Jul
28
2021
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Should I Pay Off Student Loans, Save, or Invest?

By | Budgeting & Goals, Fresh Out of School, Growing Wealth, invest, Investing, Student Loans, student_loan | No Comments

You’re a successful college graduate. You made it through all of your classes and secured a job in your chosen field. You’re on your way to building a successful career and establishing your life as an adult.

Now that you’re in full-on adult mode, you’ll have to start making some pretty big decisions. What are your short-term goals? What are your long-term goals? How are your finances stacking up to help you get there?

One of the questions many young adults face is whether it’s better to pay off student loans (or other debt), save, or invest. With rising levels of student debt across the nation, this is a common question. College students who graduated in 2019 with student loans owe an average of nearly $29,000.

You know that paying down debt is good for financial security, but saving and investing are important, too. The best course for many is not to think of it as choosing between one goal and another. With some strategic thinking and careful planning for your financial future, you can do all three.

Making a Budget

A good first step to any financial conundrum is to fully evaluate the situation. Start by gathering all of your financial documents including tax statements, bank statements, credit card statements, and statements on student loans or other debts. Then, list out all of your monthly expenses—fixed expenses, like rent, and variable ones, like dining out.

Now, tally up all sources of income and list out your savings. After you’ve done this, you should have a pretty clear idea of how much money you’re spending, what you’re spending it on, and how that compares with the money you are bringing in every month.

Now that you have a big picture view of your spending habits, look for areas where you might be able to make changes. Take a look at any of your current subscription services with monthly payments, for example. If you’re not actively using them, maybe it’s time to cancel.

If you’re willing to call your internet or cable provider, you could try to negotiate a lower rate. After you’ve made any changes to your spending, make a new budget—one that details how much money you’re going to put toward your student loans, your savings, and your investments.

Making Payments on Your Loans

Regardless of your financial goals, it’s important to prioritize your debt payments. Failing to make payments and allowing your loan to become delinquent or go into default can have serious consequences for your finances and credit score.

By paying at least the monthly minimum payments, you can make sure you stay in good standing with your loan servicer while still making progress toward your loan repayment.

Paying off High-Interest Debt

When it comes to debt, the interest rates on student loans are relatively low. While you are making monthly payments on your student loans, it could be smart to tackle any high-interest debt you may have.

Credit card annual percentage rates (APRs) average more than 16% in July 2021, which means debt can rack up quickly. If you are carrying credit card debt, you might try either the debt snowball or debt avalanche method to pay it down.

The Debt Snowball Method

With the debt snowball method, you’ll pay the minimums on all accounts first and direct any additional funds to the smallest debt first, regardless of the interest rate. The idea is that by paying off your smallest debt first, you’ll stay motivated to continue making payments on your debt. After you pay off your smallest debt, you take all of the money you were putting toward that balance and put it toward the next smallest debt (so the amount you pay gets bigger like a snowball), and so on, until all of your debt is paid off. The accomplishment of repaying your debts provides motivation to continue paying off the money you owe.

The Debt Avalanche Method

With the debt avalanche method you’ll focus on the debt with the highest interest rate first. Make a list of all your debts by order of descending interest rate. While making your minimum monthly payments on all the debts, you would “attack” the loan with the highest interest rate with as many extra payments as you can.

This method can require more discipline, but keeping track of how much you are saving in interest can be a great motivator.

Consolidating Loans

Another option for getting your credit card debt under control is to consolidate it with a personal loan. Personal loans often have lower interest rates than high-interest credit cards and, as a result, you could save money on interest.

Another benefit of consolidating your credit card debt: Streamlined payments. You’ll only be responsible for making one monthly payment to one lender instead of multiple payments to a variety of credit card companies and lenders.

No matter which debt repayment method you use, a common tactic is to keep credit card balances low after paying them off, since running them back up has the potential to make your credit profile less attractive to lenders due to the increased total debt.

Lowering Your Student Loan Payments

If you are having difficulty making monthly payments on your federal student loan due to temporary financial issues, you could consider putting your federal student loans into deferment or forbearance. Just know that while many student loans are in forbearance interest will continue to accrue, making it more expensive to pay off later.

Depending on the type of loan you have, you may be responsible for accrued interest during deferment as well. If your issues with repayment will last more than a couple of months, consider adjusting your student loan repayment plan.

If you have federal student loans, you can change your repayment plan at any time, at no cost to you. The standard repayment plan for federal student loans is a fixed monthly payment over a 10-year term. If this is too much for your current financial situation, you might consider other repayment plans.

The Extended Repayment and Graduated Repayment plans offer repayment terms over 15 or 20 years, which could make your payments more manageable on a monthly basis.

