What Are the Differences Between a Loan Officer and a Loan Processor?

What Are the Differences Between a Loan Officer and a Loan Processor?

When someone applies for a personal loan, there are a lot of moving parts and key players involved. While each lending institution will have their own unique process in place, loan applicants can expect to come across a loan officer, loan processor, or an underwriter.

There’s a decent amount of overlap in these roles, so to get some more clarity on who does what, let’s take a look at a loan officer vs. loan processor vs. underwriter.

What Is a Personal Loan Officer?

A loan officer evaluates loan applications and determines whether or not to recommend them for approval. A personal loan officer is a specific type of loan officer that focuses on personal loans. Personal loan officers are generally employed by credit unions, banks, and financial institutions.

Generally, a personal loan officer takes on the following job responsibilities:

•   Contact potential borrowers to see if they need a loan.

•   Work with loan applicants to gather information required for the application.

•   Walk applicants through the different loan types available to them and their unique terms.

•   Collect, verify, and review an applicant’s financial information (e.g., credit score, income, and other factors).

•   Review any loan agreements to confirm they are in compliance with all state and federal regulations.

•   Approve loan applications or pass them onto management for a final decision.

A major part of a personal loan officer’s responsibilities happen during the underwriting process. This process is used to determine if an applicant qualifies for the loan they are applying for. Once a loan officer collects and verifies all of the necessary personal and financial information about an applicant and any corresponding documents, the loan officer will assess the applicant’s need for a loan and their ability to repay it on time.

A loan applicant working with a loan officer can turn to them about any questions they have about what a personal loan is or about the application process. A personal loan is a type of consumer loan and consumer loan officers may use a fully automated underwriting process using software or they may complete it themselves (which is more often the case with smaller banks and credit unions).

What Is a Personal Loan Processor?

A personal loan processor, also known as a loan interviewer or loan clerk, is responsible for interviewing applicants and other necessary parties to obtain and verify the financial and personal information required to finish the personal loan application. Once the applicant is approved for the loan, the personal loan officer will prepare any documents required for the appraisal and the closing of the personal loan.

What Does a Personal Loan Processor Do?

The personal loan processor serves as a liaison between the financial institution issuing the loan and the applicant to make sure that qualified applicants can secure a loan in a timely manner. The loan processor will also help applicants decide which loan product is the best fit for their financial needs and goals. For example, if an applicant is experiencing financial hardship, the loan processor can help them set up debt payment plans.

Review Your Application

A loan processor receives, collects, distributes, and evaluates applicant information required to complete the loan application. They can approve or deny an applicant.

Verify Your Information

Personal loan officers are tasked with interviewing applicants and other necessary parties in order to verify any financial and personal information that must be evaluated during the application process.

Request Documents

As a part of the verification process, they will also request and collect any necessary documents from the applicant. They are also responsible for preparing any documents required for the appraisal and closing process.

Third Party Reports

In addition to collecting documentation from the applicant, the personal loan processor will work with third parties to obtain any necessary documents and reports, such as the applicant’s credit report.

Is a Personal Loan Processor the Same as an Underwriter?

While there is some overlap between what a personal loan processor and an underwriter do, these are two different roles. A loan underwriter focuses on evaluating how creditworthy an applicant is by collecting and evaluating an applicant’s financial information. Typically, they then use loan underwriting software to make an approval or denial recommendation.

A loan processor also reviews how eligible an applicant is for a loan by collecting and verifying important information and documents, but they don’t use underwriting software to make a decision. The loan processor has the ability to approve or deny an applicant.

Loan Processor


Collects and verifies applicant information Collects and verifies applicant information
Makes approval decision Uses underwriting software to determine eligibility
Prepares documents for appraisal and closing

Is a Loan Officer or Loan Processor Responsible for Your Personal Loan Approval?

When it comes to loan processor vs. loan officer, both loan officers and loan processors have the ability to reject or deny a loan application or at the very least make a recommendation for whether or not an applicant should receive a loan.

When Does a Personal Loan Processor or Officer Get Involved?

When someone applies for a personal loan, they’ll connect with a personal loan processor or officer when they submit their initial application. Either one can start the process of collecting personal and financial information and supporting documentation from the applicant.

What Happens During Personal Loan Processing?

During the personal loan processing stage, the applicant will work with the personal loan processor to provide them with any personal information, financial information, or documentation that the personal loan processor needs to finish their application.

Getting Approved for a Personal Loan

Getting approved for a personal loan requires going through the underwriting process which assesses how qualified a loan applicant is. Some firms use underwriting software to make a decision whereas others make the decision without the aid of software.

