Investing Archives | Page 18 of 192

Q: Are There Investment Plans for Children?

Yes, there are a number of investment plans for kids these days. Depending on your child’s age, you may want to open different accounts at different times.

Jul

2024

Creating an Investment Plan for Your Child

By Austin Kilham | Family Finances, invest, Investing | No Comments

From saving for college to getting a leg up on retirement, creating an investment plan for your child just makes sense. Why? Because when your kids are young, time is on their side in a really big way and it’s only smart to take advantage of it.

In addition, there are several different avenues to consider when setting up an investment plan for your kids. Each one potentially can help set them up for a stronger financial future.

Why Invest for Your Child?

There’s a reason for the cliché, “Time is money.” The power of time combined with money may help generate growth over time.

The technical name for the advantageous combination of time + money is known as compound interest or compound growth. That means: when money earns a bit of interest or investment gains over time, that additional money also grows and the investment can slowly snowball.

Example of Compounding

Here is a simple example: If you invest $1,000, and it earns 5% per year, that’s $50 ($1,000 x 0.05 = $50). So at the end of one year you’d have $1,050.

That’s when the snowball slowly starts to grow: Now that $1,050 also earns 5%, which means the following year you’d have $1,152.50 ($1,050 x 0.05 = $52.50 + $1,050).

And that $1,152.50 would earn 5% the following year… and so on. You get the idea. It’s money earning more money.

That said, there are no guarantees any investment will grow. It’s also possible an investment can lose money. But given enough time, an investment plan you make for your child has time to recover if there are any losses or volatility over the years.

Benefits of Investing for Your Child Early On

There are other benefits to investing for your kids when they’re young. In addition to the potential snowball effect of compounding, you have the ability to set up different types of investment plans for your child to capture that potential long-term growth.

Each type of investment plan or savings account can help provide resources your child may need down the road.

• You can fund a college or educational savings plan.

• You can open an IRA for your child (individual retirement account).

• You can set up a high-yield savings account, or certificate of deposit (CD).

Even small deposits in these accounts can benefit from potential growth over time, helping to secure your child’s financial future in more than one area. And what parent doesn’t want that?

Are Gifts to Children Taxed?

The IRS does have rules about how much money you can give away before you’re subject to something called the gift tax. But before you start worrying if you’ll have to pay a gift tax on the $100 bill you slipped into your niece’s graduation card, it’s important to know that the gift tax generally only affects large gifts.

This is because there is an “annual exclusion” for the gift tax, which means that gifts up to a certain amount are not subject to the gift tax. For 2024, it’s $18,000. If you and your spouse both give money to your child (or anyone), the annual exclusion is $36,000 in 2024.

That means if you’re married you can give financial gifts up to $36,000 in 2024, without needing to report that gift to the IRS and file a gift tax return.

Also, the recipient of the gift, in this case your child, will not owe any tax.

Are There Investment Plans for Children?

Yes, there are a number of investment plans parents can open for kids these days. Depending on your child’s age, you may want to open different accounts at different times. If you have a minor child or children, you would open custodial accounts that you hold in their name until they are legally able to take over the account.

Investing for Younger Kids

One way to seed your child’s investing plan is by opening a custodial brokerage account, established through the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA).

While the assets belong to the minor child until they come of age (18 to 21, depending on the state), they’re managed by a custodian, often the parent. But opening and funding a custodial account can be a way to teach your child the basics of investing and money management.

There are no limits on how much money parents or other relatives can deposit in a custodial account, though contributions over $18,000 per year ($36,000 for married couples) would exceed the gift tax exclusion, and need to be reported to the IRS.

UGMA and UTMA custodial accounts have different rules than, say, 529 plans. Be sure to understand how these accounts work before setting one up.

Investing for Teens

Teenagers who are interested in learning more about money management as well as investing have a couple of options.

• Some brokerages also offer accounts for minor teens. The money in the account is considered theirs, but these are custodial accounts and the teenager doesn’t take control of the account until they reach the age of majority in their state (either 18 or 21).

These accounts can be supervised by the custodian, who can help the child make trades and learn about investing in a hands-on environment.

• If your teenager has earned income, from babysitting or lawn mowing, you can also set up a custodial Roth IRA for your child. (If a younger child has earned income, say, from work as a performer, they can also fund a Roth IRA.)

Opening a Roth IRA offers a number of potential benefits for kids: top of the list is that the money they save and invest within the IRA has years to grow, and can provide a tax-free income stream in retirement.

Recommended: Paying for College: A Parents’ Guide

Starting a 529 Savings Plan

Saving for a child’s college education is often top of mind when parents think about planning for their kids’ futures.

A 529 plan is a tax-advantaged savings plan that encourages saving for education costs by offering a few key benefits. In some states you can deduct the amount you contribute to a 529 plan. But even if your state doesn’t allow the tax deduction, the money within a 529 plan grows tax free, and qualified withdrawals are also tax free.

That includes money used to pay for tuition, room and board, lab fees, textbooks, and more. Qualified withdrawals can be used to pay for elementary, secondary, and higher education expenses, as well as qualified loan repayments, and some apprenticeship expenses. (Withdrawals that are used for non-qualified expenses may be subject to taxes and a penalty.)

Though all 50 states sponsor 529 plans you’re not required to invest in the plan that’s offered in your home state — you can shop around to find the plan that’s the best fit for you. You and your child will be able to use the funds to pay for education-related expenses in whichever state they choose.

Other Ways to Invest for Education

Given the benefits of investing for your child’s education, there are additional options to consider.