There are also four Income-Driven Repayment plans which allow you to pay a portion of your discretionary income—usually 10%, 15%, or 20%—over 20 or 25 years. These options would lower your monthly payments, meaning you would have more money to save for a rainy day or to invest. But, it’s important to note that by extending your repayment term, you will be paying more in interest over the life of the loan.

Refinancing

Another alternative to consider is refinancing your student loans. Refinancing may allow you to lower your interest rate, adjust your monthly payments, or customize your repayment term. When you refinance, you take out a new loan with a private lender. However, this means you forfeit federal loan benefits, such as access to income-driven repayment plans, deferment, or federal loan forgiveness programs. So, if you’re taking advantage of a federal loan program, refinancing might not be for you.

Whether you’ve freed up some of your monthly budget with an income-driven repayment plan or by refinancing, or simply by better budgeting, you may be able to redirect some of those funds into other financial goals like saving and investing.

Building Your Emergency Fund

Now that you have a handle on your debts, it’s time to turn to your savings. The first order of business you might consider is building an emergency fund. A good goal is to have six months’ worth of expenses in a liquid account, such as a high-yield savings account. You can use this fund to cover any unexpected expenses that might occur due to a medical emergency, sudden layoff, car repairs, etc. Even starting with a small amount can help when emergency expenses pop up.

Saving for Your Retirement

When it comes to investing for your future, one of your biggest assets is time, but it’s important to start saving as soon as possible for retirement. Even a small amount of savings can add up over time, but you may want to aim to save at least 10% to 15% of your income for retirement. To see how your retirement goals stack up, take a look at SoFi’s retirement calculator.

The best place for most investors to start saving for retirement is in a tax-favored investment account, such as a 401(k) or IRA. If you are eligible for an employer-sponsored 401(k) plan, that’s a great place to start. Some employers offer a matching contribution up to a certain percentage when you contribute to a 401(k). Take a look at your employer policy and see if you’re able to contribute enough to get the full employer match.

Another option for retirement savings is setting up an IRA, or Individual Retirement Account. There are two types of IRAs: traditional or Roth IRA.

Roth IRA

First, you can only contribute to a Roth IRA if your income falls below a certain limit. You won’t get an immediate tax benefit for money you put into a Roth, but the money grows tax-free, and you won’t owe taxes on it when you make withdrawals in retirement.

Traditional IRA

Depending on your income and whether you have a 401(k) at work, you may be able to deduct some or all of the money that you put into a Traditional IRA. That money grows tax-free, and you’ll also typically owe taxes on your withdrawals when you retire.

Is It Better to Pay Off Student Loans, Save, or Invest?

As you move through life, retirement will be just one of your many financial goals. You may also want to work toward buying a house, saving for a child’s education, or taking an extravagant vacation. No matter what your financial goals are, investing could help you meet them.

The key to understanding whether it is better to invest or pay off student loans is opportunity cost. Federal student loans often have relatively low-interest rates, and if you’ve refinanced your loans, you may have secured an even lower rate.

For example, say your student loan interest rate is 4%, while the stock market has (hypothetically) yielded average returns of 7% over the last five years. Generally speaking, earning 7% interest makes more financial sense than paying down debt at 4% interest.

Investing comes with risk, but investing can be a great way to grow your money in the long run. On the other hand, paying down debt can free up additional cash flow and improve your credit score, giving you more financial flexibility in the short term.

The Takeaway

Whether it makes sense to direct any extra cash toward debt repayment, savings or investing (or some combination of the three) will depend on your current financial situation, your short- and long-term goals, and your risk tolerance.
If investing is part of your plan, a great way to get started is with SoFi Invest® automated investing platform. You’ll gain access to a team of financial advisors and cutting-edge automated investing technology, and we’ll work with you to determine your financial goals and risk tolerance.

Then, we’ll set up your account to meet those preferences and we’ll auto-balance your investments to keep them in line with your goals as the market changes. And anyone can invest—you can get started with as little as $5.

When you’re ready to take control of your financial future, SoFi Invest is here to help.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.
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.
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What to Know About Investing in Cryptocurrency

By | Growing Wealth, invest, Investing | No Comments

By now you’ve likely heard of Bitcoin and the cryptocurrency market, even if you haven’t started adding digital assets to your investment portfolio.

A 2021 survey by New York Digital Investment Group found that while 53% of Americans didn’t own digital assets, 55% said they would consider adding cryptocurrencies to their portfolio.

Cryptocurrencies have proven to be a volatile asset class, posting double-digit percentage gains sometimes within a single day. While such wild price swings have generated lucrative returns for some investors, others have suffered painful losses.

It’s important for investors to understand the fundamentals and risks of the cryptocurrency market before they start investing. Here’s a closer look at some basics.