The Takeaway

When comparing a loan officer vs. loan processor, it’s clear that both loan processors and loan officers play an important role in the personal loan application process. Their roles often overlap and where they work determines the exact role they take on.

Personal loan applicants who might not want to go through a long underwriting process can view their SoFi personal loan rate in just one minute. Once approved, they can receive their personal loan funds that very same day.

Learn more about SoFi personal loans today!


Is a personal loan processor the same as an underwriter?

No, a personal loan processor is not the same as an underwriter, although they share similar responsibilities. A loan underwriter determines whether or not an applicant is creditworthy. A loan processor collects and verifies any personal and financial information required to complete loan applications.

What does a personal loan processor do?

A personal loan processor works with personal loan applicants to gather the information and documents needed to complete their applications. A personal loan processor also prepares appraisal and closing documents.

When does a personal loan processor or officer get involved?

A personal loan processor or officer gets involved once a consumer starts the application process. They can help guide the applicant through that process.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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What Is a Guaranteed Minimum Income Benefit (GMIB)?

What Is a Guaranteed Minimum Income Benefit (GMIB)?

A guaranteed minimum income benefit (GMIB) is an optional rider that can be included in an annuity contract to provide a minimum income amount to the annuity holder.

What are annuities? An annuity is an insurance product in which you pay a premium to the insurance company, then receive payments back at a later date. There are a number of different types of annuities, with different annuity rates.

A GMIB annuity can ensure that you receive a consistent stream of guaranteed income. If you’re considering buying an annuity for your retirement, it’s helpful to understand what guaranteed minimum income means, and how it works.

GMIBs, Defined

Annuities are one option you might consider when starting a retirement fund. But what are annuities and how do they work? It’s important to answer this question first when discussing guaranteed minimum income benefits.

An annuity is a type of insurance contract. You purchase the contract, typically with a lump sum, on the condition that the annuity company pays money back to you now or starting at a later date, e.g. in retirement.

Depending on how the annuity is structured, your money may be invested in underlying securities or not. Depending on the terms and the annuity rates involved, you may receive a lump sum or regular monthly payments. The amount of the payment is determined by the amount of your initial deposit or premium, and the terms of the annuity contract.

Now for the GMIB definition: A guaranteed minimum income benefit is a rider that the annuity holder can purchase, at an additional cost, and add it onto their annuity. The goal of a GMIB is to ensure that the annuitant will continue to receive payments from the contract — that’s the “guaranteed minimum income” part — without those payments being affected by market volatility.

A GMIB annuity is most often a variable annuity or indexed annuity product (though annuities for retirement can come in many different flavors). More on that below.

How GMIBs Work

Let’s look at two different types of annuities for retirement: variable and indexed.

•   Variable annuities can offer a range of investment types, often in the form of mutual funds that hold a combination of stocks, bonds, and money market instruments.

•   Indexed annuities offer returns that are indexed to an underlying benchmark, such as the S&P 500 index, Nasdaq, or Russell 2000. This is similar to other types of indexed investments.

With either one, the value of the annuity contract is determined by the performance of the underlying investments you choose.

When the market is strong, variable annuities or indexed annuities can deliver higher returns. When market volatility increases, however, that can reduce the value of your annuity. A GMIB annuity builds in some protection against market risk by specifying a guaranteed minimum income payment you’ll receive from the annuity, independent of the annuity’s underlying market-based performance.

Of course, what you can draw from an annuity to begin with will depend on how much you invest in the contract, stated annuity rates, and to some degree your investment performance. But having a GMIB rider on this type of retirement plan can help you to lock in a predetermined amount of future income.

Pros & Cons of GMIBs

Guaranteed minimum income benefit annuities can be appealing for investors who want to have a guaranteed income stream in retirement. Whether it makes sense to purchase one can depend on how much you have to invest, how much income you’re hoping to generate, your overall goals and risk tolerance. Weighing the pros and cons can help you to decide if a GMIB annuity is a good fit for your retirement planning strategy.

Pros of GMIBs

The main pro or benefit of a GMIB annuity is the ability to receive a guaranteed amount of income in retirement. This can make planning for retirement easier as you can estimate how much money you’re guaranteed to receive from the annuity, regardless of what happens in the market between now and the time you choose to retire.

If you’re concerned about your spouse or partner being on track for their own retirement, that income can also carry over to your spouse and help fund their retirement needs, if you should pass away first. You can structure the annuity to make payments to you beginning at a certain date, then continue those payments to your spouse for the remainder of their life. This can provide reassurance that your spouse won’t be left struggling financially after you’re gone.

