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Jun

2022

How to Negotiate Your Signing Bonus

By Inyoung Hwang | Building Your Career, Growing Wealth, invest, Investing, Life & Career | No Comments

Although many people believe that the negotiation process ends once they have accepted a job offer, this is not the case. One of the most critical aspects of the negotiation process is negotiating your signing bonus. A signing bonus is a monetary incentive that an employer agrees to pay you. This bonus is meant to entice you to accept the job offer and is typically negotiable.

Everyone should know the nuances of negotiating a signing bonus to get the most out of your job hunt. If you are offered a signing bonus, be sure to negotiate it to get the most money possible. And even if your initial job offer doesn’t include a signing bonus, it might be worth asking for one.

Understanding Why Companies Offer a Hiring Bonus

Employers aren’t obligated to offer job candidates a hiring bonus, sometimes called a signing bonus or sign-on bonus. However, companies may choose to extend this one-time financial benefit to attract new talent, especially in a competitive hiring landscape.

This one-time signing bonus can help an employer close the gap between a candidate’s desired pay and what the company can offer. Additionally, the hiring bonus may compensate a new hire for any benefits the candidate might otherwise miss out on by changing jobs or forgoing other job offers.

Companies may also use a sign-on bonus to incentivize an employee to stay with a company for a certain period of time. If an employee quits within an agreed-upon time after accepting the position, they may be required to pay back the bonus.

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How Signing Bonuses Work

If you’re being considered for a job, the hiring company can include a signing bonus as part of the job offer. You can then decide whether to accept the bonus and the position, attempt to negotiate for a larger sign-on bonus, or walk away from the offer altogether.

Should you accept the offer, the hiring bonus can be paid out to you as a lump sum or as employee stock options. If the company pays the bonus as a lump cash sum, they may pay it out with a first paycheck or after a period like 90 days.

Like any other bonuses, salary, or wages you receive, a signing bonus is taxable. So you’ll have to report that money on your tax return when you file. If the signing bonus is paid with regular pay, it’s taxed as ordinary income. If it isn’t, then the sign-on bonus is taxed as supplemental wages. For 2022, the supplemental wage tax rate is 22%, which increases to 37% if your bonus exceeds $1 million.

Additionally, bonuses, whether they’re paid when starting a new job or as a year-end bonus, may also be subject to Social Security and Medicare tax as well as state income tax. Employers withhold these taxes and pay them to the IRS for you. So when you get your bonus, you’re getting the net amount, less taxes withheld.

Average Signing Bonus

The average signing bonus can vary greatly depending on the company, position, and location. In general, signing bonuses may range from $10,000 to more than $50,000 for management and executive positions, while entry and mid-level position hiring bonuses are usually less than $10,000.

What Industries Offer the Highest Hiring Bonuses?

The industries that offer the highest hiring bonuses tend to be in the financial and technology sectors.

However, during competitive labor markets, signing bonuses may be offered in various industries that usually don’t offer a bonus. Following the Covid-19 pandemic, industries like healthcare, warehousing, and food and beverage offered substantial hiring bonuses to attract potential employees.

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Pros & Cons of Signing Bonuses

Receiving a sign-on bonus could make a job offer more attractive. But before you sign on the dotted line, it’s helpful to consider the advantages and potential disadvantages of accepting a bonus.

Signing Bonus Pros

A signing bonus could help make up a salary shortfall. If you went into salary negotiations with one number in mind, but the company offered something different, a sign-on bonus could make the compensation package more attractive. While the bonus won’t carry on past your first year of employment, it could give you a nice initial bump in pay that might persuade you to accept the position.

You may be able to use a signing bonus as leverage in job negotiations. When multiple companies make job offers, you could use a signing bonus as a bargaining chip. For instance, if Company A represents your dream employer but Company B is offering a larger bonus, you might be able to use that to persuade Company A to match or beat their offer.

A sign-on bonus could make up for benefits package gaps. Things like sick pay, vacation pay, holiday pay, insurance, and a retirement plan can all enhance an employee benefits package. But if the company you’re interviewing with doesn’t offer as many benefits as you’re hoping to get, a large sign-on bonus could make those shortcomings easier to bear.

Signing Bonus Cons

You could see a bigger tax bill in the short term if you receive a signing bonus. Since sign bonuses are taxable as supplemental wages, you might see a temporary bump in your tax liability for the year. You may want to talk to a tax professional about how you could balance that out with 401(k) or IRA contributions, deductions for student loan interest payments, and other tax breaks.

Additionally, changing jobs might mean having to repay the bonus. Employers can include a clause in your job offer that states if you leave the company within a specific time frame after hiring, you’d have to pay back your sign-on bonus. If you have to pay back a bonus and don’t have cash on hand to do so, that could lead to debt if you have to get a loan to cover the amount owed.

This might cause you to get stuck in a job you don’t love. If your employer requires you to pay back a signing bonus and six months into the job, you realize you hate it, you could be caught in a tough spot financially. Unless you have money to repay the bonus, you might have to tough it out with your employer a little longer until you can change jobs without any repayment obligation.

