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The Importance of Time Value of Money

Imagine a scenario where someone is gifting you $10,000. You can have the money now, or you can have the money in five years. Which would you choose?

Most people would take the money now, and not just because a tropical vacation now is a heck of a lot more enticing than a tropical vacation in five years. Money received now can be invested during those five years, earning a rate of return. That money could be used to pay off debt, saving in interest costs.

If you’ve ever heard the expression “a dollar today is worth more than a dollar tomorrow,” then you’ve had an introduction to the time value of money principle. It’s an important concept for investors to understand when making decisions about their investing strategy and whether to put money into a particular security.

What Is the Time Value of Money?

The time value of money is the relationship between a dollar at one point in time and the value of that same dollar at another point in time. For example, $50 today likely won’t have the same value as $50 a year from now, just as $1 million now is not the same as $1 million 20 years ago.

Several forces are at play here. First, there is the potential for both interest to be earned (on an investment) and income to be paid (on debt). Inflation, the rising of prices over time, is also a consideration. As goods get more expensive, each dollar can accomplish less.

The time value of money is a framework for comparing lump sums of money and/or periodic payments across different time frames. Dollars can be future, present, or past.

The time value of money may seem like a purely academic concept, but has plenty of real-world applications. (And not just in a hypothetical gift of $10,000 paid to you by some long-lost aunt.) The time value of money is used in personal finance, real estate, and investing decisions.

How Does Time Value Work?

The time value of money can look at both the present and future value of money and the value of cash flows. It allows both institutional and retail investors to compare payments or sums of money over different time frames.

To determine the value of money over time, investors use a formula that takes into account the present value and future value of a specific amount, and how it will change over time.

What is the Time Value of Money Formula?

There are two main ways to calculate the time value of money, but in any given situation there are ways an investor might calculate it differently. When compounding interest is involved the calculation can be more complex, but there are online calculators available to help with this.

If you’re determining the value of money to a current dollar amount, that is called a present value calculator. To calculate the present value (PV) of a future cash flow, the formula is:

PV = FV / (1 + i) n

If extrapolating the value of a dollar amount in the future, this is called a future -value calculation. To calculate the future value (FV) of cash flow from the present value:

FV = PV x (1 + i) n

Where:

• PV – Present Value

• FV – Future Value

• i – interest rate

• n – number of periods

If there are multiple times per year when interest compounds, the formula can be changed to:

FV = PV x (1 + i/n) ^(n x t)

Where:

• i – annual interest rate

• t – number of periods (years)

• n – number of compounding periods of interest per year

If interest compounds daily, monthly, quarterly or yearly can have a big effect on the TMV calculation.

There are always two sides to the value of money equation: a giver and receiver, payer and payee, or borrower and lender. The calculation can be used on either side, to figure out money flowing in or out.

The different variables involved when calculating compound returns are the rate of return, the duration, the frequency of compounding, inflation, and the principal amount invested. A compound returns calculator can help with figuring out how all these factors affect one another.

Time Value of Money and Compound Returns

For the individual investor, there is perhaps no way in which the time value of money is more important than with earning compound returns.

To earn compound returns is to earn a rate of return on both the initial principal invested and all previous profits. As profits grow, so does the potential to earn more and more—and all that this exponential growth requires is that you stay invested.

The key to harnessing the raw power of compound returns is to spend as much time invested as possible. Each year of positive returns is fuel for greater future returns. This can be hard for investors to wrap their heads around because the most powerful results can take decades to reveal themselves. To understand compound returns, it helps to start with a comparison to simple returns.

Comparing Simple Interest to Compound Interest

With simple returns, a rate of return is produced on the principal investment in each period. An example is a bond that pays a 5% rate of return on $1,000 each year for five years. Each year, the bondholder receives a $50 payment ($1,000 x 5%). The amount is not reinvested, and the $1,000 principal is returned at the end of the five years. The investor makes a total profit of $250 (5 x $50).

Compare that to a 5% compounding rate of return. Envision a $1,000 investment in a stock. Each year, the investment grows by 5%. After the first year, the stock is worth $1,050. In year two, that 5% rate of growth applies to both the initial $1,000 investment and the $50 profit from the first year, resulting in a profit of $52.50. The investor is earning a rate of return on a bigger sum of money with each passing year (assuming only positive growth)—without adding money.

