Growing Wealth Archives

Apr

2025

Stakeholder vs Shareholder: What’s the Difference?

By Pam O’Brien | Growing Wealth, invest, Investing, Terminology | Comments Off

Shareholders and stakeholders both have an interest in a company’s operations, but their priorities may differ.

Apr

2025

NASDAQ Listing Requirements Explained

By Rebecca Lake | Growing Wealth, invest, Investing | Comments Off

Understanding Nasdaq listing rules and how a stock exchange works can be helpful when mapping out an investing strategy and determining which stocks to purchase. As such, before a stock can be traded by investors, it must first be listed on an exchange. Different stock exchanges can have physical locations with in-person trading or be entirely electronic.

After the New York Stock Exchange (NYSE), the Nasdaq is the second-largest stock exchange in the world. Not just any company can be listed for trading on the Nasdaq, however. There are specific Nasdaq listing requirements that must be met as a condition of inclusion. These rules are designed to ensure that only reputable companies can trade on the exchange.

Key Points

• Nasdaq mandates precise financial standards, including market capitalization, earnings, cash flow, and revenue.

• A minimum share price of $4 is required for companies listed on Nasdaq; those with a lower price may qualify if certain requirements are met.

• Companies must adhere to ongoing standards to avoid delisting from Nasdaq.

• Corporate governance rules are strictly enforced for all Nasdaq-listed companies.

• Listing fees on Nasdaq vary based on company specifics.

What Is the Nasdaq?

The Nasdaq plays an important role in the history of the stock market. It’s an electronic stock exchange founded in 1971 by the National Association of Securities Dealers. Nasdaq is an acronym for National Association of Securities Dealers Automatic Quotations.

In terms of how many companies are on Nasdaq, the exchange lists approximately 3,300 common stocks, as of April 2025. Those stocks represent a diverse range of industries, including financial services, health care, retail, and tech stocks.

In addition to identifying the stock exchange itself, the term “Nasdaq” can also be used as shorthand when referencing the Nasdaq Composite Index. This stock market index tracks the performance of approximately 2,500 stocks listed on the Nasdaq exchange, as of April 2025.

The Nasdaq Composite is a capitalization-weighted index, meaning its makeup is determined by market capitalization. Market cap is a measure of a company’s value as determined by its share price multiplied by the total number of outstanding shares. The Nasdaq Composite includes some of the largest U.S. companies by market cap.

Nasdaq Listing Requirements

The Nasdaq doesn’t include every publicly traded company in the U.S. In order to be included on the exchange, companies must first meet Nasdaq listing rules. These rules apply to companies that are seeking to have common stocks on the exchange.

Nasdaq listing requirements span a number of criteria:

• Earnings

• Cash flow

• Market capitalization

• Revenue

• Total assets

• Stockholders’ equity

• Bid price

The Nasdaq listing rules allow companies to qualify under one of four sets of standards, based on the criteria listed above.

Standard 1: Earnings

A company’s earnings are a reflection of its profitability. To qualify for listing on the Nasdaq based on earnings alone, a company must be able to show:

• Aggregate pre-tax earnings of $11 million or more for the three prior fiscal years

• Earnings of $2.2 million or more for the two most recent fiscal years

• Zero net losses for each of the three prior fiscal years

For a company to be included under this standard, they have to be able to check off all three of these boxes. If they can meet two criteria but not a third, they won’t be able to qualify for listing.

Standard 2: Capitalization with Cash Flow

Capitalization is a measure of a company’s size in relation to the rest of the market. Cash flow tracks the movement of cash in and out of a company. To qualify for Nasdaq listing under the capitalization with cash flow standard, the following rules apply:

• Aggregate cash flow of $27.5 million or more in the prior three fiscal years

• Zero negative cash flow for the prior three fiscal years

• Average market capitalization of $550 million or more over the prior 12 months

• Revenue of $110 million or more for the previous fiscal year

Again, all four of those conditions have to be met to qualify for Nasdaq listing using this standard.

Standard 3: Capitalization with Revenue

The third Nasdaq listing standard focuses on company size and revenue, which is a measure of income. The minimum requirements for both are as follows:

• Average market capitalization of $850 million or more over the prior 12 months
• Revenue of $90 million or more for the previous fiscal year

Larger companies may opt to take this route if they can’t meet the cash flow requirements under Standard 2.

