Will Dogecoin Ever Be Capped?

Will Dogecoin Ever Be Capped?

When evaluating a cryptocurrency, such as Dogecoin, it’s important to know whether it has a supply cap, since that can have an impact on the long-term value of the coin.

Bitcoin, the first and largest cryptocurrency by market cap, is known for having a 21 million coin hard cap, meaning there will only ever be 21 million BTC in existence. However, all cryptocurrencies are different and many do not have a supply cap.

Here’s what you need to know when it comes to Dogecoin.

What Is a Cap in Crypto?

A supply cap, or cap, refers to an upward limit on the amount of new cryptocurrency coins that can be created.

Once miners have mined a certain amount of coins, the protocol will stop distributing block rewards, and miners will only collect transaction fees. For Bitcoin, this point is estimated to be reached by about the year 2140.

Recommended: How Many Bitcoins Are Left?

Does Dogecoin Have a Cap?

No, Dogecoin does not have a cap.

This means that whenever the price of DOGE rises, more people will have an incentive to mine for Dogecoins. After they mine Dogecoin, they can move it from their wallets onto a crypto exchange where other investors can buy it. As more miners come online, more of them will dump new coins onto the market, causing the price to fall.

For this reason and others, some have argued that coins like DOGE tend to function as somewhat of a pump-and-dump scheme. Of course, others believe that it’s an important cryptocurrency that can add diversity to a portfolio.

Recommended: Crypto Diversification: Can You Diversify with Crypto?

Will Dogecoin Ever Have a Cap?

Sometimes the crypto community decides to alter the protocol of a currency. An active cryptocurrency needs periodic upgrades to its software to remain functional, relevant, and secure.

But it’s hard to say for certain whether or not Dogecoin will ever have a cap. In theory, DOGE developers could choose to implement a cap on the creation of new coins, but to date there hasn’t been much discussion on this.

For now, it seems reasonable to work from the assumption that there might never be a Dogecoin cap limit.

Has Dogecoin Ever Been Capped?

In the eight years since Dogecoin’s creation, there’s never been a cap on the crypto. In fact, for much of those eight years, no one thought much about DOGE at all and it traded for less than a penny. The meme featuring a Shiba Inu dog was popular in 2014 and 2015, so Dogecoin had some popularity back then.

In 2017 when cryptocurrency began reaching the masses in a big way, the valuation of DOGE hit $1 billion. Many investors considered this a sign of frothiness and irrational exuberance in the crypto markets, as DOGE had no special features (it’s simply a clone of Litecoin, which is a clone of Bitcoin) and hadn’t had a developer update in three years at the time.

It wasn’t until early 2021 that DOGE became ultra-famous amid a wave of high-profile celebrity endorsements, including Elon Musk, Mark Cuban, and Snoop Dogg. Dogecoin then took a seat among the top 10 cryptocurrencies by market cap, a feat few would have thought possible just a year earlier.

3 Reasons Why Dogecoin Doesn’t Have a Cap

Rumor has it that the decision to not cap the supply of DOGE was intentional on the part of developers. They wanted to create a currency that people would be more likely to spend. DOGE was created as a joke, but it was also intended to be used for transactional purposes.

The DOGE developers set out to create a cryptocurrency that would differ from Bitcoin in several key ways. Most if not all of those ways stem from the fact that there is no Dogecoin max supply.

Here are three reasons that are thought to have been big factors contributing to the decision to never implement a cap on Dogecoin.

1. Cheap Transactions

Dogecoin is an altcoin that developers created for spending meant to be spent, so they intentionally made it inflationary.

By contrast, Bitcoin is deflationary, which makes its value relative to inflationary currencies likely to continue rising. As a result, BTC has become more of a store of value investment, making many investors want to HODL it.

If you think your Bitcoin might be worth twice as much next year, you’re less likely to use it to make purchases in the short term. But a currency like DOGE with no supply cap is more likely to be spent. People will use it today, while it still has value, and be less likely to hold it for the long-term as they know it’s unlikely to increase in price.

2. New Coins Forever

It’s estimated that about 20% of all the Bitcoins mined to-date have been lost forever. This happens when people forget their wallet password or lose a piece of physical hardware they used to store Bitcoin. This makes the supply of BTC even more deflationary, as those coins won’t be replaced.

With Dogecoin, there will always be plenty of new coins. Even if someone loses millions of DOGE, the long-term impact is minimal, since there are constantly new coins going into circulation. With no supply cap, lost coins don’t matter as much.

3. Mining Longevity

At some point, there will be no more Bitcoins left to mine. When that happens, the only monetary incentive for mining BTC to keep the network secure will be transaction fees.

But with Dogecoin, there will always be a block reward of 10,000 DOGE. The idea is that this will keep people mining Dogecoin forever.

The large block reward also keeps transaction fees on the DOGE network very low, as miners don’t need to charge high fees for transactions. They know their odds of getting a good block reward are high.