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Reasons to Negotiate a Signing Bonus

There are several reasons it can be beneficial to negotiate a signing bonus rather than just accept whatever the employer offers. For one, a signing bonus can help offset the costs of relocating for a new job. Additionally, a signing bonus can help you maintain your current standard of living while you transition to a new city or state. Finally, a signing bonus can allow you to negotiate for other perks and benefits, such as a higher salary, stock options, or a more generous vacation policy.

When Is a Hiring Bonus Negotiated?

A hiring bonus is typically negotiated during the job offer stage after the employer has extended a job offer to the candidate. You don’t want to get ahead of yourself and ask for a hiring bonus immediately because that could hurt your chances of getting one. You generally want to wait for the hiring manager to start the conversation.

After receiving your official job offer with your projected salary and benefits, you will be able to gauge your potential bonus opportunity; one rule of thumb is that a hiring bonus is about 10% of your salary. And if the hiring manager offers you a bonus initially, you might have an advantage in negotiating for a better one.

Tips on How to Ask for a Signing Bonus

If an employer doesn’t offer a sign-on bonus, you don’t have to assume it’s off the table. It’s at least worth it to make the request since the worst that can happen is they say no.

Here are some tips on how to ask for a signing bonus:

1. Know Your Value to the Company

Before asking for more money, either with a bonus or your regular salary, get clear on what value you can bring to the company. In other words, be prepared to sell the company on why you deserve a signing bonus.

2. Choose a Specific Amount

Having a set number in mind when asking for a bonus can make negotiating easier. Do some research to learn what competitor companies are offering new hires with your skill set and experience. Then use those numbers to determine what size bonus it makes sense to ask for.

3. Make Your Case

Signing bonuses are gaining steam in industries such as technology, engineering, and nursing, where there is more competition for the best job candidates. You are also sometimes in a better position to ask for a signing bonus if the company did not meet the salary you requested when interviewing — a signing bonus is an opportunity to recoup some of that difference. Regardless, it never hurts to consider asking for more money.

Just be sure to do your research first. For instance, perhaps discreetly ask your contacts whether the company might be open to offering a signing bonus, and be sure to look at comparable salaries on Glassdoor, Indeed, and Salary.com to see how your job offer stacks up.

4. Split the Difference With Your Salary

One way to potentially have your cake and eat it, too, when it comes to signing bonuses is to use your salary to offset it. Specifically, instead of asking for a large bonus, you could ask for a smaller one while also asking for a bump in pay.

An employer may be more open to paying you an additional $2,000 a year to keep you on the payroll, for instance, versus handing out a $20,000 bonus upfront when there’s no guarantee you might stick around after the first year.

5. Get it in Writing

If a signing bonus wasn’t part of your original job offer, and you’ve negotiated for one, ensure you receive an updated contract with the bonus included.

The agreement should spell out the amount of the bonus, how it will be paid (separate check or part of your regular paycheck), and the terms of the bonus. The contract should note how long you must stay employed at the company to retain your bonus (typically one year).

How to Maximize Your Signing Bonus

After receiving a signing bonus, the next question should be: What do I do with the extra money?

There are several ways you can put a signing bonus to work. For example, if you have credit card debt, your best move might be to pay that off. This could be especially helpful if you have credit cards with high-interest rates.

You could also use a sign-on bonus to eliminate some or all of your remaining student loan debt. But if you’d rather save your bonus, you might refinance your loans and use the bonus money to grow your emergency fund. Having three to six months’ worth of living expenses saved up could be helpful in case you lose your job or get hit with an unexpected bill.

You might also consider longer-term savings goals, such as buying a car or putting money down on a home. Keeping your money in a savings account that earns a high-interest rate can help you grow your money until you’re ready to use it.

Using Your Bonus for Retirement

If you are caught up with your credit card payments and already have an emergency fund, you might consider investing your bonus.

This could be a wise financial move considering that a $5,000 signing bonus isn’t as lucrative as negotiating a $2,000 increase in your annual salary. If you can’t negotiate the higher salary, you can at least use your bonus to invest. Investing can be an excellent way to build wealth over time.

For example, you might use part of the money to open a traditional or Roth IRA. This can help you get a head start on saving for retirement and supplement any money you’re already saving in your employer’s 401(k). And you can also enjoy tax advantages by saving your bonus money in these accounts.

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The Takeaway

There’s a lot to think about when you’re looking for a new job. You want to make sure you find a position you love that will compensate you fairly. So adding another step in the job search process may seem overwhelming. However, asking for and negotiating a signing bonus using the tips above is critical to help you get hired with the bonus you deserve.

Investing a portion of your signing bonus can allow you to take advantage of compounded interest over time. But it’s okay to start investing without much money. With a SoFi Invest® online investing account, you can trade stocks and exchange-traded funds (ETFs) with no commissions for as little as $5.