Cons of GMIBs

The disadvantage of guaranteed minimum income benefit annuities is the cost. The more riders you add on to an annuity contract, the more this can increase the cost. So that’s something to factor in if you have a limited amount of money to invest in a variable or indexed annuity with a GMIB rider. Annuities may also come with other types of investment fees, so you may want to consult with a professional who can help you decipher the fine print.

It’s also important to consider the quality of the annuity company. An annuity is only as good as the company that issues the contract. If the company were to go out of business, your guaranteed income stream could dry up. For that reason, it’s important to review annuity ratings to get a sense of how financially stable a particular company is.

Examples of GMIB Annuities

Variable or indexed annuities that include a guaranteed minimum income benefit can be structured in different ways. For example, you may be offered the opportunity to purchase a variable annuity for $250,000. The annuity contract includes a GMIB order that guarantees you the greater of:

•   The annuity’s actual value

•   6% interest compounded annually

•   The highest value reached in the account historically

The annuity has a 10-year accumulation period in which your investments can earn interest and grow in value. This is followed by the draw period, in which you can begin taking money from the annuity.

Now, assume that at the beginning of the draw period the annuity’s actual value is $300,000. But if you were to calculate the annuitized value based on the 6% interest compounded annually, the annuity would be worth closer to $450,000. Since you have this built into the contract, you can opt to receive the higher amount thanks to the guaranteed minimum income benefit.

This example also illustrates why it’s important to be selective when choosing annuity contracts with a guaranteed minimum income benefit. The higher the guaranteed compounding benefit the better, as this can return more interest to you even if the annuity loses value because of shifting market conditions.

It’s also important to consider how long the interest will compound. Again, the more years interest can compound the better, in terms of how that might translate to the size of your guaranteed income payout later.

Investing for Retirement With SoFi

Making sure you’re on track to retire starts with considering your income needs and the different solutions that can help you to meet them. Annuities can help round out your financial strategy if you’re looking for ways to create guaranteed income in retirement.

Purchasing an annuity can be expensive, and adding on a guaranteed minimum income rider can add to the cost, but the security it provides may be worth it. The advantage of a GMIB annuity is that it offers some protection against market risk. No matter how the market performs, you’ll still be guaranteed a minimum amount of steady income.

With careful planning, a GMIB annuity can be combined with other savings vehicles. You can also save in a 401(k) at work or through an Individual Retirement Account (IRA), or potentially all three. Because annuities can be complex, and combining retirement accounts requires some care, you may want to consult with a professional.

If you’re ready to explore all your savings options, you can start investing for retirement with SoFi Invest® by opening an IRA today. Or you can set up an Active Invest account if you want to trade stocks or exchange-traded funds. And remember: SoFi members have access to complimentary financial guidance from professionals. Get started today!


What are guaranteed benefits?

When discussing annuities for retirement, guaranteed benefits are amounts that you are guaranteed to receive. Depending on how the annuity contract is structured, you may receive guaranteed benefits as a lump sum payment or annuitized payments.

What is the guaranteed minimum withdrawal benefit?

The guaranteed minimum withdrawal benefit is the amount you’re guaranteed to be able to withdraw from an annuity once the accumulation period ends. This can be the annuity’s actual value, an amount that reflects interest compounded annually or the annuity contract’s highest historical value.

What are the two types of guaranteed living benefits?

There are actually more than two types of guaranteed living benefits. For example, your annuity contract might include a guaranteed minimum income benefit, guaranteed minimum accumulation benefit or guaranteed lifetime withdrawal benefit.

SoFi Invest®
SoFi Invest refers to the two 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 and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.

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Stock Buyback: What It Means & Why It Happens

One of the most popular ways a company can use its cash is through a stock buyback. Over the past decade, companies in the S&P 500 index have repurchased $5 trillion worth of their own shares to boost shareholder value. Because of this significant activity, investors need to know the basics of stock buybacks and how they work to feel confident in making investment decisions.

What Is A Stock Buyback?

A stock buyback, also known as a share repurchase, is when a company buys a portion of its previously issued stock, reducing the total number of outstanding shares on the market. Because there are fewer total shares on the market after the buyback, each share owned by investors represents a greater portion of company ownership.

How Do Companies Buy Back Stock?

Companies can repurchase stock from investors through the open market or a tender offer.

Open market

A company may buy back shares on the open market at the current market price, just like a regular investor would. These stock purchases are conducted with the company’s brokers.

Tender offers

A company may also buy back shares through a tender offer. One type of tender offer, the fixed-price offer, occurs when a company proposes buying back shares from investors at a fixed price on a specific date. This process usually values the shares at a higher price than the current price per share on the open market, providing an extra benefit to shareholders who agree to sell back the shares.

