How to Open Your First IRA

How to Open Your First IRA

Saving for retirement may be the biggest financial goal many of us will ever set. So it makes sense to explore all retirement savings options, including an IRA. The sooner you open your first IRA, the more opportunity your savings have to grow over time, potentially leading to a nice nest egg upon retirement.

There are other benefits to opening an IRA. It can deliver attractive tax perks—either up front or in retirement—and can be especially attractive to individuals who don’t have an employer-sponsored 401(k), or have maxed it out already.

This article will walk you through the steps of opening an IRA—whether a traditional, Roth, or SEP IRA.

What Is an IRA?

An IRA, or individual retirement account, is a retirement savings account that anyone with an income can open on their own (rather than through an employer, as with a 401(k)). This account can potentially grow funds through investment, and typically offers tax breaks, either up front, or upon withdrawal in retirement.

When people ask “what is an IRA” they might be wondering what types of IRA there are to choose from. There are three basic types of individual retirement accounts: a traditional IRA, a Roth IRA, and a SEP (Simplified Employee Pension) IRA. (There is also a SIMPLE IRA, for small business owners and their employees.)

How to Open an IRA in 4 Steps

Step 1: Choose the IRA That’s Best for You

Of the several types of IRAs, traditional and Roth IRAs are the most common types. Both allow you to put a certain amount toward retirement each year and invest in an array of assets. When it comes to choosing a traditional IRA vs. Roth IRA, it helps to be aware of their key differences.

Traditional IRA Accounts

If you earn a taxable income, you can open a traditional IRA regardless of how much you make per year.

One notable difference between traditional and Roth IRA accounts is that traditional IRAs allow you to deduct your contributions on your tax returns now, meaning you pay taxes on distributions when you retire.

You’ll also pay a 10% penalty tax (in addition to regular income tax) on any money you withdraw money from your traditional IRA before age 59 1/2, with a few exceptions.

It may be better to go with a traditional IRA if you pay a lot in taxes now and think you’ll be in a lower tax bracket after retirement. This is because you’ll be saving on a higher tax you’d be paying earlier (vs. the lower tax you’d be paying later, since you’d be in a lower tax bracket).

Roth IRA Accounts

Unlike traditional IRAs, there are income limits on who can open a Roth IRA. For 2021, individuals can only contribute the full amount—$6,000, with an additional $1,000 for people over age 50—to a Roth IRA if their income is below $125,000 for single people (people earning more than $125,000 but less than $140,000 can contribute a reduced amount); for married people who file taxes jointly, the limit is $198,000 (those who earn up to $208,000 can contribute a reduced amount).

Roth IRA contributions are made with after-tax income. While that doesn’t offer any tax advantages now, it does mean that when you withdraw money upon retirement, you won’t have to pay taxes on it.

While IRAs are intended to serve as retirement savings, it’s typically easier to withdraw contributions in an emergency from a Roth IRA than from a traditional IRA. While contributions won’t be taxed upon withdrawal, any withdrawn earnings would be taxed and possibly subject to a 10% penalty.

A Roth IRA may make sense for eligible individuals who typically get a tax refund and expect to be in a similar or higher tax bracket when they retire (for example, if they plan to have substantial income from a business, investments, or work).

Still confused? Consult our IRA Calculator for help deciding which account may be right for you.

Related Content: How IRAs Work

SEP IRA Accounts

With the number of self-employed workers on the rise, it’s worth mentioning that there’s a third type of IRA that may be worth considering: a SEP IRA. A SEP IRA, or simplified employee pension, can be set up by either an employer at a small business or by someone who is self-employed.

For employers, it gives them a tax deduction when they contribute to their employees’ IRAs, and also lets them contribute on a “discretionary basis” (meaning that the employer doesn’t have to contribute in years where it’s not as financially feasible for the company.) This option may also allow you to contribute more than other IRAs, depending on your income.

Step 2: Open an Account

You can open an IRA at a bank, a brokerage, mutual fund company, or other financial services provider. Typically, the more personal care and advice you get, the higher the fees will be. A robo-adviser, for instance, might charge lower fees than a brokerage.

SoFi Invest® streamlines the process of opening an IRA online, allowing investors to transfer money from their bank electronically.