Consider asking for a signing bonus when you’re offered a new job. You can use a portion of that money to open a SoFi Invest account.

FAQ

What is a signing bonus?

A signing bonus, also known as a hiring bonus or a sign-on bonus, is a bonus given to employees when they are hired. A company will pay a signing bonus to help entice the employee to accept the job offer.

How can you negotiate your signing bonus?

To negotiate a signing bonus, you should be clear about what you are asking for, be reasonable in your request, and have a backup plan if your initial request is not met. It is also important to remember that the company you are negotiating with likely has a budget for signing bonuses, so be mindful of that when making your request.

What is the average signing bonus?

The average signing bonus depends on several factors, including the company, position, and location. In general, the average hiring bonus for managers and executives may range from $10,000 to more than $50,000. For lower-level employees, a signing bonus may be less than $10,000.

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Jun

2022

Guide to Market-Linked Certificates of Deposit (CDs)

By Paulina Likos | Growing Wealth, Investing, money | Comments Off

The primary difference between a market-linked CD (MLCD) and a traditional CD is that a regular CD pays a fixed rate of interest, while the market-linked CD tracks a basket of underlying securities or an index like the S&P 500. These accounts are sometimes called equity-linked CDs or stock CDs.

Otherwise, an MLCD is similar to a traditional certificate of deposit, in that it’s a time-deposit account with a fixed term during which the investor’s funds are unavailable. The principal (though not the gains) is federally insured up to $250,000. But market-linked CDs come with some risks — including the possibility of zero gains at maturity. To decide whether a market-linked CD is right for you, keep reading.

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What Is a Market-Linked CD?

Investing in CDs offers some familiar advantages, chiefly that the CD investor can deposit their funds for the specified term (typically a few months to a few years), and count on a steady rate of return until the CD reaches maturity.

The CD’s total return is unlikely to be high, especially when comparing deposit accounts, because it’s based on current interest rates, but there is little to no market risk. Traditional CDs are federally insured, whether by a bank or a credit union, for up to $250,000. For this reason, traditional CDs are considered a fairly low-return, low-risk investment.

Market-linked CDs share some of these features — e.g. the investor deposits funds for a set period of time, and the funds are unavailable until the CD matures. But the returns of an MLCD are, as the name suggests, linked to the stock market, which adds in a layer of potential reward, but also potential risk.

Unlike traditional CDs, which are considered cash equivalents, market-linked CDs are more like securities.

How Do Market-Linked CDs Work?

Unlike traditional CDs, market-linked CDs do not offer fixed interest payments. Rather the return is based on the underlying investments or market index the CD tracks. Some of these market benchmarks include equity, commodity indexes, or a basket of commodities or currencies. But investors don’t see precisely the same gains and losses as the market.

Typically, the upside of MLCDs is capped in one of two ways. For example, the return on a market-linked CD will be determined by its participation rate, i.e. the percentage of the upside you will see. For example, an 80% participation rate means you only receive 80% of the gains from the underlying market. An interest cap refers to an MLCD where there is simply an upper limit for any gains.

Fortunately, the principal amount deposited in the CD is protected. At maturity, investors will get their full deposit back. But if the market underperforms, the CD may not have any gains. In other words, at maturity there is no guarantee your return will be more than your deposit amount.

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How to Calculate the Return of a Market-Linked CD

The reason for creating market-linked CDs goes back to the days when banks couldn’t sell securities, and these products offered investors a workaround. Consider that the average stock market return is about 9.0% over time, and it’s easy to see why investors might want this feature.

To calculate the return of a market-linked CD, financial institutions average out the close price of the underlying index over a certain period of time. For this method, you can take the average of the index’s different values in two different periods.

Another method you can use is the point-to-point method which involves identifying two values. The first is the value of the index when the market-linked CD was issued, and the other is the value of the index before the CD’s maturity date, which is referred to as the ending point. The difference between these two values will yield the expected return on your market-linked CD.

The final return also assumes that the funds are left in the CD until maturity. Withdrawing funds earlier than the maturity date — whether that’s two months or 20 years — will trigger early withdrawal penalties.

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Pros of Market-Linked CDs

Market-linked CDs have several favorable characteristics that may be appealing for investors who are looking for alternatives to conventional CDs, or directly investing in the stock market without having too much risk exposure.

• Protection: Market-linked CDs protect your principal and when held to maturity, the principal is backed by the bank that issues it. In the scenario where the underlying market declines during the period where you hold the CD, investors are protected from losses.

• Insurance: Market-linked CDs are also FDIC- or NCUA-insured for up to $250,000 on the principal investment, not investment earnings.

• Potentially higher returns: Market-linked CDs have the ability to provide investors with higher returns than traditional CDs. Because the underlying is based on a collection of stocks, commodities, or indexes, there is a chance market-linked CDs can outperform traditional CDs.

• Return on original deposit: At time of maturity, you will get the full amount of your original deposit regardless of the performance of the underlying market index or securities. If you choose to sell your market-linked CD prior to maturity on the secondary market, there is no guarantee that you will get the full amount of your principal back.