Another type of tender offer, the dutch auction offer, will specify to investors the number of shares the company hopes to repurchase and a price range. Shareholders can then counter with their own proposals, which would include the number of shares they’re willing to give up and the price they’re asking. When the company has all of the shareholders’ offers, it decides the right mix to buy to keep its costs as low as possible.

Why Do Companies Buy Back Stock?

Stock buybacks are one of several things a company can do with the cash it has in its coffers, including paying the money out to shareholders as a dividend, reinvesting in business operations, acquiring another company, and paying off debt. There are several reasons why a company chooses to buy back its stock rather than some of these other options.

1. Increases Stock Value

One of the most common reasons a company might conduct a share buyback is to increase the value of the stock, especially if the company considers its shares undervalued. By reducing the supply of shares on the market, the stock price will theoretically go up as long as the demand for the stock remains the same. The rising stock price benefits existing shareholders.

Recommended: Understanding Capital Appreciation on Investments

2. Puts Money Into Shareholders’ Hands

A company’s stock buyback program can be used as an alternative to dividend payments to return cash to shareholders, specifically those investors who choose to sell back their shares to the company. With dividend payments, companies usually pay them regularly to all shareholders, so investors may not like it if a company reduces or suspends a dividend. Stock buybacks, in contrast, are conducted on a more flexible basis that may benefit the company because investors do not rely on the payments.

3. Takes advantage of tax benefits

Many investors prefer that companies use excess cash to repurchase stock rather than pay out dividends because buybacks have fewer direct tax implications. With dividends, investors must pay taxes on the payout. But with stock buybacks, investors benefit from rising share prices but do not have to pay a tax on this benefit until they sell the stocks. And even when they sell the stock, they usually pay a lower capital gains tax rate.

4. Offsets dilution from stock options

Companies will often offer employee stock options as a part of compensation packages to their employees. When these employees exercise their stock, the number of shares outstanding increases. To maintain an ideal number of outstanding shares after employees exercise their options, a company may buy back shares from the market.

5. Improves financial ratios

Another way stock buybacks attract more investors is by making the company’s financial ratios look much more attractive. Because the repurchases decrease assets on the balance sheet and reduce the number of outstanding shares, it can make financial ratios like earnings per share (EPS), the price-to-earnings ratio (PE Ratio), and return on equity (ROE) look more attractive to investors.

What Happens to Repurchased Stock?

When a company repurchases stock, the shares will either be listed as treasury stock or the shares will be retired.

Treasury stocks are the shares repurchased by the issuing company, reducing the number of outstanding shares on the open market. The treasury stock remains on its balance sheet, though it reduces the total shareholder equity. Shares that are listed as treasury stock are no longer included in EPS calculations, do not receive dividends, and are not part of the shareholder voting process. However, the treasury stock is still considered issued and, therefore, can be reissued by the company through stock dividends, employee compensation, or capital raising.

In contrast, retired shares are canceled and cannot be reissued by the company.

The Pros and Cons of a Stock Buyback for Investors

When a company announces a stock buyback, investors may wonder what it means for their investment. Stock buybacks have pros and cons worth considering depending on the company’s underlying reasoning for the share repurchase and the investor’s goal.

Pros of a Stock Buyback

Tender offer premium

Investors who accept the company’s tender offer could mean an opportunity to sell the stock at a greater value than the market price.

Increased total return

Investors who hold onto the stock after a buyback will likely see a higher share price since fewer outstanding shares are on the market. Plus, each share now represents a more significant portion of company ownership, which may mean an investor will see higher dividend payments over time. A higher stock price and increased dividend boosts an investor’s total return on investment.

Tax benefits

As mentioned above, a stock buyback might also mean a lower overall tax burden for an investor, depending on how long the investor owned the stock. Money earned through a stock market buyback is taxed at the capital gains tax rate. If the company issued a dividend instead of buying back shares, the dividends would be taxed as regular income, typically at a higher rate.

Recommended: Investment Tax Rules Every Investor Should Know

Cons of a Stock Buyback

Cash could be spent elsewhere

As mentioned above, when companies have cash, they can either reinvest in business operations, acquire a company, pay down debt, pay out a dividend, or buy back stock. Engaging in a share repurchase can starve the business of money needed in other areas, such as research and development or investment into new products and facilities. This hurts investors by boosting share price in the short term at the expense of the company’s long-term prospects.

Poorly timed

Companies may sometimes perform a stock buyback when their stocks are overvalued. Like regular investors, companies want to buy the stock when the shares are valued at an attractive price. If the company buys at a high stock price, it could be a bad investment when the company could have spent the money elsewhere.