Rolling Over a 401(k) Into an IRA

If you are leaving a job with an employee-sponsored retirement plan, you can roll over your 401(k) into a traditional IRA to potentially give yourself better investment options and lower fees.

When you roll money over from a 401(k), there’s no limit to how much you can add to an IRA at that time. Going forward, additional contributions will be capped at the typical IRA contribution limit.

Step 3: Make Contributions

As of 2021, you can contribute up to $6,000 a year to a traditional or Roth IRA, or up to $7,000 if you’re 50 or older. If you take home more than the maximum earnings allowed for a Roth IRA but still prefer a Roth over a traditional account, you might be able to contribute a reduced amount.

In many cases, it’s a good idea to invest as much as you can up to that amount each year to take full advantage of the power of compound interest.

A retirement calculator can help you figure out whether you’re on track for retirement. A quick rule of thumb: By the time you’re 30, it’s typically good to have the equivalent of one year’s salary saved.

Step 4: Invest Your Funds

Investors can choose to invest in stocks, bonds, mutual funds, low-cost index funds, or exchange-traded funds (ETFs)—or a combination thereof.

One popular type of investment fund geared toward retirement savings is a “target date fund.” A target date fund is calibrated to the year you plan to retire, and is meant to automatically update your mix of assets like stocks and bonds so they’re more aggressive earlier in life and more conservative as you approach retirement.

Ultimately, the mix of investments in your IRA should depend on your personal risk tolerance, lifestyle, and retirement goals.

The Takeaway

Opening your first IRA is simple—possibly the biggest work involved is in deciding which IRA suits your personal situation and retirement goals best: a traditional, Roth, or SEP IRA.

Getting started on saving for your retirement doesn’t have to be difficult. SoFi Invest makes opening an IRA simple. Sign up for an investment account with SoFi online, in less than five minutes.

You can be as involved in the investment process as you want to be—either with hands-on investing, or by using our automated investing technology, in which our algorithm will suggest an appropriate mix of investments based on your age and retirement goals. For a limited time, opening an account gives you the opportunity to win up to $1,000 in the stock of your choice. All you have to do is sign up, play the claw game, and find out how much you won.

Download the SoFi Invest app to start an IRA and start trading 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.
Claw Promotion: For the full terms and conditions of SoFi’s Claw Promotion, click here. Probability of a customer receiving $1,000 is 0.028%.
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.
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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What Are Convertible Bonds?: Convertible bonds are a form of corporate debt that also offers the opportunity to own the company’s stock.

What Are Convertible Bonds?

Convertible bonds are a form of corporate debt that also offers the opportunity to own the company’s stock. Like regular bonds, they offer regular interest payments. But they also allow investors to convert the bonds into stock according to a fixed ratio. As such, they’re often referred to as “hybrid securities.”

Most convertible bonds give investors a choice. They can hold the bond until maturity, or convert it to stock. This structure protects investors if the price of the stock falls below the level when the convertible bond was issued, because the investor can choose to simply hold onto the bond and collect the interest.

But it also allows the investor to convert the bond to stock when they’d make money by converting the bond to shares of stock when the share price is higher than the value of the bond, plus the remaining interest payments.

Here are some basics about the convertible bond market.

How Do Convertible Bonds Work?

Companies will often choose to issue convertible bonds to raise capital in order to not alienate their existing shareholders. That’s because shareholders often react badly when a company issues new shares, as it can drive down the price of existing shares.

Recommended: Understanding Stock Dilution

Convertible bonds are also attractive to issue for companies because the coupon–or interest payments–on them tend to be lower than for regular bonds. This can be helpful for companies who are looking to borrow money more cheaply.

Every convertible bond has its own conversion ratio. For instance, a bond with a conversion ratio of 5:1 ratio would allow the holder of one bond to convert that security into five shares of the company’s common stock.

Every convertible bond also comes with its own conversion price, which is set when the conversion ratio is decided. That information can be found in the bond indenture of convertible bonds.

Convertible bonds can come with a wide range of terms. For instance, with mandatory convertible bonds, investors must convert these bonds at a pre-set price conversion ratio. There are also reverse convertible bonds, which give the company–not the investor or bondholder–the choice of when to convert the bond to equity shares, or to keep the bond in place until maturity.

How Big Is the Convertible Bond Market?