At the end of the five years, the investor’s initial $1,000 investment has grown to approximately $1,276. This is a total profit of $276, compared to simple interest’s $250. While this might not seem like much, this gap will continue to grow as compound return growth increases.

Factors Affecting Compound Returns

There are four variables at play when calculating compound returns: the rate of return, the principal invested, the duration, and the frequency of compounding. (Does compounding happen monthly? Annually?)

Check out a compound returns calculator for a better understanding of how these variables interplay. What you’ll find is that all factors can have a powerful impact on the outcome.

Investors should also consider inflation. Inflation, or rising prices over time, also has a compounding effect. There is certainly a time value of money formula for inflation, though in this context it might be easier to simply subtract the expected rate of inflation from the expected rate of investing returns.

You do not have to invest in an individual stock to harness the power of compound returns. The effect works with any investment where the profits are reinvested, whether automatically or manually.

How Does Inflation Impact the Time Value of Money?

Another reason that money is worth more in the present than in the future is because of inflation. As time goes on, inflation pushes down the purchasing power of money. So the same amount of money can’t buy as many goods in the future as it can today. However, invested money that gains more than the rate of inflation won’t lose value.

Recommended: Is Inflation a Good or Bad Thing for Consumers?

Real Life Applications for TVM

Investors use the time value of money to understand the worth of money in relation to time, which helps them understand the value of their funds in the present and the future and how to invest them. Factors such as interest rates, inflation, and risk all affect investments over time, so having formulas to help make decisions is a useful tool.

For example, say an investor has a choice between two different projects to put money into. The two projects are identical except the first project offers a $1 million cash payout in one year, and the second project offers the same payout in five years. At first glance, it might seem like the two projects are the same, but the first project is a better investment because it pays out sooner, giving it a higher present value.

Discount Rate

It’s important to choose a rate of return, or discount rate, that makes sense for the situation when calculating the time value of money. The Weighted Average Cost of Capital (WACC) is a popular choice of rate. If the rate used is incorrect, the calculation will not be accurate or useful to an investor.

Sinking Funds

There is also the option to use the TVM calculation for “sinking funds.” If you’re saving up for something in the future and know how much you need to save, you can figure out how much you need to save each month or year to reach that goal if you are earning interest on those savings.

Real Estate Investments

An investor might look at a property in a high-growth neighborhood and predict that it will be worth a certain amount in five years, but they want to calculate whether it is actually a good investment. They can use the TVM calculation to discount that estimated future value to find out the current value and see how the two compare.

The Takeaway

The Time Value of Money is an important calculation for investors to use when building a portfolio. It can help you evaluate a potential investment to determine whether it might make sense for you.

One great way to get started investing is by opening an account on the SoFi Invest® brokerage platform. The platform allows you to research, track, and buy and sell stocks right from your phone. You can add all your banking and investment accounts to easily see your financial information in one simple dashboard, and even set goals for your finances.

The app offers both Active and Automated investing. With Active Investing, you can pick and choose each stock you want to invest in. Using Automated Investing, you can choose from groups of pre-selected stocks and ETFs. If you have any questions, SoFi has a team of professional financial advisors available to help you get started.


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.

Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
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.
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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How to Invest in Gold: Tips for 1st Time Gold Investors

At some point or another, you’re bound to ask yourself: Is gold a good investment? Investing in gold is something many investors seem to consider, whether as a hedge against inflation or market downturns, or just to further diversify their portfolios.

But investing in gold, especially for first-time investors, isn’t as simple as it seems. One reason is that there are so many ways to invest in gold, each with their own pros and cons. Nevertheless, that hasn’t stopped investors from turning to this commodity again and again.

In this article we’ll explore the enduring appeal of this precious metal, the different ways to invest in gold, and the future of gold’s value.

Why Investors Like Gold

Historically, investors have turned to gold as a way to hedge against the possibility of inflation, or against the possibility of events that could negatively impact the equity markets. And while it can be just as volatile as stocks in the short term, gold has historically held its value very well over the long term. Even investors who are not particularly concerned about inflation or about calamities affecting the broader market, may turn to gold as a way to diversify a portfolio.

5 Ways to Invest in Gold

For anyone considering investing in this precious metal, it can be helpful to familiarize yourself with the different ways one can invest in gold.