Standard 4: Assets with Equity

In lieu of earnings or market capitalization, companies can use their assets and the value of shareholders’ equity to qualify for listing on the Nasdaq. There are three specific thresholds companies have to meet:

• Market capitalization of $160 million

• Total assets of $80 million

• Stockholders’ equity of $55 million

Regardless of which standard a company uses to qualify for listing, they have to maintain them continually. Otherwise, the company could be delisted from the Nasdaq exchange.

General Nasdaq Listing Rules

Aside from meeting the listing requirements set forth for each standard, there are some general Nasdaq listing requirements companies have to observe.

For example, the Nasdaq minimum share price or bid price for inclusion is $4. It’s possible to qualify with a bid price below that amount but that may entail meeting additional requirements.

Companies must also have at least 1.25 million publicly traded shares outstanding. That threshold applies to both seasoned companies and those seeking their initial public offering (IPO). Additionally, IPO requirements specify that the market value of those shares must be at least $45 million. For seasoned companies, the market value requirement increases to $110 million.

Nasdaq listing rules also cover criteria related to corporate governance. Under those requirements, companies must:

• Make annual and interim reports available to shareholders

• Have a majority of independent directors on the board of directors

• Adopt a code of conduct that applies to all employees

• Hold annual meetings of shareholders

• Avoid potential or actual conflicts of interest

Companies must also pay a listing fee to gain entry to the Nasdaq. Entry fees can range from $150,000 to $295,000, depending on the total number of shares outstanding. Those amounts include a non-refundable $25,000 application fee. Paying the fee doesn’t guarantee that a company will be listed on the Nasdaq.

How to Choose NASDAQ Stocks

Knowing how stocks are chosen for the Nasdaq and other exchanges can be helpful in conducting your own research when deciding what to buy or sell. Listing on the Nasdaq or NYSE can also be important for a company in terms of which exchange-traded fund it gets added into. Broadly speaking, there are two ways to approach stock research: technical analysis and fundamental analysis.

Technical analysis focuses on market trends, momentum, and day-to-day movements in stock pricing. You may use a technical analysis approach for choosing stocks if you’re an active day trader who’s interested in capitalizing on market trends to make short-term gains.

Using fundamental analysis on stocks, on the other hand, focuses on a company’s financial health. That includes things like earnings, profitability, and how much debt the company has. Using a fundamental approach may be preferable if you favor a long-term, buy-and-hold strategy. And fundamental analysis echoes how the Nasdaq and other stock exchanges determine which stocks to include.

The Takeaway

Becoming a savvy investor starts with learning the basics of how the stock market and stock exchanges such as the Nasdaq work. Understanding Nasdaq listing requirements can offer insight into how stock exchanges select which companies to offer for trading.

While the Nasdaq doesn’t include every publicly traded company in the U.S., as noted, there are guidelines and rules that companies that are listed, or wish to be listed, must abide by.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q225-037

Apr

2025

Learn the Basics of Investment Funds

By Matthew Warholak | Growing Wealth, invest, Investing | Comments Off

Investment funds are financial tools that effectively allow investors to pool their resources to buy into a collection of securities. It’s relatively common and easy for beginning investors to dip their toes in the market with investment funds for a variety of reasons.

But there are many types of investment funds, and the purported benefits of a specific fund may not be the right choice for each investor. With that in mind, it’s generally a good idea to have a deeper understanding of investment funds before buying into one.

Key Points

• Investment funds pool money from multiple investors to buy a diversified portfolio.

• Funds are generally managed by professionals who make investment decisions.

• Common types of funds include mutual funds, ETFs, and index funds.

• Investors benefit from diversification and professional management.

• Fees and performance vary; investors should review fund details.

What Is an Investment Fund?

Broadly speaking, an investment fund is a collection of funds from different people that is used to buy financial securities. Investors get the advantages of investing as a group (purchasing power) and own a portion, or percentage of their investments equal to the money they have contributed.