In November 2020, the size of the global convertible bond market was estimated to be about $450 billion. Securities have been issued by 750 companies, according to data from Oak Tree Capital, an asset management firm that specializes in alternative investments. That’s miniscule compared to the U.S. equity market, which is valued at $49 trillion and has more than 6,000 stocks.

Global convertible issuance since the start of the Covid-19 pandemic has been on a tear, as cash-strapped companies sought cheap ways to borrow money. During 2020, issuance of convertible securities reached a record $190 billion, a 51% jump from the $126 billion raised in 2019, business publications reported. Many of the companies were from the travel, leisure and retail industries.

Recommended: Coronavirus and the Economy

However, even as economic activity perked up in 2021, the trend continued, with companies issuing nearly $20 billion in the first seven weeks of the year, the biggest amount for that period in three years.

Reasons to Invest in Convertible Bonds

Why have investors turned to convertible bonds? One reason is that convertible bonds can offer a degree of downside protection from the bond component during stock volatility. The companies behind convertibles are obligated to pay back the principal and interest.

Meanwhile, they can also offer attractive upside, since if the stock market looks like it’ll be rising, investors have the option to convert their bonds into shares. History has shown that when stocks win big, convertibles can deliver solid returns and outpace the yields offered by the broader bond market. However, when stocks retreat, convertibles tend to deliver short-term losses.

In 2020, the U.S. convertibles market returned a blockbuster 43%, making it one of the top performing global asset classes as the stock market rebounded from the wild swings it experienced earlier in the year due to the Covid-19 pandemic. The convertibles market also did well in 2009, just as the global economy was recovering from the financial crisis, when it returned 49%.

Downsides of Convertible Bonds

One of the biggest disadvantages of convertible bonds is that they usually come with a lower interest payment than what the company would offer on an ordinary bond. And the chance to save on debt service is a big reason that companies issue convertibles. So for investors who are primarily interested in income, convertibles may not be the best fit.

There are also risks. Different companies issue convertible debt for different reasons, and they’re not always good. Convertible financing is sometimes labeled “death spiral financing.”

The death spiral is when convertible bonds drive the creation of an increasing number of shares of stock, which drives down the price of all the shares on the market. The death spiral tends to occur when a convertible allows buyers with a large premium to convert into shares at a fixed conversion ratio in which the buyer has a large premium.

This can happen when a bond’s face value is lower than the convertible value. That can lead to a mass conversion to stock, followed by quick sales, which drives the price down further.

Those sales, along with the dilution of the share price can, in turn, cause more bondholders to convert, given that the lower share price will grant them yet more shares at conversion. Being one of the shareholders who makes something out of such a catastrophe can be a matter of close study and good timing.

How to Invest in Convertible Bonds

Most convertibles are sold through private placements to institutional investors, so retail or individual investors may find it difficult to buy them.

But individual investors who want to jump into the convertibles market can turn to a host of mutual funds and exchange-traded funds (ETFs) to choose from. But because convertibles, as hybrid securities, are each so individual when it comes to their pricing, yields, structure and terms, each manager approaches them differently. And it can pay to research the fund closely before investing.

For investors, one major advantage of professionally managed convertible bonds funds is that the managers of those funds know how to optimize features like embedded options, which many investors could overlook. Managers of larger funds can also trade in the convertibles markets at lower costs and influence the structure and price of new deals to their advantage.

Recommended: How to Trade Options

The Takeaway

Convertible bonds are debt securities that can be converted to common stock shares. These hybrid securities offer interest payments, along with the chance to convert bonds into stock.

While convertible bonds are complex instruments that may not be suitable for all investors, they can offer diversification, particularly during volatile periods in the equity market. Investors can gain exposure to convertible bonds by putting money into mutual funds or ETFs that specialize in them.

You could get started investing today by opening an account with SoFi Invest® online trading account. The Active Investing platform allows you to choose your stocks and ETFs without paying commissions. SoFi Invest also offers an Automated Investing service that invests your money for you based on your goals and risk, without charging a SoFi management fee.

Learn more about 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.
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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Lessons From the Dotcom Bubble

If you’ve been watching this year’s tech stock rollercoaster with an odd sense of déjà vu, you’re not alone.

Members of the market-watching media have noted the strong parallels between today’s tech sector and what went down when the dot-com bubble burst back in 2000. And those similarities—rising stock valuations, an increase in initial public offerings (IPOs), and a focus on buzz over basics—have some experts pondering if history is repeating.

