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Strategies for Building an Investment Plan for Your Child

They make you laugh, and they make you cry. You worry about them when they’re out of sight, and even when they’re in plain view. You desperately hope they grow up strong, healthy, and ready to tackle life’s challenges.

After all, they are your pride and joy. Children make parents do some pretty selfless things, and one of the more beneficial thing you could do is plan for their financial future. But how do you do that with everything else you have to worry about in your life?

Fortunately, there are some fairly simple financial tools to help you meet your goals, whether you’re saving for a college education, a once-in-a-lifetime summer camp, or a down payment for their first home.

Depending on your situation, some options might be obvious good choices, while others come with caveats you might want to know about before investing.

With a little background knowledge, you could find an investment plan for your child’s future. An investment for a child could also provide a great education in financial responsibility.

Let’s look at some of the choices.

Custodial Accounts

A simple custodial savings account in your child’s name could be a good start as an investment for a child. When a baby is born, everybody from Grandma to Uncle Joe may want to contribute to the account. Unlike college savings plans , which require the funds be used for education, custodial accounts offer a lot of flexibility.

Savings can be used for almost anything—a European vacation, car for college, pre-college expenses—as long as it is for the benefit of the child. Just remember, any money in an investment account for a child is irrevocably in their name and for their benefit . You can’t take it back.

A custodial account could be a great vehicle for children to learn how to invest. In fact, if you’re wondering how to buy stock for a child to help them learn about money, a custodial account might be a great investment account for a child. You could pick a company they would be excited to follow, like Disney or McDonald’s, and let them watch over time.

Custodial accounts, also known as Uniform Gift to Minors Act (UGMA) and Uniform Transfers to Minors
(UTMA) accounts, don’t have a limit to how much you can invest. While contributions aren’t tax-deductible, there may be a tax advantage because it’s in the child’s name.

But that advantage might quickly turn into a disadvantage if unearned income from dividends, gains, or interest reaches a certain amount. Then the account is subject to the Kiddie Tax , which Congress enacted to prevent abuse of the financial vehicle by parents. With a custodial account, you can gift up to $15,000 in 2019 for each child; double that if you’re married and filing jointly. Above that you’re liable for the federal gift tax .

While you can use the money in the account to pay for various things your child needs, one caveat is that the child gets full control when they reach the age of majority, usually 18 or 21 years of age.

Custodial accounts might be good for modest, defined goals, such as paying for education, orthodontia, or academic camps, for example. If there is a sizable sum of money in the account, consider whether you want to transfer that amount, unregulated, to someone of such a young age. In that situation, one idea might be to have a lawyer draw up a trust to set up specific parameters you can live with.

If the thought of giving up control is too much for you, you could set up a guardian account in your name so you can decide how the money is spent. Essentially, it’s a way to earmark funds to give to your child down the road.

College Savings Accounts

A Coverdell education savings account or a 529 savings plan could be a worthy option for a child. They offer two ways to pay for educational costs, whether college or K–12 schooling. The Coverdell allows you to contribute up to $2,000 a year for education expenses. While contributions are not tax deductible, withdrawals are tax-free.

Coverdells have two areas where they might have a slight advantage over 529 accounts: You can select from a wide range of investments and the money you withdraw can be used for any qualifying education expenses, such as books, tutors, and equipment.

The 529 college savings plan tends to be a popular way to save for college. You can make larger contributions than you can with a Coverdell account, and any withdrawals for qualified education purposes are tax-free.

As of 2018, Congress allows withdrawals of up to $10,000 for K–12 tuition. Not all plans or states that sponsor 529 plans are in line with the new rules , so you might want to ask a tax expert or the manager of the plan about your options.


Custodial (Traditional)

Custodial IRAs are another investment option for a child. They work just like a traditional IRA, so when your child has earned income from a first job, babysitting, or other work, they (or you) can contribute up to $5,500 annually . Starting early might be a way to teach them about the power of financial stewardship.

With a traditional custodial IRA, your child will pay ordinary income tax when they withdraw the money in retirement, and they must begin doing so at age 70½ . Contributions are also tax deductible, which probably won’t benefit them if their income is still low or they don’t meet the $12,000 standard deduction threshold requiring them to pay federal income tax.

Both traditional and Roth custodial IRAs convey to the child at the age of majority (18 to 20 years of age, depending on the state).