Cons of Market-Linked CDs

Investors must also consider the risks associated with holding market-linked CDs.

• Liquidity risk: Investors must be aware that when opening a market-linked CD, they are locking up their money for a period of time, and they must be willing to hold on to the CD through its maturity to achieve the full benefits, even though they are not obligated to do so. If you need access to the capital in the CD and want to withdraw money, you may incur withdrawal fees.

• Market risk: Market-linked CDs that are linked to the equity markets are subject to volatility, which can impact the market-linked CD returns. Other factors can influence market-linked CDs such as changes in interest rates.

• Taxes: MLCD earnings are taxed as interest income, not as capital gains, and thus investors will pay a higher rate for their earnings. Also, interest must be reported annually, even though it’s not paid until maturity.

• Little or no profit: The worst scenario is holding a market-linked CD to maturity — but not making a profit. Even though your original principal will be protected, there is no guarantee that you will make more than your deposit amount.

You may have the possibility of greater gains if you invest your money in an exchange-traded fund (ETF) or index fund directly, which provides similar diversification benefits. However, you are still exposed to market risk, and your original principal is at risk.

How to Open a Market-Linked CD

• At the financial institution of your choosing, you can open a market-linked certificate of deposit by choosing the interest rate and maturity date.

• Next, deposit the amount of money you are able to lock up for a period of time.

• Some market-linked CDs have a minimum investment requirement and a maximum deposit limit per account which must be considered.

Alternatives to a Market-Linked CD

Alternatives to market-linked CDs could include dividend-paying stocks. There are some publicly traded companies that pay out a portion of their profits to shareholders in the form of dividends. This can be consistent and reliable income, and can provide higher yield compared to that of a market-linked CD.

Another option could be investing in a bond fund. Similar to a CD, bond funds have different maturity dates, either short term or long term, and can offer competitive yields. Depending on the creditworthiness of the bonds, the yield can vary. Bonds with a high credit rating which are lower risk may have a lower yield than bonds with a lower credit rating, but the latter may come with higher risk. The choice of bond fund depends on the investor’s risk tolerance.

Investors may also consider a high-yield savings account, which is lower risk but yields less than a market-linked CD. These types of accounts are more for emergency funds but if you are looking for the lower risk options to store your cash, high yield savings accounts can be another alternative to a market-linked CD.

When to Consider Investing in Market-Linked CDs

Investors may be interested in a market-linked CD if they are looking for an alternative for a traditional CD and for the potential for higher returns. Market-linked CDs may also offer some diversification, and protection of principal investment.

If you are looking for exposure to the broader stock market with managed risk, a marked-linked CD may be a suitable option because it’s viewed as an alternative to directly investing in the stock market. That said, market-linked CDs are insured products and are not considered securities.

The Takeaway

Market-linked CDs are, as the name implies, a sort of hybrid savings/investment option. They offer some of the features of traditional CDs: You invest your money for a fixed period of time; if you withdraw funds before the maturity date you face an early withdrawal penalty; and your funds are federally insured for up to $250,000.

Because MLCDs are market-linked, though, a CD’s performance is tied to underlying securities or a market index. Thus investors don’t receive a fixed interest rate, and returns can fluctuate. Typically these CDs are also capped in terms of the gains they can provide. And while an investor’s initial principal deposit is protected from a market drop, you can still lose money if you withdraw funds early or try to sell this type of CD on the secondary market. Finally, like any other investment in the markets, there’s no guarantee that a market-linked CD will see a profit by the time it matures.

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FAQ

What is a market-linked CD?

Market-linked CDs are certificates of deposits that can be linked to stocks, commodities, an index — or a mix of these — depending on the type of return the investor is seeking, and their risk tolerance.

Is a market-linked CD a security?

No. A market-linked CD is federally insured in the event of bank failure or fraud, so your principal is protected up to $250,000. Insured products are not considered securities.

What is a stock market CD?

A stock market CD is another name for a market-linked CD, and is linked to a broad stock market index like the S&P 500. This means the CD’s performance will adjust as the index changes.

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Jun

2022

How to Invest in Solar Energy

By Michael Flannelly | Growing Wealth, invest, Investing | Comments Off

Solar energy investing focuses on companies or funds focused on some aspect of the solar energy industry. Individuals can invest in the solar energy industry by putting money into companies involved in some part of the solar power supply chain, including manufacturers of solar panels and operators of solar energy facilities. Individuals can also profit from solar energy by installing solar panels on their homes.

Solar energy is one of the most promising renewable energy sources. There are several ways to invest in solar energy for investors interested in supporting an industry that may help reduce dependence on traditional fossil fuels and help combat climate change.

What Is Solar Investing?

Solar investing generally refers to investing in companies that produce or sell solar energy products. This can include solar panel manufacturers, installers, or companies operating solar energy facilities. Investors usually invest in solar through traditional products like stocks, mutual funds, and exchange-traded funds (ETFs).