Prepaid Tuition Plans

A prepaid tuition plan allows you to prepay tuition and fees at certain colleges and universities at today’s prices. Such plans are usually available only at public schools and for in-state students, but some can be converted for use at out-of-state or private colleges.

The main benefit of this plan is that you could save big on the price of college by prepaying before prices go up. One of the main disadvantages is that, with some exceptions, these funds only cover tuition costs (not room and board, for example).

Education Savings Plans

An education savings plan or ESA is similar to a 529 plan, in that the money saved grows tax free and can be withdrawn tax free to pay for qualified educational expenses for elementary, secondary, and higher education.

ESAs, however, come with income caps. Single filers with a modified adjusted gross income (MAGI) over $110,000, and married couples filing jointly who have a MAGI over $220,000 cannot contribute to an ESA.
ESAs also come with contribution limits: You can only contribute up to $2,000 per year, per child, and ESA contributions are only allowed up to the beneficiary’s 18th birthday, unless they’re a special needs student.

And while many states offer a tax deduction for contributing to a 529 plan, that’s not the case with ESA contributions; they are not tax deductible at the federal or the state level.

Investing Your Education Funds

Once you make contributions to an educational account, you can invest your funds. You will likely have a range of investment options to choose from, including mutual funds and exchange-traded funds (ETFs), which vary from state to state.

Many plans also offer the equivalent of age-based target-date funds, which start out with a more aggressive allocation (e.g. more in stocks), and gradually dial back to become more conservative as college approaches.

Depending on your child’s level of interest, this could be an opportunity to have them learn more about the investing process.

Thinking Ahead to Retirement Accounts

It’s worth knowing that as soon as your child is working, you are able to open a custodial Roth IRA, as discussed above. The assets inside the IRA belong to your child, but you have control over investing them until they become an adult.

While it’s possible to open a custodial account for a traditional IRA, most minor children won’t reap the tax benefits of this type of IRA. Most children don’t need tax-deductible contributions to lower their taxable income.

For that reason, it may make more sense to set up a custodial Roth IRA for your child, assuming the child has earned income. A Roth can offer tax-free income in retirement, assuming the withdrawals are qualified.

When to Choose a Savings Account for Your Child

Investing is a long-term proposition. Investing for long periods allows you to take advantage of compounding, and may help you ride out the volatility may occur in the stock market. But sometimes you want a safer place to keep some cash for your child — and that’s when opening a savings account is appropriate.

If you think you’ll need the money you’re saving for your child in the next three to five years, consider putting it in a high-yield savings account, which offers higher interest rates than traditional savings accounts.

You might also want to consider a certificate of deposit (CD), which also offers higher interest rates than traditional saving vehicles. The only catch with CDs is that in exchange for this higher interest rate, you essentially agree to keep your money in the CD for a set amount of time, from a few months to a few years.

While these savings vehicles don’t offer the same high rates of return you might find in the market, they are a less risky option and offer a steady rate of return.

The Takeaway

When considering your long-term goals for your child, having an investing plan might make sense. Whether you want to save for college, help your child get ahead on retirement, or just set up a savings account for your kids, now is the time to start. In fact, the sooner the better, as time can help money grow (just as it helps children grow!).

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

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

FAQ

Can a child have an investment account?

A parent or other adult can open a custodial brokerage account for a minor child or a teenager. While the custodian manages the account, the funds belong to the child, who gains control over the account when they reach the age of majority in their state (18 or 21).

What is the best way to invest money for a child?

The best way is to get started sooner rather than later. Perhaps start with one goal — i.e. saving for college — and open a 529 plan. Or, if your child has earned income from a side job, you can open a custodial Roth IRA for them.

What is a good age to start investing as a kid?

When your child shows an interest in investing, or when they have a specific goal, whether that’s at age 7 or 17, that’s when you’ll have a willing participant. Ideally you want to invest when they’re younger, so time can work in your favor.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q324-005

Jul

2024

Money Market vs Capital Market: What’s the Difference?

By Rebecca Lake | Growing Wealth, Investing, money | Comments Off

The money market is where short-term debt and lending takes place; the capital market is designed for long-term assets, such as stocks and bonds. The former is considered a safer place to park one’s money; the latter is seen as riskier but potentially more rewarding. While the money market and the capital market are both aspects of the larger global financial system, they serve different goals for investors.

Understanding the difference between money market and capital market matters plays a role in understanding the market as a whole. Whether you hold assets that are part of the money market vs. capital market can influence your investment outcomes and degree of risk exposure.

What Is the Money Market?

The money market is where short-term financial instruments, i.e. securities with a holding period of one year or less, are traded. Examples of money market instruments include:

• Bankers acceptances. Bankers acceptances are a form of payment that’s guaranteed by the bank and is commonly used to finance international transactions involving goods and services.

• Certificates of deposit (CDs). Certificate of deposit accounts are time deposits that pay interest over a set maturity term.

• Commercial paper. Commercial paper includes short-term, unsecured promissory notes issued by financial and non-financial corporations.

• Treasury bills (T-bills). Treasury bills are a type of short-term debt that’s issued by the federal government. Investors who purchase T-bills can earn interest on their money over a set maturity term.

These types of money market instruments can be traded among banks, financial institutions, and brokers. Trades can take place over the counter, meaning the underlying securities are not listed on a trading exchange like the New York Stock Exchange (NYSE) or the Nasdaq.