Just like traditional IRAs, contributions to a Roth IRA also grow tax-free over the years and have the same contribution limits—however, the Roth could be an investment possibility for your child if you value flexibility. Whether you’re saving for college or retirement, it might offer more advantages for your child over the decades than a traditional IRA.

While you still pay tax on each contribution, all withdrawals are tax-free , which could be a big benefit to your child, assuming they’ll be in a higher tax bracket at retirement. There is no required minimum distribution when they must start withdrawing.

One of the biggest advantages to a Roth is that your child could use the contributions for any reason besides retirement. But two special perks of the Roth include the ability to pay for certain higher education expenses and withdraw up to $10,000 to buy their first home. On the other hand, if withdrawn before retirement, earnings can be taxed and your child could be penalized in addition.

Growing Wealth for Your Children

When it’s time to get serious about saving—for college, retirement, or something else—you could set up an account with SoFi Invest®. It’s easy to open an investment account with SoFi, and you’ll have access to complimentary financial advisors and other benefits to help your family save for a bright future.

Finding the right investment plan for a child doesn’t have to be a chore. Start building for your children’s futures and open a SoFi Invest account today.

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


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The Advantages of Automated Investing

You know that phrase, “Time is money?” It doesn’t just apply to unnecessary meetings and project schedule delays. The more time you spend trying to figure out your personal expenses, rainy day funds, and long-term investments, the less time you might have to actually put your money to work.

Thanks to a host of budgeting apps, crunching the numbers might be easier than ever. But whether you’re using 21st-century tech or pen and paper, a good starting point could be to look at your take-home pay and compare that to your expenses each month, and then start to figure out how much you can invest. You could do this on your own or with the help of a financial advisor, who could help you set up an investment portfolio.

One benefit of managing your investments the old-fashioned way is that face-to-face interaction with an advisor. But having access to that kind of expertise can come at a hefty price , from five-figure account minimums to 1% or more annual management fees.

And where some see a hands-on approach to money management as an advantage, others might consider it a drawback—especially if willpower is a factor. While you may have a grand plan to put away a good chunk of your paycheck every month, life can sneak up on you. The fridge breaks, or you get a flat tire. When that money is right there, it might be difficult to send it to your advisor instead.

Automated Investing Basics

Simply put, automated investing refers to a computer program that manages a portfolio on your behalf with little to no human intervention and at a fraction of the fees that can come with live human advising. (Imagine someday saying, “Hey Siri®️, optimize my portfolio.”)

Getting started can be as simple as downloading an app, linking a bank account, and filling out some profile information—the automated aspects kick in from there.

If you’re open to working with either automated investing or doing it yourself, SoFi Invest®’s investing platform, offers both options: to either let the algorithm do all the heavy lifting or choose your own investments. In addition, it offers access to human financial advice—on the house.

For many people who otherwise wouldn’t have access to financial advising, the low overhead, fees, and minimum deposits of robo-advising have potentially opened the door for them to participate.

The Benefits of Automated Investing

Beyond opening the world of wealth management to a wider audience, automated investing comes with a variety of other benefits. First, it costs less than most traditional financial advice.

Old-school firms may charge 1% to 2% or more in annual fees, which could take quite a chunk out of your balance over time. But many automated programs have either lower fees, or none at all.

Ease of setup and management are other attractive features of automated investing. After creating an account and setting the desired risk level and goals, an algorithm invests the money into ETFs (exchange-traded funds), which are generally diversified, tax-efficient, low-cost funds. To make sure your money is always working hard, many automated advisors also offer periodic portfolio optimization and real-time updates on how you’re performing.

Another perk that’s less tangible is the potential to remove the emotions that can sometimes cloud judgment when making investment choices. When your funds are held in a computer-controlled environment, there’s less temptation to make changes to your portfolio based on the ups and downs of the stock market.

Often when you open an investment account, you set your risk tolerance up front. Once you’ve established that, you can set a threshold at which you want your account to be rebalanced. Accounts can be adjusted based on specified limits—without having to babysit it.

But while automated investing can be efficient and proficient (the algorithm for many of the bots was developed based on Nobel prize-winning research in economics), it is also impersonal. To reintroduce a bit of human touch, some institutions offer robo-advising as an added service to traditional advising.