Benefits executives, not shareholders

Stock buybacks might also be a convenient tactic to benefit company executives, who are often compensated by way of stock options. Also, some executives earn bonuses for increasing key financial ratios like earnings per share, so buying back stock to improve those ratios benefits insiders and not all shareholders.

The Takeaway

Like almost everything else to do with the stock market, the benefits and drawbacks of stock buybacks aren’t exactly straightforward. Investors need to ask themselves a few questions when analyzing the share repurchases of a company, like “why is the company conducting the buyback?” and “does the company have a history of delivering good returns?” Answering these questions can help investors decide whether a stock buyback is the best thing for a company.

If you’re ready to benefit from stock buybacks and dividends to build wealth, the SoFi app can help. With SoFi Invest®, you can trade stocks and ETFs online, invest in IPOs at IPO prices, or try automated investing for as little as $5.

Curious about how SoFi might help you invest in your future? Learn more about SoFi Invest®.

SoFi Invest®
SoFi Invest refers to the two 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 and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.


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What Is a Stock Market Crash?

The specter of a stock market crash weighs on the mind of many investors. After all, stock market crashes have played a substantial role in the United States during the 20th and 21st centuries. But knowing the history and effects of stock market crashes can help investors weather the storm when the next one occurs.

What Happens When the Stock Market Crashes?

A stock market crash occurs when broad-based stock indices like the S&P 500, Dow Jones Industrial Average, or the Nasdaq Composite experience double-digit declines over a single or several days. This means that the stocks of a wide range of companies sell off rapidly, generally because of investor panic and macroeconomic factors rather than company-specific fundamentals.

While no specific percentage decline defines a stock market crash, investors generally know one is occurring while it’s happening.

Recommended: What Is the Average Stock Market Return?

What Causes the Market to Crash?

Stock market crashes are usually unexpected and occur without warning. Often, crashes are caused by investor dynamics; when stocks start to sell off, investors’ fear takes over and causes them to panic sell shares en masse.

Though stock market crashes are usually unexpected, there are often signs that one could be on the horizon because a stock market bubble is inflating. A bubble occurs when stock prices rise quickly during a bull market, outpacing the value of the underlying companies. The bubble forms as investors buy certain stocks, driving prices up. Other investors may see the stocks doing well and jump on board, further raising prices and initiating a self-sustaining growth cycle.

The stock price growth continues until some unexpected event makes investors wary of stocks. This unexpected event causes investors to unload shares as quickly as possible, with the herd mentality of panic selling resulting in a stock market crash.

Catastrophic events such as economic crises, natural disasters, pandemics, and wars can also trigger stock market crashes. During these events, investors sell off risky assets like stocks for relatively safe investments like bonds.

Stock markets can also experience flash crashes, where the stock market plummets and rebounds within minutes. Computer trading algorithms can make these crashes worse by automatically reacting and selling stocks to head off losses. For example, on May 6, 2010, the Dow Jones Industrial Average fell 1,000 points in 10 minutes but recovered 70% of its losses by the end of the day.

Examples of Past Stock Market Crashes

There have been several crashes in the stock market history, the most recent being the crash associated with the coronavirus pandemic in early 2020. The following are some of the most well-known crashes during the past 100 years.

Stock Market Crash of 1929

The most devastating stock market crash in the history of the United States occurred in October 1929. The crash occurred following a period of relative prosperity during the Roaring Twenties, when new investors poured money into the stock market.

The crash began on Thursday, October 24, when the Dow Jones Industrial Average declined about 11%, followed by a 13% decline on Monday, October 28, and a 12% drop on Tuesday, October 29. These losses started a downward trend that would continue until 1932, ushering in the Great Depression.

Black Monday Crash of 1987

On Monday, October 19, 1987, the Dow Jones Industrial Average plummeted nearly 23% in a single day. Known as Black Monday, this selloff occurred for various reasons, including the rise of computerized trading that made it easier for panicked investors to offload stocks quickly, and stock markets around the world crashed.

Dotcom Crash of 2000

The Dotcom crash between 2000 and 2002 occurred as investors started to pull money away from internet-based companies. The Nasdaq Composite index declined about 77% from March 2000 to October 2002.

In the mid to late 1990s, the internet was widely available to consumers worldwide. Investors turned their eyes to internet-based companies, leading to rampant speculation as they snapped up stocks of newly public internet companies. Eventually, startups that enthusiastic investors had fueled began to run out of money as they failed to turn a profit. The bubble eventually burst.

Recommended: Lessons From the Dotcom Bubble

Financial Crisis of 2008

The stock market crash of 2008 was fueled by rising housing prices, which came on the heels of the dot-com crash recovery. At the time, banks were issuing more and more subprime mortgages, which financial institutions would bundle and sell as mortgage-backed securities.