You may be familiar with the term “money market” if you’ve ever had a money market account. These are separate from the larger money market that is part of the global economy. As far as how a money market account works goes, these bank accounts allow you to deposit money and earn interest. You may be able to write checks from the account or use a debit card to make purchases or withdrawals.

💡 Quick Tip: Don’t think too hard about your money. Automate your budgeting, saving, and spending with SoFi’s seamless and secure mobile banking app.

How Does the Money Market Work?

The money market effectively works as a short-term lending and borrowing system for its various participants. Those who invest in the money market benefit by either gaining access to funds or by earning interest on their investments. Treasury bills are an example of the money market at work.

When you buy a T-bill, you’re essentially agreeing to lend the federal government your money for a certain amount of time. T-bills mature in one year or less from their issue date. The government gets the use of your money for a period of time. Once the T-bill matures, you get your money back with interest.

What Is the Capital Market?

The capital market is the segment of the financial market that’s reserved for trading of long-term debt instruments. Participants in the capital market can use it to raise capital by issuing shares of stock, bonds, and other long-term securities. Those who invest in these debt instruments are also part of the capital market.

The capital market can be further segmented into the primary and secondary market. Here’s how they compare:

• Primary market. The primary market is where new issuances of stocks and bonds are first offered to investors. An initial public offering or IPO is an example of a primary market transaction.

• Secondary market. The secondary market is where securities that have already been issued are traded between investors. The entity that issued the stocks or bonds is not necessarily involved in this transaction.

As an investor, you can benefit from participating in the capital market by buying and selling stocks. If your stocks go up in value, you could sell them for a capital gain. You can also derive current income from stocks that pay out dividends.

Recommended: What Is an Emerging Market?

How Does the Capital Market Work?

The capital market works by allowing companies and other entities to raise capital. Publicly-traded stocks, bonds, and other securities are traded on stock exchanges. Generally speaking, the capital market is well-organized. Companies that issue stocks are interested in raising capital for the long-term, which can be used to fund growth and expansion projects or simply to meet operating needs.

In terms of the difference between capital and money market investments, it usually boils down to three things: liquidity, duration, and risk. While the money market is focused on the short-term, the capital market is a longer term play. Capital markets can deliver higher returns, though investors may assume greater risk.

Understanding the capital market is important because of how it correlates to economic movements as a whole. The capital market helps to create stability by allowing companies to raise capital, which can be used to fund expansion and create jobs.

Differences Between Money Markets and Capital Markets

When comparing the money market vs. capital market, there are several things that separate one from the other. Knowing what the key differences are can help to deepen your understanding of money markets and capital markets.

Purpose

Perhaps the most significant difference between the money market and capital market is what each one is designed to do. The money market is for short-term borrowing and lending. Businesses use the money market to meet their near-term credit needs. Funds are relatively safe, but typically won’t see tremendous growth.

The capital market is also designed to help businesses and companies meet credit needs. The emphasis, however, is on mid- to long-term needs instead. Capital markets are riskier, but they may earn greater returns over time than the money market.

Length of Securities

The money market is where you’ll find short-term securities, typically with a maturity period of one year or less, being traded. In the capital market, maturity periods are usually not fixed, meaning there’s no specified time frame. Companies can use the capital market to fund long-term goals, with or without a deadline.

Financial Instruments

As mentioned, the kind of financial instruments that are traded in the short-term money market include bankers acceptances, commercial paper, and Treasury bills. The capital market is the domain of stocks, bonds, and other long-term securities.

Nature of Market

The structure and organization of the money market is usually informal and loosely organized. Again, securities may be traded over-the-counter rather than through a stock exchange. With the capital market, trading takes place primarily through exchanges. This market is more organized and formalized overall.

Securities Risk

Risk is an important consideration when deciding on the best potential places to put your money. Since the money market tends to be shorter term in nature, the risk associated with the financial instruments traded there is usually lower. The capital market, on the other hand, may entail higher risk to investors.

Liquidity

Liquidity is a measure of how easy it is to convert an asset to cash. One notable difference between capital and money market investments is that the money market tends to offer greater liquidity. That means if you need to sell an investment quickly, you’ll have a better chance of converting it to cash in the money market.

Length of Credit Requirements

The money market is designed to meet the short-term credit requirements of businesses. A company that needs temporary funding for a project that’s expected to take less than a year to complete, for example, may turn to the money market. The capital market, on the other hand, is designed to cover a company’s long-term credit requirements with regard to capital access.

Return on Investment

Return on investment or ROI is another important consideration when deciding where to invest. When you invest in the money market, you’re getting greater liquidity with less risk but that can translate to lower returns. The capital market can entail more risk, but you may be rewarded with higher returns.

Timeframe on Redemption

Money market investments do not require you to hold onto them for years at a time. Instead, the holding period and timeframe to redemption is likely one year or less. With capital market investments, there is typically no set time frame. You can hold onto investments for as long as they continue to meet your needs.

Relevance to Economy

The money market and capital market play an important role in the larger financial market. Without them, businesses would not be able to get the short- and long-term funding they need.

Here are some of the key differences between money markets and capital markets with regard to their economic impacts:

• The money market allows companies to realize short-term goals.

• Money market investments allow investors to earn returns with lower risk.

• Capital markets help to provide economic stability and growth.

• Investors can use the capital market to build wealth.

Money Market	Capital Market
Offers companies access to short-term funding and capital, keeping money moving through the economy.	Provides stability by allowing companies access to long-term funding and capital.
Investors can try to use interest earned from money market investments to preserve wealth.	Investors can try to use returns earned from capital market investments to grow wealth.
Money market investments are typically less volatile, so they’re less likely to negatively impact the financial market or the investor.	Capital market investments tend to be more volatile, so they offer greater risk and reward potential.