Another common type of solar investing is the installation of solar panels on a home or business. Solar panels can be used to power all or part of a home or business, and the electricity generated can offset the cost of an energy bill. Investors can also use solar panels to generate income by selling their electricity back to a utility company.

💡 Recommended: Beginner’s Guide to Sustainable Investing

What Is Solar Energy?

Solar energy is a form of renewable energy that comes from the sun; it is an abundant source of energy that can be used to generate electricity, heat water, and provide other forms of energy for homes, businesses, and communities.

Solar energy is generally generated by solar panels, which are made up of photovoltaic (PV) cells that convert sunlight into electricity. Solar panels can be installed on an individual’s home or business or arrayed across open spaces that experience strong sunlight.

Though solar panels are common for most consumer and business applications, thermal solar is another type of solar energy. Thermal solar energy utilizes mirrors to reflect and concentrate sunlight onto receivers that collect the energy and convert it to heat, which can then be used to produce electricity or stored for later use. It is used primarily in large power plants.

Solar energy is considered a clean and sustainable energy source that can help reduce the dependence on fossil fuels to combat climate change. Analysts expect renewable energy sources like solar will make up a more significant portion of all energy generation in the coming decades.

Benefits and Risks of Investing in Solar

The trend of investing in renewable energy sources like solar energy is rising as the public becomes more aware of the environmental and economic benefits. However, before investing in this sector, there are benefits and risks to consider.

Benefits

A benefit of investing in solar is that it provides a renewable energy source that can help reduce your carbon footprint. This can be appealing to investors interested in environmentally friendly and socially responsible investing.

Solar energy is also sustainable, especially compared to fossil fuels and traditional energy sources. The amount of oil and coal in the ground is limited, but the sun will likely keep shining for many more years. Investors interested in investments with long-term growth potential may prefer solar energy to other energy stocks.

Additionally, if you install solar panels on your home, it can increase the value of your property.

Risks

A primary risk of solar energy is that it is intermittent, meaning that solar energy is only generated when the sun is shining. Solar energy is only available during daylight, and a cloudy day may interfere with energy production. While this is a problem, technology is advancing so solar energy can be more adequately captured and stored during periods of extreme sunshine.

Another downside to solar energy is that many technologies in the sector require rare earth materials in the production process. The solar industry must compete with other industries for these scarce resources. Because there can be supply and demand issues for these commodities, it can increase costs for solar energy producers.

And though solar energy is a renewable resource, that doesn’t mean it doesn’t create any harm to the environment. The materials used in solar technologies are difficult to dispose of and recycle, which cuts into the sustainability claims of solar energy investments.

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4 Ways to Invest in Solar Energy

Investors can invest in solar energy by putting money into the stocks and bonds of companies in the solar energy industry. Mutual funds and exchange-traded funds (ETFs) with solar energy or renewable energy-focused strategies are also potential investment vehicles for those interested in adding solar energy to their portfolio.

Regardless of the type of investment vehicle, investors need to remember that many companies and funds are diversified, meaning they may be involved in sectors other than solar energy. For investors that want to invest in purely solar energy companies or funds, it’s essential to do research into potential investments.

Stocks

Investors can put money into various publicly-traded companies involved in some aspect of the solar energy industry. Solar energy companies may include manufacturers of components for solar technologies, installers of solar panels, and firms that operate solar energy facilities.

Some companies involved in the solar energy industry include:

• Enphase Energy (ENPH): This company designs and manufactures technologies that turn sunlight into energy

• SolarEdge Technologies (SEDG): This firm creates products that help photovoltaic systems convert solar energy into power

• First Solar (FSLR): This company is a manufacturer of solar panels and a provider of utility-scale photovoltaic power plants

• Sunrun (RUN): This firm is a leading provider of residential solar panels

• Daqo New Energy (DQ): This company manufactures monocrystalline silicon and polysilicon, primarily for use in solar photovoltaic systems

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Mutual Funds and ETFs

Investors who don’t want to pick individual stocks to invest in can always look to mutual funds and exchange-traded funds (ETFs) that provide exposure to solar energy companies and investments. A growing number of index funds invest in a basket of companies in the solar energy industry. These funds allow investors to diversify their holdings by investing in one security. However, not all solar energy funds follow the same criteria and may focus on different aspects of solar energy. These funds may also have holdings in traditional energy and utility companies that only are partially involved in the solar energy industry.

Bonds

The bonds of corporations involved in solar energy business practices can be a good option for investors interested in fixed-income securities. Green and climate bonds are bonds issued by companies to finance various environmentally-friendly projects and business operations.

Additionally, government bonds used to fund solar energy projects can be an option for fixed-income investors. These bonds may come with tax incentives, making them a more attractive investment than traditional bonds.

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Install Solar Panels

As mentioned above, investors who want to profit from solar energy can purchase solar panels and install them on a home or business. This may be an appealing way to save money on your energy bills, generate income by selling electricity to a utility company and helping reduce your carbon footprint.