How Many Dogecoins Are in Circulation?

According to CoinMarketCap data, there are about 131 billion DOGE in circulation at this time. Keep in mind, 10,000 new DOGE are mined every minute, so the number will be higher by the time you read this.

It’s also worth noting that more than half of DOGE’s total supply is held by only about 20 different wallet addresses, making it one of the most unevenly distributed of the different types of cryptocurrency.

How Much Dogecoin is Left?

There is an unlimited amount of DOGE left to be mined. Just like U.S. dollars or any other national fiat currency, there’s no upward limit on the creation of Dogecoins. There are some key differences between DOGE and fiat currencies, of course, like the fact that anyone can mine Dogecoin, but only central banks can print money.

The Takeaway

The answer to the question “Will Dogecoin ever be capped?” is likely a “no.” Nothing is for certain, as developers could decide to alter the protocol, but the history of the coin and the ethos of the community surrounding it suggest that they will not enact a cap.

Just as the Bitcoin community tends to value scarcity and a fixed supply cap, the Dogecoin community tends to value low transaction fees, large block rewards, and the other benefits that can arise from not having a supply cap. For investors, there may be a place for both types of cryptocurrency in their portfolio.

Whether you’re interested in a deflationary crypto like Bitcoin or an inflationary crypto like Dogecoin, a great way to get started buying crypto is by opening a brokerage account on the SoFi Invest trading platform. In addition to Bitcoin and Dogecoin, you’ll have access to Ethereum, Litecoin, Cardano, and others to create your crypto portfolio.

Photo credit: iStock/Amax Photo


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 . 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.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
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​​Explaining Asset Allocation by Age

Asset allocation is an investment strategy that helps you decide the ratio of different asset classes in your portfolio, to ensure that your investments align with your risk tolerance, time horizon, and goals.

In other words the way you allocate, or divide up the assets in your portfolio helps to balance risk, while aiming for the highest return within the time period you have to achieve your investment goals.

So what is asset allocation, exactly, and how do you set your portfolio allocation so that it works for you at every age and stage? Let’s start with a quick discussion of different assets.

Understanding Assets and Asset Classes

At its heart, a financial asset is anything of value that you own, whether that’s a piece of property or a single stock. When you invest, you’re typically looking to buy an asset that will increase in value.

The three broad groups, or asset classes, that are generally held in investment accounts are stocks, bonds, and cash. When you invest, you will likely hold different proportions of these asset classes.

Asset Allocation Examples

What are some asset allocation examples? Well, your portfolio might hold 60% stocks, 40% bonds, and no cash — or 70% stocks, 20% bonds, and 10% in cash or cash equivalents. But how you decide that ratio gets into the nuts and bolts of your actual asset allocation strategy, because each of these asset types behaves differently over time and has a different level of risk and return associated with it.

Stocks. Stocks typically offer the highest rates of return. However, with the potential greater reward comes higher risk. Typically, stocks are the most volatile of these three categories, especially in the short term. But over the long term, the return on equities (a.k.a. stocks) has generally been positive. In fact, the S&P 500 index, a proxy for the U.S. stock market, has historically returned an average of 10% annually.

Bonds. Bonds are traditionally less risky than stocks and offer steadier returns. A general rule of thumb is that bond prices move in the opposite direction of stocks.

Recommended: Bonds vs. Stocks: Understanding the Difference

When you buy a bond, you are essentially loaning money to a company or a government. You receive regular interest on the money you loan, and the principal you paid for the bond is returned to you when the bond’s term is up. When buying bonds, investors generally accept smaller returns in exchange for the security they offer.

Cash. Cash, or cash equivalents, such as certificates of deposit (CDs) or money market accounts, are the least volatile investments. But they offer very low (or zero) returns.

What Factors Determine Your Asset Allocation?

There are three basic factors that will affect your asset allocation — your goals, your risk tolerance, and your time horizon.

Goals. Your goals may be short term, such as adopting a child, starting a business, or saving for a down payment on a house in the next year or two. Or they may be long term, like planning ahead for that child’s education or saving for your retirement.

Risk tolerance. Your risk tolerance is how much volatility — i.e., the ups and downs in the market — you can tolerate. This factor is important to get right. If you take on more risk than you’re comfortable with, and the market starts to drop, you might panic and sell investments at an inopportune time.

Time horizon. Finally, your time horizon is the amount of time you have to invest before you need to achieve your goal. This factor can help you determine how much risk you’re comfortable with and influence your portfolio allocation. For example, if you have a long horizon there is more time to ride out the ups and downs in the market — as a result, your risk tolerance may be higher.

You can see how these three factors come together to determine your asset allocation. If you have a short-term financial goal and will need your money relatively quickly — for example, if you’re about to buy that house you’ve been saving for — your risk tolerance will likely be lower, as you don’t want a market downturn to take a bite out of your investments just when you need to cash them out.