As the Federal Reserve increased interest rates, homeowners, who often had been given mortgages they couldn’t afford, began to default on their loans. The defaults had a ripple effect throughout the economy. The value of mortgage-backed securities plummeted, causing major financial institutions to fail or approach the brink of failure. This financial crisis spilled over into the stock market, and the S&P 500 fell nearly 60% from a peak in October 2007 to a low in March 2009.

Coronavirus Crash of 2020

As the coronavirus pandemic swept the United States in February 2020, the government responded with stay-at-home orders that shut down businesses and curtailed travel. The U.S. economy entered a recession, and the stock market plunged. The S&P 500 fell 30% into bear market territory in just one month, including a one day decline of 12% on March 16, 2020.

What Are the Effects of a Crash?

Stock market crashes can lead to bear markets, when the market falls by 20% or more from a previous peak. If the crash leads to an extended period of economic decline, the economy may enter a recession.

A market crash could lead to a recession because companies rely heavily on stocks as a way to grow. Falling stock prices curtail a company’s ability to grow, which can have all sorts of ramifications. Companies that aren’t able to earn as much as they need may lay off workers. Workers without jobs aren’t able to spend as much. As consumers start spending less, corporate profits begin to shrink. This pattern can lead to a cycle of overall economic contraction.

A recession is usually declared when U.S. gross domestic product, or GDP, shrinks for two consecutive quarters. There may be other criteria for declaring a recession, such as a decline in economic activity reflected in real incomes, employment, production, and sales.

Recommended: U.S. Recession History: Reviewing Past Market Contractions

Preventing Stock Market Crashes

Major stock exchanges like the New York Stock Exchange (NYSE) have instituted circuit breaker measures to protect against crashes. These measures halt trading after markets drop a certain percentage to curb panic selling and prevent the markets from going into a freefall.

The NYSE’s circuit breakers kick in when three different thresholds are met. A drop of 7% or 13% in the S&P 500 shuts down trading for 15 minutes when the drop occurs between 9 am and 3:25 pm. A market decline of 20% during the day will shut down trading for the rest of the day.

Suppose a crash does occur, and it threatens to weaken the economy. In that case, the federal government may step in to ease the situation through monetary and fiscal policy stimulus measures. Monetary policy stimulus is a set of tools the Federal Reserve can use to stimulate economic growth, such as lowering interest rates. Fiscal stimulus is generally infusions of cash through direct spending or tax policy.

Investment Tips During a Market Crash

A stock market crash can be alarming, especially when it comes to an investor’s portfolio. Here are some important investment tips for navigating a market downturn.

Don’t Panic and Focus on the Long-Term

It will help if you remain calm when the stock market is plummeting. That’s often easier said than done, especially when your portfolio’s value declines by more than 10% in a short period. It’s tempting to join the panic selling, to make sure stock losses are minimized.

But investing is a long game. You don’t want to make decisions based on something happening now when your investing time horizon may be 30 years. If you don’t need access to your money right away, it may be better to hold on to your investments and give them time to recover.

To help curb your impulse to pull out of the market when it is low — and continue investing instead — you may want to consider dollar cost averaging.

Diversify Your Portfolio

Stocks and the stock market get most of the media’s attention, especially when the stock market is crashing, but there are other areas to help you realize financial gains. Other assets like bonds, commodities, or emerging market stocks may be attractive investment opportunities during a crash.

Buy The Dip

As the famous axiom goes, “buy low, sell high.” A stock market crash may present opportunities to buy stocks at a lower, more attractive share price.

The Takeaway

The stock market tends to recover following a stock market crash; it took the S&P 500 six months to recover the losses experienced during the coronavirus crash. So any rash moves you make during a stock market crash may prevent you from seeing gains in the long term.

A stock market crash can be scary, causing you to panic and fret over your savings and investments. But often, with investing, the best advice is not to give in to your feelings. Even during a stock market crash, some opportunities and strategies help grow wealth over time.

If you’re ready to start investing, you can open an online brokerage account with as little as $5 on SoFi Invest®. Active Investing accounts work for people who like to take a hands-on approach to investing — those who want to choose individual stocks, exchange-traded funds (ETFs), or fractional shares themselves to build a personalized portfolio that may help navigate a stock market crash.

Visit SoFi Invest® if you’re ready to build your portfolio and start saving for your short- and long-term goals.

Photo credit: iStock/Prostock-Studio

SoFi Invest®
SoFi Invest refers to the two 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 and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.


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17 Ways to Make Financial Freedom a Reality

Ever dream of walking out of your job, free to pursue a project you’ve always dreamed of starting? Or going back to school without taking out student loans? Or having the financial freedom to leave an unhealthy relationship or location?