Cryptocurrencies 101

Some consider cryptocurrencies to be a form of currency, while others see them as a store of value similar to gold.

We already use “digital money” in the form of credit and debit cards and services like PayPal. Little by little we have been phasing out our use of paper and metal money. Some countries, like Sweden, are phasing out paper money altogether. Meanwhile, central banks around the world are looking into central bank digital currencies or CBDCs, virtual money that has the backing of a sovereign nation in the way fiat currencies do.

In 2008, Satoshi Nakamoto published a paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System.” Satoshi, the inventor of bitcoin, is a person or group of people who have not been identified and remain anonymous to this day. In 2009, the first bitcoin transaction took place between Satoshi and programmer Hal Finney. The first altcoins were released in 2011, including Litecoin.

News reports tied use of Bitcoin and other cryptocurrencies to illegal activity on the dark web. Some major scams and company failures, including the theft of hundreds of thousands of Bitcoins on the crypto exchange Mt. Gox, contributed to volatility in the market’s early years.

However, by 2017, mainstream interest in Bitcoin and other cryptocurrencies skyrocketed, sending its price close to $20,00. Prices tumbled in 2018 but climbed again in 2020, as stay-at-home and pandemic stimulus package checks drove investor money back into the cryptocurrency market.

Bitcoin soared to above $60,000 and the entire crypto market surpassed $2 trillion in market value. However, since then, worries of a regulatory crackdown have caused prices to fall again, with Bitcoin halving in value to around $30,000.

Blockchain 101

Not every cryptocurrency is built using blockchain technology, but some of the largest ones are. A blockchain is an unchangeable record of transactions. These transactions don’t have to be monetary in nature. Blockchains can be used to create contracts, to track the movement of products, to record votes, to prove that property transfers took place, and much more.

Cryptocurrencies and blockchains work hand in hand. For example, here’s how Bitcoin mining works: new coins are created through the process of maintaining the accuracy of its blockchain. Miners use computing power to solve complex cryptographic equations. As these equations are solved, they prove that all of the transactional information on the bitcoin blockchain is accurate.

As a reward for maintaining the blockchain, Bitcoins are created and given to the miners. The bitcoin blockchain is public and decentralized. This means that anyone can view any transaction between two bitcoin addresses. However, you don’t know who owns those addresses.

The decentralization of the blockchain means that there isn’t a single individual, company, or government in charge of Bitcoin and the blockchain. Changes to the blockchain code can be proposed and adopted by the miners. However, 51% or more miners must opt into a change in order for it to be implemented, otherwise Bitcoin forks into two markets.

Cryptocurrency Risks

Every investment comes with risks, and cryptocurrencies are no exception. Here are some the biggest ones investors should be aware of:

1.   Price Volatility: As mentioned, the price of Bitcoin halved within the span of a couple weeks in 2021. While the stock market is known for being a volatile asset class, the turbulence in share prices is nowhere near that of cryptocurrency prices. The market is still highly speculative, making it prone to big price swings and increasing the risk of investors locking in losses.

Recommended: Why is Bitcoin So Volatile?

2.   Theft: One of the choices investors have to make after buying cryptocurrencies is whether to store the coins and tokens in a hot wallet or cold wallet. Hot wallets are digital storage tools. The risk to them is that they’re more vulnerable to hacks and theft. Take for instance the Mt. Gox incident that occurred in 2011. While the cryptocurrency market has come a long way in terms of security since then, theft and hacks are still a risk.

3.   Fraud and Scams: The buzzy nature of the cryptocurrency industry unfortunately means that scammers are also drawn to the market. In 2021, the Federal Trade Commission (FTC) reported that between October 2020 and May 2021, more than 7,000 people reported losses of more than $80 million from bogus investment opportunities.

4.   Forgotten Keys: While the cold wallet storage solution can prevent hacks, some users of this method have fallen into the unfortunate situation of not remembering their wallet password–or “keys” in crypto lingo. That means there could be fortunes that individuals are not able to cash in on. Of the existing 18.5 million Bitcoin in circulation in January 2021, about 20% was estimated to be “lost” or trapped in a wallet.

5.   Regulatory Oversight: Chinese regulators stoked volatility in the cryptocurrency market in 2021, after clamping down on crypto mining operations and ordering payment firms to not do business with companies in the industry. U.K. regulators have also banned a leading crypto exchange. More crypto rules and regulation, including from countries like the U.S., are also expected, which could cause repercussions for usage and prices.