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How to Start a Solar Investment Portfolio

If you are ready to start investing and want to build a portfolio of solar energy investments, you can follow these steps:

Step 1: Open a brokerage 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 and other securities. SoFi Invest® offers an active investing platform where you can start building your solar energy portfolio.

Step 2: Pick your assets

Decide what type of investment you want, whether in a company’s stock, a solar energy-focused ETF or mutual fund, or bonds.

Step 3: Do your research

It’s important to research the different companies and funds and find a diversified selection that fits your desires and priorities.

Step 4: Invest

Once you’re ready, make your investment and then monitor your portfolio to ensure that the assets in your portfolio have a positive environmental and financial impact.

It is important to remember that you should diversify your portfolio by investing in various asset classes. Diversification may help to reduce your risk and maximize your returns.

The Takeaway

Solar investing has become increasingly popular in recent years as the cost of solar panels has fallen and the technology has become more efficient. Solar panels are now available for a fraction of the cost of traditional electric power, and they are becoming more efficient at converting sunlight into electricity. Investing in the solar energy industry can be a great way to profit from the growth outlook for solar energy. However, it’s necessary to do your homework before investing in any solar company or fund or installing solar panels on your home.

If you’re ready to invest in solar energy stocks and ETFs, SoFi Invest can help. With SoFi Invest’s stock trading platform, investors can trade stocks and ETFs with no commissions for as little as $5.

Get started investing with SoFi Invest

Photo credit: iStock/deepblue4you

Jun

2022

How to Invest in Wind Energy

By Michael Flannelly | Growing Wealth, invest, Investing | Comments Off

Investing in wind energy involves putting money into companies or funds focused on some aspect of the wind energy industry. Individuals can invest in the wind energy industry directly by investing in companies that operate wind farms or indirectly by putting money into companies that manufacture wind turbines or components.

Wind energy is one of the cornerstones of the renewable energy industry, providing a stable and cost-effective source of electricity generation. As more attention is paid to the effects of climate change and the need to reduce dependence on fossil fuels, more and more investors are turning to wind energy investments.

What Are Wind Energy Investments?

Wind energy investments are financial stakes in companies and projects focused on generating electricity through wind power. Wind turbines, sometimes called windmills, harness this power by collecting the energy created by wind and converting it into electricity.

Wind energy is often divided into two market segments, distributed wind and utility-scale wind.

Distributed Wind Market Segment

The distributed wind market is usually made up of smaller-scale projects, where wind turbines are used to generate electricity for homes, businesses, and even entire communities.

Utility-scale Market Segment

Utility-scale wind energy, in contrast, consists of turbines that generate more than 100 kilowatts of energy. The power generated by utility-scale wind projects is added to the electrical grid. Companies involved in utility-scale wind energy draw the most interest from individual investors.

Utility-scale wind energy projects can be land-based, where a group of wind turbines is grouped in a wind farm on land. Offshore wind farms built off the coast are another type of utility-scale wind energy, taking advantage of powerful ocean winds to generate large amounts of energy.

Individuals can invest in the wind energy industry by putting money into companies involved in some portion of the wind energy industry or, more rarely, by investing in specific wind energy projects.

Increased Popularity

Wind energy investments, and other socially responsible investments, are becoming increasingly popular as the focus on the need for sustainable energy grows. Because they rely on wind power rather than fossil fuels, these investments and projects cut down on emissions and pollution.

Furthermore, wind energy is becoming more acceptable because of declining costs, technological improvements, and government tax incentives. In the United States, wind power was the source of 9.2% of all electricity generation in 2021, up from 2.3% in 2010. By 2050, wind energy may make up 35% of all electricity generation in the US.

3 Ways to Invest in Wind Energy

Investors can invest in wind energy by putting money into the stocks and bonds of companies in the wind energy industry. Mutual funds and exchange-traded funds (ETFs) with wind energy or renewable energy-focused strategies are also potential investment vehicles for those interested in adding wind energy to their portfolio.

Regardless of the type of investment, investors need to remember that many companies and funds are diversified, meaning that they may be involved in sectors other than wind energy. For investors that want to invest in purely wind energy companies or funds, it’s essential to do research into potential investments.

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1. Stocks

Investors can put money into various publicly-traded companies involved in some aspect of the wind energy industry. These companies may include wind farm operators, which own and operate wind turbines to produce energy for customers and end-users, and manufacturers of turbines and other components of wind farms. Some utility companies may also be an option for wind energy investors.

