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A Guide to Student Loan Interest Rates in 2020

Student loans and interest rates go hand in hand. Millions of Americans borrow student loans every year to pay for educational pursuits. Approximately 45 million borrowers currently hold over $1.6 trillion in student loan debt .

What does 2020 and beyond have in store for student loan interest rates? That depends on the type of student loan. Federal student loan interest rates are set differently than private student loan interest rates.
Here’s what you should know about what could happen to federal and private student loan interest rates in 2020 and 2021.

Federal Student Loan Interest Rates

Interest rates on federal student loans are set by the government. Each spring, interest rates on federal loans for the coming academic year are set based on the 10-year Treasury note. The rates set for the 2020 to 2021 school year will take effect on July 1, 2020.

Undergraduate students borrowing Direct Subsidized Loans and Direct Unsubsidized Loans will pay a 2.75% interest rate for the 2020 to 2021 school year, down from 4.53% in the 2019 to 2020 school year.

Graduate or professional students borrowing Direct Unsubsidized Loans will pay an interest rate of 4.30% for the 2020 to 2021 school year, down from 6.08% in the 2019 to 2020 school year.

Parents and graduate or professional students borrowing Direct PLUS Loans will receive a 5.30% interest rate for the 2020 to 2021 school year, down from 7.08% in the 2019 to 2020 school year.

Interest rates on federal student loans are fixed for the life of the loan. That means that if you borrowed a Direct Subsidized Loan for the 2019 to 2020 school year, and your interest rate was 4.53%, that interest rate is locked in at 4.53% for the life of that loan.

But, if you qualify to borrow another Direct Subsidized Loan to pay for the 2020 to 2021 school year, your new loan will be disbursed with the 2.75% interest rate.

Since 2006, interest rates on federal student loans have fluctuated from anywhere between 2.75 to 8.50%, depending on the type of loan.

Private Student Loan Interest Rates

Unlike federal student loans, interest rates for private student loans are set based on economic factors and underwriting unique to each lender that issues them. Lenders typically take into account a borrower’s credit history, earning potential, and other personal financial factors.

If you borrowed a private student loan, you might have applied with a cosigner to secure a more competitive interest rate. That’s likely because most college students don’t have much credit history or employment history, so interest rates on private student loans can be higher than those on federal student loans without a well-qualified cosigner.

While federal student loans have a fixed interest rate, private student loans can have either a fixed or variable interest rate. Borrowing a variable rate loan means that the interest rate can change periodically.

The frequency of changes in the interest rate will depend on the terms of the loan and on market factors; typically, private lenders adjust the interest on variable-rate loans monthly, quarterly, or annually. Interest rates on private student loans are typically tied to the London Interbank Offered Rate (LIBOR) or the 10-year Treasury yield.

So as the LIBOR changes, for example, interest rates on variable rate student loans can change as well. Typically, lenders will add a margin to the LIBOR, which is determined based on credit score (and, the credit score of your co-signer if applicable).

Generally, the LIBOR tracks the federal funds rate closely. In June 2020, the Federal Reserve announced that it plans to keep the federal funds rate close to zero, likely through 2022.

This means that, so long as the federal funds rate remains low, the interest rates on private student loans are not likely to increase during that time period. However, it’s important to pay attention to interest rates, especially for borrowers with private student loans with a variable interest rate, since these changes could cause fluctuations to the interest rate of the loan.

And given that LIBOR is scheduled to be discontinued around the end of 2021 , rates could change in other ways as new indices are chosen by lenders.

Can You Lock in a New Interest Rate in 2020?

Worried about interest rate volatility? There are options available that can help prevent an interest rate hike on your variable rate loan. One such option is switching to a fixed-rate loan via student loan refinancing.
When you refinance your student loans, you take out a new loan (typically with a new lender).

The new loan effectively pays off your existing loans, and gives you a new loan with new terms, including a new interest rate. Private lenders, like SoFi, review personal financial factors like your credit and employment history, among other factors, to determine a new interest rate.

If you qualify to refinance, you’re then able to choose between a fixed or variable rate loan, so if you’re worried about rising interest rates in the future, you may have a chance to qualify to lock in a new (hopefully lower) fixed interest rate.

You should also have the opportunity to set a new repayment plan, either extending or shortening the term of the loan. If you extend your student loan repayment term, you’ll likely have lower monthly payments, but will pay more in interest over the life of the loan.

Shortening your repayment plan typically has the opposite effect. You may owe more each month, but will most likely spend less on interest over the life of the loan.

Federal student loans can be refinanced, too. However, refinancing a federal student loan with a private lender means you’ll no longer be eligible for federal programs and protections like income-driven repayment, forbearance, or Public Service Loan Forgiveness (PSLF).

If you are currently taking advantage of one of the federal repayment protections, refinancing may not be the best alternative. To get a general idea of how much refinancing your student loans could impact your repayment, take a look at our student loan refinance calculator, where you can compare your current loan to current SoFi refinance student loan rates.

If you refinance your student loans with SoFi, there are no origination fees or prepayment penalties. The application process can be completed online, and you can find out if you prequalify for a loan, and at what interest rate, in just a few minutes.

Ready to take control of your student loans in 2020 and beyond? See how refinancing with SoFi can help.


SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE
FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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.
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.
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SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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Can I Roll a 401k into a Roth IRA?

All retirement plans are not created equal. Once you know the differences among them, you can make better decisions as to which strategies will work best for your retirement goals, and if a rollover is necessary.

A rollover simply means taking your money out of one retirement fund and placing it into a new one — one that provides more opportunity for your money to grow or to help consolidate your money into one location.