And just like brick-and-mortar banks, not all automated advisors are created equally. While some charge reasonable fees, others may not. That’s why you might want to do your research, read reviews, and study the fine print to make sure there aren’t any hidden fees, such as hourly rates or percentage commissions.

The Human Element

An automated advisor can efficiently manage thousands of accounts at the same time, which would be much more difficult for a single advisor. But gut instinct and experience might still go a long way when it comes to working with people, and a financial advisor with both could be worth their weight in account fees.

And while automated investing might be great for those just starting out, the approach may not be holistic enough if one’s financial needs are very complex. Complicated discussions about estate planning , taxes, and insurance may still be better handled by a human financial planner, or other qualified professional.

Investing With SoFi

SoFi has developed a hybrid approach that combines the real-life advice of financial planners with the ease and lower cost of online investing and management.

SoFi financial advisors can help you through the legwork, such as setting goals and creating a portfolio that’s right for you, then automated investing technology can help manage your investments.

The minimum investment is just $1, and if you ever have questions or need advice along the way, you can ask a real, live person—without the fees of traditional wealth management.

Learn more about SoFi Invest and how it can help you achieve your investment goals.

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


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Can You Pay Off Student Loans with Your 401(k)?

If you’re one of the 44 million Americans who currently hold a portion of the country’s $1.5 trillion
student debt
, chances are you’ve got student loans on the brain. The average student graduates with just over $37,000 in student loan debt.

Paying off that much debt is an impressive feat which takes discipline and commitment. If you’re currently living under the heavy weight of your student loans, you may have considered using your 401(k) for student loans. But should you really cash out your 401(k) for student loans?

It probably goes without saying that figuring out how you’re going to pay off your student loans is overwhelming—and there isn’t one definitive solution. And while it’s certainly tempting to just take the cash from your 401(k) and pay off a high-interest loan, there are some serious drawbacks to consider before running with that plan.

Options for Using Your 401(k) to Pay Off Debt

Before you make any moves, you’ll need to determine how much you are eligible to withdraw from your 401(k), and what penalties and taxes you would encounter. In most cases, you would be responsible for a 10% penalty and regular income taxes on a withdrawal from your 401(k) prior to age 59 ½.

There are a few exceptions to this rule. For instance, if you were laid off you may be able to withdraw money penalty-free as long as certain requirements are met.

And depending on the exact terms of your 401(k) plan, you may be able to withdraw the money from your plan without penalty in certain hardship situations —like to cover tuition or medical expenses.

If you already attended college and are trying to use your 401(k) to pay back student loans, that doesn’t qualify for a hardship withdrawal . If you’re not sure what the details of your plan entail, it’s worth contacting your HR representative or the financial firm that handles your company’s 401(k) program.

Using money from your 401(k) to pay off debt can be a risky proposition. While on the bright side it would potentially allow you to eliminate your student debt, it also puts your retirement savings at risk.

When it comes to using your 401(k) to pay off your student loans, there are a couple of options to consider.

Depending on your circumstances you might be considering cashing out your entire 401(k). Alternatively, however, you could borrow against your 401(k) by taking out a 401(k) loan. Here’s a bit more info about those two options.

Cashing Out Your 401(k)

Withdrawing money from your 401(k) can seem like a tempting idea when your student loan payments are causing you to stress at the moment and retirement feels like it’s ages away.

But making an early withdrawal comes with penalties. If you withdraw your money prior to the age of 59 ½ you’ll pay a 10% penalty on the amount you withdraw, in addition to regular income tax on the distribution itself. In addition to the taxes and the early withdrawal penalty, money that you withdraw loses valuable time to grow between now and retirement. That is why, as mentioned, simply withdrawing money from a 401(k) very rarely makes sense, when you consider the taxes, penalties, and lost growth.

To reinforce this point, let’s consider a (completely hypothetical) person in the 22% income tax bracket who has $13,600 left on their student loans. (And remember, this is just an example—and there are many other factors that can come into play, but this should give you a high-level glimpse into why withdrawing cash from your 401(k) might not be the best call.)

If this person cashed out $20,000 from their 401(k), they would actually receive $13,600 after paying federal income taxes and penalties. Additionally, depending on their state, they might also pay state income taxes, let’s not get bogged down on that right now.