Some companies involved in the wind energy industry include:

• Orsted: The Denmark-based power company is the largest developer of offshore wind power in the world

• Vestas Wind Systems: The Denmark-based company is one of the world’s largest manufacturers of wind turbines

• General Electric (GE): The US-based company installed 53% of all land-based wind turbines in the US in 2020

• NextEra Energy (NEE): The American energy company has 119 wind farms in operation

• Alliant Energy (LNT): The American energy company owns and operates wind farms across Wisconsin and Iowa

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2. Mutual Funds and ETFs

Investors who don’t want to pick individual stocks to invest in can always look to mutual funds and exchange-traded funds (ETFs) that provide exposure to wind energy companies and investments. A growing number of index funds invest in a basket of companies involved in the wind energy industry. These funds allow investors to diversify their holdings by investing in one security. However, not all wind energy funds follow the same criteria and may focus on different aspects of wind energy. These funds may also have holdings in traditional energy and utility companies that only are partially involved in the wind energy industry.

3. Bonds

The bonds of corporations involved in wind energy business practices can be a good option for investors interested in fixed-income securities. Green and climate bonds are bonds issued by companies to finance various environmentally-friendly projects and business operations.

Additionally, government bonds used to fund wind energy projects can be an option for fixed-income investors. These bonds may come with tax incentives, making them a more attractive investment than traditional bonds.

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Benefits and Risks of Investing in Wind Energy

The trend of investing in renewable energy sources like wind energy is rising as the public becomes more aware of the environmental and economic benefits of doing so. However, before investing in this sector, there are benefits and risks to consider.

Benefits

A benefit of investing in wind energy is that it is a renewable resource, so it will never run out as long as the sun shines and the wind blows. Additionally, wind energy is cost-effective. According to some estimates, wind is one of the lowest-priced energy sources. And because the power generated from wind farms is sold at a fixed price over a long period of time, it can provide reliable returns for investors.

Wind power is also a clean energy source, meaning it does not produce emissions that can harm the environment like fossil fuels and power plants. This can be attractive for investors focused on building a portfolio of green investments.

Risks

One primary risk of investing in wind energy is that it is a relatively new technology, so there is little data available on its long-term performance. Wind energy and all renewable energy sources must compete with traditional energy sources like oil, coal, and natural gas. Because of this, the long-term outlook for wind energy investments may change. Wind energy investments may be harder to stomach for investors who are not comfortable with the risk of newer technologies.

Additionally, wind energy projects may get pushback from communities where companies want to operate. Wind turbines cause noise and aesthetic pollution, potentially creating negative public perception.

How to Build a Wind Energy Portfolio

If you are ready to start investing and want to build a portfolio of wind energy investments, you can follow these steps:

Step 1: Open a brokerage 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 and other securities. SoFi Invest® offers a stock trading platform where you can start building your wind energy portfolio.

Step 2: Pick your assets

Decide what type of investment you want to make, whether in a company’s stock, a wind energy-focused ETF or mutual fund, or bonds.

Step 3: Do your research

It’s important to research the different companies and funds and find a diversified selection that fits your desires and priorities.

Step 4: Invest

Once you’re ready, make your investment and then monitor your portfolio to ensure that the assets in your portfolio have a positive social and financial impact.

It is important to remember that you should diversify your portfolio by investing in various asset classes. Diversification may help to reduce your risk and maximize your returns.

The Takeaway

Wind energy is a renewable resource that is becoming increasingly popular and is expected to grow significantly in the coming years. This makes it a potential growth investment for those looking to diversify their portfolios and reduce their reliance on traditional energy sources.

While the outlook for wind energy is promising, investments in wind energy may not always produce positive returns. When considering a wind energy investment, it is important to do your research and understand the risks and rewards involved with this nascent industry.

If you’re ready to invest in wind energy stocks and ETFs, SoFi Invest® can help. With a SoFi Invest investment account, you can trade stocks and ETFs with no commissions.

Get started investing with SoFi Invest

Photo credit: iStock/XtockImages

Jun

2022

The Best Investment Strategies for Each Generation

By Michael Flannelly | Growing Wealth, invest, Investing, Life & Career | No Comments

The global economy and financial markets have changed dramatically during the past decades. Each generation has faced unique financial circumstances, including a Wall Street boom in the 80s, robust economic growth in the 90s, the Great Recession, and the Covid-19 fallout. So it’s not surprising that different generations could have widely different money habits and views on investing.

That doesn’t even include the differing needs for someone in their 70s and enjoying retirement compared to someone who has just graduated from high school. Given these vastly different experiences and ages, there are various investment strategies best suited for each generation that may help them meet financial goals.

Strategies for Baby Boomers

Baby boomers – those born between 1946 and 1964 – are likely finished or almost done paying off their homes and in the middle of or looking toward retirement. That means their financial goals are changing. Baby boomers must learn how to budget their expenses without regular labor income while still planning to spend for travel, health care, and other things.

A 2020 survey by Charles Schwab found that baby boomers had saved $920,400 in retirement savings, and 82% believed their savings will get them “all the way” or “most of the way” to living out their dream retirement.

Still, a 2022 study by Fidelity found the average couple will need $315,000 in medical expenses in retirement, excluding long-term care, representing a potential gap in their savings plan.