Buy Physical Gold

When thinking of ways to invest in gold, the first image that may come up is piles of gold bars in a place like Fort Knox. Those bars are also known as bullion, and it comes in bars that can be as small as a few grams, or as large as 400 ounces. The most common denominations of gold bullion are in one- and 10-ounce bars.

For many investors, even the one-ounce bars can be too expensive — roughly $1,700 per ounce in mid 2021. And because the bullion is a physical item, there’s no easy way to own a fraction of a bar. But if you do want to own bullion directly, the first order of business is to find a reputable dealer to buy from, and then look into the costs of delivery and insurance for the asset. Another option if you buy bullion is to pay for storage, either in a large vault or in a safe deposit box at a bank.

Buy Gold Coins

Gold coins offer another way to directly own the shiny yellow metal, in a variety of denominations including half-ounce and quarter-ounce. Well-known gold coins include South African Krugerrands, Canadian Maple Leafs, and American Gold Eagles, which have been known to sell at a premium to their actual gold content among collectors.

While you may be able to buy gold coins at a discount from local collectors or pawn shops, most investors will likely opt for a reputable dealer. As with bullion, it is important to protect this hard asset, either through insurance, or with a vault or safe deposit box.

Buy Gold Jewelry

If you don’t want your gold investment to just sit in a vault, then gold jewelry may be appealing. But it comes with its own considerations. The first is that gold jewelry may not have as much actual gold content as the jeweler claims. Verifying the authenticity of a piece not only protects you, but it will also help when it comes time to sell the piece. One way to do this is to only buy jewelry from reputable dealers, who can also deliver documentation about the piece.

Another point to remember is that a piece of jewelry will also come with a markup from the company that made it, which can make the piece cost as much as three times the value of its metal. And jewelry typically isn’t 100% pure gold — or 24 karats — so it’s important to know the purity and melt value of the jewelry before you buy.

Buy the Stocks of Gold Mining Companies

One way to take advantage of growth in the value of gold with just your existing brokerage account is to buy the stocks of companies in the gold business, including miners and refiners.

Recommended: How to Open a Brokerage Account

While gold stocks tend to go up and down with the price of gold, they may also experience price changes based on the company’s own prospects.

Buy Gold ETFs and Mutual Funds

If the risks or individual mining and refining companies are too much, you may want to consider a gold exchange-traded fund (ETF) or mutual fund. These vehicles — which are available through one’s brokerage account — invest in gold in different ways.

Buy Gold Futures and Options

Investors with some familiarity trading derivatives may consider finding exposure to the gold market through futures and options. These contracts allow the investor to buy or sell gold for an agreed-upon price by a fixed date. To trade these contracts, an investor needs a brokerage account that offers the ability to trade them.

An investment in gold options or futures contracts, however, requires active monitoring. These contracts expire on a regular basis, so investors have to be ready to sell, roll over, or exercise them as gold prices change, and as the contracts reach their expiration dates.

What Will Gold Be Worth in 2030?

Predicting the future price of an idiosyncratic and volatile commodity like gold is all but impossible. In 2020, gold increased in value by 24.6% in U.S. dollars, and reached all-time highs in a number of currencies, in anticipation of a coming wave of inflation.

In its annual In Gold We Trust report , asset manager Incrementum stated that “should inflation rise significantly in the coming years, we believe that five-digit gold prices are conceivable at the end of the decade,” and put its conservative estimates at $4,800 per ounce by 2030.

One reason why gold investors believe the precious metal has such strong prospects is the widespread sense that the broader economy is entering an inflationary period. The latest consumer price index (CPI), the most popular measuring stick for the prices that Americans pay for goods and services, revealed that inflation is becoming a bigger factor for consumers, and for investors.

The prices tracked by the CPI increased by a staggering 5.4% in July of 2021, versus their levels a year before. Those increases were led by sharp rises in food and fuel costs. The CPI increase tied with the previous month as the highest jump in consumer prices in 13 years.

The Takeaway

Investors interested in gold typically gravitate toward it as a hedge against inflation or as a means of diversifying their portfolios. Those who want access to this precious metal have some choices: They can buy bullion, coins, jewelry, mining stocks, ETFs, mutual funds, futures, and options.