Assuming they used that money to pay off their student loans (at a hypothetical 5% interest rate with five years left on the loan), they would have saved roughly $1,798.93 on interest.

So essentially, this person would have incurred $6,400 in penalties and taxes in order to save $1,798.93 in interest. That’s why cashing out a 401(k) to pay off student loan debt might not be a great idea.

And if they had simply let that money grow in their 401(k) over the next five years, that $20,000 could have grown to more than $28,000. P.S., that’s assuming a 7% rate of return on our fictional borrower’s 401(k).

Borrowing from Your 401(k)

When you borrow money from your own 401(k) , it technically isn’t a loan since there is no lender (aside from yourself) or review of your credit history. Instead, you are accessing your retirement funds and then paying them back, with interest, in an attempt to replenish your savings.

Not all companies offer 401(k) loans, so it’s important to check with your employer to confirm if the option is available to you. (And for the record, you can’t take out a loan from an employer-sponsored 401(k) if you’re no longer with that employer.)

In addition to the rules determined by your employer, the IRS sets limits on 401(k) loans as well. The current maximum loan amount as determined by the IRS is 50% of your vested balance , or $50,000—whichever is less. If you have a balance of less than $10,000, you may be able to borrow up to $10,000.

The IRS also requires that the money borrowed from your 401(k) be paid back within five years based on a payment plan that is established when you borrow the money. There is an exception; if you bought a house with the money you withdraw, you may be able to extend the repayment plan.

Note that if you change jobs, your 401(k) plan will roll over, but not your loan. Which means you’ll face an accelerated payment plan to repay the unpaid balance of the loan. Interest rates are usually set by your plan administrator . A 401(k) loan typically offers a relatively low interest rate and doesn’t require a credit check (since you’re borrowing against yourself), so it could be a viable option for those interested in securing a lower interest rate for their debt but who don’t qualify for student loan refinancing due to their credit history or other factors.

It should be noted, however, that those with federal student loans could also consolidate with a Direct Consolidation Loan. A Direct Consolidation Loan allows borrowers to bundle their federal loans into one—and their interest rate becomes the weighted average of the combined loans’ rates, rounded up to the nearest eighth of a percent. While refinancing with a private lender means forfeiting federal loan benefits, consolidating with a Direct Consolidation Loan means retaining your access to a lot of those benefits.

You may want to crunch some numbers and compare the interest rates on your student loans with the interest rate on a 401(k) loan before you commit to this course of action.

If your student loan interest rate is lower than the potential interest rate on your 401(k) loan, it could make sense to keep your retirement savings intact.

The other factor to consider is the missed growth on the money you borrow from your 401(k), which is why 401(k) loans could make more sense for high-interest debt such as personal loans or credit cards but are typically less ideal for low-interest debt such as student loans or mortgages.

Hardship Withdrawals

While a hardship withdrawal won’t be an option if you are looking to pay off your student loans, it could be worth considering if you are planning on attending graduate school or are assisting a family member with their college education.

To qualify for a hardship withdrawal, you must meet certain criteria. You must prove your need is immediate and heavy. Tuition for the school year usually qualifies as immediate .

Student loan repayment wouldn’t qualify because they provide a repayment plan over a set period of time. You must also prove the expense is heavy. Usually, that means things like college tuition, a down payment on a primary residence, or a qualifying medical expense that is 10% or more of your adjusted gross income.

The Pros & Cons of Using Your 401(k) to Pay Off Your Student Loans

The obvious potential benefit of using your 401(k) to pay off student loans is that in doing so, you’ll become student loan debt free. But as we mentioned several times already, and it bears repeating, withdrawing money from your 401(k) generally means paying a penalty on money you worked hard to earn.

And the penalties you pay won’t go toward your retirement or student loans—it’s essentially lost money. So think carefully about withdrawing money from your 401(k). It is a personal decision and one that shouldn’t be taken lightly.

When deciding whether or not to withdraw money from your retirement savings, it’s important to note that while you borrow loans for other expenses in life, there’s no such thing as a “retirement loan.” You’re responsible for ensuring you have enough money to live on in retirement.

While it can feel like student loans are preventing you from living your life or meeting your financial goals in the near-term, saving for retirement can be a valuable investment in your future.