Here are some investing strategies baby boomers can use to save for retirement:

Strategy 1: Keep Cash on Hand

It’s crucial to still stash away a few bucks for unexpected expenses, such as health care costs. Health care has continually been one of the largest expenses in retirement. So keep squirreling away a little bit of your remaining income into an emergency fund.

Strategy 2: Stay Invested Until Retirement

Like all age demographics, baby boomers should still live by the idea that they’re in it for the long haul. Get and stay invested in the market via a 401(k), IRA, or other investment account, and do not touch these accounts before retirement age — which is 64 in the U.S., on average.

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Strategy 3: Continue to Diversify

Baby boomers should continue to diversify their portfolios as they near retirement. However, experts generally recommend shifting your portfolio’s asset allocation at this stage in life, moving toward a conservative investment strategy focused on fixed-income securities and blue-chip stocks.

And once you retire, it doesn’t mean it’s time to pull all your money out of the markets and live with the cash on hand. There are several investment options for retirees, including a portfolio of income-producing assets like bonds and dividend-paying stocks.

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Strategies for Gen Xers

Meanwhile, Generation X – or those born between 1965 and 1980 – feel much less rosy about their financial future. A 2021 report by Bank of America found that 94% of Gen Xers said they feel stress when thinking about their financial situation

It could have to do with their place in life. Unlike boomers, Gen Xers may still face student debt and mortgage payments. Additionally, this generation faces more hurdles, like child caregiving and employment challenges. With all this financial stress, here are some investing tips for Gen Xers:

Strategy 1: Consider Your Financial Goals

To help build a savings nest egg, many Gen Xers use what is known as managed portfolios of investments, which are personalized and tailored investments made for the specific needs of the individual account holder.

And this targeted approach may be crucial for this middle-of-the-road age demographic as they are finally earning more. However, Gen Xers also need to save for retirement and college for their children and pay off mortgages on their recently purchased homes.

Strategy 2: Get Financial Advice

For Gen Xers, who haven’t done much in terms of investing, it’s never too late to start. Seeking help from financial advisors and other professionals can help you set short-term and long-term financial goals.

Strategy 3: Take on Some Risk

For professionals in their 40s, their money likely has another 20-plus years in the market before retirement. They still have time to make up for any potential losses, so it may not hurt to put a little on the line in exchange for a bigger win down the road. So, Gen Xers can still factor some risk into their portfolio’s asset allocations, including investing more heavily in stocks and other risky securities. However, it’s best never to risk more money than you can afford to lose.

Investment Strategies for Millennials and Gen Z

Millennials – those born between 1981 and 1996 – lived through the severe economic downturn of the Great Recession and faced some of the highest unemployment rates in history. So, it’s no wonder they have felt trepidation toward the market.

Additionally, millennials and Generation Z – those born after 1997 – had to endure the economic and financial turmoil caused by Covid-19. A 2022 study by Fidelity said that 55% of people between 18 and 35 (those belonging to Gen Z and a younger cohort of millennials) put their retirement planning on hold during the pandemic. As a result, 39% of this age group expect to retire later than originally planned.

Here are some investing tips to get millennials and Gen Zers on the path toward saving for the future:

Strategy 1: Start Investing Early

As the youngest set, millennials and Gen Zers have the most to gain by investing early and staying in the game. After all, they will likely have the most time in the market. Because millennials and Gen Zers will have more time to save, they can weather the ups and downs of the markets and take advantage of compound interest.

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If you are employed, the easiest way to dip your toe in the market is to get involved in your company’s 401(k) savings account as soon as possible. This way, you’ll automatically send a percentage of your paycheck directly into your savings. And if your company has a 401k matching program, you’ll be earning essentially free money.

Strategy 2: Explore Diversification

A great way young people can diversify their portfolios is by investing in the market via mutual funds or exchange-traded funds (ETFs). Mutual funds are portfolios that gather money from investors and then make investments, typically in stocks or bonds. ETFs are similar in that they’re baskets of securities, but ETFs are listed on public markets and can be traded all day.

These are low-cost and diversified ways to invest in a portfolio of stocks and bonds. It’s easy to do this via a robo-advisor that does all the heavy lifting for you.

Strategy 3: Pay Off Debt

Millennials have an average student loan debt of $38,877, while Gen Zers have an average debt of $17,338. The need to pay off this debt contributes to a delay in investing and saving for the future. But it’s still critical to keep on your payments to keep this burden from hanging over your head for too long.

However, just because people of these generations have student loan debt doesn’t mean they can start investing now. A little bit of investing goes a long way, so putting just a little bit in the markets now can pay off in the long run.

The Takeaway

Different generations face different investment challenges, but by and large, important rules to follow include paying off debt as quickly as possible and saving and investing early.

SoFi Invest® is an all-in-one platform for an individual’s investment needs. With SoFi online investing, you can trade company stocks, ETFs, or fractional shares with no commissions for as little as $5. Additionally, those who want help building a portfolio can use SoFi Automated Investing with no SoFi management fee.

Open a SoFi Invest account today.