What about the option to retire at age 45 or 50 instead of at age 65 (or 80)? And upon retiring, dedicating your life to humanitarian work, raising your family, or tucking yourself away in your mountain cabin with hundreds of books?

Each of these opportunities could be afforded with financial freedom. Just as it sounds, financial freedom is typically defined as having the resources to do exactly as you please.

Below we highlight 17 ways to make financial freedom a reality.

What Is Financial Freedom?

While everyone’s financial freedom definition will be slightly different, it’s generally understood as being in the financial position to step away from traditional work. This is usually done by creating income streams from investments or a business.

Essentially, the notion of having financial freedom implies you’ve achieved financial independence to live for the rest of your life without traditional income.

Currently, there is a movement that is gaining in popularity called FIRE, which stands for “financial independence, retire early.” Self-proclaimed members of the FIRE movement often dedicate a great deal of energy to creating the terms of their financial freedom.

Whether or not you associate with the FIRE movement, the idea of financial freedom is useful for anyone who is curious about ditching the traditional 9-5 work schedule, who wants to stop living paycheck-to-paycheck, or who wants to step up their money game.

Even those who simply want a traditional retirement will probably want to become familiar with the concepts of financial freedom, as most people will be investing for their retirements themselves.

Financial freedom is generally achieved through amassing income-producing assets or creating income streams to cover your cost of living expenses. Another word for this is “passive income,” or income that is generated without you having to exchange your time for that dollar. The goal is to stop trading your time for money.

While it is feasible to save enough money simply to live off that cash into perpetuity, this means saving an incredible amount of money — and not running out. While you can aim for this, you may feel more comfortable building out one or more income streams, especially as you take into consideration the erosive powers of inflation.

17 Ways to Achieve Financial Independence

Achieving financial freedom will not happen overnight. It is certainly possible and it is within your capability, but it requires putting together a financial freedom plan and budgeting with financial literacy.

1. Determine Your Needs

A good first step toward financial freedom is determining how much money you’ll likely need to cover your costs once you achieve financial independence. Determining what you need can feel like a moving target, but this is important for planning the next steps in your journey.

2. Explore New Income Streams

You can explore opportunities to create new streams of income. Any property you own, including real estate, cars, tools, and appliances, can serve as money-making assets. You may sell these items, or you may explore opportunities to rent them out for a steady source of new income.

3. Consider Stocks

Whether you own individual stocks or diversified stock funds (mutual funds or exchange-traded funds), the stock market can be used to generate income. It helps to understand that a stock can make money in two ways.

First, through price appreciation, which is a stock growing in value over time. Second is through dividend payments, which are cash payments made by some (but not all) stocks and funds.

Though stocks have experienced a high historical rate of return, stock market returns are notoriously volatile, so you may want to gain some comfort before diving in headfirst as a strategy for financial freedom — whether through your own research or by consulting a licensed financial advisor.

4. Consider Bonds

You can consider investing in bonds as a strategy for growing wealth. Bonds are investments in the debt of a corporation or government, whether federal or local. You are essentially loaning them your money, and they pay you a stated rate of return, called interest, to use that money.

How much you earn in a bond will likely depend on interest rates in the prevailing economy. Bonds generally pay interest at regular intervals, such as twice a year, which can provide investors with a steady stream of income.

5. Consider Real Estate Leasing

Investing in rental real estate — such as single-family homes and multi-family units — is another way to create a stream of income. Generally, the goal with rental property investing is to collect rent payments that create cash flow beyond what is needed to cover all of the costs of owning a home, like a mortgage, property taxes and maintenance of the property.

This method of generating passive income often relies on leveraging your financial position — taking on debt in order to generate a profit on borrowed money. Paying cash for rental properties may give added peace of mind if you experience a period without renters in your property.

In this way, rental properties can be a risky endeavor and require plenty of research into the process, best practices, and into finding the right properties.

6. Generate Passive Business Income

Though passive income has become a catchall for all sorts of different income streams, it can also be used specifically to describe wealth you may generate as a silent partner in a business venture. For example, you can earn passive income by providing private financing to a private company in exchange for an equity stake in the venture and a share of its profits. This leaves you invested in a company without having to oversee or manage its day-to-day operations.

You may invest in private companies while still engaging in active work elsewhere. Active businesses could fall into side gigs, which we’ll highlight below as a way to bolster your income in the journey toward financial freedom.

7. Understand Financial Literacy

Financial literacy is having competence or knowledge in personal finance. This involves understanding debt and knowing how to budget. The path to financial freedom goes through financial literacy, and this runs the gamut of how you save, spend, earn, borrow, invest, and protect your money.