Alternatives to Help Control Your Student Loan Debt

If you’re struggling with student loan payments, don’t feel paralyzed. Borrowing money from your 401(k) isn’t the only option available to you. There are alternatives that can help you get your student loan debt under control while keeping your retirement savings intact. One option that could provide some relief to borrowers who are strapped for cash is student loan refinancing.

When you refinance your student loans you’ll take out a brand new loan from a private lender, who will review your credit history and other financial factors to determine how much they will lend to you and at what rate.

With a solid financial picture and credit history, you can stand to lower your interest rate—meaning you could reduce the amount of money you spend in interest over the life of the loan (depending on the loan term, of course).

You could also lower your monthly payments by extending the length of the loan term, which would ultimately mean you spend more money in interest over the life of the loan, but could help free up some cash flow more immediately.

However, it’s important to remember that refinancing with a private lender means you’ll lose access to federal loan benefits like income-driven repayment plans, forbearance, and deferment.

To help you decide if refinancing is a good idea, take a look at SoFi’s student loan payoff calculator to see when you might pay off your current loans. Then compare that with a potential new loan—you may be surprised at how much of a difference refinancing can make. And with more wiggle room in your budget, you could make headway toward student loan repayment and save for a retirement you’ll be able to enjoy.

Take control of your student loan debt by refinancing with SoFi. Find out what your new interest rate could be in just a few minutes.

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.
$500 Student Loan Refinancing Bonus Offer: Terms and conditions apply. Offer is subject to lender approval, and not available to residents of Ohio. The offer is only open to new Student Loan Refinance borrowers. To receive the offer you must: (1) register and apply through the unique link provided by 11:59pm ET 11/30/2021; (2) complete and fund a student loan refinance application with SoFi before 11/14/2021; (3) have or apply for a SoFi Money account within 60 days of starting your Student Loan Refinance application to receive the bonus; and (4) meet SoFi’s underwriting criteria. Once conditions are met and the loan has been disbursed, your welcome bonus will be deposited into your SoFi Money account within 30 calendar days. If you do not qualify for the SoFi Money account, SoFi will offer other payment options. Bonuses that are not redeemed within 180 calendar days of the date they were made available to the recipient may be subject to forfeit. Bonus amounts of $600 or greater in a single calendar year may be reported to the Internal Revenue Service (IRS) as miscellaneous income to the recipient on Form 1099-MISC in the year received as required by applicable law. Recipient is responsible for any applicable federal, state, or local taxes associated with receiving the bonus offer; consult your tax advisor to determine applicable tax consequences. SoFi reserves the right to change or terminate the offer at any time with or without notice.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.


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How Often Should You Check Your Investment Accounts?

In theory, the concept of “set it and forget it” feels pretty ideal with the rise of automated investing apps. But in reality, investment opportunities should come with a sidebar course in willpower and self-discipline. Especially if you have unfettered access to your accounts, your balance, and the ability to change your portfolio 24 hours a day.

The way it’s supposed to work is that you set up your account, then set a reminder to monitor investments (or check in with your financial advisor) in a few months. But we live in an on-demand society where apps send notifications to you in real time and FOMO is real.

Is there a happy medium between going too long without checking that you forget your password and obsessively checking your balance every day? Absolutely—but it’s not an exact science. Read on to find out how to monitor your investment portfolio wisely.

Embracing Your Rational Side

It’s generally not the best idea to stalk your investment accounts. The reason is simple: Investing, especially for retirement, is a long term, rational game, and we’re emotional beings.

Just think about it—401(k) and IRA plans are so committed to this philosophy that they’ll charge you up to a 10% penalty if you withdraw your money before you hit a certain age, and Social Security simply isn’t available until you’re 62.

It’s no secret that the market fluctuates by the day, and watching it roller coaster can be dangerous, since the natural human reaction to a loss is to take whatever money is left and run.

It’s a Nobel Prize-winning theory called loss aversion, and it says that as much as people love making money, they hate losing it more—so much more that the threat of a larger loss in the future overpowers the possibility of big gains. Simply put, a downward market trend can lead investors to the emotional mistake of selling low and buying high.

If this sounds like something you would do, one way to check yourself is to use an investment account, like SoFi Invest®, where you have access to a human who can guide you, help you optimize, and even talk you down if necessary. And if you do have losses that throw you out of balance, the robo-advisor half of the program monitors investments and handles optimization for you—no emotion required.