Interested in building your own portfolio? Try opening an online brokerage account. SoFi Invest® offers an active investing solution that allows you to choose your stocks and ETFs without paying SoFi commissions. SoFi Invest also offers an automated investing solution that invests your money for you based on your goals and risk, without charging a SoFi management fee.

Find out how to get started with SoFi Invest.


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.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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.
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.
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Morningstar Ratings: What Are They & Are They Accurate?

Morningstar is a highly regarded financial services firm whose mission revolves around providing investors with the research and tools they need to make informed decisions in their portfolios.

Those tools, used by individual investors as well as institutional investors and financial advisors, include Morningstar fund ratings, which can help investors gauge how well various mutual funds and exchange-traded funds (ETFs) have performed over time.

But if you’re a new investor, you may have questions like:

• What is Morningstar rating and how is it determined?

• How much do Morningstar ratings matter for selecting mutual funds or ETFs?

• What does Morningstar rating mean when comparing one fund to another?

Taking a deeper look at Morningstar’s fund ratings system and how it works can help investors to decide how reliable it is and how to use the ratings when making investment decisions.

Recommended: Building an Investment Portfolio

What Is the Morningstar Rating?

This is a common question among beginner investors. In simple terms, the Morningstar ratings system is a tool investors can use to compare mutual funds and ETFs. And if you’re wondering whether Morningstar ratings are legitimate, the answer is yes. Even FINRA, the Financial Industry Regulatory Authority, using Morningstar ratings in its Market Data Center .

Morningstar reviews of mutual funds and ETFs reflect different metrics, depending on which ratings system is being applied. The main Morningstar ratings investors may turn to learn more about a particular investment are the Star Ratings and Analyst Ratings. (Morningstar also has a separate ratings system for individual stocks.)

The most recent Star Ratings are free to access, but the Analyst Ratings require a subscription that ranges from $29.95 per month to $449 for a three-year term. In addition to the analyst ratings and reports, a subscription will give you access to a dashboard to track your investments. You may also be able to access similar tools for free from other providers.

You can use these ratings to select from the funds available in your 401(k), or to decide which funds to add to an IRA or a taxable brokerage account.

Recommended: How to Open Your First IRA

The “Star Rating” Explained

The Morningstar Star Rating system, more simply referred to as star rating, is a quantitative ranking of mutual funds and ETFs. Introduced in 1985, the star rating looks backward at a fund’s past performance, then assigns a rating from one to five stars based on that performance. The firm recalculates and updates its star ratings at the end of each month.

Morningstar reviews ETFs and mutual funds with a record of more than three years, so newer funds do not receive a star rating until they’re reached this milestone. The rating methodology utilizes an enhanced Morningstar risk-adjusted return measure. Specifically, the star ratings system looks at each fund’s three-, five- and 10-year risk-adjusted returns.

Star ratings can serve as a report card of sorts for comparing different funds, based on how they’ve performed historically. The Morningstar ratings are not forward-looking, as past performance is not a foolproof indicator of future behavior. But investors can use the ratings system as a starting off point for conducting fund research when deciding where to invest.

If you’re looking for a tool to help you compare mutual funds or exchange-traded funds at a glance based on past performance, the star rating system can help.

Recommended: ETFs vs. Mutual Funds: What is the Difference?

The “Analyst Rating” Explained

The Morningstar Analyst Rating takes a different approach to ranking funds and ETFs. Instead of looking backward, the qualitative analyst rating looks forward to assess a fund’s ability to outperform similar funds or a market benchmark. Rather than using stars, funds receive a rating of Gold, Silver, Bronze, Neutral or Negative, based on the analyst’s outlook for performance.

The firm does not update analyst ratings as frequently as star ratings. Morningstar reviews for analyst ratings are reevaluated at least every 14 months. The firm typically assigns analyst ratings to funds with the most interest from investors or the most assets.

When ranking funds, analysts look at three specific metrics:

• People

• Process

• Parent

Performance is also taken into account within the People and Process pillars. In order to earn a Gold, Silver or Bronze rating, an analyst must determine that an active fund can beat its underlying benchmark when adjusted for risk.

Generally speaking, these Morningstar reviews go into more detail, in terms of the analysis, ranking, and comparison of funds. If you’re an active trader or a buy-and-hold investor you might use the Morningstar analyst ratings to get a feel for what a particular mutual fund or ETF might do next.