On the other hand, if you have a greater tolerance for risk — and if you think you may need more money for a down payment — you may choose a more aggressive allocation (e.g., tilting toward stocks) — in the hope of seeing more growth.

How Do Diversification and Rebalancing Fit In?

The old adage, “Don’t put all your eggs in one basket,” is apt for a number of concepts in investing.

Putting all of your money in one investment may expose you to too much risk. When it comes to asset allocation, you can manage risk by spreading money out over different asset classes that are then weighted differently within a portfolio.

Here is a possible asset allocation example: If your stock allocation was 100%, and the stock market hit a speed bump, your entire portfolio could lose value. But if your allocation were divided among stocks, bonds, and cash, a drop in the value of your stock allocation wouldn’t have the same impact. It would be mitigated to a degree, because the bonds and cash allocation of your portfolio likely wouldn’t suffer similar losses (remember: bond prices generally move in the opposite direction of stocks, and cash/cash equivalents rarely react to market turmoil).

Diversification

Portfolio diversification is a separate, yet related, concept. Simple diversification can be achieved with the broader asset classes of stocks, bonds, and cash. But within each asset class you could also consider holding many different assets for additional diversification and risk protection.

For example, allocating the stock portion of your portfolio to a single stock may not be a great idea, as noted above. Instead, you might invest in a basket of stocks. If you hold a single stock and it drops, your whole stock portfolio falls with it. But if you hold 25 different stocks — when one stock falls, the effect on your overall portfolio is relatively small.

On an even deeper level, you may want to diversify across many types of stock — for example, varying by company size, geography, or sector. One way some investors choose to diversify is by holding mutual funds, index funds, or exchange-traded funds (ETFs) that themselves hold a diverse basket of stocks.

Rebalancing

What is rebalancing? As assets gain and lose value, the proportion of your portfolio they represent also changes. For example, say you have a portfolio allocation that includes 60% stocks and the stock market ticks upward. The stocks you hold might have appreciated and now represent 70% or even 80% of your overall portfolio.

In order to realign your portfolio to your desired 60% allocation, you might rebalance it by selling some stocks and buying bonds. Why sell securities that are gaining value? Again, it’s with an eye toward managing the potential risk of future losses.

If your equity allocation was 60%, but has grown to 70% or 80% in a bull market, you’re exposed to more volatility. Rebalancing back to 60% helps to mitigate that risk.

The idea of rebalancing works on the level of asset allocation and on the level of asset classes. For example, if your domestic stocks do really well, you may sell a portion to rebalance your dometic allocation and buy international stocks.

You can rebalance your portfolio at any time, but you may want to set regular check-ins, whether quarterly or annually. There may be no need to rebalance if your asset allocation hasn’t really shifted. One general rule to consider is the suggestion that you rebalance your portfolio whenever an asset allocation changes by 5% or more.

What is Age-Based Asset Allocation?

The mix of assets you hold will likely shift with age. When you’re younger and have a longer time horizon, you might want to hold more stocks, which offer the most growth potential. Also, that longer time horizon gives you plenty of years to ride out volatility in the market.

You will likely want to shift your asset allocation as you get older, though. As retirement age approaches, and the point at which you’ll need to tap your savings draws near, you may want to shift your allocation into less risky assets like bonds and cash equivalents to help protect your money from downturns.

In the past, investment advisors recommended a rule of thumb whereby an investor would subtract their age from 100 to know how much of their portfolio to hold in stocks. What is an asset allocation that follows that rule? A 30-year-old might allocate 70% of their portfolio to stocks, while a 60-year-old would allocate 40%.

However, as life expectancy continues to increase — especially for women — and people rely on their retirement savings to cover the cost of longer lifespans (and potential healthcare expenses), some industry experts and advisors now recommend that investors keep a more aggressive asset allocation for a longer period.

The new thinking has shifted the formula to subtracting your age from 110 or 120 to maintain a more aggressive allocation to stocks.

In that case, a 30-year-old might allocate 80% of their portfolio to stocks (110 – 30 = 80), and a 60-year-old might have a portfolio allocation that’s 50% stocks (110 – 60 = 50) — so, just a bit more aggressive than the previous 40% allocation.

These are not hard-and-fast rules, but general guidelines for thinking about your own asset allocation strategy. Each person’s financial situation is different, so each portfolio allocation will vary. Following are some additional asset allocation examples for different ages.

Asset Allocation in Your 20s and 30s

For younger investors, the rules of thumb suggest they may want to hold most of their portfolio in stocks to help save for long-term financial goals like retirement.

That said, when you’re young, your financial footing may not be very secure. You probably haven’t built much of a nest egg, you may change jobs relatively frequently, and you may have debt, such as student loans, to worry about. Setting up a potentially volatile, stock-focused allocation might feel nerve-wracking.