Basic Cryptocurrency Terminology to Know

As cryptocurrency has been growing over the past decade, industry jargon has developed. This terminology is important to know when starting to purchase and store cryptocurrencies. Here are some of the most commonly used words in the crypto space:

Address

If you’re using bitcoin, you have a public “address” where people can send you bitcoins. If you send someone bitcoins, they will see that they received them from your public address. Anyone can look up that public address and see how many bitcoins are in it.

You also have a private address, which is how you secure your bitcoins. Never give anyone your private address. Addresses are generally made up of a string of alphanumeric characters.

Altcoin

Any cryptocurrency that is not bitcoin is called an altcoin.

Crypto

Crypto is simply a shorter name for cryptocurrency.

Decentralization

As mentioned above, blockchain isn’t owned or controlled by anyone, making it decentralized. Many people in the blockchain space feel that decentralization creates more fairness.

Distributed Ledger

A dispersed recording of replicable, synchronized data. In the case of cryptocurrencies, the blockchain is a distributed ledger shared across many different computers and networks.

Exchange

Websites where you can purchase and sell cryptocurrencies are called exchanges.

Fork

A “fork” is when a blockchain permanently splits into a new version. This can take place when miners vote on a change, when a group takes over 51% of the network and changes the blockchain, or if there’s a bug or more commonly a new set of consensus rules come into existence.

FUD

Fear, uncertainty, doubt. FUD describes the emotions that can create panic and cause people to make decisions that affect the market.

Start buying Bitcoin, Ethereum,
and Litecoin today.

HODL

HODL is the philosophy of holding onto and not selling cryptocurrencies. A misspelling of “hold,” this was a joke that became a common term.

ICO

ICO is short for initial coin offering. An ICO is held when a company is raising funds and sells tokens to public or private buyers who then become backers of the project.

Mining

The computing process used to create crypto tokens. Not all cryptocurrencies are created using mining, but it is a common method.

Multisig

There are ways that you can set up a cryptocurrency transaction which require multiple people to sign off on the transaction for it to go through. This is called a multisig transaction.

Peer to Peer

A peer-to-peer (more commonly abbreviated as “P2P”) system doesn’t have a central controller; instead, users interact directly with one another. For example, there are peer-to-peer exchanges where you can sell your bitcoins directly to someone in your local area.

Pumping

When cryptocurrency information gets sensationalized in the media to raise its price or popularity, this is called pumping.

Smart Contract

Smart contracts are coded contracts written into blockchains that allow automated transactions to be executed.

Wallet

Cryptocurrencies are stored in virtual “wallets.” If you keep your cryptocurrencies on an exchange, that exchange controls your wallet. You can also use a digital wallet such as an app on your phone or computer.

One popular form of cryptocurrency wallet is a hardware wallet, which is like a flash drive that stores your cryptocurrencies offline but allows an easy connection to your computer for transacting. There are also paper wallets, which are (believe it or not) simply written records of your public and private addresses for your cryptocurrency. Online wallets are called hot wallets, while offline wallets are called cold wallets or cold storage.

Whale

A person who owns a significant amount of a cryptocurrency. When that person trades it they can actually affect the market price. These people are called whales.

The Top 10 Largest Cryptocurrencies

There are more than 7,000 cryptocurrencies on the market today, according to estimates. Each of them offers different characteristics in their transaction times, liquidity, privacy, and other factors.

Below are the top 10 biggest by market cap, as of July 23, 2021, according to data from CoinMarketCap, which calculates cryptocurrency market caps by taking the price of a digital currency and multiplying it by the number of coins in circulation.

For instance, with Bitcoin, the world’s biggest cryptocurrency by market cap, the price is $32,439.03 and the circulation supply is 18,764,331 on July 23, 2021. Multiplying the two numbers gets a market cap of about $609 billion. CoinMarketCap does this with the biggest cryptocurrencies and then ranks by the market cap of each.

Recommended: Top 30 Crypto By Market Cap

1. Bitcoin

As the first to market, Bitcoin (BTC) continues to be the most popular and highest valued crypto. Any new industry development—including physical ATMs and crypto credit cards—generally works with Bitcoin first.

Major companies now accept Bitcoin, but Bitcoin has a scalability issue, in that it currently can only process seven transactions per second. Visa®, by contrast, can process a maximum of 24,000 per second. Work is being done to improve this transaction speed, but for now Bitcoin may not be the best long-term store of currency to buy your latte with.

2. Ethereum

Although ethereum (ETH) is a cryptocurrency—also known as ether—its main appeal stems from its software platform. The Ethereum network allows for the creation of smart contracts and decentralized applications to be built on it. The cryptocurrency is used to develop and run applications on the software platform, and by investors purchasing other tokens using ether.

3. Tether

Tether (USDT) was the first cryptocurrency marketed as a “stablecoin”–virtual money designed to maintain a fixed value. In the case of Tether, the value of the coin is pegged to a fiat currency–the U.S. dollar. Hence, its ticker is USDT.