Example of a Morningstar Rating

Morningstar star ratings are free to access for investors on Morningstar.com. To find a star rating for a particular fund or ETF you’d simply search for it using its name or ticker symbol. You can also view Morningstar ratings and picks for funds by category, such as small-cap funds or U.S. index funds.

Here’s an example of a Morningstar rating for the Calvert International Responsible Idx I fund (CDHIX) . This fund, which is in the foreign large-blend category and is an index fund, has a four-star rating from Morningstar. You can see at a glance that the fund has an expense ratio of 0.29%, a minimum investment of $100,000 and just over $602 million in assets.

If you want to view Morningstar analyst ratings for a fund or ETF, you’ll need to sign up for a Premium account. You can, however, try it free for 14 days first to decide if it’s worth paying for.

Are Morningstar Ratings Accurate?

Morningstar fund ratings are designed to be a guide to use as you invest, rather than the absolute word on how well a fund is likely to perform. So, how well do Morningstar ratings perform over time and are they an accurate guide for investing?

According to Morningstar’s own analysis of its ratings system, the star ratings can be a useful jumping-off point for investors. That analysis resulted in three key findings:

• Funds with higher star ratings tend to have lower expense ratios and be cheaper for investors to own

• Higher rated funds tend to be less volatile and experience less dramatic downward swings when the market is in flux

• Funds that received higher star ratings tended to produce higher returns for investors compared to funds with lower ratings

The analysis didn’t look specifically at how star ratings and fund performance aligned through different bull and bear markets. But the ultimate conclusion Morningstar drew is that the Star Ratings tend to steer investors toward cheaper funds that are easier to own and stand a better chance of outperforming the market.

Use Expense Ratios

According to Morningstar, fees are one of the best predictors of future performance, at least for Star Ratings. For funds and ETFs, that means it’s important to consider the expense ratio, which represents the cost of owning a fund annually, calculated as a percentage of fund assets.

Actively managed funds typically carry higher expense ratios, as they require a fund manager to play an important role in selecting fund assets. Passively managed funds and ETFs, on the other hand, often have lower expense ratios.

So which one is better? The answer is that it all comes down to performance and returns over time. A fund with a higher expense ratio is not guaranteed to produce a level of returns that justify higher fees. Likewise, a fund that has a lower expense ratio doesn’t necessarily mean that it’s a poor investment just because it’s cheaper to own. Morningstar’s research found that the average one-star fund cost significantly more than the average five-star fund.

As you do your own research in comparing funds and ETFs, consider both performance and cost. This can help you find the right balance when weighing returns against fees.

How Should Investors Use Morningstar Ratings?

How much do Morningstar ratings matter in the grand scheme of things? The answer is, it depends on what you need from investment research tools.

Morningstar reviews of mutual funds and ETFs can be helpful for comparing investments, especially if you’re just getting started with the markets. Morningstar is a respected and trusted institution and both the Star and Analyst Ratings are calculated using a systematic approach. The reviews aren’t just thrown together or based on a best guess.

They’re designed to be a guide and not a substitute for professional financial advice. So, for instance, you may use them to compare two index funds that track the same or a similar benchmark. Or you may use them to compare two ETFs that are representative of the same market sector.

Risks of Morningstar Ratings

Morningstar Ratings are not an absolute predictor of how a mutual fund or ETF will perform in the next five minutes, five days, or five years. After all, there’s no way to perfectly predict how any investment will perform as the market changes day to day or even minute-to-minute.

One risk to avoid with Morningstar ratings is relying on them solely as your only research tool and not doing your own independent research. Again, that means checking expense ratios as well as looking at the underlying assets of a particular fund and its investment strategy (i.e. active vs. passive) to determine how well it aligns with your goals and risk tolerance.

Looking only at Morningstar reviews without doing your own due diligence could cause you to invest in funds that aren’t the best fit for your portfolio. Or you may overestimate how well a fund will perform, only to be disappointed later. For those reasons, it’s important to look under the hood, so to speak, to ensure that you fully understand what you’re investing in before buying in.

The Takeaway

Having research tools can help you make educated decisions about where and how to invest. Morningstar Ratings are one tool you can use. When you’re ready to invest and apply the knowledge you’ve acquired, the next step is opening an online brokerage account.