Deciding Which Market to Invest In

Deciding whether to invest in the money market or capital market can depend on several things, including your:

• Investment goals and objectives

• Risk tolerance

• Preferred investment style

If you’re looking for investments that are highly liquid and offer a modest rate of return with minimal risk, then you may turn to the money market. On the other hand, if you’re comfortable with a greater degree of risk in exchange for the possibility of earning higher returns, you might lean toward the capital market instead.

You could, of course, diversify by investing in both the money market and capital market. Doing so may allow you to balance higher-risk investments with lower ones while creating a portfolio mix that will attempt to produce the kind of returns you seek.

Alternatives to Money and Capital Markets

Aside from the money and capital markets, there are other places you can keep money that you don’t necessarily plan to spend right away. They include the different types of deposit accounts you can open at banks and credit unions. Specifically, you may opt to keep some of your savings in a certificate of deposit account, high-yield checking account, or traditional savings account. Here’s a closer look:

High-Yield Checking Accounts

Checking accounts are designed to hold money that you plan to use to pay bills or make purchases. Most checking accounts don’t pay interest but there are a handful of high-yield checking accounts that do.

With these accounts, you can earn interest on your checking balance. The interest rate and APY (annual percentage yield) you earn can vary by bank. Some banks also offer rewards on purchases with high-yield checking accounts. When looking for an interest-checking account, be sure to consider any fees you might pay or minimum balance requirements you’ll need to meet.

Traditional Savings Accounts

A savings account can be another secure place to keep your money and earn interest as part of the bargain. The different types of savings accounts include regular savings accounts offered at banks, credit union savings accounts, and high-yield savings accounts from online banks.

Of those options, an online savings account typically has the highest interest rates and the lowest fees. The trade-off is that you won’t have branch banking access, which may or may not matter to you.

The Takeaway

There are lots of reasons why people do not invest their money. A lack of understanding about the difference between money market vs. capital market investments can be one of them. Once you understand that the money market typically involves short-term, lower-risk debt instruments, while the capital market likely revolves around longer-term ones with higher risk and reward, you will be on your way to better knowing how the global financial market works.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.30% APY on SoFi Checking and Savings.

FAQ

What are the similarities between a money market and capital market?

Both the money market and the capital market are intended to make it easier for businesses and companies to gain access to capital. The main differences between money markets and capital markets are liquidity, duration, and the types of financial instruments that are traded. Both also represent ways that consumers can potentially grow their money by investing.

How is a money market and capital market interrelated?

The capital market and the money market are both part of the larger financial market. The money market works to ensure that businesses are able to reach their near-term credit needs while the capital market helps companies raise capital over longer time frames.

Why do businesses use the money markets?

Businesses use the money market to satisfy short-term credit and capital needs. Short-term debt instruments can be traded in the money market to provide businesses with funding temporarily as well as to maintain liquid cash flow.

Photo credit: iStock/AndreyPopov

SoFi members with direct deposit activity can earn 4.30% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.30% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.30% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 10/8/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SOBK-Q224-1945699-V1

Jul

2024

Real Estate vs. Stocks: Pros and Cons

By Rebecca Lake | Growing Wealth, invest, Investing | Comments Off

Stocks are typically a staple in many portfolios, but real estate can be a valuable addition as it offers the potential for diversification. Investing in real estate — through direct ownership or other means — can also be a hedge against inflation and market volatility.

When it comes to investing in real estate vs. stocks, it’s less of an either-or proposition and more a question of understanding the role that each asset class can play in your investment strategy, as well as the potential risks.

The Nature of Real Estate Investments

Real estate is considered an alternative asset class as it generally doesn’t move in tandem with traditional securities like stocks and bonds. As such, real estate can be attractive on several levels for investors who are interested in diversifying their portfolios to balance risk, and potentially generating income through dividends, interest payments, or rental income.

If you’re interested in learning how to invest in real estate, some options include:

• Owning one or more rental properties

• Buying shares in a real estate investment trust (REIT)

• Investing in real estate funds or real estate stocks

• Joining a real estate crowdfunding platform

• Buying mortgage notes

• Buying land

• Purchasing a fix-and-flip property

Some of these options require more investment capital than others — it depends whether you’re buying shares of a real estate investment like a REIT, or purchasing a property outright — and each type of asset has different risks and rewards. Investors setting up a portfolio have flexibility in choosing where to put their money, based on their goals and risk tolerance.

Alternative investments,
now for the rest of us.

Start trading funds that include commodities, private credit, real estate, venture capital, and more.

The Nature of Stock Investments

When comparing real estate vs. stocks, keep in mind there are only a few similarities. Unlike property, a stock is a type of security, meaning it has value and can be bought and sold. Owning shares of stock is a way of owning part of a company.

While it’s possible to own shares of a real estate investment — say, through a REIT, real estate-focused mutual funds, or crowdfunding platforms — investing in property often involves physical ownership, which is not the case with stocks.

Stocks are sold on exchanges in the U.S. The two largest are the New York Stock Exchange (NYSE) and the Nasdaq.1 Again, there can be some overlap with certain real estate investments, like REITS, that may trade on an exchange.