There are different types of investment funds, including mutual funds, exchange-traded funds (ETFs), and hedge funds. Typically, these funds are managed by a professional investment manager who allocates investors’ money based on the type of fund and the fund’s goal. For this service, investors are generally charged a small fee that is a percentage of their investment amount.

What Is a Mutual Fund?

Mutual funds are a popular type of investment fund for a reason: they are an easy way to purchase diversified assets — from stocks and bonds to short-term debt — in one transaction.

One of the fundamental ideas that led to the creation of mutual funds was to provide individual investors with access to investments that might be more difficult to obtain or manage on their own. A retail investor with $1,000 probably wouldn’t be able to effectively recreate a portfolio that tracks the S&P 500, let alone rebalance it quarterly.

But thanks to the creation of mutual funds, investors can pool all of their money together into a collective fund to invest in the same markets by choosing from custom-packaged funds with specific focuses and inexpensive share prices.

Different Types of Mutual Funds

There are a number of different types of mutual funds, each of which offer something distinct to the investor.

Equity Funds

Also known as stock funds, equity funds are a type of mutual fund that invests in a specific asset class, principally in stocks. Equity fund managers seek to outperform the S&P 500 benchmark by actively investing in growth stocks and undervalued companies that may provide higher returns over a period of time than the fund’s benchmark.

Equity funds have higher potential returns but are also subject to higher volatility as well. It’s common for equity funds to be actively managed and thus typically charge higher operating fees. Funds with higher stock allocations are more popular with younger investors as they allow for growth potential over time.

While equity is a specific asset investment by itself, some mutual funds focus on more precise criteria:

Fund Size (Market Cap)

Some funds only include companies with a defined market cap (market value). Different tiers of company sizes can perform differently in different economic conditions, and companies can be viewed as more or less risky based on their market cap. Fund sizes are categorized by the following:

• Large-cap (More than $10 billion)

• Mid-cap ($2 billion to $10 billion)

• Small-cap ($300 million to $2 billion)

Industry/Sector

These are funds that focus specifically on a single industry or sector, such as technology, health care, energy, travel, and more. Owning shares in different sector mutual funds provides portfolio diversity and can potentially enhance returns if a particular industry experiences a tailwind.

Growth vs Value

Some funds differ in their investment style, focusing on either value or growth. Growth stocks are expected to provide outsized returns, though these tend to be higher risk, whereas value stocks are considered to be undervalued.

International/Emerging Markets

Domestic stocks are not the only equity investment options, as some funds focus exclusively on international and emerging markets. International and emerging market funds provide geographic diversity — exposure to companies operating in different countries and countries with growing markets.

Bond Funds

Like stock mutual funds, bond funds are pools of investor funds that are invested in short- or -long-term bonds from issuers such as the U.S. government, government agencies, corporations, and other specialized securities. Bond funds are a common type of fixed-income mutual funds where investors are paid a fixed amount on their initial investment.

Seeing as how bonds are frequently thought of as a less-risky investment than stocks and offer less growth, bond funds are popular among investors who are looking to preserve their wealth.

Index Funds

This type of fund is constructed to track or match the makeup and performance of a financial market index such as the S&P 500. They provide broad market exposure, low operating expenses, and relatively low portfolio turnover. Unlike equity funds, an index fund’s holdings only change when the underlying index does.

Index fund investing has exploded in popularity in recent years due to its low costs, passive approach, and abundance of options to pick from. Investors may choose from a number of indices that focus on different sectors such as the S&P 500 (financial and consumer), Nasdaq 100 (technology), Russell 2000 (small-cap), and international indices.

Balanced Funds

Also known as asset allocation funds, these hybrid funds are a combination of investments in equity and fixed-income with a fixed ratio, such as 80% stocks and 20% bonds. Balanced funds offer diversification by spreading funds across different asset classes and consequently trade some growth potential in an attempt to mitigate some risk.

One example of a balanced fund is a target-date retirement fund, which automatically rebalances the investments from higher-risk stocks to lower-risk bonds as the fund approaches the target retirement date.

Money Market Fund

This low-risk, fixed-income mutual fund invests in short-term, high-quality debt from federal, state, or local governments, or U.S. corporations. Assets commonly held by money market funds include U.S. Treasuries and Certificates of Deposit. These funds are usually among the lowest-risk types of investments.