With the SoFi Invest brokerage platform, you can trade individual stocks, exchange-traded funds, cryptocurrency and even get access to Initial Public Offerings (IPOs). It’s simple and convenient to start trading with SoFi or if you prefer, you can put your portfolio on autopilot with automated investing.


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.
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.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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What Companies Accept Dogecoin and Other Cryptos as Payment?

What Companies Accept Dogecoin and Other Cryptos as Payment?

Dogecoin is not the most valuable cryptocurrency (that would be Bitcoin) or the one with a fast-growing financial sector growing on top of it (that would be Ethereum), but it certainly punches above its weight when it comes to attention from enthusiasts and the general public. Named for the adorable Shiba-Inu meme, Dogecoin has become something like the fast of the latest burst of enthusiasm for cryptocurrency.

While its value bounces up and down constantly, getting namechecked by celebrities like Elon Musk and Snoop Dogg, it is not only being adopted as meme-fodder and comedy material, but also by some businesses as a means of payment.

Recommended: A Guide to Meme Stock Investing

Dogecoin Basics

Dogecoin, as of September 21, 2021, is worth almost $28 billion and more than $1 billion of it is traded every day. While this may seem like a lot — and enough to put it in the cryptocurrency top ten according to CoinMarketCap — it’s still relatively minor compared to Bitcoin ($810 billion, $43 billion in daily volume) or Ethereum ($356 billion, $26 billion). And because so much of the currency has been “minted,” the per Doge value is “low” — about 21 cents with around 131 billion coins.

Recommended: SoFi’s Crypto Guide for Beginners

What’s the History of Dogecoin

Jackson Palmer created Dogecoin in 2013 as both a reference to the then-popular meme and to what was then seen as an explosion of interest in Bitcoin. In early 2018, during another huge runup in crypto prices, Dogecoin’s market cap got to over $1 billion, which may have been seen as extreme at the time (it would fall back down to around $400 million), but was nothing compared to what was coming. Between April 8 and May 8 of this year, Dogecoin’s market cap rose from around $8 billion to almost $95 billion, before settling at around $23 billion.

Recommended: How to Read Crypto Charts

While traders can buy and sell Dogecoin like any cryptocurrency on mainstream exchanges like Coinbase, it does not have the buzzing hive of developer activity and use in businesses that others do. That’s slowly starting to change.

More than 240,000 people have signed a Change.org petition aimed at getting Amazon to start accepting the coin. While that request hasn’t gotten much traction, there are some businesses that have decided to start accepting it as a means of payment.

If you’re interested in spending your DOGE rather than trying to HODL, these are some of the businesses that accept Dogecoin.

Who Accepts Dogecoin in 2021?

The Dallas Mavericks

The NBA basketball team owned by tech billionaire, occasional crypto investor, and Shark Tank host Mark Cuban is not afraid of the occasional stunt to get attention. In March, the basketball team said in an official statement that it would be accepting Dogecoin for both tickets and merchandise. In his inimitable fashion, Cuban explained the reasoning for the decision:

“The Mavericks have decided to accept Dogecoin as payment for Mavs tickets and merchandise for one very important, earth-shattering reason, because we can! Because we can, we have chosen to do so. We have chosen to do so because sometimes in business you have to do things that are fun, engaging and hopefully generate a lot of PR. So we will take Dogecoin, today, tomorrow and possibly forever more. For those of you who would like to learn more about Dogecoin we strongly encourage you to talk to your teenagers who are on TikTok and ask them about it. They will be able to explain it all to you”

Cuban has also disclosed an investment in Dogecoin and promoted the cryptocurrency as akin to a lottery ticket.

AirBaltic

Around the same time the Mavericks said they would begin accepting Dogecoin as payment, the European airline AirBaltic made a similar announcement.

“As an innovative airline, we always strive to search for ways to improve the customer experience starting from the booking process. Over the years around 1000 clients have used the payment option, which may not seem like a lot, but still offers passengers a unique payment option hard to find elsewhere,” the airline CEO Martin Gauss said in a statement.

AirBaltic is majority owned by the Latvian state, adding an official level of approval to a cryptocurrency that, as its founder has said whenever anyone would ask, is meant to be a joke.

Newegg

The electronics online retailer said in April that it would start accepting Dogecoin. “We’re committed to making it easy for our customers to shop however works best for them, and that means letting them complete transactions with the payment method that suits them best. To that end, we’re happy to give Dogecoin fans an easy way to shop online for tech,” a Newegg executive said in a statement.