At first glance, retirement plans can seem complex and confusing. If you’re young, and retirement is a long way off, it’s very tempting to put this task aside and get back to it…someday.

However, now is the time to understand what a retirement plan can do for you and your future. A few proactive steps now may make a huge difference in your financial situation later in life.

Upon a closer look, you may learn that your current retirement plan may not give you the maximum financial power and opportunity that will support your plans. Educate yourself now, and see if a rollover may be a good option for your retirement fund.

Realize first that there are actually two types of 401(k)s:

•   Traditional 401(k)
•   Roth 401(k)

The Roth 401(k) is a relatively newer idea. It came into existence as a result of the Pension Protection Act of 2006 , but it’s still not completely on the radar (meaning your employer may not yet offer it).

The Difference between a Roth IRA and a Roth 401(k)

Roth 401(k)

•   Unlike the Roth IRA, the Roth 401(k) does not require a limit on income in order to participate.
•   In 2020, A Roth 401(k) allows employees to contribute up to $19,500. For employees age 50 and over, an additional $6,500 per year is allowed.
•   Withdrawals of contributions and earnings are not taxed on a Roth 401(k), as long as it’s considered a qualified distribution . That means the account must be held for at least five years and the withdrawal is made on account of disability, on or after death, or after reaching age 59 ½.

Roth IRA

•   Contribution to a Roth IRA is limited to $6,000 for the year . For employees age 50 or over, an additional $1,000 is allowed.
•   A Roth IRA allows distributions at any time while the owner is alive.

We’ll take a deeper dive on the Roth IRA in a bit, but first understand why a 401(k), as common as it is, may not always be your best bet for your retirement plans.

Limitations of the Traditional 401(k)

Not all 401(k)s are created equal—not all companies are able to match employee contributions, or may do so at different percentages.

When moving on to another job, it may be difficult to keep track of the 401(k) left behind at the last job, unless you keep in touch with the company that services the account.

You also don’t want your plan to fall into inertia from inattention—you’ll need to keep after it to make sure it’s balanced and earning the money you’ll need for retirement.

What is a Roth IRA Conversion?

A Roth IRA conversion is when you roll over another account into a Roth IRA. Typically, those are retirement accounts, such as a 401(k) or a traditional IRA.

Once you establish your Roth IRA account, you may only contribute to it if you earn less than $137,000 if you’re single, and $203,000 for married couples filing jointly (more about this below).

Benefits of a Roth Retirement Plan

The major benefit of a Roth strategy is that you pay income tax as you build the account, and not when you withdraw the funds during your retirement. In other words, a Roth IRA lets you pay taxes now, not later.

That’s one reason why people may consider a Roth IRA over a traditional 401(k) or traditional IRA as part of their retirement strategy.

Sounds like a plan, except for one small complication—not everyone is eligible to contribute to a Roth IRA. It all boils down to your income level. The Roth IRA has very specific income limits .

Once upon a time, you were able to convert your traditional IRA to a Roth IRA only if your income was below $100,000. Now, high-income professionals can convert to a Roth by paying the tax on that conversion.

Here’s a quick summary on who is eligible to contribute to a Roth IRA:

•   If you’re single, you can earn up to $137,000 (that’s your modified adjusted gross income, or MAGI for short); contributions can start at $122,000.
•   If you’re married and filing jointly, your MAGI needs to be less than $203,000, with reductions beginning at $193,000.

Doing the math on MAGI: Take your adjusted gross income from your tax returns and add back your original deductions (example: student loan interest).

The Roth IRA limitations don’t stop there, though. Your income has to be considered “earned income,” which simply means money you’re paid for work you performed within the year you contribute.

Here’s what counts as earned income:

•   Work wages
•   Salaries
•   Tips
•   Bonuses
•   Commissions
•   Self-employment income
•   Profit distributions (if you own a small business)
•   Disability retirement benefits in lieu of pensions or annuities
•   Scholarships
•   Fellowships
•   Jury duty pay
•   Accrued vacation pay

Here’s what is not considered earned income:

•   Interest
•   Dividends from investments
•   Income from rental property
•   Pension payments
•   Social security
•   IRA distributions

If You Already Have a Roth IRA

Under the 2017 Tax Cuts and Jobs Act , you can no longer “undo” a Roth IRA conversion. That act used to be called a “recharacterization.” Once you have a Roth IRA, there’s no going back to whatever investment you had before.

You are allowed to withdraw funds anytime from a Roth IRA, but unless the withdrawal is a qualified distribution, it may be subject to tax and possibly a penalty. As a general guideline, you can withdraw your contributions tax and penalty-free. This is still a non-qualified distribution, it’s just not subject to tax.

If you withdraw any earnings that have been in the account for less than five years, you will likely be required to pay income tax and an additional penalty. This is known as the five-year rule .

Earnings withdrawn through a non-qualified distribution after five years is only subject to income tax. Of course, the best strategy is to only make qualified distributions and skip the tax and penalty altogether.

How that five-year rule is calculated—your Roth IRA earnings starts on January 1st of the year you make your first contribution. For example, if you make your first Roth IRA contribution on June 15, 2020, your Roth IRA earnings officially start on January 1, 2020.

You can make contributions to your Roth IRA all the way up to April 15th of the next year. Remember, you also have to be at least age 59 ½ for you to be qualified to withdraw.

The Benefits of Converting to a Roth IRA

Converting to a Roth IRA frees you of money-limit restrictions, as opposed to starting a Roth IRA from scratch. Said another way, as long as you are converting to a Roth IRA, you are not restrained by income limits, because you are performing a conversion.

This is called a “backdoor Roth IRA” because you are backing into it from another investment source. This may or may not be the right situation for you and your finances, but it’s at least an option to be aware of.