If you have a 401(k) at work, this might be your primary investment vehicle — or you may have set up an IRA. In either account you can invest in mutual funds or ETFs that hold a mix of stocks, providing some low-cost diversification without sacrificing the potential for long-term growth.

You could also invest in a target date fund, which is designed to help to manage your asset allocation over time (more on these funds below).

When choosing funds, it’s important to consider both potential performance and fees. Index funds, which simply mirror the performance of a certain market index, may carry lower expense ratios but they may generate lower returns compared to, say, a growth fund that’s more expensive.

Remember that the younger you are, the longer you have to recover from market downturns or losses. So allocating a bigger chunk of your 401(k) to growth funds or funds that use an active management strategy could make sense if you feel their fees are justified by the potential for higher returns.

And of course, you can counterbalance higher-risk/higher-reward investments with bonds or bond funds (as a cushion against volatility), index funds (to help manage costs) or target date funds (which can do a bit of both). Just be aware that the holdings within some funds can overlap, which could hamper your diversification strategy and require you to choose investment carefully.

Asset Allocation in Your 40s and 50s

As you enter middle age you are potentially entering your peak earning years. You may also have more financial obligations, such as mortgage payments, and bigger savings goals, such as sending your kids to college, than you did when you were younger. On the upside, you may also have 20 years or more before you’re thinking about retiring.

In the early part of these decades, one approach is to consider keeping a hefty portion of your portfolio still allocated to stocks. This may be useful if you weren’t able to save much for your retirement in your lower-earning years because you’d be able to add potential growth to your portfolio, and still have some years to ride out any volatility.

Depending on when you plan to retire, adding stability to your portfolio with bonds as you approach the latter part of these decades might be a wise choice. For example, you may want to begin by shifting more of your 401(k) or IRA assets to bonds or bond funds at this stage. These investments may produce lower returns in the short term compared to mutual funds or ETFs. But they can be useful for generating income once you’re ready to begin making withdrawals from your accounts in retirement.

Asset Allocation in Your 60s

Once you hit your 60s and you’re nearing retirement age, your allocation will likely shift toward fixed-income assets like bonds, and maybe even cash. A shift like this can help prepare you for the possibility that markets may be down when you retire.

If that’s the case, you might be able to use these fixed-income investments to provide income during the downturn, so you can avoid selling stocks while the markets are down — as doing so would lock in losses and might curtail future growth in your portfolio. Thus, leaning on the fixed-income portion of your portfolio allows time for the market to recover before you need to tap into stocks.

If you haven’t retired yet, you can continue making contributions to your 401(k) to grow your nest egg and take advantage of any employer match. But you may want to keep the bulk of your 401(k) allocation in bonds, cash, or cash equivalents at this stage, to minimize the odds of suffering losses as you draw closer to your target retirement date.

And if you chose to invest in a target date fund within your retirement account when you were younger, it’s likely that fund’s allocation would now be tilting toward fixed-income assets as well.

Asset Allocation in Retirement

Once you’ve retired it may seem like you can kick back and relax with all of your asset allocation worries behind you. Yet, your portfolio allocation is as important to consider now as it was in your 20s.

When you retire, you’ll likely be on a fixed income — and you won’t be adding to your savings with earned wages. Your retirement could last 20 to 30 years or more, so consider holding a mix of assets that includes stocks that might provide some growth. Keeping a modest stock allocation might help you avoid outliving your savings and preserve your spending power.

While that may sound contrary to the suggestion above for pre-retirees to keep more of their assets allocated to fixed-income, the difference is the level of protection you might want just prior to retirement. Now as an official retiree, and thinking about the potential decades ahead, you may want to inject a little growth potential into your portfolio.

It might also make sense to hold assets that grow faster than the rate of inflation or are inflation-protected, such as Treasury Inflation-Protected Securities, or TIPS, which can help your nest egg hold its value.

These are highly personal decisions that, again, go back to the three intersecting factors that drive asset allocation: your goals, risk tolerance, and time horizon. There’s no right answer; the task is arriving at the right answer for you.

What’s the Deal with Target Date Funds?

One tool that some investors find useful to help them set appropriate allocations is a target date fund. These funds, which were described briefly above, are primarily for retirement, and they are typically geared toward a specific retirement year (e.g. 2030, 2045, 2050, and so on).

Target funds hold a diverse mix of stocks and fixed-income investments. As the fund’s target date approaches, the mix of stocks and bonds the fund automatically adjusts to a more conservative allocation — a.k.a. the fund’s “glide path.”

For example, if you’re 35 and plan to retire at 65, you could purchase shares in a target-date fund with a target date 30 years in the future. While the fund’s stock allocation may be fairly substantial at the outset, as you approach retirement the fund will gradually increase the proportion of fixed-income assets that it holds.

Target-date funds theoretically offer investors a way to set it and forget it. However, they also present some limitations. For one, you don’t have control over the assets in the fund, nor do you control how the fund’s allocation adjusts over time.