8. Conquer Mental Barriers

If you can’t envision yourself untethered from traditional employment, you certainly aren’t alone. This is not something that we are taught in schools or even by our parents by and large.

One of the first steps in your journey toward financial freedom may be to explore your beliefs about money and work. This may mean digging deep and learning about your relationship with concepts like worth, scarcity, and abundance. Such an exercise may help you conquer any mental barriers holding you back.

9. Reduce Bad Debt

A bunch of debt can make it very hard to become financially free. Debt not only reduces your overall net worth by the amount you’ve got in loans or lines of credit outstanding but also increases your monthly expenses.

To reduce debt, you may want to focus on expediting your payment of high-interest sources like credit cards and student loans. To make the process move faster, you might try to get a lower interest rate on your debts.

It’s worth noting that, typically, a lower interest rate may mean that your loan term will be extended. With student loans or a home loan, you could look into options like refinancing. For instance, with credit card debt, it may be possible to lower your interest rate by calling your credit card company and negotiating better terms.

Additionally, you’ll likely want to take on any new debt strategically. Debt can certainly be a useful tool for a future goal of building wealth, like using loans to finance an education in order to get a higher paying job or as an outlay on a business. But debt can also be misused, so be careful not to take out more debt than you absolutely need.

10. Seek Higher Wages

You can clip coupons all you want, but if you’re not earning enough to cover your bills, you aren’t going to be able to save enough to retire early and pursue your passions. For many people, figuring out how to earn more money in order to increase savings will be a crucial step in the journey toward financial freedom.

There are many ways to increase your income. First, you might want to think about ways to get paid more for the job that you’re already doing.

Many ask for a raise or more responsibility at work, or have a conversation with managers about establishing a path toward a higher salary. Earning more now can help you save more for your future needs.

11. Consider Side Gigs

As mentioned earlier, active businesses could fall into side gigs — small work endeavors that may help you on the journey toward financial freedom. You can consider picking up a “side hustle” or another way to earn money outside of full-time work. You can explore the gig economy as an independent contractor and generate supplemental income to your bread-and-butter job. This can help you build up savings for retirement or extra earnings to invest in stocks, bonds, and other securities.

12. Start Your Own Business

You could create your own full-time job by starting a business. Going into business has its fair share of risks, but a successful enterprise can generate wealth and pave the way toward financial freedom. Business owners can step aside at any moment and recruit new managers to run their business. Building and selling a successful small business can also catapult you into financial freedom.

13. Track Your Cash Flow

Using cash-flow management to monitor your income and avoid late payments on bills can build wealth. Borrowing money and having the available cash on hand to make any required interest and principal payments is known as debt service. You could implement a cash-flow management plan to pay off loan obligations early, which can move you closer to financial freedom.

Tracking your cash flow is critical to establishing a healthy budget. You can’t set a budget that you can reasonably expect to stick to if you don’t even know how much you’re spending in each category.

14. Minimize Costs

Buying things you don’t need can deplete your savings and make it harder to achieve financial freedom. You can maximize your savings by minimizing your costs. This doesn’t mean sacrificing your right to “life, liberty, and the pursuit of happiness,” but it does mean embracing frugality where sensible.

15. Live Within Your Means

One of the teachings of financial literacy is to live within your means. As mentioned earlier, having a bunch of debt can make it very hard to become financially free. Borrowing money makes sense when it advances your goals, but buying things you cannot afford is generally a recipe for disaster.

16. Consider a Savings Account

Achieving financial freedom means you have sufficient wealth or savings to live comfortably to your satisfaction. Opening and maintaining a savings account can get you accustomed to saving and introduce you to the concept of earning money on top of your money.

Depositing money into a savings account earns you interest, and a high-interest savings account can help you in the journey to financial freedom.

💡 Learn more about how high-interest savings accounts work.

17. Consider 401(k) Retirement Contributions

Employees can consider making contributions to a 401(k) retirement plan. A 401k is a type of tax-deferred retirement account sponsored by your employer, and you can begin withdrawing these funds without penalty once you turn 59 ½. Building a 401k nest egg can help you plan a future with financial freedom as your reality.

The Takeaway

Living life to your fullest satisfaction may require a degree of financial literacy. Paying bills, covering general expenses, and constantly managing a budget can feel like a burden, but saving money and generating wealth can provide much-needed relief.

If you are thinking about early retirement and achieving financial freedom, SoFi Invest® could help. This investment app allows you to trade stocks with no commissions and offers other tools that can help you build a savings nest egg.

Become a SoFi Invest member today and get complimentary access to our credentialed financial planners.

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.

SoFi Invest®
SoFi Invest refers to the two 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 and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.


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