The Kessler Collection

The Kessler Collection owns several luxury hotels throughout the United States. In March, the company said it would “accept Bitcoin, Ethereum, Dogecoin.” The company specifically pointed to cryptocurrencies hitting “an all-time high” as a justification for the expansion of the number of currencies they would accept.

Bitcoin

Dogecoin

Ethereum

Tether

Bitcoin Cash

Newegg Yes Yes Yes No Yes
Dallas Mavericks Yes Yes No No No
The Kessler Collection Yes Yes Yes No No
AirBaltic Yes Yes Yes No Yes

The Takeaway

While merchants have not begun accepting any types of cryptocurrencies — let alone Dogecoin — en masse, a handful of companies have begun accepting the meme coin. Given its volatility, however, it can be hard to know whether using Dogecoin to make purchases will end up saving or costing the buyer money.

If you’re interested in buying Dogecoin or other cryptocurrencies, a great way to get started is an online crypto trading platform. With SoFi, you can use the app to buy cryptocurrency, including coins like Bitcoin, Ether, Dogecoin (unavailable in New York), Cardano, Litecoin and a wide selection of other cryptos.

Photo credit: iStock/Ksenia Raykova


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.
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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12 Benefits of Cryptocurrency in 2021

12 Benefits of Cryptocurrency in 2021

Crypto is a relatively new asset class that began with the creation of the Bitcoin blockchain in 2009. The primary benefit of Bitcoin and most other cryptocurrencies based on blockchain technology is that they don’t have a central authority, payment processor, or company owner.

Instead, crypto networks are peer-to-peer, meaning people can transact directly with one another. Many of the additional benefits of cryptocurrency stem from their decentralized and peer-to-peer nature. Let’s look at some positives of cryptocurrency in this crypto guide.

Benefits of Owning Crypto in 2021

1. Easy Transactions

Crypto transactions can be made easily, at low cost, and in a manner more private than most other transactions. Using a simple smartphone app, hardware wallet, or exchange wallet, anyone can send and receive a variety of cryptocurrencies.

Some types of cryptocurrencies, including Bitcoin, Litecoin, and Ethereum, can be bought with cash at a Bitcoin ATM. A bank account isn’t always required to use crypto. Someone could buy bitcoin at an ATM using cash then send those coins to their phone. For people who lack access to the traditional financial system, this may be one of the biggest pros of cryptocurrency.

2. Incredible Security

Because they are based on cryptography and blockchain security, decentralized cryptocurrencies tend to make for secure forms of payment. This might be one of the most certain benefits of cryptocurrency.

Crypto security is determined in large part by hash rate. The higher the hash rate, the more computing power it would take to compromise the network. Bitcoin is the most secure cryptocurrency, having the highest hash rate of any network by far.

Using a crypto exchange is only as secure as the exchange itself, however. Most incidents of crypto being hacked involve exchanges being hacked or individuals making mistakes.

3. Short Settlement Times and Low Fees

While some people only want to invest in cryptocurrency for price appreciation, others might find benefit in the ability to use crypto as a medium of exchange.

Bitcoin and Ether transactions could cost anywhere from nickels and dimes to several dollars or more. Other cryptocurrencies like Litecoin, XRP, and others can be sent for pennies or less. Payments for most cryptos settle in seconds or minutes. Wire transfers at banks can cost significantly more and often take three to five business days to settle.

4. Exponential Industry Growth

The cryptocurrency industry has been one of the fastest-growing markets that most of us have seen in our lifetimes. Being involved now might reasonably be compared to being involved with companies on the leading edge of the internet back in the 1990s and early 2000s.

The total market cap of the cryptocurrency market in 2013 was about $1.6 billion. By June 2021, it rose to over $1.4 trillion.

5. Outsized Returns

It’s no secret that Bitcoin has been the best-performing asset of the last 12 years. When it began in 2009, Bitcoin essentially had no value. In the following years it would rise to a fraction of a penny and then eventually to tens of thousands of dollars. This represents millions of percentage points’ worth of gains. By comparison, the S&P 500 index of stocks returns an average of about 8% per year.