Target funds are typically one-size-fits-all, and that doesn’t always work with an individual’s unique retirement goals. For example, someone aggressively trying to save may want to hold more stocks for longer than a particular target date fund offers. Also, as actively managed funds, they often come with fees that can take a bite out of how much you are ultimately able to save.

What is Risk Tolerance–Based Asset Allocation?

Risk tolerance–based asset allocation involves shaping your portfolio based on the level of risk you’re most comfortable with. For example, if you fit into the aggressive investor risk tolerance profile, that means you may commit a larger share of your portfolio to stocks and other higher-risk investments.

On the other hand, you may have a smaller asset allocation to stocks if you lean more toward the conservative end of the spectrum. The style of investor you are will likely shift throughout your lifetime. As discussed above, different life stages bring new concerns and priorities to mind, and this will naturally change how you view your asset allocation.

One thing that’s important to understand when basing asset allocation on risk tolerance is how that aligns with your risk capacity. Your risk capacity is the amount of risk you must take to achieve your investment goals. This is important to understand for choosing assets based on risk tolerance to find the right portfolio allocation.

If you have a low risk tolerance, but a higher risk capacity is required to achieve the investment goals you’ve set, then you may be at risk of falling short of those goals.

Meanwhile, having a higher risk tolerance but a lower risk capacity could result in taking on more risk than you need to in order to achieve your investment goals. Finding the right balance between the two is key when using a risk tolerance based asset allocation strategy.

The Takeaway

While many investors spend time researching complex issues like bond yields and options trading, understanding and executing a successful asset allocation strategy — one that works for you now, and that you can adjust over the long term — can be more challenging than it seems.

Although asset allocation is a fairly simple idea — it’s basically how you divide up different asset classes in your portfolio to help manage risk — it has enormous strategic implications for your investments as a whole. The three main factors that influence your asset allocation (goals, risk tolerance, and time horizon) seem straightforward enough as separate ideas, yet there is an art and a science to combining them into an asset allocation that makes sense for you.

Like so many other things, arriving at the right asset allocation is a learning process, and one way to get started is by opening a brokerage account with SoFi Invest®. As a SoFi Member, you will have access to different tools and investments that can help you set your portfolio allocation — and you’ll have complimentary access to financial advisors.

If you’re ready to start investing your way, check out SoFi Invest today.


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 . 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.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
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 [email protected] 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.
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Financial Planning

Should I Invest if I Still Have Debt?

As you start to establish yourself financially, you may come to a crossroads: should you pay off debt or invest in your future? It can be confusing to know what to do in this situation, especially if you have multiple financial goals you’re saving toward.

The first step is to look at the numbers, then to consider your preferences. There is no one “right” answer to this question. Let’s start by taking a look at the numbers around major financial milestones like your student loan, buying a home, and saving for retirement.

Let’s say your student loan is $75,000. Buying a new home might cost $350,000, and you might plan to need $2,000,000 for a comfortable retirement. Everyone’s numbers will look a bit different, so feel free to take some time to calculate yours.

Once you’ve put your estimated numbers on a page, what jumps out at you? It’s hard not to notice that retirement is quite a bit more expensive than the others. This isn’t too much of a surprise if you consider what retirement is: living for decades with no salary.

While you might be tempted to put all your extra income immediately into your retirement fund, it’s not necessarily the winning decision when it comes to whether to pay off loans or invest. Let’s look deeper.

How Important is Paying Off Your Student Loans?

If you’re like the average student, you’ve borrowed $30,000 or more to pursue a bachelor’s degree . If you went on to graduate school, your student loan debt may be even higher.

Most federal student loans have a repayment period of 10 to 30 years. You may opt to make the minimum payment each month for the duration of your loan repayment plan, or you might decide to pay yours off early.

One benefit to paying off a student loan early is that you reduce your debt to income ratio (that’s how much debt you have compared to how much income you have). This might raise your credit score and help you qualify for other financial solutions.

Or, you might decide to continue paying your student loan while investing in other areas of your life, like retirement or buying a home.

Know Your Student Loan Interest Rates

Before you can decide whether to pay off student loans or save for other things, look at what you’re paying in interest for your student loans. If the rate you locked in when you took out your loan is higher than current rates, you might consider refinancing. If you have multiple student loans, you could potentially consolidate and refinance them for a lower interest rate.

Of course, it’s important to keep in mind that refinancing federal student loans means you’re no longer eligible for federal benefits and protections, like income-driven repayment or loan forgiveness programs, so it makes sense to weigh the potential benefits and risks of refinancing before taking the plunge.

Comparing interest rates is an exercise in opportunity cost. Any decision to pursue one goal means you’re missing out on something else, but ideally, we look to minimize opportunity costs when assessing financial trade-offs. In this instance, the opportunity cost is leaving potential investment earnings on the table.