In February 2021, the New York attorney general’s office settled a two-year investigation on tether and its sister crypto exchange Bitfinex. Tether had claimed that all its tokens were backed on a one-to-one basis by U.S. dollars in cash reserves.

4. Binance Coin

Binance is the world’s largest cryptocurrency exchange–popular because of its low trading fees. Binance Coin (BNB) is the cryptocurrency “native” to the exchange, which means that it was designed specifically to be used in the Binance ecosystem. Binance Coin launched in 2017 with an ICO.

Binance tries to incentivize investors to use Binance Coin by allowing them to get a 25% discount on trading fees if they use BNB to pay for trades.

5. Cardano

While Cardano lacks some features, it’s considered by some market participants to be a work in progress and has potential to be a cheaper alternative to Ethereum in being a basis for DeFi and NFT projects.

A key feature of ADA is that it has a proof-of-stake blockchain. This means the complicated proof-of-work calculations and high electricity usage required for mining coins like Bitcoin aren’t necessary. Instead, all ADA coins are pre-mined. That could make Cardano appealing to investors who have been critical of the environmental costs of cryptocurrencies like Bitcoin.

6. Ripple

Ripple (XRP) was created to be used by existing banking institutions. Ripple network can process 1,500 transactions per second. Unlike Bitcoin and many other cryptocurrencies, XRP is not on a blockchain network. Instead, it’s based on what’s called a “hash tree.”

In 2020, the Securities and Exchange Commission sued Ripple and its executives for allegedly misleading investors in XRP by selling more than $1 billion of the virtual tokens without registering with the regulator.

7. USD Coin

USD Coin (USDC) is a stablecoin powered by Ethereum blockchain that is pegged to the U.S. dollar. After the stablecoin Tether came under regulatory trouble for how much it actually backs in reserves, Circle has said its reserves are evaluated and audited by Chicago-based accounting firm Grant Thornton LLP.

In March 2021, Visa announced that it would allow the use of USDC to settle transactions on its payment network–a sign of mainstream acceptance of the crypto market.

8. Dogecoin

Dogecoin had a meteoric rise in 2021, surging through the month of May. The cryptocurrency was started as a joke by its founders in 2013. One of Dogecoin’s most notable features is that it has a Shiba Inu dog on its symbol.

Dogecoin enjoyed popularity in a pattern similar to the way meme stocks did in 2020. Tesla CEO Elon Musk was an advocate of Dogecoin, touting it on social media. On June 1, cryptocurrency exchange Coinbase said it would accommodate Dogecoin, signalling more mainstream acceptance of the cryptocurrency.

9. Polkadot

Polkadot’s coin is called dot (DOT). Polkdot’s creator Gavin Wood is also the co-founder of Ethereum. He wrote the original white paper for Polkadot in 2016.

Central to Polkadot are “parachains”–blockchains that can run higher transaction throughput than Ethereum through design. “Parallel blockchains”–transactions that are spread across multiple computers, similar to parallel processing–have also been touted as having potential as an alternative to Ethereum.

10. Binance USD

Binance USD (BUSD) is a stablecoin that is issued by Binance, the world’s largest cryptocurrency exchange. It’s pegged to the U.S. dollar on a one-to-one basis. It runs on the Ethereum network so can be accepted everywhere for payments or loans where other ERC-20 tokens are.

The Takeaway

Cryptocurrencies can be purchased on major cryptocurrency exchanges or brokerage trading platforms. While the digital-asset market is new, trendy and could be a growth opportunity, it’s important for investors to understand that it’s also highly speculative and that all the issues related to safety and security haven’t been worked out.


On SoFi Invest®, investors can trade their first cryptocurrency with as little as $10. Doing so will get them a bonus of $10 in Bitcoin. Unlike the stock market, investors can also trade cryptocurrencies like Bitcoin, Litecoin and Ethereum 24/7. Plus, SoFi takes security seriously and uses a number of tools to keep investors' crypto holdings secure.
Get started trading crypto on SoFi Invest today.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments.
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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Understanding Low Float Stocks

By | Growing Wealth, invest, Investing | Comments Off on Understanding Low Float Stocks

Low float stocks are a popular type of investment for day traders since they may allow them to earn continuous profits throughout a single trading session. Let’s explore what low float stocks are, some ways to find and trade them, and some of the risks and benefits to these types of trades.

What Is Float in Stocks?

The float of a stock measures the number of shares of a particular stock. It indicates the number of shares of stock available for trading. The measure doesn’t include closely-held shares, those owned by controlling investors or company owners.