If you—or your parents, or your grandparents—were affected by the 2000 dot-com crash, you may be wondering if there’s something you can do to help protect your portfolio this time around.

Here are five lessons from the dot-com bubble and the financial crisis that followed.

What Caused the Dotcom Bubble, and Why Did It Burst?

Back in the mid-1990s, investors fell in love with all things internet-related. Dot-com and other tech stocks soared. The number of tech IPOs spiked. One company, theGlobe.com Inc., rose 606% in its first day of trading in November 1998.

Venture capitalists poured money into tech and internet start-ups. And enthusiastic investors—often drawn by the hype instead of the fundamentals—kept buying shares in companies with significant challenges, trusting they’d make it big later.

But that didn’t happen. Many of those exciting new companies with optimistically valued stocks weren’t turning a profit. And as companies ran through their money, and fresh sources of capital dried up, the buzz turned to disillusionment. Insiders and more-informed investors started selling positions. And average investors, many of whom got in later than the smart money, suffered losses.

The tech-heavy Nasdaq index had climbed from under 1,000 to above 5,000 between 1995 to 2000. The gauge however slid from a peak of 5,048.62 on March 10, 2000, to 1,139.90 on Oct. 4, 2002. Many wildly popular dotcom companies (including Kozmo.com, eToys.com, and Excite) went bust. Equities entered a bear market. And the Nasdaq didn’t return to its peak until 2015.

What Can Investors Today Learn from the Past?

Every investment carries some risk—and volatility for stocks is generally known to be higher than for other asset classes, such as bonds or CDs. But there are strategies that can help investors manage that risk. Here are some lessons:

1. Diversification Matters

One of the most established strategies for protecting a portfolio is to diversify into different market sectors and asset classes. In other words, don’t put all your eggs in one basket.

It may be tempting to go all-in on the latest hot stock, or to invest in a sector you’re intrigued by or think you know something about. But if that stock or sector tanks, as tech did in 2000, you could lose big.

Allocating across assets may reduce your vulnerability because your money is distributed across areas that aren’t likely to react in the same way to the same event.

Diversifying your portfolio won’t necessarily ensure a profit or guarantee against loss. And you might not be able to brag about your big score. Over time though, and with a steady influx of money into your account, you’ll likely have the opportunity to grow your portfolio while experiencing fewer gut-wrenching bumps along the way.

2. Ignoring Investing Basics Can Have Consequences

Even as the stock market began its meltdown in 2000, individual investors—caught up in the rush to riches—continued to dump money into equity funds. And many failed to do their homework and research the stocks they were buying.

Prices didn’t always reflect underlying business performance. Most of the new public companies weren’t profitable, but investors ignored poor fundamentals and increasing warnings about overvalued prices. In a December 1996 speech, then Federal Reserve Chairman Alan Greenspan warned that “irrational exuberance” could “unduly escalate asset values.” Still, the behavior continued for years.

When Greenspan eventually tightened up U.S. monetary policy in the spring of 2000, the reaction was swift. Without the capital they needed to continue to grow, companies began to fail. The bubble popped and a bear market followed.

From 1999 to 2000, shares of Priceline Inc., the name-your-own-price travel booking site, plunged 98%. Just a couple months after its IPO in 2000, the sassy sock puppet from Pets.com was silenced when the company folded and sold its assets. Even Amazon.com’s shares suffered, losing 90% of their value from 1999 to 2001.

And it wasn’t just day traders who were losing money. A Vanguard study showed that by the end of 2002, 70% of 401(k)s had lost at least one-fifth of their value, and 45% had lost more than one-fifth.

Valuing a Stock

There are many different ways to analyze a stock you’re interested in—with technical, quantitative, and qualitative analysis, and by asking questions about red flags. It can help in determining whether a company is undervalued or overvalued.

Even if you’re familiar with what a company does, and the products and services it offers, it can help to look deeper. If you don’t have the time to do your due diligence—to look at price-to-earnings ratios, business models, and industry trends—you may want to work with a professional who can help you understand the pros and cons of investing in certain businesses.

3. Momentum Is Tricky

Momentum trading when done correctly can be profitable in a relatively short amount of time—and successful momentum traders can turn out profits on a weekly or daily basis. But it can take discipline to get in, get your profit and get out.