Let’s say you recently refinanced your student loan from 5% to 3.5%. Given the competitive rate on your newly refinanced student loan, you could consider continuing to make the monthly payment on your loan and allocating the extra cash flow elsewhere — like investing for retirement or buying a home.

Remember, we want to think about interest rates in terms of opportunity cost. What would it look like if you paid off your loan early? Your student loan costs you 3.5% annually, and that’s what you’ll “save” if you accelerate your payoff by $500 per month.

Once you paid off the loan early, you could invest your money in an asset class — such as the stock market — with the potential to earn a rate of return that’s higher than 3.5%. Historically, the stock market has returned an average of 10%. This investing can be done within a retirement account, whether a 401(k) or an IRA.

That said, stock market returns are erratic, and the annualized return figures you often hear quoted are just that — an average. Investing is risky, and there is always a chance that returns over the next five, 10, or 20 years will not outpace the interest that you are currently making on your student loan payment.

No one, not even a financial planner, has a crystal ball and can see into the future. This is why we also need to take into account your personal preferences.

If you feel like you are truly missing out on investing in an IRA or saving for a home, then investing in those things might be the right path for you. If your student debt makes you feel burdened and miserable, you could focus on that instead.

Paying Off Student Loans vs. Investing

“So, should I pay off student loans or invest,” you ask.

The answer is…it’s complicated.

Student loans often come with low interest rates, which means you’re not paying a huge amount of extra money over the years (like you would with a credit card, for example). So it’s low-cost debt. That means that if you want to invest in other areas of your life, such as saving for retirement or to buy a house, you may be able to do both.

Contributing to a Retirement Account

Many Americans are vastly under-saving for retirement, and with so many employers offering a 401(k) matching program, not contributing is like throwing money down the drain.

There is no standard for match programs — they can range from meager to generous. Between your contributions and your employer’s, it is often recommended that you save between 15% and 20% of your salary for retirement. You can do this by contributing the full allowable amount to your 401(k), which is $19,500 in 2021.

If you don’t have access to a 401(k) — perhaps you’re self-employed — you can save for retirement with other investment accounts like an online IRA or a brokerage account. No matter which account you use, you might want to consider putting that money to work with a long-term investment strategy. For example, you might choose to deploy a strategy of low-cost mutual funds that invests in stocks and bonds.

Buying a Home

Financial planners don’t all agree on whether a home is a good investment. That is not to say that a home is not a good financial goal; if it’s a priority to you, then it’s great. This is simply a commentary on whether a home produces a good return on investment.

Although a house may not have as high an investment return as other asset classes, such as the stock market, a house provides something that a stock or bond cannot — immediate utility. You cannot sleep and eat inside a stock or a bond.

While home values do typically grow over time, you must also take into consideration the costs of buying and owning a home, such as the interest paid on the mortgage, property taxes, and repairs and maintenance. That said, homeownership can be rewarding, and can pay major dividends down the line. One big benefit is having no monthly housing expenses (like rent or a mortgage) in retirement.

The Takeaway

There is no hard and fast rule when it comes to investing while juggling debt. Undoubtedly, the biggest ticket item you’ll need to invest for is retirement — but whether you invest in retirement before or after paying down debt depends on your personal preferences and situation.

One thing to remember: Financial tradeoff decisions don’t always have to be all-or-nothing. You might choose to split the difference by putting a little here and a little there. For example, you might contribute $300 per month to your 401(k) and $200 to a high-yield savings account for your down payment for a house, all while paying off student loans.

With SoFi Invest®, you can invest in traditional and Roth IRAs, crypto, or ETFs, with hands-on active investing or automated investing. The choice is yours — based on your personal situation, goals, and preferences.

Find out how to invest for your future with SoFi Invest.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . 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.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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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.

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.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
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 [email protected] 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.
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How to Start Investing in Stocks

How to Start Investing in Stocks

Stocks are units, or shares, of ownership in a company. To start investing in stocks, you would find a company that you like and think might grow in value — and then purchase its stock. If the price of the stock rises, you could sell your shares and potentially make a profit — or not, if it doesn’t.

Of course, when it comes to investing for beginners you need to learn some basics in order to invest in stocks and do it well.

Thanks to technology — and handy step-by-step guides like this one — you can get started by using an app or online brokerage account, and learn as you go. It has never been easier to build investing confidence as you gain experience.

Here, a step-by-step guide for those who want to start investing in stocks now.

How to Choose an Investing Account

How to start investing in stocks? There are different ways that might make sense for you, depending on your comfort level and your goals.

A brokerage firm. The first option is through a brokerage account. A brokerage account gives you a platform on which to buy and sell securities. Brokerage firms will typically charge a fee for the service either in the form of a per-trade fee or a per-security commission. A brokerage often offers additional services such as investment advice, portfolio management, as well as banking. Typically, full-service brokerages offer more services but at higher overall costs, while discount brokerages maintain scaled-down services with lower overall costs.

