s look at an example where Stock A declines.

1. Here, an investor owns 100 shares of Stock B, which they bought at $20.

2. This time, the investor sells all 100 shares at $18.

3. This means, the investor has to subtract $18 from $20 to get a $2 loss per share.

4. What’s the percentage loss? ($20 – $18) / $20 = 0.10 x 100 = 10, or a 10% loss.

If you’re wondering how the returns you’re seeing compare with the average stock return, that number has historically hovered around 9%, when considering the market as a whole, over time.

And if you’re wondering about how to calculate stock profit when shorting stocks, that is a more complex strategy that requires careful understanding.

Calculating Percentage Change in Index Funds and Indices

As you may know, index funds are mutual funds that track a specific market index, which means they include the companies or securities in that index. An S&P 500 index fund mirrors the performance of the companies in the S&P 500 Index.

How to calculate the percentage change of your shares in an index fund? You can approach it the same way you would when you calculate profit or loss from a stock.

You can also calculate the difference between the percentage change of the index itself, between the date you purchased shares of the related index fund and sold them. Here’s an example, using the S&P 500 Index.

Let’s say the index was at 4,500 when you bought shares of a related index fund, and at 4,650 when you sold your shares. The same formula applies:

4,650 – 4,500 / 4,650 = 0.032 x 100 equals a 3.2% gain in the index, and therefore the gain in your share price would be similar. But because you cannot invest in an index, only in funds that track the index, it’s important to calculate index fund returns separately.

Importance of Calculating Stock Profit

Why is calculating stock profit (and loss) important? It’s an investing fundamental: You need to know what you’ve earned, i.e. what your gains and losses are, because your returns can impact:

• Taxes owed

• Your overall tax strategy (more on that below)

• Your asset allocation

• Your long-term financial picture

💡 Recommended: How to Buy Fractional Shares

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How Are You Taxed on Profit From a Stock?

You would start by subtracting the cost basis from the total proceeds to calculate what you’ve earned from a sale. If the proceeds are greater than the cost basis, you’ve made a profit, also known as a capital gain. At this point, the government will take a slice of the pie — you’ll owe taxes on any capital gains you make.

Capital gains tax rates are the rates at which you’re taxed on the profit from selling your stock (in addition to other investments you may hold such as bonds and real estate). You are only taxed on a stock when you sell and realize a gain, and then you are taxed on net gain, which is the difference between your gains and losses.

You can deduct capital losses from your gains every year. So if some stocks sell for a profit, while others sell for an equal loss, your net gain could be zero, and you’ll owe no taxes on these stocks.

Short-Term vs Long-Term Capital Gains Tax

There are two types of capital gains tax that might apply to you: short-term and long-term investment capital gains tax. If you sell a stock you’ve held for less than a year for a profit, you realize a short-term capital gain.

If you sell a stock you’ve held for more than a year and profit on the sale, you realize a long-term capital gain. Short-term capital gain tax rates can be significantly higher than long-term rates. These rates are pegged to your tax bracket, and they are taxed as regular income.

So, if your income lands you in the highest tax bracket, you will likely pay a short-term capital gains rate equal to the highest income tax rate — which is quite a bit higher than the highest long-term capital gains rate.

Long-term capital gains, on the other hand, are given preferential tax treatment. Depending on your income and your filing status, you could pay 0%, 15%, or a maximum of 20% on gains from investments you’ve held for more than a year.

Investors may choose to hold onto stocks for a year or more to take advantage of these preferential rates and avoid the higher taxes that may result from the buying and selling of stocks inside a year.

When Capital Gains Tax Doesn’t Apply

There are a few instances when you don’t have to pay capital gains tax on the profits you make from selling stock, namely inside of retirement accounts.

The government wants you to save for retirement, so they encourage people to set up certain tax-advantaged investment accounts, including 401(k)s and/or opening an individual retirement account.

You fund tax-deferred accounts such as 401(k)s and traditional IRAs with pre-tax dollars, which may help lower your taxable income in the year you make a contribution. You can then buy and sell stocks inside the accounts without incurring any capital gains tax.

These tax-deferred returns can give your savings an extra boost, potentially helping it grow faster than it would in a regular brokerage account. As tax-deferred returns are reinvested, investors are able to take greater advantage of the magic of compounding interest — the returns investors earn on their returns.

Tax-deferred accounts don’t allow you to escape taxes entirely, however, when you make qualified withdrawals after age 59 ½, you are taxed at your regular income tax rate. Roth accounts, such as Roth IRAs function slightly differently. You don’t escape taxes here either, since you fund these accounts with after-tax dollars.

Then you can also buy and sell stocks inside a Roth account where any gains grow tax free. Once again, you won’t owe capital gains on profit you make inside the account. And in the case of a Roth, when you make withdrawals at age 59 ½ you won’t owe any income tax either.

Understanding Capital Losses

Now, let’s take a closer look at capital losses. You may be wondering why it would ever make sense to take a capital loss. However, capital losses could be an important tool to help you manage your taxes, thanks to a strategy called tax-loss harvesting.