Additional Benefits of a Roth IRA

•   Contributions can be made to the account at any age.
•   There are no “required minimum distributions (RMD).” This is unlike the traditional IRA, where you are required to start withdrawing money at age 70 ½.
•   If you have a non-working spouse, they can also open a Roth IRA based on your earnings, and if you’re filing jointly as a married couple.
•   You can participate in a Roth IRA even if you participate in other retirement plans.

Some Strategies to Consider when Rolling over to a Roth IRA

Taking Advantage of Both a 401(k) and a Roth IRA

Consider maxing out your employer’s 401(k) plan in order to get that employer match if offered.

Considering Including Your Spouse

If you have a non-working spouse, and you are filing jointly, you can contribute to their Roth IRA as well.

Keeping an Eye on Annual Contribution Limits

If you go over the Roth IRA limits for the year, you may have to pay a 6% penalty each year on any excess funds that you contribute.

Proceeding With Caution When you Rollover Money Between Accounts

There is no limit on the number of times you can transfer a retirement account directly between custodians or convert funds in a Traditional IRA to a Roth, but it’s important to be careful when transferring indirectly between your own IRAs or using a 60-day rollover as it could possibly result in a tax penalty .

Patience: Waiting to Withdraw Money

You have to be 59 ½ years old in order to withdraw your money without paying taxes. You also have to have owned your account for at least five years.

Naming Beneficiaries

Consider listing both primary and contingent beneficiaries for your Roth IRA. If there are no beneficiaries, the money in your account could wind up in probate court, along with the applicable attorney fees. Keep your paperwork updated, especially if you decide to change your beneficiaries list.

Considering a New Plan

Perhaps it’s the stress of starting a new job, or simply forgetting that you have a 401(k) that needs upgrading. It’s ultimately going to be left up to you if you want to roll that old 401(k) into a new plan.

When leaving an old job for a new one, don’t leave your old 401(k) in the dust. Neglecting a former employer’s 401(k) can mean you are paying fees that you don’t even know about. Think about it—your former company is still maintaining that account—they may be charging you for their service.

If you decide it is the right move for you and your circumstances, rolling your 401(k) into a Roth IRA is relatively simple:

•   First, open a new Roth IRA account.
•   Contact the company that currently holds your current 401(k) and request a transfer. You’ll most likely have to fill out a few forms.
•   Keep an eye out to make sure the transfer happens.
•   Take another look at your overall retirement plan strategy.

SoFi Invest® can work with you to figure out your retirement plan. SoFi advisors can help you figure out if rolling over a 401(k) if the right move for you.

An investment account with SoFi lets you endeavor to maximize your money’s potential in a number of ways, without fees. You get to choose from more than just one option.

You can opt for active or automated investing—either way you choose, you won’t be paying any fees. You can learn more about traditional and Roth IRAs by making a no-obligation appointment with a SoFi Financial Planner.

Ready to learn more? Schedule an appointment with a SoFi Financial Planner.


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.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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Typical Retirement Expenses to Prepare For

Sleeping in until noon. Spoiling the grandkids with gifts and freshly baked cookies. Traveling around Western Europe to sip wine and eat croissants. Many people dream about how their retirement years will play out. These goals are 100% attainable—as long as retirees have saved enough during their working years.

Unfortunately, not all Americans know what to expect for the cost of living during their retirement years. They aren’t sure how to budget for typical retirement expenses like housing and transportation, let alone a flight to France or a never ending stash of cookie dough for the grandchildren.

Generally, retirees spend less than they did when they were younger. They may have paid off their mortgage, and they probably aren’t paying to feed their children every day or fill up their gas tank to drive them to soccer practice.

However, it’s important to remember that “paying less” doesn’t translate to “paying nothing.” Some people may be surprised by how much they end up paying during their retirement years.

Ideally, people will have saved enough in their IRA or employer-sponsored retirement account to cover their retirement expenses. But to know how much to save, people must first learn how much they should plan to spend.

Average Retirement Expenses

Granted, people retire at various ages. Everyone has likely met at least one 70-year-old who is still working and one 40-year-old who plans to retire within a decade. But for the sake of estimating retirement expenses, let’s use the benchmark of people retiring at age 65.

According to 2018 data from the Bureau of Labor Statistics , Americans aged 65 and older spend an average of $50,860 per year, or $4,238.33 per month. More specifically, those aged 65 to 74 spend $56,268 annually, and people aged 75 and older spend $43,181 annually.

Those expenses are lower than the average for all Americans, which is $61,224 per year, or $5,102 per month. Retirees spend less than people aged 55 to 64, who spend $$66,212, and even less than Americans aged 45 to 54, who spend $75,387 every year.

So, many people can expect to pay less after retirement. While that’s great news for anyone worried about saving for retirement, it can still be helpful to break down how much they plan to spend and how long they expect to live.

If a woman retires at age 65 and passes away at 81 (the average life expectancy for women in America as of 2019), she could end up spending $813,760 during retirement. Hopefully, she either had already saved enough to cover her expenses or had loved ones she could lean on for financial assistance.

These numbers are just national averages, though. Everyone’s lifestyle is different. Depending on someone’s location, health, and hobbies, and other factors they could spend thousands above or below the average.

Let’s look at the average costs for retirees, as well as factors that could affect someone’s personal expenses. While the Bureau of Labor Statistics provides the average annual retirement expenses, let’s also break this down into average monthly expenses in retirement.

Housing and Living Expenses

In 2018, Americans aged 65 and older spent an average of $16,940 annually, or $1,411.67 monthly, on housing-related costs, which is below the national average of $20,091. People aged 65 to 74 spent $18,007, and those 75 and older spent $15,427.