Tech stocks rallied in the late 1990s because the internet was new and everybody wanted a piece of the next big thing. But when the reality set in that some of those dot-com darlings weren’t going to make it, and others would take years to turn a profit, the momentum faded. Investors who got in late or held on too long—out of greed or panic or stubbornness—came up empty-handed.

Identifying a potential bubble is tough enough, and it’s only the first step in avoiding the fallout should it eventually burst. Determining when that will happen can be far more challenging. If day-trading strategies and short-term investing are your thing, you may want to pay attention to the trends and your own gut, and get out when they tell you it’s time.

4. History May Repeat, But It Doesn’t Clone

Sure, there are similarities between what’s happening with today’s tech sector and the dot-com bubble that popped in 2000. But the situations are not exactly the same.

For one thing, investors today may have a better grip on what the Internet is, and how long it can take to develop a new idea or company. Some stock valuations today are, indeed, stretched but not as stretched as they were during the dot-com bubble.

And though a strong recovery from the Covid-19 recession could prompt the Fed to cool things down in the future, Fed Chair Jerome Powell has said the central bank is in no hurry to raise benchmark short-term interest rates or to begin reducing its $120 billion in monthly bond payments used to stimulate the economy.

So though it can be useful to look at past events for investing insight, it’s also important to look at stock prices in the context of the current economy.

5. You Can’t Always Predict a Downturn, But You Can Prepare

The dot-com stock-market crash hit some investors hard—so hard that many gave up on the stock market completely.

That’s not uncommon. Investors’ decisions are often driven by emotion over logic. But the result was that those angry and fearful investors lost out on an 11-year bull market. You don’t have to look at every asset bubble or market downturn as a signal to run for the hills. Also, if the market decline is followed by a rally, you could miss out.

One strategy—along with diversifying your portfolio—may be to keep a small percentage of cash in your investment or savings account. That way you’ll have protected at least a portion of your money, and you’ll be set up to take advantage of any new opportunities and bargains that might emerge if the stock market does go south.

Investors should also really look at a company’s fundamentals as well. Does a business make sense? Does it seem like they can grow their sales and keep costs low? Who are the competitors? Do you trust the CEO and management? After deep research into these topics, if the company is still attractive to you, then it could make sense to hang on to at least some of the shares.

If you’re a long-term investor who’s purchased shares in strong, healthy companies, those stocks could very well rebound. But this is an incredibly difficult process that even seasoned investors can get wrong.

The Takeaway

Asset bubbles like the dot-com bubble can have different causes, but the thing they tend to have in common is that investors’ extreme enthusiasm leads them to throw caution to the wind.

In the late-‘90s and early-2000s, that “irrational exuberance” led investors to buy overpriced shares in internet companies with the expectation that they couldn’t lose. And when they did lose, the dot-com craze turned into a dot-com crash. Investors who thought they had a piece of the next big thing lost money instead.

Could it happen again? Unfortunately, there’s really no way to know when an asset bubble will burst or how severe the fallout might be. But a diversified portfolio can offer some protection. So can paying attention to investing basics and doing your homework before putting money into a certain stock. And it never hurts to ask for help.

With a SoFi Invest online brokerage account, investors can diversify their portfolio by putting money into stocks, ETFs or fractions of whole shares called Stock Bits. Do-it-yourself investors can trade on the Active Investing platform. Investors who prefer a more hands-off approach can have their portfolio managed for them with Automated Investing. And members can rely on SoFi’s educational resources and professional advisors for help.

Check out SoFi Invest today.



SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Stock Bits
Stock Bits is a brand name of the fractional trading program offered by SoFi Securities LLC. When making a fractional trade, you are granting SoFi Securities discretion to determine the time and price of the trade. Fractional trades will be executed in our next trading window, which may be several hours or days after placing an order. The execution price may be higher or lower than it was at the time the order was placed.

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What is a Quiet Period?

It seems counterintuitive: Just when a company is about to be taken public, it’s founders, executives, and employees at every level need to stay quiet about the whole thing. Instead of shouting from the rooftops—“Our company is doing so well!” “We’re going to make huge profits!” “Everyone should be excited and buy the stock!”—insiders are expected to, well, say nothing at all.