An online brokerage. If you feel confident or curious enough about how to start investing to try it on your own, opening an account with an online broker could be a great place to start. Many online brokers offer the convenience of an app, which can make investing simpler and more streamlined.

A robo-advisor. If you’re interested in investing, but you’d like some help setting up a basic portfolio, opening a robo-advisor account might work for you. A robo account uses a sophisticated computer algorithm to help you pick investments, and then manage them. These automated accounts generally don’t offer individual stocks, but rather a mix of funds (more on stocks vs. funds below). Nonetheless, it’s a way to become more familiar with the investing world.

A retirement account. Whether you have access to an employer-sponsored account like a 401(k) or you’ve set up a traditional or Roth IRA, a retirement account is typically held at a bank or financial institution that may offer you a range of investment choices, including individual stocks. You may also have access to tutorials, advisors or other resources that can help you learn more about how to start investing in these accounts.

No matter where you decide to open your investment account, be sure to ask if there are any investment fees associated with the account. Although investment costs can be quite low — and you can trade stocks without paying a commission — any investment fee can add up over time and ultimately reduce the amount you may earn from your investments.

How to Start Investing in Stocks: Know Your Options

Investing for beginners is really about understanding a few fundamentals. While stocks are shares in a single company, funds are set up like baskets or big investment portfolios that contain dozens or even hundreds of different stocks or other securities (e.g. bonds, commodities). When you think about how to start investing in stocks, remember that stocks and funds each offer their own potential advantages and disadvantages.

1. Understanding Stocks

In general, the whole reason for investing is to earn money. In investor lingo, investment earnings can be called gains, profits, or returns. Most people use the word “returns” to mean a gain, but there is also such a thing as “negative returns,” which refers to losses.

Rate of return refers to the net gain or loss of an investment over a certain time period, expressed as a percentage of the investment’s initial cost.

With stocks, you can earn money in two ways: price appreciation and dividends. Price appreciation is when the price (the value) of a stock increases over time. For example, if a stock’s value increases from $10 to $12, that’s a $2 or 20% profit.

How to get into stocks? There are two types of stocks: common stocks and preferred stocks. Common stocks are what you’re probably thinking of when you consider investing in the stock market. It’s essentially a piece of a company referred to as a “share” that gives you voting rights within that company (usually one vote per share), and may provide dividends as the company grows.

Dividends are a form of profit sharing. When a company pays dividends, it’s usually a quarterly or monthly cash distribution or payment (although in some cases you might earn additional company stock). You can learn more about dividend-paying stocks here, but the advantage is that these regular payouts could provide you with some income.

Preferred stocks, on the other hand, don’t come with voting rights. However, shareholders of preferred stocks are the first to receive dividend payouts.

If you choose to invest in individual stocks and they pay out a dividend, you will need to decide how you would like to handle the dividend.

One option is to simply transform the dividends into cash and use it to supplement your income. This strategy is generally used by older investors rather than younger ones.

You could also use the dividends to purchase different security or additional shares of the security that generated it.

If you choose the latter, you may want to utilize a Dividend Reinvestment Program (DRIP). A DRIP allows you to repurchase shares (including fractions of shares) as dividends are generated. Utilizing a DRIP is typically commission-free and ensures that you are fully invested in the stock. Most brokerages offer DRIP services.

Another way to invest in stock is by purchasing directly through the company itself or through its designated transfer agent. This will allow you to hold the shares in your name (rather than the name of a brokerage, also known as a “street name”). But you can expect higher costs and less convenience. Most publicly traded companies list their transfer agent on the “investor relations” section of their website.

2. How to Buy Individual Stocks

This method requires a fairly significant amount of research into individual stocks themselves. If you go this route, you might want to do a deep dive into a company’s inner workings to understand the company’s overall valuation and the price the stock is currently trading at.

Even though we’re talking about investing for beginners, you might want to get comfortable reading a company’s balance sheet and other financial statements. All public companies are required to file this information with the Securities and Exchange Commission (SEC), so you won’t have trouble finding them.

One of the most basic metrics for understanding a stock’s value as compared to company profits is its price-to-earnings (PE) ratio. Others include the price-to-sales (PS) ratio and the price/earnings-to-growth (PEG) ratio, which may be helpful for companies that have little to no profits but are expanding their businesses quickly.

If there’s a company whose share price is out of an investor’s reach, one possibility is to invest via fractional shares, which is like buying a slice of a company’s stock instead of the whole share.

One advantage of owning individual stocks is that you can get direct exposure to a company you believe has the potential to grow. The downside, of course, is that investing doesn’t come with any guarantees, and the value of your stock could also decline.

4. Investing in Funds

When you’re thinking about how to get into stocks, another option is to purchase an investment fund such as a mutual fund or exchange-traded fund (ETF). A fund is a basket of various assets, like stocks or bonds, that can offer a more stable and simplified investment experience at a lower cost.