Do these numbers seem high? Well, “housing” doesn’t just refer to paying rent or a mortgage. A person’s housing costs consist of multiple factors.

Homeowners over age 65 spend an average of $5,910 on their homes per year, while renters spend an average of $2,585. Why do homeowners pay so much more? They aren’t just paying for shelter.

They’re also covering the costs of mortgage interest and charges, property taxes, and more. In fact, expenses that may seem small to some—like insurance, maintenance, and repairs—cost homeowners over age 65 $2,294 annually.

Regardless of whether someone owns or rents their home, things like utilities, fuels, and public services will take a chunk out of their wallet, too. People over 65 spend $3,806 on services like electricity, natural gas, water, and telephone access.

Of course, these expenses can vary drastically depending on where someone lives and what types of home they live in. If John owns a four-bedroom home in Los Angeles, and Derek rents a one-bedroom cabin in Appalachia, it’s no surprise comparing their housing costs is like comparing apples and oranges.

Oh, and John owns a vacation house in Colorado so his family can ski when his grandkids are on winter vacation. That means John has a second set of mortgage charges, property taxes, repair costs, and utilities to think about.

Transportation

Those in their 20s and 30s may not expect to leave their house much once they’re retired—except maybe to visit the doctor’s office to get that bad hip checked out. Retirees can’t possibly spend that much money on transportation, right?

People might be surprised, though. As a 22-year-old, age 65 probably seems old. And 75? Those guys must be using a cane! But ages 65 and up aren’t as old as young people think. Plenty of retirees drive to the movies, take the bus to visit a friend across town, fly to visit family for the holidays, or book a trip they’ve been dreaming of for years.

Americans spend an average of $9,761 per year getting from point A to point B, but retirees spend a little less. Those over age 65 spend an average of $7,270 annually on transportation, or $605.83 monthly.

People aged 65 to 74 spend $8,810 per year, and people 75 and older spend $5,098 per year. These numbers refer to everything from buying a car to filling up the gas tank to purchasing a bus pass.

Retirees who don’t own a car will likely spend less since they’d be expenses like car insurance, licenses, gas, motor oil, and repairs from their list of things to worry about.

But they may still need to factor the cost of public transportation into their annual costs. Buses, taxis, and trains cost older generations an average of $711 per year.

Healthcare

It’s probably no surprise that Americans’ healthcare costs increase as they grow older. With age comes aching joints, injuries from falling, and sometimes issues like arthritis, diabetes, or Alzheimer’s. Americans spend $4,968 on healthcare every year, but this is one area where retirees spend more than their younger peers.

People over age 65 spend an average of $6,802 per year, or $566.83 per month, on healthcare. Those aged 65 to 74 pay $6,711, and people aged 75 and older spend even more—$6,930.

Healthcare refers to expenses like health insurance, medical services, medical supplies, and prescription drugs. Costs vary depending on retirees’ genetics, injuries, and lifestyle choices.

For example, someone with a family history of ovarian cancer could contract the disease by no fault of their own, while a 75-year-old who has smoked cigarettes since age 16 could be at a higher risk of developing lung cancer. A person who suffered from a serious car crash 20 years ago may still have to see a doctor for ongoing pain.

People who want to prepare for eventual healthcare costs may want to save extra money for retirement with a health-savings account (HSA). People can save for general retirement expenses in an HSA, but this type of account is useful specifically for healthcare costs.

Food

People over age 65 spend $6,607 annually, or $550.58 monthly, buying food. Those aged 65 to 74 spend $7,311 per year, and those over 75 spend $5.592. This includes both food at home and food at restaurants and fast food chains.

Retirees spend less on food than Americans in general, who feed themselves for an average of $7,923 every year. Maybe all those early-bird specials at Golden Corral, Olive Garden, and Piccadilly are really paying off.

An individual’s food costs will vary depending on their diet and habits. For example, people who buy organic vegetables will likely spend more on produce than people who buy conventional vegetables. There’s also a good chance that eating at home more frequently will cost less than eating out five times per week.

Cash Contributions

It looks like people become more generous with age. The average American gives $1,888 per year to a cause. Americans over age 65 donate an average of $2,625 per year, or $218.75 per month. Those aged 65 to 74 give $2,755 annually, and those aged 75 and up give $2,440.

Is it because retirees have fewer expenses? Is it because their values change as they grow older? Who knows!

Entertainment

Having fun isn’t just for the young! People over 65 spend an average of $2,958 annually on entertainment, or $246.50 monthly.

People aged 65 to 74 spend $3,801 per year, which is higher than the national average of $3,226. Once people hit age 75, however, their fun fund drops to $1,763. Maybe it actually is more difficult to get out of the house once they reach a certain age.

These dollars go toward fees and admissions to places like museums and workout classes and toward audio and visual services, such as theater performances and movie outings. Entertainment expenses also include food and toys for pets. Plus, any hobby a retiree might enjoy, from knitting to mountain biking.

Miscellaneous Expenses

But wait, there’s more! People who smoke cigarettes or regularly drink alcohol should prepare to drop money on those indulgences, just as they did when they were younger. People who take comfort in retail therapy should budget for a few big trips to the mall every year. Simple purchases like books or practical clothing are also a consideration.

Now that someone is retired, maybe they’d like to spend their free time taking a class at the local community college. Or they want to treat their family to a beach trip and rent a condo along the water. These are all expenses to think about when creating a budget for retirement.

Don’t Wait to Save for Retirement

Retirement may be months, years, or even decades away—but as the saying goes, “Life comes at you fast.” The longer people wait to save for retirement, the more stressful their retirement years could be.

No one wants to be 55 and looking forward to retirement in 10 years, only to realize they should have started saving decades earlier.