When a company is in the process of going public—getting ready for an initial public offering, or IPO—it is required to enter a so-called “quiet period,” which the Securities and Exchange Commission (SEC) describes as “the period of time surrounding the filing of a registration statement during which an issuer of securities must ensure that its offering-related communications comply with the federal securities laws.”

During the quiet period, company executives, board members, management, and employees cannot publicly promote the company or its stock. Investment bankers and underwriters also cannot put out buy or sell recommendations.

What is the Point of a Quiet Period?

While companies always have to comply with the federal securities laws—impending IPO or not—the time around an initial public offering is a special time for any company and comes with special rules and restrictions.

It starts when the company files the registration statement (called an S-1) with the SEC, including a recommended offering price for the security, and lasts for 30 days. The S-1 contains:

•   a description of the company’s properties and business
•   a description of the security being offered
•   information about company management
•   financial statements certified by independent accountants

During this time, the SEC looks over all the documentation and approves the registration. The quiet period allows the SEC to complete the review process without bias or interruption and ensures that the company doesn’t attempt to hype, manipulate, or pre-sell their stock.

Companies are allowed to discuss information already in the prospectus during the quiet period, and oftentimes they will go on a “road show” to present this information to big, institutional investors and get a sense for the potential market. Activities generally avoided during the quiet period are advertising campaigns, conferences, and press interviews—basically, anything that might generate public interest in a company or its securities.

Quiet Periods Not Connected to an IPO

While the IPO quiet period by far gets the most attention, it is not the only time that the SEC reins in the communications of companies and their executives. Typically around the end of a quarter, when a company knows the results it will likely release in its quarterly earnings report to investors, the company observes a quiet period to avoid tipping anyone off or trying to get ahead of them in any way.

How Do Companies Violate the Quiet Period?

While the general investing public is supposed to rely on the information contained in S-1s and other official company communications when deciding whether or not to buy the stock, the irony is that public attention to the company is typically very high right before an IPO. All this attention comes at a time when the company itself is supposed to be in its quiet period.

In the past, some companies have run into issues with their senior executives talking to the media during the quiet period. In some cases, the interviews were conducted earlier but published during that time—but either way, it can appear to be a violation of the terms.

What Happens When Quiet Periods are Violated?

There are no set penalties for violating a quiet period, which is also called “gun-jumping”. If the SEC deems a statement made by a company is in violation of the quiet period, consequences can include:

•   A delayed IPO
•   Liability for violating the Securities Act
•   Requirement to disclose the violation in the company’s prospectus

Delaying an IPO allows all potential investors to get back on the same page with equal access to information disclosed by the company.

The SEC is also empowered to exact more severe punishments, like civil or even criminal penalties, but typically only pursue these in extreme cases.

What Investors Can Do During a Quiet Period

Quiet periods can be a good time to assess whether you’re interested in investing in a company’s IPO. IPOs have the potential to be lucrative investments, but can also turn out to be extremely volatile and may lose value. There is no guarantee.

Seasoned investors may try to profit at the end of the quiet period, called the quiet period expiration. At this time the stock price and trading volume may see drastic movement up or down, as a flood of information gets released from analysts.

Unbiased prospectus information about recent filings can be viewed on the SEC website. Reading the prospectus can help an investor judge for themself whether a company’s mission, team, and financials look like a sound investment to them.

The Takeaway

The quiet period before an IPO is a time for founders, executives, and employees of a company to stay off the radar, as their official registration forms and other existing info about the company speaks for itself. This allows potential investors of all sizes—from first-time individuals to seasoned institutional investors—to make decisions based on the same information, with no pre-IPO hype or manipulation.

Quiet periods can be a good time to slow down and consider your investments—for example, why you want to buy a company whose shares are IPOing, and how you think quarterly earnings will affect the assets you own.

With SoFi Invest® online investing, members can take a hands-on approach to investing and manage their account conveniently in the SoFi app.

Find out how to get started with SoFi Invest.



SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
IPOs: Investing early in IPO stock involves substantial risk of loss. The decision to invest should always be made as part of a comprehensive financial plan taking individual circumstances and risk appetites into account.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Can You Buy Cryptocurrency With a Credit Card?

It is possible to buy bitcoin and other cryptocurrencies with a credit card. Depending on the exchange used and the rules upheld by your credit card issuer, several factors can come into play. One key distinction investors should know when buying crypto with a credit card is that most financial institutions treat these transactions as cash advances rather than regular credit purchases.