Another big reason to leave your investments alone is the effect that compounded interest can have on your portfolio over time. Here’s how it works: Your money earns interest (or dividends, in the case of stocks) for a designated time period, and then that growth becomes part of your principal balance.

The next period, you earn interest on that new balance. The gains may be on the small side at first, but after 10 to 20 years, compounding can pay off. But if you get spooked by the market and move your portfolio to cash, that momentum either slows down or stops completely.

Do Some Investments Require More Monitoring?

If you choose to invest in an index or Exchange Traded Fund, your portfolio is set up to represent a cross-section of the market. Often, these funds are rebalanced and optimized automatically by the firms who create them.

If an individual company stock is your preference, checking it less frequently is even more important. And if it’s a headline-grabbing company that’s likely to be analyzed by pundits, one way to avoid emotional mistakes is to leave it be.

If you do notice a drop in an individual stock, take a look at the other stocks in the category—is it just your company that’s down? Or is every company down?

Instead of over monitoring, one way to ensure that your money is working hard for you is to determine your short term and long term financial goals. If you need to build an emergency fund, you’ll want investments that give you access without penalty. If retirement is the end game, you’ll want funds that can benefit you most in the long run.

Does Age Matter?

As a general rule of thumb, younger investors are often advised to go for a more aggressive portfolio for the potential of higher gains. Then, as they age and get closer to retirement, they’ll begin to move their money into moderate-risk funds, and then finally to conservative funds.

Not sure where you fall on that timeline? With SoFi Invest we can help guide you through picking the right portfolio mix based not only on your age, but your targeted goals. And if you’re not sure what those goals should be, check out our generational guide to smart investment strategies.

Regardless of the age you begin to invest, though, it’s important to have a diverse portfolio.

So, How Often Should You Review Your Portfolio?

Experts don’t agree on the specifics, but the general consensus is that less is more. For investors who are saving for retirement over decades, once or twice a year may be sufficient. Some advisors even recommend only checking when you need to make a change to your account.

If you’re a solo investor, your portfolio review should be to ensure that your investments are still on track and appropriate for your age and goals. As you age, your goals are likely to change, so a rebalance will help you stay current.

Let SoFi Do the Heavy Lifting

Unless you’re an investment junkie, DIY rebalancing can be complicated and fraught with risk. A great thing about using auto-investing or a financial planner is that your portfolio is automatically reviewed and rebalanced by professionals.

Learn more about SoFi Invest today!

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


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How Much Money Should I Have Saved by 30?

As you near 30, you probably have lots of different financial goals. Maybe you’re starting to be established in your career and planning to buy a house or a new car. Maybe you’re getting close to paying off student loans and want to save for a big trip. And retirement may seem a long way off, but in reality, it’s never too early to start saving and planning.

You might know you want to save money towards all these different things, but you don’t know exactly how much you should have saved. Even little bits you set aside now can add up, and if you invest that money in a retirement account or an investment portfolio, then the returns on your money can make their own returns. Unfortunately, it can be hard to know if you’re on track and how much you should be saving by 30, 40, 50, and so on.s

According to the 18th Annual Transamerica Retirement Survey , 71% of millennial workers are saving for retirement—which is great news. And a Bank of America survey found that 16% of millennials have $100,000 saved up—which is even better news.

So, How Much Is Enough?

There are a few schools of thought on this subject. Some say you should try to have the equivalent of your annual salary saved by the time you’re 30—including your retirement accounts. Alternatively, T. Rowe Price suggests that you have only half of your annual salary saved by the time you’re 30, and to increase your retirement savings as you age. The goal here is to have ten times your annual salary saved by 60.

Both options could work for you, depending on your other financial goals. T. Rowe Price also suggests another approach—figure out the amount you ultimately want to save, what your financial goals are, and then plan backwards. When are you hoping to retire?

What other goals do you want to save money for—a down payment on a house, your kid’s college fund? What is your annual income and assets? What are your future career plans? Answering these questions could help you come to a number.

Because so much of your retirement and savings benchmarks are personal, another way to think about how much you should be saving by 30 is as a portion or percentage of your overall income.

For example, when you’re just starting off, you might not be able to set aside as much of your income— especially if you’re still paying off student loans or other debt.