It may seem obvious that it’s better to start saving early, because people deposit more money into their retirement accounts if they start at a younger age. But there’s more to it than that. Don’t forget about the magic of compound interest.

By compounding, people’s interest earns more interest. Let’s say Gina places an initial deposit of $1,000 into her IRA, then adds $100 each month for a year. She has $2,200, right?

Not so fast. Gina may have contributed only $2,200 to her IRA, but if her account earns an average rate of 8% compounded annually, she has actually saved $2,280 after one year.

After five years of keeping this up, Gina has contributed $7,000 to her account, but saved $8,509.25. After a decade, she has contributed $13,000 but saved $19.452.80. Compound interest can make a huge difference. If Gina invests her retirement savings in stocks, bonds, and funds, her money could earn her even more money.

So why wait? When members open an investment account with SoFi, they have the ability to save for retirement by investing. They can invest in stocks, exchange-traded funds, cryptocurrency, and fractional shares if they only want to buy part of a stock.

SoFi members also have access to SoFi Financial Planners who can provide personalized insights and financial advice and make the most of their retirement savings.

Then they might be able to afford that flight to Western Europe—and weekly cookie-baking parties with the grandkids, of course.

Learn more about how SoFi Invest® can help you save for retirement.


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.

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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DRIP Investing: Finding Dividend Reinvestment Stocks

One of the first investment concepts to grasp is that compound interest and earnings can help an investor’s portfolio grow.

If an investor buys an asset which pays out interest or dividends, and then they reinvest those earnings into buying more of the asset, they are then earning on both their initial investment and on the interest. This is compounding.

There are many types of investment options, and some of them are especially good for investors looking to compound earnings over time.

One way to earn on an investment and then reinvest those earnings for compounding returns is through Dividend Reinvestment Plans, or DRIPs.

Shareholders can enroll in DRIP programs to make their money continue working for them, rather than just receiving a dividend payout. This can be done directly through an investor’s brokerage firm, if they have one—but there may be a fee.

Adding small amounts of money to a portfolio over time may add up to a major increase in the long run. Some investors favor DRIPS because of their low fees, ease, and potential to increase returns over time.

What are Dividends?

Before diving into DRIPs, it’s helpful to have an understanding of dividends themselves. Dividends are payments made by corporations to their shareholders. These payments are distributions of corporate profits.

When a company earns a profit, they can reinvest that money into the business as well as pay out a percentage to shareholders. Dividend payments may be made quarterly or annually, and are either provided as cash or as stock.

Not all companies pay dividends, partly because companies don’t all make enough money to cover their expenses and pay shareholders. Most of the companies that pay dividends are large and have been in business for many years.

Rather than receiving a dividend check in the mail or cash into your brokerage account at the end of each fiscal quarter, investors can choose to reinvest that money through a DRIP.

What is a Dividend Reinvestment Plan – DRIP?

DRIP programs give investors the opportunity to reinvest cash dividends from stocks they own into additional shares or fractional shares of those stocks.

This reinvestment takes place on the dividend payment date. Shareholders can join formal Dividend Reinvestment Plans offered by the companies they’re invested in. About 650 companies currently offer DRIP shares.

How Do Dividend Reinvestment Plans Work?

When an investor buys shares in a company that pays dividends, those dividends normally get paid out as a direct deposit or check. If investors sign up for a DRIP program, they have the option to reinvest the dividends rather than receiving the payout.

The reinvested dividends go towards additional shares of the same stock, and are generally purchased directly from the company. Brokerage accounts can also offer DRIP shares to shareholders—usually for free or a small fee.

Usually DRIP shares are issued directly from the company’s reserves. The shares can’t be bought or sold on stock exchanges, they must be traded directly with the company or broker.

Types of DRIPs:

Company DRIPS

Corporations offer their own dividend reinvestment plans. Some companies hire outside firms or transfer agents to run their DRIP. Although company DRIPs used to be common, fewer than 1,000 companies on the U.S. Stock Exchange currently offer them.

Brokerage DRIPs

Online brokerages such as TD Ameritrade and Merrill Edge offer DRIPs. These can be easier for investors looking to invest in multiple stocks, and they have a large offering of companies. Shareholders can choose to enroll in DRIPs for all of their investments or just for select companies.

Dividend Reinvestment Programs are a perk for existing shareholders. Often, investors are able to buy the DRIP shares with zero commission or just a small fee, and at a discount from the current share price.

Investors must still report the dividends as taxable income even though they don’t receive them. You’ll want to consult a tax expert.

Pros and Cons for Investors

There are a number of reasons investors choose to reinvest their dividends through a Dividend Reinvestment Plan, and several reasons companies choose to offer them.

Since companies offer the shares at a discounted rate and typically no commission, investors save money and are able to buy more shares.

Discounts on DRIP shares can be anywhere from 1% to 10%. Investors can also purchase fractional shares through DRIPS. This is useful because dividends payments may not be enough to buy an entire share of the stock.

The biggest advantage of DRIPs for investors is the compounding of returns. Investors can set up automatic reinvestment of their dividends into DRIP shares so they don’t even have to think about it after the initial set up.

Through the DRIP program, investors are earning on any stock price increases, the dividend payouts which get reinvested, and the dividends paid out by those new shares. Over time, some companies also increase the amounts of dividend payouts.

Also, even if the price of the stock goes down, that means the reinvested dividends can be used to buy more shares. The total potential return of the investment continues to go up.

Pros for Investors Include:

•   Possibly purchase shares at a discounted rate
•   Pay low or no commission
•   Purchase fractional shares
•   Earn compounding returns
•   Automated Purchase

Although there are a lot of upsides to the DRIP method, there are also a few downsides. DRIP shares aren’t as liquid as normal shares and can often only be sold back to the company directly. This means it will be difficult for an investor to quickly sell off shares.