Calculating floating stock requires looking at a company’s balance sheet and taking the total number of shares of a company and subtracting any restricted and closely-held shares. Stock indexes, such as the SP 500, often use floating stock as the basis for figuring out the market cap (the total value of outstanding shares in dollars) of a company.

What Are Low Float Stocks?

Low float stocks have a small number of shares available for trading.

Investors typically consider a float of 10-20 million shares as a low float, but there are companies with floats below one million. Some larger corporations have very high floats in the billions, and you can find even lower-float stock trading on over-the-counter exchanges.

Companies with a low float often have a large portion of their equity held by controlling investors such as directors and employees, leaving only a tiny percentage of the stock available for public trading. That limited supply can cause dramatic price swings if demand changes quickly.

Since low float stocks have fewer shares available, investors may have more difficulty finding a buyer or seller for them. This may make them more volatile, which appeals to day traders. The bid/ask spread of low float stocks tends to be high as well.

Understanding Shares Outstanding

Another stock market term that helps explain low float stocks is shares outstanding. Shares outstanding are the total number of shares issued by a company, including those that can’t be traded.

The float is the number of shares out of the shares outstanding that are available for public trade. This is known as the float percentage. Companies might have a large number of shares outstanding, but only a tiny percentage of floating stock.

The amount of floating stock a company has changes over time, as companies might sell more stock to raise money, or company stakeholders might sell their holdings. If a stock goes through a split or reverse split, this will also increase or decrease floating shares.

Floating Stock Example Calculation

If a trader looks at a company’s balance sheet, they can see how many outstanding shares the company has under the heading “Capital Stock.”

Looking at Amazon (AMZN), the company’s balance sheet shows outstanding shares and floating stock shares. In May 2021, Amazon had:

•  504.32 million shares outstanding

•  452.17 million float shares

In the case of Amazon, this is a high float stock, with 89.66% of the stock available for trade.

To show an example of a low float stock, let’s look at the company JW Mays Inc. (MAYS), which is listed on the Nasdaq exchange. The company has 2.02 million shares outstanding, and 473.25k float shares.

This is a 23.43% float percentage, and could represent a signal for day traders to look at other factors to determine whether they want to invest in the stock.

Evaluating Low-Float Stocks

Not every low-float stock represents a good buy, but it is a popular strategy for day traders. To evaluate a low-float stock, day traders often look at several other factors.

High Relative Volume

The relative volume shows a stock’s current volume in comparison to earlier time frames.

This is important to investors because it can impact a stock’s liquidity. If a stock has low liquidity, traders can potentially get stuck with shares they can’t sell.

They may also find themselves unable to take advantage of news catalysts with a significant buy or sell the move. If a stock’s price changes but there isn’t a lot of trading volume, it may not be a good pick.

News Catalysts

Positive or negative news about a company often makes a low float stock increase or decrease in a short amount of time.

Day traders keep a close eye on the stock market and corporate news to see which stocks are likely to make moves. A news event can cause a low-float stock to move anywhere from 50% up to 200% in a single day since they are in low supply.

Float Percentage

This is the percentage of the total shares of stock available for trading. Each trader has their preferences for float percentage, but most look for a percentage between 10 – 25%.

How to Trade Low Float Stocks

When trading a low float stock, a trader might buy and sell the same stock multiple times in a single day. Then, move on to a different low float stock the next day in an extreme form of market timing.

Many traders will plan out their profit targets and support and resistance ahead of time and stop losses to reduce risk. As with any trade, traders can look at technicals like candlesticks and moving averages to see whether a stock looks bullish or bearish.

A good strategy pays attention to technical analysis and rather than simply buying or selling based on rumors or news.

Recommended: A Guide to High-Risk Stocks

Finding Opportunities

Finding and evaluating stocks to trade requires some knowledge and experience. Several platforms offer the ability to trade low float stocks. Some of these platforms allow traders to filter by criteria such as volume and float to find the best opportunities. Traders can look for low float stocks with a float under 50 million and a relatively high volume.

Penny stocks under $5 are very popular with day traders. Traders can also look to watchlists for ideas about which low float stocks to trade. Two popular watchlists are:

•  Reuters’ Free Scanner: Free to register. Users can find low float stocks by scanning with the filter ‘float.’

•  Trade Ideas: This site has multiple low float stocks lists for the US market. It highlights stocks that are moving so that traders can capitalize on opportunities.

Some Risks to Know

Every investment comes with risks, but low float stocks present some particular challenges for traders.

Low float stocks have high volatility and can dramatically change the price within seconds or minutes. If an investor isn’t careful, knowledgeable, or always on top of it, this volatility could wipe out a large portion of their portfolio. That said, low float stocks also may have substantial profit opportunities. Traders may see gains of 50 to 200% in a single day.