When you buy a share of stock you’re buying an ownership stake in a company. The more shares you buy, the more of the company you own. Some stocks pay dividends to investors, which represent a share of the company’s profits. Stocks can be:

• Preferred, meaning shareholders lack voting rights but receive priority payment of dividends

• Common, meaning shareholders have voting rights but are last in line to receive dividend payments2

Stocks can be bought and sold in individual shares or collectively through mutual funds and exchange-traded funds (ETFs). When you buy a mutual fund or ETF you’re buying a basket of investments, which can include stocks from different companies.

Investors may actively trade stocks to try and leverage market trends from one day to the next, or they may use a buy-and-hold approach to benefit from capital appreciation over time. Which path you choose depends on whether you’re looking for short-term or long-term gains.

Comparing Returns of Real Estate and Stocks

In weighing the merits of real estate vs. stocks it’s important to consider return profiles. So, which tends to perform better over time: stocks or real estate?

Historically, the numbers show that stocks tend to perform better than real estate. If you look at 2023, for instance, the S&P 500 posted a 26.06% return. Real estate, by comparison, returned 6.29% to investors.

Stocks don’t always best real estate, of course. As recently as 2022, the S&P 500 posted a negative return of -18.04% while real estate returned 5.67%. However, when you compare the historical data year by year, stocks tend to outperform real estate more often than not.

Does that mean real estate is a poor investment? Given its low correlation to the stock market, real estate could bolster returns in years when stock prices drop due to increased volatility.

Liquidity and Accessibility Differences

Liquidity refers to how easily you can sell an investment that you own. When you compare stocks vs. real estate, stocks are typically the more liquid of the two because it’s relatively easy to sell one or more shares of stock on an exchange.

With real estate, however, there may be obstacles that could make liquidating your investment more difficult.

For example, if you’re investing in crowdfunded real estate you may have to wait until the holding period ends to withdraw your initial investment. It’s not uncommon to see holding periods that last five to 10 years with real estate crowdfunding.

Illiquidity is also typical with other categories of alternative investments.

REIT or real estate fund shares may be easier to unload if there’s demand for them in the market. However, trying to sell a rental property you own could take time if there’s a lack of eager buyers. Weighing the pros and cons of REIT investing against other real estate investments can make it easier to decide which ones align with your needs.

Risk and Diversification Considerations

Real estate and stocks have different risks to weigh, as well as different paths to diversification.

Real Estate Risks

With real estate, the biggest risks tend to be:

• Market risk. Changing economic conditions or shifts in supply and demand can negatively affect real estate investment returns or make it more difficult to exit an investment.

• Credit risk. Renting properties can provide a steady income but there’s always the risk that your renters won’t pay on time, or at all.

• Location risk. A once-favorable location might suffer from environmental impacts or regulatory changes.

• Interest rate risk. When interest rates fluctuate, that can impact the ability to get loans for new purchases or repairs. Interest rates can also impact cash flow from a property.

Equities Risks

With stocks, the biggest threats tend to be:

• Market risk. Also known as systematic risk, market risk is the tendency of the market as a whole to rise and fall, impacting stocks in different sectors.

• Volatility. Some stocks are more volatile than others, i.e., their share price tends to fluctuate versus other stocks that have fewer ups and downs, such as blue-chip stocks.

• Inflation. Inflation can have a big impact on stocks owing to the change in demand for goods and the diminished purchasing power of capital.

• Economic and political factors. Economic factors can play into stock market movements here and abroad, influencing political climates, and vice versa.

Diversification and Real Estate Investments

In terms of potential diversification benefits, real estate may counterbalance the volatility of stocks because property values tend not to fluctuate as dramatically within shorter periods.

Investing in real estate may offer some protection against inflation, since property prices tend to rise in tandem with increases in other consumer prices.

Diversification and Equities

Diversifying with stocks usually means choosing investments in companies that represent different sectors of the market. You might allocate some of your portfolio to defensive, lower-risk stocks in the utilities and healthcare sectors while also investing in some higher-risk stocks that may generate better returns.

It’s also possible to invest in mutual funds and ETFs, which are types of pooled investments that offer diversification owing to the number of securities each fund holds.

The Takeaway

Whether it makes sense to invest in stocks vs. real estate ultimately hinges on what you need your portfolio to do for you. There’s an argument for holding both positions. But it’s wise to consider the risk factors that may come into play with each type of asset.

Equities can help investors target growth in specific sectors, but can be subject to systematic risk as well as economic shocks, and other factors. As an alternative asset class, real estate may help provide some ballast in your portfolio if stocks turn volatile. Real estate may also hedge against inflation. But real estate is generally illiquid, and the risks of certain types of property investments, or crowdfunding platforms, may not be obvious.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.

Invest in alts to take your portfolio beyond stocks and bonds.

FAQ

What are the main types of real estate investments?

Rental properties and fix-and-flip properties are two of the most popular ways to get started with real estate investing, if you prefer a hands-on approach. If you’d rather invest in real estate for passive income, you might consider REITs, real estate funds, real estate stocks, or crowdfunded real estate investments instead.

How do the historical returns of real estate and stocks compare?

Historically, average stock market returns have more or less matched real estate returns. However, there have been years where real estate returns have significantly outpaced stocks. Economic conditions, geopolitical events, and the interest rate environment can all play a part in influencing whether stocks or real estate produce better returns.

Are stocks more volatile than real estate?

Stocks tend to be more volatile than real estate, which is one of the reasons to consider property investments. Real estate may help bring some stability to your portfolio when stock prices are fluctuating due to uncertain market conditions. That said, real estate investments are subject to other risk factors such as interest rate changes, which affect prices, as well as weather and/or climate changes; the rise and fall of a location’s popularity; local zoning rules, as well as other issues investors need to bear in mind.