If an investor sets up automated DRIP investing, it can be easy to forget about the investment and not monitor it closely. Although the DRIP investment may be attractive at first, over time the market can change and the investor may want to allocate their money elsewhere, rebalance, or further diversify their portfolio.

Knowing which stocks to buy and when to buy and sell them is challenging for everyone, but DRIP investing can add in some extra challenges.

Investors sometimes use dividend income to invest in new stocks, but with DRIP investments they must invest the money back into more of the same stock. This further prevents portfolio diversification.

Finally, figuring out tax reporting can be complicated with DRIPs. Investing in an IRA or using a brokerage account can help keep track of DRIP transactions. Again, consult a tax professional.

Cons for Investors Include:

•   Shares can be less liquid than those on an exchange
•   It’s important to keep an eye on investments
•   Can prevent portfolio diversification
•   Tax reporting can be complex

Advantages for Companies

Companies choose to offer DRIP shares for a few reasons. The money shareholders reinvest into the company is capital investment that they can use to keep the company running and growing.

Also, DRIP shares are less liquid than regular shares since they can’t be sold on a public exchange. This means investors are more likely to hold onto the shares.

Shareholders in DRIP programs tend to be long-term stock holders anyway, since they are using the DRIP program to grow their portfolio and have chosen to enroll in the plan with that particular company.

Pros for Companies

•   More capital for the company to use
•   DRIP shareholders are more likely to hold their shares for the long term

Real World DRIP Examples

Hundreds of publicly traded companies offer DRIP shares. For companies to create a DRIP program they must already offer dividend payouts. Some of the companies that offer DRIPs are:

•   Exxon Mobil (XOM)
•   PepsiCo Inc (PEP)
•   3M (MMM)
•   Coca Cola (KO)
•   Sherwin Williams (SHW)

Here is one example of a DRIP in action:

The DRIP offered by Exxon Mobil (XOM) offers shareholders dividends of $1.76 per share each year, (or $0.44 each quarter). Shareholders who take advantage of the DRIP reinvest that money into more Exxon shares.

If a shareholder owns 100 shares of Exxon Mobil, they receive $44 in dividends every quarter. If Exxon’s stock price is $88, the dividend reinvestment will buy the investor half of one share of stock. They then earn interest on that share of stock as well as the shares they already own.

Getting Started With DRIP Investing

In order to start earning with the DRIP method, investors must first own shares of stock in companies that offer dividend reinvestment. The share or shares must be owned in the investor’s name, not a broker’s name.

Since there are hundreds of companies to choose from, it can be challenging to figure out which DRIP is the best. Some of the most popular and effective DRIPS are offered by Dividend Aristocrats. These are companies that have increased their dividend payouts every year for at least 25 years.

Dividend Aristocrat DRIPS help investors earn even more on their investment since they have more dividends to reinvest each year.

A number of these companies also charge zero fees for the purchase of DRIP shares, making them even more attractive to investors. This type of DRIP is a powerful and cost effective compounding investment.

Examples of Zero Fee Dividend Aristocrats with DRIPs:

•   Aflac (AFL)
•   AbbVie (ABB)
•   A.O. Smith (AOS)
•   Emerson Electric (EMR)
•   Federal Realty Investment Trust (FRT)
•   Hormel Foods Corp (HRL)
•   Ecolab (ECL)
•   Exxon Mobil (XOM)
•   Illinois Tool Works (ITW)

There are also non Aristocrat companies that offer zero fee DRIPS.

Building a Portfolio to Reach Your Goals

Whether you’re already invested in the stock market or are looking to get started, there are useful tools available to help you keep track of your favorite stocks and your portfolio.

SoFi offers a full suite of investment and financial tracking tools in an easy to use mobile app. Using SoFi Invest®, you can buy stocks online, stay up to date on news about stocks, set up individual financial goals, and build a portfolio of stocks and other financial assets.

Interested in investing? SoFi Invest can 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.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
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.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Third Party Brand Mentions: No brands 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.

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How Are Employee Stock Options and RSUs Different?

When you get a job offer, your benefits package may include more than just your salary, healthcare, and vacation time. In addition to all that—and maybe some work-from-home allowances—you may also be offered an employee stock plan.

Two of the most common offers, employee stock options (ESOs) and restricted stock units (RSUs), both give you the chance to eventually become a shareholder in your company.

Sometimes, an employee stock plan is offered to everyone as a companywide benefit. Other times, it’s a custom plan that’s baked into an executive job offer as either a recruitment and retention incentive, a way to cover the lack of cash flow in a startup, or both.

And sometimes, you get a choice between ESOs and RSUs. Having the option to own stock in your employer could provide some big financial benefits—especially if you believe in the company and its future.

But it also comes with some risk. Understanding which stock plan is better for you, how it works, and how it could affect your taxes could make you run to a financial advisor for help—or just run away.

A recent survey discovered that around 36% of employees (about 32 million Americans) who work for stock-issuing companies hold shares or options. But ignoring the benefit just because it seems out of reach could equal leaving money on the table. This guide could help you break down your options and decide whether it’s right for you.

First, a Stock Market Appetizer: Alphabet Soup

Navigating your employee stock plans can include a lot of acronyms, words that mean something entirely different anywhere else, or multiple words that mean the same thing.

And one of the keys to confidence could simply be understanding what the heck the document from HR says. In addition, having a grasp of stock-market vocabulary might help you decipher quickly what your employer is offering, the terms and restrictions, and whether it’s a good deal.