Looking at both the news and technical indicators is crucial for trading success. Trading low float stocks requires a daily look at market news, since the stocks good for trading one day may not be ideal the next.

The Takeaway

While low float stocks may make sense for traders, they may hold less appeal for long-term investors. Day trading is inherently very risky and can result in significant losses, so other types of investment are often a better fit for those with a low appetite for risk.

If you’re interested in a more long-term approach to investing, there are many ways to get started, including opening an account on the SoFi Invest® brokerage platform, which lets you hand-select each stock you want to buy or sell. If you’re just getting started, SoFi has a team of professional financial planners available to answer all your questions and help you achieve your goals.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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What Is Expected Family Contribution (EFC)?

By | Going to College, Student Loans, student_loan | Comments Off on What Is Expected Family Contribution (EFC)?

Expected family contribution (EFC) is a calculation based on information provided on the Free Application for Federal Student Aid (FAFSA®) to estimate how much a student and their family are able to pay out of pocket towards college expenses. The resulting figure is used by colleges and the government to determine how much need-based financial aid students qualify for.

EFC meaning is sometimes mistaken as the dollar amount that a student and their family will pay for college. However, the amount families end up paying could be significantly more or less than the EFC depending on the cost of attendance and scholarships.

Here’s what aspiring college students need to know about EFC and how it affects their potential aid.

Expected Family Contribution as Part of the Picture

The expected family contribution is an estimate of how much money a family can contribute toward a student’s college education.

It’s a vital metric used to determine how much—if any—federal financial aid students will receive to help them pay for college.

Eligibility for federal aid also takes into account a student’s year in school, enrollment status, and the cost of attendance at the school the student will be attending.

How a College Uses the Information

Once the FAFSA® is completed, a college financial aid staff will use all the information to determine the applicant’s financial need.

It’s important to note that the EFC is an estimate of a family’s financial standing, not an exact number. The amount a family ultimately pays for a child’s college education could be significantly below or above the number provided.

Here’s the process:

1. The college financial aid staffers decide your cost of attendance (which includes tuition, fees, room and board, and books) at that school.
2. They then consider your EFC.
3. They subtract your EFC from your cost of attendance to determine how much need-based aid you can get.

Your offer of financial aid may change from year to year.

Need help paying for college?
SoFi is here to help.

How Your EFC Is Calculated

There are two main options for calculating EFC depending on which schools you apply to. The federal methodology utilizes financial information from the FAFSA to quantify an applicant’s EFC. Meanwhile, a growing list of colleges uses the College Board’s College Scholarship Service (CSS) profile in addition to FAFSA to assess what students and families can afford to pay.

Calculating EFC With FAFSA

This methodology to calculate EFC was established by the Higher Education Act of 1965. However, the formulas are adjusted every year to account for inflation.

Filling out the FAFSA provides the information needed to calculate the EFC. This includes taxed and untaxed income, investments, assets, benefits, household size, and enrollment status of family members.

If you’ve already completed the FAFSA, your EFC will be listed in the top right corner of the Student Aid Report, which outlines financial aid eligibility. Students can have their EFC recalculated on an annual basis by submitting the FAFSA each year they’re enrolled in college.

You can calculate EFC in advance to get an idea of how much federal financial aid you can expect. First, figuring out your dependency status will help determine what financial information is needed and which of the following EFC formulas apply to you.

•  Formula A: Dependent students
•  Formula B: Independent students without dependents other than a spouse
•  Formula C: Independent students with dependents other than a spouse (e.g., children)

The worksheet for these formulas is updated each year, and the 2020-2021 EFC formula worksheet is available online.

A dependent student is considered to have support from parents or guardians, so their parent’s financial information is included with the applicant in the EFC calculation. Whereas, independent students only provide individual financial information, or, if married, for their spouse as well.

Before completing the corresponding formula worksheet, there are some scenarios that can call for revising the EFC calculation.

If students or their families meet certain criteria, they can calculate EFC with simplified formula worksheets that exclude assets. For the 2021-2022 academic year, students who receive benefits from federal programs, such as the Supplemental Nutritional Assistance Program (SNAP), and report combined 2019 income of $49,999 or less can use the simplified formula. Having status as a dislocated worker and other tax information can substitute for the federal benefits requirement.

Students and families may receive an automatic zero EFC calculation if they meet lower income requirements. For the 2021-2022 academic year, the income threshold is $27,000 for parents of dependent students and independent students, and their spouses. Take note that independent students without dependents besides their spouse can’t qualify for an automatic zero EFC.

Calculating EFC With the CSS Profile

Around 200 colleges require students to provide supplemental financial information through the College Scholarship Service Profile. The 2021-2022 list of participating institutions is available online.