Photo credit: iStock/andreswd

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

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

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.

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

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.

SOIN-Q224-1900928-V1

Jul

2024

Commodity vs Security: What Are the Differences?

By Rebecca Lake | Growing Wealth, invest, Investing | Comments Off

The main difference between a commodity vs. security lies in what you own. Commodities are raw materials and basic goods, while securities represent an ownership stake (e.g. stock) or a debt obligation (e.g. bonds).

As such, investing in commodities and securities can offer two different paths to diversification.

Both commodities and securities can be traded on market exchanges. Between the two, commodities are typically categorized as alternative investments to the traditional array of stocks, bonds, and cash many investors hold.

Understanding Commodities

What are commodities? The Commodity Futures Trading Commission (CFTC) recognizes three categories of commodities:

• Agricultural

• Natural resources

• Financial instruments

In simple terms, commodities are raw materials typically used in the production of other goods. Commodities are considered a type of alternative investment because these products — whether oil, corn, or copper — don’t move in sync with traditional stock and bond markets, and may provide portfolio diversification.

Types of Commodities

Broadly speaking, commodities may be classified as hard or soft. Hard commodities are mined or extracted, while soft commodities are produced through agriculture.

Examples of agricultural commodities include wheat, soybeans, corn, and livestock. Natural resource commodities include gold, silver, copper, and timberland investments. Financial instruments include U.S. or foreign currencies, or options and futures contracts that invest in an underlying commodity.

The Commodity Exchange Act (CEA) regulates the trade of commodity futures in the U.S. Trading futures commodities must generally be done through a commodity exchange, with some limited exceptions. The CEA also enables the CFTC to regulate the commodities industry.

Alternative investments,
now for the rest of us.

Start trading funds that include commodities, private credit, real estate, venture capital, and more.

Understanding Securities

Now, what are securities? The term securities refers to a broad range of investments where there’s an expectation that value or profit will be returned to the investor. Examples of securities include:

• Stocks

• Bonds

• Mutual funds and exchange-traded funds (ETFs)

• Mortgage notes

• Promissory notes

• Limited partnerships

• Oil and gas interests

• Debentures

• Investment contracts

Stocks and bonds are among the most commonly traded securities. When you buy shares of stock you’re getting an ownership stake in the underlying company. Should the value of your shares increase you could sell them at a profit.

Bonds are a debt obligation between the bond issuer and investors. When you buy a bond, you agree to let the bond issuer use your money for a certain period. During that time you’ll earn interest, and when the bond matures you can reclaim your original investment.

Certain types of financial instruments are excluded from this list. Checks, bank accounts, and traditional life insurance policies don’t meet the definition of a security.

How Securities Are Regulated

The Securities and Exchange Commission (SEC) regulates securities trading in the U.S. Some of the most significant laws relating to securities include:

• The Securities Act of 1933

• The Securities Exchange Act of 1934

• Investment Advisers Act of 1940

• Sarbanes-Oxley Act of 2002

• Dodd-Frank Wall Street Reform and Consumer Protection Act of 20105

Many securities are publicly traded on market exchanges. The New York Stock Exchange (NYSE), for example, is the world’s largest stock exchange. Securities that do not trade on an exchange may be traded privately or over the counter. Over-the-counter trading relies on a network of broker-dealers to complete the sale or purchase of securities.

Comparing Commodities and Securities

Commodities and securities can be used to achieve different goals in a portfolio. Both allow for diversification but they differ in how they work, what you’re trading, and the associated risks and rewards.

Here’s a simpler way to think of the difference between a security vs. commodity. Securities often represent the end product, while commodities are the building blocks of that product.

For example, take a company that produces computer chips. If you invest in the precious metals used to make computer chips (e.g. gold, silver, platinum), you’re investing in commodities. If you buy shares of company stock, those are securities.

Here are some of the important things to know if you’re weighing security vs. commodity trading.

	Commodities	Securities
Nature of the investment	Raw materials and basic goods	Stocks, bonds, mutual funds, investment contracts
Trading mechanism	Futures contracts and options can be bought and sold on a commodity exchange; commodity mutual funds and ETFs can be traded on a stock exchange	Publicly traded stocks and bonds can be bought and sold on stock exchanges
Potential Benefits	Portfolio diversification, potentially higher returns, inflationary hedge, potential insulation against market volatility	Potential gains through active trading, potential for long-term capital appreciation, potential for passive income from dividends
Potential Risks	Supply and demand, weather/climate conditions, geopolitical events can influence commodity pricing	Supply and demand, investor sentiment, economic conditions, interest rates, and company health can influence stock and bond prices
Regulatory body	Commodity Futures Trading Commission	Securities and Exchange Commission

Investing in Commodities vs Securities

Purchasing physical commodities isn’t realistic for the average investor, as doing so requires you to store them (or pay for storage) until you’re ready to sell. Instead, commodities are typically traded through one of the following:

• Options contracts

• Futures contracts

• Commodity mutual funds and ETFs

• Hedge funds (often the domain of high-net-worth investors)

Options and futures contracts are derivatives, meaning their value is determined by an underlying investment, i.e., the commodity you’re trading. Commodity funds and ETFs can offer exposure to a basket of investments, which may include individual securities.

For instance, rather than trading oil futures contracts, you might purchase an ETF that holds gas stocks. Or you could buy individual shares of energy stock if you prefer.