While there are some structural differences, mutual funds and ETFs serve a similar purpose — to help investors achieve diversified exposure to a particular market sector, like the biggest companies in the U.S. or green energy companies or consumer goods.

Because funds contain a multitude of stocks, the value of the funds you buy tends to rise and fall according to the securities it holds in its portfolio. So when you buy a share of a fund, like a share of stock, the value (price) will go up or down.

Index funds, in particular, have become increasingly popular because of their low-cost structure and for generally outperforming their actively managed counterparts. An index fund, whether an index mutual fund or an index ETF, is designed to invest in an index that tracks a certain part of the market.

For example, an S&P 500 index fund invests in 500 of the largest companies in the United States — and thus reflects the constituents of the S&P 500 index itself. With the purchase of just this one fund, an investor is likely to see returns that mirror the 500 companies in the index in aggregate.

A benefit to investing in stocks via funds is that you can avoid some of the risk of being invested in individual stocks that may not perform well. Additionally, index funds may be a more affordable way to invest in the stock market.

While most index funds do carry an annual management fee (called an expense ratio), this can be quite low compared to managed mutual funds.

Whether investing in individual stocks or funds, you may want to think about the level of diversification that feels right for you. There is no consensus about the right way to diversify investments. For one person, proper diversification could mean owning 20 stocks. For another, it could mean owning the “whole” market via a handful of mutual funds.

Just remember that anytime your investments are focused on narrower areas of the market, such as owning only a handful of individual stocks or only investing in certain industries (e.g. healthcare, telecomm, pharmaceuticals), you may be taking on additional risk. But with that risk may come the potential for added reward.

FAQs

Are stocks a good investment for beginners?

Investing for beginners can seem overwhelming, and because of this stocks can be a great starting point. Other asset classes, like bonds or commodities, can be quite complicated even starting out. But investing in stocks can be as straightforward as opening an account, selecting the company you’re interested in, and buying one or more shares.

These days, as noted above, you can also invest in fractional shares of company stocks. This allows you to purchase part of a share, if the cost of a full share is too high.

As you gain experience investing in stocks, you’ll be able to make use of more complex trading strategies, like options trading — or you may want to venture into different market sectors, or international stocks.

How should I decide where to invest my money?

It depends on your individual circumstances, but here are some factors to consider as you decide where to invest:

• Are you more confident online, navigating a DIY website or app, or do you think you might want some personal help? Make sure you pick a platform that has the services you want, and the same goes for a human advisor.

• What are the fees involved? As we mentioned above, there are many affordable options for investors today, so that’s an important question to ask, as investing costs impact your returns.

• How is the investing experience? You want to feel comfortable making trades, and that there are resources to help answer any questions.

• Does the platform give you access to the types of investments you want (e.g. ETFs, individual stocks, fractional shares, municipal bonds, crypto).

Can I invest if I don’t have much money?

Yes! In fact, these days it’s much easier to invest even if you only have a few bucks at a time.

Low trading fees. Look for investing apps and brokerages that offer low or no trading fees or commissions.

Fractional shares. These allow you to invest smaller amounts in a stock you like.

Invest in your 401(k). An employer-sponsored plan allows you to invest relatively small amounts, and the funds are deducted from your paycheck pre-tax, which effectively gives you more money to invest. If your employer also offers a matching contribution, that’s like getting free money.

What stocks should I invest in?

Again, this is a highly personal choice. But as noted earlier, doing research into the companies you’re considering is very important. The old saying to “invest in what you know” isn’t necessarily the best advice. You might love Company X, and you might use their products frequently, but your own preferences won’t help you analyze the company’s assets and liabilities and get a clear picture of how well Company X is really doing.

Is stock trading for beginners?

Absolutely. Sometimes the word “trading” can bring to mind certain high-stakes, fast-paced environments, where Wall Street traders are brokering big deals. While that world exists, so does the world of individual traders, many of whom are beginners like you. Anyone can start with a little money and a willingness to learn, and that can open up new opportunities.

The Takeaway

Investing in the stock market historically has been a way that some individuals could build personal wealth, and these days it’s never been easier for new investors who are thinking about how to get into stocks to get started. Whether you choose to work with a financial advisor or use an online broker or app, there are a number of ways to find a method that makes stock investing easy, fun, and potentially profitable. Of course, there are no guarantees, so that’s why it’s smart to take a step-by-step approach, start small if you prefer, do some research using the many resources available, and see what comes as you gain experience and confidence.

Investors can open an account with SoFi Invest® and start to buy and sell individual stocks, ETFs or fractional shares while paying commission. For those who are interested in investing in stocks through a more hands-off approach, the Automated Investing service builds, manages and rebalances portfolios at no SoFi management costs. Plus, SoFi Members have access to complimentary financial advisors who can answer questions for no additional fees.

Start investing with your SoFi Invest account today.


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 . 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.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
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 [email protected] 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.
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.

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