Some altcoins have outperformed Bitcoin by wide margins at times, although many of those later saw their prices collapse. Gains like these might be among the most well-known cryptocurrency benefits. (The losses, on the other hand, may be among the most well-known drawbacks.) Volatility has characterized prices in the crypto space, which has been one of the key benefits of cryptocurrency for day traders and speculators.

6. More Private Transactions

Privacy can be one of the benefits of cryptocurrency, but crypto isn’t as private as some people might think. Blockchains create a public ledger that records all transactions forever. While this ledger only shows wallet addresses, if an observer can connect a user’s identity to a specific wallet, then tracking transactions becomes possible.

While it’s worth noting that most crypto transactions are pseudonymous, there are ways to make more anonymous transactions. Coin mixing services group transactions together in a way that makes it hard to pick them apart from one another, confusing outside observers. Individuals who run a full node also make their transactions more opaque because observers can’t always tell if the transactions running through the node were sent by the person running the node or by someone else.

Methods like these are for more advanced users and could prove difficult for those new to crypto. So while absolute privacy is really not one of the main positives of cryptocurrency, transactions are still generally more private than using fiat currency with third-party payment processors.

7. Portfolio Diversification

Cryptocurrency has become known as a non-correlated asset class. Crypto markets largely function independently of other markets, and their price action tends to be determined by factors other than those affecting stocks, bonds, and commodities.

Any asset that has risen by millions of percentage points over just twelve years, as a number of crypto coins have, clearly is not correlated to anything else. But it’s worth noting that during the last few years, cryptos have begun to sometimes trade in tandem with stocks for short periods of time.

8. Inflation Hedge

Mineable cryptocurrencies with a limited supply cap, like Bitcoin, Litecoin, and Monero, to name a few, are thought to be good hedges against inflation. Because monetary inflation can occur when central banks and governments print more money, increasing the supply, things that are more scarce tend to appreciate in value.

With more and more new dollars chasing fewer and fewer coins, the price of these fixed-supply coins as measured in dollars has a higher chance of going up. Additionally, the Bitcoin protocol, for example, is also designed to keep those coins scarce regardless of what happens with monetary policy.

Recommended: How to Invest During Inflation

9. Cross-Border Payments

Cryptocurrencies have no regard for national borders. An individual in one country can send coins to someone in a different country without any added difficulty. With traditional financial services, getting funds across international borders can take a long time and come with hefty fees. In some cases, doing so might not even be possible due to regulations, sanctions, or tensions between specific countries.

10. A More Inclusive Financial System

Some of the benefits of cryptocurrency extend to people who don’t have access to the traditional financial system. Due to its decentralized and permission-less nature, one of the benefits of cryptocurrency is that anyone can participate.

People don’t have to have permission from any financial authority or government to use the crypto ecosystem. (Though it’s worth noting that Bitcoin mining is banned in China.) They also don’t necessarily need to have a bank account. There are billions of people today who are “unbanked,” meaning they have no access to the financial system, including bank accounts. With crypto, all these people need is a smartphone, and they can essentially become their own bank.

11. Transactional Freedom

One of the great benefits of crypto is that it can be used to exchange value between two parties. This can be done independently of any third-party, making the transaction freer and censorship-resistant.

Banks or other payment processors can choose to cut off services to anyone for any reason. This can make things difficult for some journalists, political dissidents, or other individuals working in nations with oppressive government regimes. Because there is no central authority governing Bitcoin or most other cryptocurrencies, it’s very difficult to stop anyone from using them.

12. 24/7 Markets

Stock markets are only open on weekdays during the regular business hours of 9:30 am to 4:30 pm Eastern Time, in the case of the New York Stock Exchange (NYSE). During nights, weekends, and on holidays, most traditional financial markets are not open for business.

Crypto markets, on the other hand, trade 24 hours a day, seven days a week, without exception. Some of the only things that could interrupt a person’s ability to trade cryptocurrency would be a power outage, internet outage, or centralized exchange outage.

The Takeaway

The above are just a few of the most important advantages of cryptocurrency. Of course, there are potential flaws as well — its volatility being a major downside. As with anything, those interested in buying, selling, and trading crypto would be wise to do their research before getting involved in the crypto market.

Ready to invest in crypto? With a crypto trading account from SoFi Invest®, you can buy and sell Bitcoin, Ethereum, Litecoin, Dogecoin, Cardano and more.

Find out how to get started with SoFi Invest today.

Photo credit: iStock/tolgart


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