With securities, you have some of the same avenues for investing. You can purchase stand-alone stock shares or individual bonds. Mutual funds, an array of index funds, and ETFs can offer broad diversification. You could also trade stock options if you’re comfortable with speculative investments.

Whether it makes sense to choose a security vs. a commodity for your portfolio can depend on your risk tolerance and objectives.

Portfolio Diversification With Commodities and Securities

Commodities can offer exposure to alternative investments beyond traditional stocks and bonds. Thanks to options, contracts, and commodity funds you don’t need to purchase physical commodities. You can select which areas you’d like to target, based on whether you prefer hard vs. soft commodities.

You might choose to focus on a single category, such as agriculture. Or you might spread your investment dollars across agricultural commodities, natural resources, and financial instruments for a more well-rounded approach.

Diversifying with securities often means finding the right mix between stocks and bonds. Your optimal asset allocation may depend on your age, your time horizon for investing, and how much risk you’re comfortable taking. Within each securities category, you can decide how to invest based on:

• Whether you’re looking for a quick profit vs. longer-term gains

• Your preference for earning passive income from dividends or interest

• How much risk you need to take to achieve your goals

All investments carry some risk, though some are riskier than others. Commodities tend to veer toward the riskier side which is important to remember when deciding how to allocate your portfolio.

The Takeaway

The main difference between a commodity vs. a security lies in what you own. With commodities, you’re most often trading futures or options contracts for an underlying good, such as pork bellies, oil, or aluminum. With securities, you’re typically buying stocks or bonds, or derivatives contracts.

Invest in alts to take your portfolio beyond stocks and bonds.

FAQ

What is the difference between a security and a commodity?

The main difference comes down to what you’re investing in. With commodities, you’re most often trading futures or options contracts with an underlying raw material or good, such as pork bellies, oil, or aluminum. With securities, you’re typically buying shares of a company or funding bonds with the expectation of earning interest.

Can a commodity become a security?

A commodity can become a security if it meets the definition of an investment contract under the Howey Test. This test, which was formulated through a 1946 Supreme Court decision, defines an investment contract as being an investment of money in a common enterprise, with the reasonable expectation of profits due to the managerial efforts of others.

Is gold considered a commodity?

Yes, gold is considered a commodity. In terms of its uses as a raw material, gold is often a key element in jewelry production and electronics manufacturing. Historically, gold has also been used as a form of currency and is a form of legal tender in the United States, but it is not considered a security.

Photo credit: iStock/Jacob Wackerhausen

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
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.

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

Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

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.

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

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.

SOIN-Q224-1900905-V1

Jul

2024

What Are Brokerage Checking Accounts?

By Ashley Kilroy | Growing Wealth, invest, Investing | Comments Off

Brokerage checking accounts combine the everyday usability of a checking account with the investment potential of a brokerage account, allowing you to manage both your bills and investments from a single platform. Often referred to as a “cash account” or “cash management account,” these accounts offer flexibility — you can buy, sell, or trade securities whenever you wish without facing penalties.

Understanding what a brokerage checking account is and how it works can help you determine if this type of account makes sense for your banking needs.

Key Features of Brokerage Checking Accounts

Investing can become quicker when you have an investment checking account, especially for active traders or those combining their checking and investment accounts. It gives you direct access to the stock market without the delays of traditional transfers between accounts.

Similar to other brokerage investment accounts, these accounts are not tax-advantaged. Here are some other noteworthy features.

💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

Linked to Brokerage Investment Accounts

Brokerage checking accounts let you invest directly from your account, so there’s no waiting for transfers to start investing. Instead of opening one with a bank or credit union, you’ll need to go through a brokerage firm to get a brokerage checking account. Brokerages typically charge fees for opening and maintaining them.

Debit/ATM Card Access to Funds

Brokerage checking accounts generally offer checks, a debit card, and ATM access, similar to other types of checking accounts. Depending on the brokerage you choose, you might also get perks like ATM fee refunds or earn interest on your account balance.

Some brokerages may even waive foreign transaction fees when you travel abroad.

Benefits of a Brokerage Checking Account

Brokerage accounts with checking offer features like traditional bank checking accounts, but they often come with additional benefits not typically found in standard checking accounts.

Easily Move Money Between Investments

For active investors who trade regularly, investment checking accounts may simplify the trading process. Depending on your brokerage’s rules, you may be able to buy securities straight from it. This can make investing quicker and more convenient, streamlining the whole process.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Potential for Higher Interest Earnings

Depending on the brokerage you choose, some accounts stand out by offering high annual percentage yields (APYs), allowing you to earn more interest on your money compared to regular checking accounts. This can make them a good choice for growing your savings while still having easy access to your funds.

Integrated Money Management

Instead of juggling separate accounts for savings, spending, and investing, investment checking accounts let you manage all your money under one umbrella. This means you can handle everything from one place, making it potentially easier to keep track of your finances.

Potential Drawbacks

While brokerage accounts with checking have many advantages, there are a few drawbacks to consider.

May Require Minimum Balances

While some brokerages let you open accounts with no upfront cost, others require an initial deposit. Additionally, you may need to keep a specific balance in your account to avoid incurring maintenance fees.

Fees for Certain Transactions

While brokerage checking accounts typically have low relative fees, you might still encounter some costs for opening and maintaining your account. Additionally, certain brokerages may require you to connect a separate investment account, which could come with additional fees. It’s a good idea to check the specific terms and conditions of each brokerage to understand all potential costs.

No In-Person Service

If you choose an online brokerage firm, remember that you may not have access to in-person services. These firms operate entirely online, so you won’t be able to visit a physical branch for face-to-face assistance. Instead, all your interactions will be digital, through their website, app, or customer service hotline.