By the time you’re 30 (or when you’re making more money), then you might be able to increase the percentage of your salary you’re saving.

This can involve a lot of financial multitasking for various goals. How do you hit all the right targets and stay on track?

How to Set Targets

In order to set savings targets, you’ll likely need to consider your overall budget and your financial goals, and then decide what your priorities are and how much you can set aside for future financials goals after taking care of your immediate financial needs.

A good first step to consider—make a budget and plan out your goals. What do you want to save money for? How much needs to be saved in order to hit those goals?

After you determine your goals, you can plan backwards and start setting aside what you need to save in order to reach them. You might want to look into starting a retirement savings plan—there are more options than just an employer-backed 401(k). For example, you can open a ira savings account in addition to a employer-backed 401(k).

If you have debt, like student loans, then paying that off might be one of your first priorities. Consider paying off the highest interest rate loans and credit cards first and, if it makes sense for you, refinancing to lower interest rates when possible.

Next, you might be thinking of setting money aside for retirement when you’re 30. If your employer offers a 401(k), then it can be a good idea to contribute however much they will match, if applicable. If your employer doesn’t offer a 401(k), then consider another retirement savings account option.

Along with those priorities, you may want to make sure you have three to six months’ worth of expenses in a separate emergency fund, which should stay relatively liquid in case you need to access it for emergencies.

After you address your immediate bills and priorities, you should be able to then look at your budget and figure out how much extra money you can set aside towards medium-term or long-term goals. There are different strategies for saving: You can start with a small amount of money set aside each month, and then increase it slightly until you hit the target you established for your goal.

Instead of just creating one large target, like the amount needed for a house down payment, working backwards to set weekly and monthly targets for yourself can also make it easier to stay on track, as can creating different accounts or portfolios for each of your financial goals. If you set up automatic transfers—for example, a portion of your pre-tax salary can often automatically be put into your 401(k)—then you don’t even have to think about it.

Another strategy is to take money that’s a windfall or that you were already setting aside for one goal, and then save it for something else once you achieve your initial target. For example, if you get a raise, you could put the additional money into a savings or investing account instead of spending it.

Or, once you have established an emergency fund, then you could take the money you had been setting aside each month for that and put it toward your retirement or another long-term financial goal instead.

Don’t forget—when calculating how much you have saved up, count all employer match funds, emergency funds, and anything in various retirement accounts.

Depending on the type of account, the money that goes into retirement accounts could be pre-tax, so the tax savings cut down on the cost of setting aside money.

Investing by 30

Something else to consider when thinking about how much savings you should have by 30 is investing. That way, your money goes beyond stockpiling cash in savings or checking account.

Some research suggests that adults between the ages of 18 and 34 save at higher rates than previous generations, but keep that money in a savings account rather than in investment or retirement portfolios. This may feel like a safer scenario, but it could be costing you money in the long run.

Even if an interest-bearing savings account gives more than 1% return on your money, it might not be enough to keep up with inflation . If the return on your savings isn’t even keeping up with inflation, then you’re technically losing money.

Obviously, any given year the market could go down or up and there’s no guarantee your investments will make money. But, in the long run, investing your money can be a better idea than just holding onto it.

So how much should you have saved by 30 and how much should you be investing? While it depends on your overall financial goals and situation, once you have an emergency fund saved up, consider putting some of the money for your retirement and other long-term plans into investment accounts. That also allows you to vary how aggressive you want to be with different investments, based on when you want to use the money and what for.

How to Invest and Save

Investing can be confusing, and figuring out how much you should have saved by 30 while balancing all your other financial goals can seem overwhelming. This is when a professional can come in handy.

Fortunately, you don’t have to do it alone. SoFi Invest® can be a great resource. The minimum amount to invest is just $100 and there are no SoFi management fees for automates investing. You can also roll over existing retirement accounts.

To get you started, a real human advisor will help you figure out what kind of financial plan makes sense for you—how much money you should have saved, how much you should set aside in a retirement account, how much you should invest, etc. SoFi then tailors an investment portfolio to meet your needs.

Ready to start planning your financial future? Talk to a SoFi Invest financial planner today at no cost.

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The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. Advisory services offered through `SoFi Wealth, LLC. Brokerage products via SoFi Securities, LLC, member FINRA / SIPC .

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