Users who want to buy crypto with a credit card should be warned that doing so will likely be more expensive, complicated, and risky than using other payment methods. That said, here’s all you need to know about buying crypto with a credit card.

Where Can I Buy Cryptocurrency With a Credit Card?

Depending on how a crypto exchange works, they may or may not allow the use of credit cards.

Some exchanges, like Coinbase , do not let users buy bitcoin with a credit card—or any other crypto, for that matter. A bank account or debit card might be the only way to fund crypto purchases on exchanges like these.

Other exchanges, such as Binance , do allow for this feature, though they typically charge fees for credit card transactions, on top of any commission or other standard fees. Here is a list of some popular cryptocurrency exchanges that currently accept credit cards for funding accounts, along with their credit card fees.

•   Coinmama: They charge an additional 5% fee.
•   Bittrex: Credit card transaction fees are 3%.
•   Cex.io: Use Visa or MasterCard on a deposit and you’ll be charged a 2.99% fee.
•   Changelly: Their fee for using a credit card is 4%.

It’s important to note that exchanges sometimes change their rules around payment methods and other details, due to the constantly-evolving regulatory landscape. There was a time when Coinbase accepted credit cards, for example, but as of the time of this writing, they do not.

Drawbacks to Buying Crypto With a Credit Card

In 2018, it was revealed that financial institutions that issue credit cards had begun to treat cryptocurrency purchases as cash advances. This gets accomplished through the use of a specific merchant category code (MCC) to classify the transaction. In this case, applying a cash advance MCC to crypto purchases served as indirect cryptocurrency regulations.

Some speculate that this was a move on the part of card issuers to protect themselves from potential defaults, which may have been a heightened risk during the bear market for crypto investing of 2018-2019. By discouraging people from buying crypto with a credit card, financial institutions may have hoped to reduce the risk of people loading up on huge crypto purchases and not being able to pay the bill if the price of their crypto holdings tanked.

On the exchange side of things, some exchanges don’t let users buy cryptocurrency with a credit card, hoping to shield both themselves and their customers from the potential pitfalls involved. One thing is certain: When you buy crypto with a credit card, it’s not the same as buying crypto directly into a crypto wallet using cash.

These are some of the bigger reasons why buying crypto with a credit card might be more trouble than it’s worth.

High Fees

When a cardholder goes to buy crypto with a credit card, most credit card issuers treat the transaction as a cash advance, as if they used their credit card to obtain cash from an ATM.

A cash advance fee is typically a one-time fee of about 3% to 5%. A purchase of $100 worth of crypto would cost at least an additional $3, in that case. Bear in mind, this is on top of any credit card transaction fees the crypto exchange might charge.

High Interest Rates

Cash advances also tend to come with higher interest rates than those that apply to regular purchases. If a consumer doesn’t pay off their crypto credit card purchase on time, the interest charges on that credit card could add up quickly.

No Grace Period And No Rewards

In some cases users who pay their credit card balance in full every month get the benefit of a grace period of 20 days or more to pay off purchases before being charged interest. But with cash advances, that grace period may not exist.

Cash advances can begin accruing interest from day one—and with a potentially higher interest rate than ordinary purchases, the extra fees can climb fast.

On top of all that, if the card issuer classifies crypto purchases as cash equivalents, the money spent might not count as points toward rewards programs like cash back or frequent flier miles.

Lower Credit Limits

Some credit cards come with a lower cash advance limit than the regular credit limit. This can limit the buying power of a user who wants to buy crypto with a credit card.

The Takeaway

Now that you know how to buy crypto with a credit card, you may decide to stick to other payment methods. Between the fees imposed by crypto exchanges and those leveled by credit card companies, it may seem hard to justify using a credit card to buy cryptocurrency.

Using lines of credit to fund crypto purchases may lead people to invest with money they don’t have. It should be crypto basics to avoid this kind of leveraged speculation.

With SoFi Invest® crypto trading, you can invest in cryptocurrencies starting with as little as $10. Our secure platform ensures your holdings are protected against fraud and theft, and you can manage your account and transactions through our user-friendly mobile app.

Find out how to start investing in crypto with SoFi Invest.



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.
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.
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®
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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