What’s a Stock Option, Anyway?

“How do stock options work?” is an easier question to answer once you have a good idea of what a stock option is. The answer is pretty straightforward—it’s an option to buy shares in the future for a price set today. The “option” part means you can buy the stock later if it suits you, but you aren’t obligated.

Unlike an outright stock purchase, an option doesn’t give you actual shares until you decide to buy them, which is called exercising. Another difference from a traditional stock purchase is that options become null and void if you don’t exercise your stock options before the expiration date.

If the company stock has floundered over the years and not produced a return, you can just walk away and the option ceases to exist. But here’s a spoiler alert: If you let your employee stock options expire when the stock price has gone up, you could be leaving thousands of dollars on the table.

The Grant/Strike/Exercise Price

See? Three different words for the same term: the price at which your plan says you can purchase company stock. It’s most often based on the stock’s current market value and is extremely important because it determines whether your options end up winners or losers.

If your strike price is 1,000 shares at $1 per share, for example, that’s what you’ll pay for those shares if you decide to exercise, regardless of their current market price.

When the stock is currently trading above the strike price, it’s called being “in the money” and the profits can be huge.

Conversely, if the stock’s market price falls below the strike price, your options are considered “underwater” or “out of the money” and don’t hold any value. In that situation, it may be cheaper to buy your company’s stock on the open market.

Privately Held, Publicly Traded, and Going Public

If a company is considered public, it’s registered with the Securities and Exchange Commission (SEC) and is approved to offer shares to the public on an exchange. Exercising your options at a public company means you can then trade your shares on the open market.

Many private companies also offer stock options—especially if they’re a startup looking to grow capital. (Check out this interesting case study .)

But because a private company hasn’t gone through the SEC registration process, shares can only be sold privately unless the business “goes public.”

That’s the common term for an initial public offering (IPO), or a private company’s transition to the public market. If you go through an IPO as a private stock options holder, you’ll be allowed to sell your shares on the stock exchange. The rules on pre-IPO stock can be pretty stringent, though.

ESOs: The Grant, the Cliff, the Vest, and the Exercise

Lesson two: How do stock options work? This is where the process, the timeline, and all the rules and regulations that come with options come into play. It’s also where you might start to get a clearer picture of your own situation.

For the most part, ESOs operate via a four-step process.

First, the grant: The grant date is the official start date of an ESO contract. You receive official information on how many shares you’ll be issued, the strike price for those shares, the vesting schedule, and any requirements that must be met along the way.

But typically, all that happens on the grant date is you get some paperwork and the clock starts ticking.

In order to start claiming your stocks, you may first need to survive the cliff.

The cliff: If a compensation package includes ESOs, it doesn’t necessarily mean that they’re available on day one. Contracts often contain a number of requirements that must be met first, such as working full time for at least a year.

Those 12 months, when you’re working but not yet eligible for stock options, is called the cliff.
If you remain an employee past the cliff date (without jumping), you get to level up to the vest.

Next, the vest: It’s not some exclusive company uniform that’s only available to stockholders (although that might be kind of cool.) When you pass your cliff date, your vesting period begins, which means you start to take ownership of your options and the right to exercise them.

Vesting can either be a slow burn over several years or an all-at-once proposition, depending on your company’s plan. One common vesting schedule is a one-year cliff followed by a four-year vest.

On this timeline, you’re 0% vested the first year (meaning you aren’t eligible for any options), 25% vested at the two-year mark (you can exercise up to 25% of the total options granted), and so on until you own 100% of your options. At that point, you’re considered fully vested. (But still no sweet wardrobe, sadly.)

Finally, the exercise: This is when you pull the financial trigger and actually purchase some or all of your vested shares.

Here are some common exercise options for your options.

•   You can buy the stock outright, but it might require a hefty chunk of change up front. For example, 10,000 shares at $2 each is a cool $20,000. One advantage to this exercise, however, is that you hold all the stock and are free to do with it as you please on the open market.
•   If you don’t have that kind of cash, you can buy and sell all your stock in one breath with something called an exercise-and-sell transaction. In this scenario, your broker essentially lends you the cash to exercise your options, then pays itself back with a portion of the sale profits.
•   Another option is to buy all your shares, sell just enough to cover the cost (according to the example above, $20,000 worth), and hold the rest. This is called an exercise-and-sell-to-cover transaction.

One common timeline is 10 years from grant date to expiration date, but specific terms will be in a contract.

The Pros and Cons of Exercising Employee Stock Options

If you land a job with the right company and stay until you’re fully vested, exercising your employee stock options could lead to instant, huge gains.

Especially if, for example, your strike price is $30 per share and now the stock is trading at $100 or more per share. On the other hand, if your strike price is $30 per share and the company is tanking, your options are basically worthless.

But perhaps the biggest downside that comes with exercising employee stock options is now much Uncle Sam can take.

How Can Employee Stock Options Affect Taxes?

Generally speaking, employers offer two types of stock options: nonqualified stock options (NSOs) and incentive stock options (ISOs). NSOs are the most common and often the type offered to the general workforce.

The difference between the strike price and the stock’s value when you exercise your options is considered earned income and added to your W-2, where it’s taxed just like your salary.

Any money you make above and beyond that if you sell your shares later can also be subject to the capital gains tax, which is imposed on profits earned from selling certain types of assets, such as real estate, stocks, or a business.

The capital gains tax doesn’t kick in if you simply own these assets, but it can really bite you if you make money on selling them.

In fact, it could be one reason less than a quarter of workers who were offered equity compensation actually exercised their options or sold their shares.

Here’s how it works: If you hold your shares less than a year, the short-term capital gains tax rate equals your ordinary income tax rate, which could be up to 37% for the highest tax bracket.