Colleges may customize their questions on the CSS Profile to capture more information to evaluate a student’s financial need. For instance, the CSS Profile may ask about home value and financial information from both households if a student’s parents are separated. The CSS Profile may also consider the regional cost of living and personal circumstances in its calculation of financial need.

While completing the CSS Profile in addition to FAFSA adds work to the college application process, it’s also an opportunity to qualify for institution-level financial aid.

How EFC Affects Your Financial Aid Package

EFC is one of several factors that affect your financial aid eligibility. Additionally, enrollment status, your year in school, and a given school’s cost of attendance will influence the type and amount of financial aid you can receive.
Schools calculate financial need by subtracting EFC from the cost of attendance, as demonstrated by the following formula:
Financial Need = (Cost of Attendance) – (Expected Family Contribution)
The cost of attendance is an estimate of the overall cost for the academic year, and thus, accounts for tuition, living expenses, books and supplies, and miscellaneous costs. If the cost of attendance exceeds the expected family contribution, you may qualify for need-based financial aid.

Federal Need-Based Aid Available for Qualifying Students

Depending on other eligibility criteria, a financial aid package could include the following need-based federal student aid programs:

•  Federal Pell Grant: Student eligibility is determined by financial need and the funding amount can fluctuate each year. For the 2021-2022 academic year, the maximum award is $6,495 and students with an EFC of 5846 or less may qualify for a Pell Grant.

•  Federal Supplemental Educational Opportunity Grant (FSEOG): Participating schools receive a set amount of federal funding that is distributed to students based on financial need each year. Eligible students can receive between $100 and $4,000 a year based on funding availability and their overall financial aid package.

•  Direct Subsidized Loans: Undergraduate students with financial need may qualify for subsidized loans—a type of federal student loan that does not require interest payments as long as students study at least half-time. Students also receive a six-month grace period on interest payments after graduation and may qualify for a deferment based on income, health, continuing education, military service, and other factors.

•  Federal Work-Study: This program provides part-time employment for undergraduate and graduate students with financial needs at participating schools. The total work-study award depends on the level of need, the timing of application, and a school’s available funding.

Fill Out the FAFSA® Early?

A student may qualify for a specific amount of need-based aid but may not receive all of it. That’s because the amount a student receives depends on the available funding at their school.

Colleges are not required to meet 100% of a student’s financial need, and some programs like the Pell Grant have limited funds that are divided up among schools each year.

Students may want to consider filling out the FAFSA® as soon as possible to ensure they are first in line to receive available aid.

Why Knowing Your EFC Is Important

Being aware of your EFC in advance can help prepare financially and strategically plan for college. Since EFC is recalculated every year, families can map out how various financial decisions will impact EFC.

Besides need-based financial aid, EFC can inform what types of non-need-based aid are available for higher-income families.

Recommended: Getting Financial Aid When Your Parents Make Too Much

While families with low EFCs can expect to receive more need-based financial aid, the total amount offered will vary by school. Knowing your EFC early on can allow plenty of time to research which schools offer considerable aid.

If you have a high EFC, honing your search on schools where you’re competing for merit-based scholarships could potentially help make college more affordable.

Looking Ahead: Student Aid Index

Starting in 2023, the EFC will be replaced with the Student Aid Index (SAI). The change from EFC to SAI was part of the FAFSA Simplification Act, which passed in December of 2020 as part of the Consolidated Appropriations Act, 2021.

The SAI makes some changes in how the estimated aid is determined, including:
•  Removing the number of family members in college as a determining factor.
•  Establishing a new minimum SAI (from $0 for EFC to -$1,500), to help students cover costs that may not be included in a university’s tuition.
•  Creating separate eligibility criteria to qualify for Federal Pell Grants.

However, the SAI will not come into effect until July 1, 2023. Until then, EFC will be used to help determine financial aid awards.

Bridging the Financial Gaps

Calculating your expected family contribution (EFC) is an important step for evaluating the cost of higher education. However, colleges are not required to meet 100% of a student’s financial needs.

To fill the gap, students can apply for scholarships and grants or take out student loans. If federal sources of aid, including federal student loans, aren’t enough to cover college costs, students may consider borrowing private student loans.

Private student loans lack the borrower protections offered by federal loans, so are generally borrowed after all other sources of aid have been exhausted. Students interested in borrowing private student loans may want to consider shopping around so they can find a loan with the best rate and terms for their personal situation. SoFi offers private student loan options for undergrads, graduate students, and parents.
Checking your rate will not affect your credit score.†

Make a SoFi private student loan part of your package of considerations.


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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. SoFi Lending Corp. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.
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.
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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