Eligibility and Account Opening

Before selecting a brokerage account with checking, make sure to compare your options by looking at fees, interest rates, and accessibility. Then once you’ve picked a brokerage firm, you can usually get started by opening your account online. If you opt for an online brokerage firm, that’ll be your main route.

You’ll need to have your personal details ready and transfer money from another account to fund your investment checking account. Most of the time, there’s no need to meet a minimum balance requirement just to get things up and running.

Comparing To Traditional Checking

Choosing asuitable checking account depends on what you need and what you’re looking for in your banking experience. Whether it’s easy access, fees, or extra features, understanding the differences between traditional and brokerage checking accounts can help you make a smart choice. Let’s break down the main factors to compare.

• Opening and maintenance fees: Traditional checking accounts usually have minimal opening fees and low maintenance costs, especially if you use your account abroad or maintain a minimum balance. Brokerage checking accounts also tend to have low fees, but some may require a significant initial deposit or a linked investment account, which could involve additional fees.

• Access: Traditional checking accounts offer convenient in-person access through branches and ATMs. On the other hand, brokerage accounts with checking linked to online brokerages may not have in-person services, although they typically provide ATM access.

• Features: Both account types generally include essentials like check-writing, debit card access, and online bill pay. Brokerage checking accounts often go further by offering investment options such as direct investing from the account and sometimes perks like ATM fee reimbursements.

• FDIC Insurance: Money in traditional checking accounts are FDIC-insured up to $250,000, ensuring your money is protected. Similarly, some brokerage checking accounts may hold your uninvested funds in FDIC-insured banks, providing comparable security. But you may need to opt-in, and generally, this may not be standard practice.

The Takeaway

Brokerage checking accounts may give you the best of both worlds:allowing you to handle your everyday banking needs while also offering investment opportunities. In effect, you can manage your bills and investments all in one place, with direct access to the stock market. However, before you decide if a brokerage checking account fits your needs, be sure to compare fees, interest rates, and how accessible it is for your financial goals.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

What banks offer brokerage checking?

Online and traditional brokerages may offer brokerage checking accounts, but keep in mind they can differ significantly. So, take your time to shop around and find one that really suits your needs, with the features you want and fewer fees.

Can I have multiple brokerage checking accounts?

Similar to how you can have multiple investment accounts, you can have multiple brokerage checking accounts.

Are brokerage checking accounts FDIC-insured?

Brokerage accounts are backed by the Securities Investor Protection Corporation (SIPC) if your brokerage firm shuts down. For uninvested money, brokerage checking accounts usually keep it in FDIC-insured banks, just like regular banks do. Some firms might also offer extra FDIC coverage by using multiple banks.

Photo credit: iStock/miniseries

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q224-1900623-V1

Creating an Investment Plan for Your Child

Why Invest for Your Child?

Example of Compounding

Benefits of Investing for Your Child Early On

Are Gifts to Children Taxed?

Are There Investment Plans for Children?

Investing for Younger Kids

Investing for Teens

Starting a 529 Savings Plan

Other Ways to Invest for Education

Prepaid Tuition Plans

Education Savings Plans

Investing Your Education Funds

Thinking Ahead to Retirement Accounts

When to Choose a Savings Account for Your Child

The Takeaway

FAQ

Can a child have an investment account?

What is the best way to invest money for a child?

What is a good age to start investing as a kid?

Money Market vs Capital Market: What’s the Difference?

What Is the Money Market?

How Does the Money Market Work?

What Is the Capital Market?

How Does the Capital Market Work?

Get up to $300 when you bank with SoFi.

Differences Between Money Markets and Capital Markets

Purpose

Length of Securities

Financial Instruments

Nature of Market

Securities Risk

Liquidity

Length of Credit Requirements

Return on Investment

Timeframe on Redemption

Relevance to Economy

Deciding Which Market to Invest In

Alternatives to Money and Capital Markets

High-Yield Checking Accounts

Traditional Savings Accounts

The Takeaway

FAQ

What are the similarities between a money market and capital market?

How is a money market and capital market interrelated?

Why do businesses use the money markets?

Real Estate vs. Stocks: Pros and Cons

The Nature of Real Estate Investments

Alternative investments, now for the rest of us.

Start trading funds that include commodities, private credit, real estate, venture capital, and more.

The Nature of Stock Investments

Comparing Returns of Real Estate and Stocks

Liquidity and Accessibility Differences

Risk and Diversification Considerations

Real Estate Risks

Equities Risks

Diversification and Real Estate Investments

Diversification and Equities

The Takeaway

FAQ

What are the main types of real estate investments?

How do the historical returns of real estate and stocks compare?

Are stocks more volatile than real estate?

Commodity vs Security: What Are the Differences?

Understanding Commodities

Types of Commodities

Alternative investments, now for the rest of us.

Start trading funds that include commodities, private credit, real estate, venture capital, and more.

Understanding Securities

How Securities Are Regulated

Comparing Commodities and Securities

Investing in Commodities vs Securities

Portfolio Diversification With Commodities and Securities

The Takeaway

FAQ

What is the difference between a security and a commodity?

Can a commodity become a security?

Is gold considered a commodity?

What Are Brokerage Checking Accounts?

Key Features of Brokerage Checking Accounts

Alternative investments,
now for the rest of us.

Alternative investments,
now for the rest of us.

Student Loan
Refinancing

Personal
Loans

Online
Investments