For assets held longer than a year, the long-term rate can be 0%, 15%, or 20%, depending on your taxable income and filing status.

ISOs, the second kind of popular stock options, are usually reserved for high-ranking company executives and come with a big tax advantage: They can be exercised in the money without having to pay income tax on the profit. In fact, employees don’t even have to report it as income.

Hold those shares for a year or longer, and you’ll only be held liable for the long-term capital gains tax. But before you get all excited, we need to discuss the alternative minimum tax (AMT).

While ISOs aren’t taxed as income, they could be subject to AMT, which was created to get at least some taxes out of high-income individuals and corporations that otherwise manage to avoid them.

The AMT can be an extremely complicated subject. There are ways to avoid the AMT, but you should consult a tax professional to help guide you through all the rules and regulations that apply.

What Are Restricted Stock Units (RSUs) and How Do They Work?

Restricted Stock Units are also a form of equity compensation, but they are quite different in how they’re granted, vested, and regulated.

RSUs aren’t stock. They aren’t options. They’re something in between—a promise of stock at a later date. When employees are granted RSUs, the company holds onto them until they’re fully vested.

And what determines vestment is entirely up to the company. It can be a time period of several years, a key revenue milestone, or even personal performance goals. To add another layer of complexity, RSUs can vest gradually or all at once.

Another difference is how they’re valued—instead of a strike price, RSUs are priced based on the fair market value of the stock on the day they vest, or the settlement date. This means that you don’t have to worry about falling out of the money.

As long as the company’s common stock holds value, so do your RSUs. One final difference between RSUs and ESOs is that you may be able to settle your RSUs in two ways—in actual shares or the cash equivalent.

The Pros and Cons of RSUs

One good thing about RSUs is the incentive they can provide to stay with the company for a longer period of time. If your company grows during your vesting period, you could be very far in the money when your settlement date rolls around.

But even if the stock falls to a penny per share, they’re still awarded to you on your settlement date, and they’re still worth more than the $0 you paid for them.

In fact, you may only lose out on money with RSUs if you leave the company and have to forfeit any units that aren’t already vested, or if the company goes out of business.

An RSU’s lack of a strike price is sometimes referred to as downside protection. But there’s another big downside to this type of compensation that might sound familiar.

Taxes.

How Can RSUs Impact Taxes?

RSU tax rules are quite different from ESO’s, and understanding these differences can be key for not only deciding which type of compensation is better for you, but how to plan your taxes effectively.

When your RSU shares or cash equivalent are automatically delivered to you on your settlement date(s), they’re considered ordinary income and are taxed accordingly. In fact, your RSU distributions are actually added to your W2.

Another aspect to keep an eye on with taxing RSUs as income is whether the amount will bump you up a tax bracket (or two.) If you’ve only been withholding at your lower tax bracket before your vesting period, you could owe the IRS even more.

And finally, if you accept shares vs. the cash equivalent, you’ll then be subject to capital gains taxes if you sell them for a profit at a later date.

One bit of good news is that, as part of the 2017 Tax Cuts and Jobs Act , some private companies may offer deferment of income taxes on both stock options and RSUs for up to five years.

I’m Fully Vested! Now What?

So you’ve done your time, your company stock offerings have vested, and now they’re making money. What’s next? Do you immediately exercise your options, take the money and run, or let it ride in hopes of even further growth?

One school of thought is to sell your shares on the same day you receive them. If they are RSUs, you’ll still be subject to income tax but may avoid capital gains.

Another approach is to lay out your optimal timeline for cashing out. For example, there are several ways to offset your capital gains tax if you time the sale of your shares with either capital losses or other tax deductions. This is sometimes referred to as tax-loss harvesting.

While RSUs automatically convert to shares on the settlement date, you can hang onto your ESOs for longer if you feel like the company’s stock price is doing well.

And, because you don’t have to pay income taxes on ESOs until they become shares, holding onto them could also delay that payment.

There are several risks with this strategy though, including forgetting the expiration date and forfeiting all your options, or watching the company stock take a turn for the worse and dip below your strike price.

It’s a lot to consider. And for some, it may seem like more trouble than it’s worth. A recent study revealed that, of 1,000 employees who received equity compensation, less than a quarter of them have exercised their options or sold shares.

The driving factor for many of them? Fear of making a mistake, either by selling under the wrong market conditions or ending up with a huge tax bill.

If these fears are rolling around in your mind as well, the best course of action might be to consult a financial professional who might help you get the best return on your equity.

And if you want some guidance without paying exorbitant fees, you could consider opening a SoFi automated investing account. SoFi offers competitive wealth management with low cost funds, no administrative fees, low account minimums, and extensive access to a team of credentialed financial advisors.

Diversification May Bring Confidence

No one can predict the future, and nothing is a sure bet—just ask the folks who worked at Enron. Because of this, many financial advisers recommend that no single stock should represent more than 10% to 15% of your portfolio, and some cap it at only 5%.

Going above that, especially with your company stock, could put you at risk for the double whammy of losing both your salary and your stock if the business goes belly up or gets racked by scandal.

One good way to avoid the pitfalls of putting all your eggs in one basket is to buy more baskets. Portfolio diversification means distributing your money across areas that aren’t likely to respond to financial happenings in the same way. And while it won’t completely erase vulnerability, it can go a long way to reducing it.

Investing in ETFs with SoFi Invest® could potentially help diversify your portfolio by investing online in a variety of stocks for a fraction of the cost.

Start diversifying your portfolio with SoFi Invest today for no fees, the chance to trade actively or automatically, and access to financial advice on the house.


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.
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.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Third Party Brand Mentions: No brands 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.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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