Capital losses can be used to offset gains from the sale of other stocks. Say you sold Stock A for a profit of $15 and Stock C from another company for a loss of $10. The resulting taxable amount is now $5, or $15 minus $10.

In some cases, total losses will be greater than total gains (i.e. a net capital loss). When this happens, you may be able to deduct excess capital losses against other income. If an investor has an overall net capital loss for the year, they can deduct up to $3,000 against other kinds of income — including ordinary and interest income.

The amount of losses you can deduct in a given year is limited to $3,000. However, additional losses can be rolled over and deducted on the following year’s taxes.

There are other limitations with claiming capital losses. The wash-sale rule, for example, prohibits claiming a full capital loss after selling securities at a loss and then buying “substantially identical” stocks within a 30-day period.

The rule essentially closes a loophole, preventing investors from selling a stock at a loss only to immediately buy the same security again, leaving their portfolio essentially unchanged while claiming a tax benefit.

Another way investors try to defer taxes is through automated tax-loss harvesting, or strategically taking some losses in order to offset taxable profits from another investment.

Other Income From Stocks

You may receive income from some stock holdings in the form of dividends, which are unrelated to the sale of the stock. A dividend is a distribution of a portion of a company’s profits to a certain class of its shareholders. Dividends may be issued in the form of cash or additional shares of stock.

While dividends represent profit from a stock, they are not capital gains and therefore fall into a different tax category. (Different types of investment income are taxed in different ways.) Dividends can be classified as either qualified or ordinary dividends, which are taxed at different rates. Ordinary dividends are taxed at regular income tax rates.

Qualified dividends that meet certain requirements are subject to the preferential capital gains tax rates. Taxpayers are responsible for identifying the type of dividends they receive and reporting that income on Form 1099-DIV.

Brokerage Fees or Commissions

Then there are brokerage account fees or commissions that you might have paid when you bought the stock. You may have already forgotten about these costs, but they do have an effect on your investment’s profitability and, depending on the amounts involved, these fees could make a profitable trade unprofitable.

Tally all the fees you paid and subtract that sum from your profit to find out what your net gain was. Note that your brokerage account may do these calculations for you, but you might want to know how to do them yourself to have a better understanding of how the process works.

Some brokerage firms offer zero commission trading, but they may be engaging in a practice called payment for order flow, where your orders are sent to third parties in order to be executed.

When to Consider Selling a Stock

There are a number of reasons investors may choose to sell their stocks, especially when they may earn a profit. First, they may need the money to meet a personal goal, like making a down payment on a home or buying a new car. Investors with retirement accounts may start to liquidate assets in their accounts once they retire and need to make withdrawals.

Investors may also choose to sell stocks that have appreciated considerably. Stocks that have made significant gains can shift the asset allocation inside an investor’s portfolio. The investor may want to sell stocks and buy other investments to rebalance the portfolio, bringing it back in line with their goals, risk tolerance, and time horizon.

This strategy may give investors the opportunity to sell high and buy low, using appreciated stock to buy new, potentially cheaper, investments. That said, investors might want to avoid trying to time the market, buying and selling based on an attempt to predict future price movements. It’s hard to know what the market or any given stock will do in the future.

Sometimes investors may decide that buying a certain stock was a mistake. It may not be the right match for their goals or risk tolerance, for example. In this case, they may decide to sell it, even if it means incurring a loss.

The Takeaway

Assuming a stock’s price is higher when you sell it versus when you bought it, learning how to calculate stock profit is pretty easy. You subtract the original purchase price from the price at which you sold it. (If the selling price is lower than the purchase price, of course, you’d see a loss.)

It’s important to calculate stock profits and losses because it can impact your taxes. If you realize a gain, you may owe capital gains tax; if you realize a loss, you may be able to use the loss to offset your gains. Of course, if you’re trading stocks within an IRA, Roth IRA, or 401(k), you avoid any tax consequences.

It’s fundamental tactics like these that can help give you confidence as an investor. When you open an Active Invest account with SoFi Invest, you can start trading stocks right away, as well as ETFs, fractional shares, IPO shares, and more.

Start your stock portfolio with SoFi today.

FAQ

Why is it important to calculate stock profit?

Investing in stocks comes with a certain amount of risk. It may help you to know what your gains and losses are so that you can gauge the winners and losers in your portfolio. Calculating stock profit also helps with tax planning and portfolio rebalancing.

How can you calculate stock profit?

Calculating the dollar amount is relatively simple (you subtract the final selling price from the original purchase price, or vice versa). The formula for determining the percentage change is also straightforward:

(Price sold – Purchase price) / (Purchase price) x 100 = Percentage change

What is an example of calculating stock profit?

An investor owns 100 shares of Stock X, which they bought at $50 a share for a total of $5,000. The price rises to $55, a gain of $5, and the investor sells all their shares for a $500 profit ($5,500 total), excluding commissions, taxes, fees.

What’s the percentage gain? ($55 – $50) / $50 = 0.10 x 100 = 10 or a 10% gain.