Alternative Funds

For those seeking portfolio diversity beyond traditional stocks and bonds, it may be worth considering alternative investment funds. Alternative funds focus on other specific markets, such as real estate, commodities, private equity, or others. They tend to be higher risk in exchange for the potential to offer higher returns.

These asset classes generally make up a small percentage of one’s portfolio, if at all, and serve as a hedge to heavier-weighted allocations to traditional sectors. Rather than investing in companies of a particular index or market cap, alternative funds may be composed of shares of natural gas drilling companies, real estate investment trusts (REITs), intellectual property rights, or more.

Benefits of Investing in Mutual Funds

While no two funds are the same, mutual funds are a popular choice for investors of all types for a variety of reasons.

Diversification

Mutual funds serve as a sort of investment basket that contains many different assets, some with the same general focus and others with multiple focuses. Rather than being all-in on one particular investment, mutual funds offer diversity across multiple investments.

This allows investors to cast a wider net and benefit when one or multiple of their basket investments performs well. Conversely, when one investment in a mutual fund does poorly, the loss may be mitigated by also having other investments that are performing comparatively well. Some types of funds offer greater diversification across different asset classes, such as stocks and bonds.

Performance

Mutual funds that aim to track indices or focus on growth stocks typically yield similar market performance compared to the benchmark index. This is more or less the same goal of a buy-and-hold strategy, as fund performance often, but not always, mirrors the tracked index.

Low Maintenance

Mutual funds are relatively easy to use and require little to no maintenance. They allow investing in multiple asset classes through one investment vehicle without having the investor sift through and make individual decisions. All of these decisions are usually provided by an active fund manager whose responsibility is to provide profitable returns for investors based on the fund’s general focus or target.

Mutual funds also provide a degree of functionality. One convenient feature is the ability to set a passive monthly investment amount and to automatically reinvest dividends. Many mutual funds pay investors dividends on an annual, quarterly, or even monthly basis. Dividends are calculated based on the underlying companies’ earnings and distributed to the fund, which then passes them along to fund investors. Another feature of mutual funds is the ability to reinvest dividends, thus compounding both mutual fund holdings and dividends in perpetuity.

Liquid

Mutual funds are transacted frequently. Investors are able to easily buy or redeem mutual fund shares daily at the market open. Shares in funds tend to be relatively affordable as they typically have a low net asset value (NAV), allowing even novice investors to buy shares with a low starting amount. Compare this to ETFs which can be transacted repeatedly at any time during market hours, but the price can rise to seemingly out-of-reach levels for a beginner.

Active Management

Mutual funds are usually actively managed by a professional fund manager who’s responsible for operating the fund, whether it be to allocate investor money, rebalance the fund’s investments, or distribute dividends to investors.

While mutual funds tend to have relatively low fees, investors are subject to an annual fee, also known as an expense ratio, that is calculated as a percentage of each individual’s holdings in the fund and automatically paid to the fund manager for their services. Fund fees vary, so in some cases it may be helpful to compare fees before investing.

Can I Lose Money in a Mutual Fund?

With investing, there is no such thing as a sure thing. So, yes, you can lose money in a mutual fund. It is possible to lose all of your money in a mutual fund if the securities in the fund drop in value.

As always, it’s prudent to research exactly what’s contained in a particular mutual fund before investing any capital. Ultimately, it’s every investor’s responsibility to determine their own risk tolerance and investing strategy that meets their personal needs.

The Takeaway

Investment funds are a practical and beginner-friendly way to start investing in financial markets. Even with beginner knowledge concerning what is a mutual investment fund, mutual funds have the propensity to provide a hands-off and potentially low-cost way to start building wealth. But again, your mileage may vary, as not all funds are alike.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN-Q225-005

Apr

2025

How to Find the Right Investment Advisor

How to Find the Best Investment Advisor for You

By Kate Ashford | Growing Wealth, invest, Investing | Comments Off

Investment advisors help investors figure out their goals, create financial plans, and put those plans into action. There are a lot of them out there, too, meaning that finding the right professional for you or your family may seem daunting. But finding the best investment advisor for you can be a fairly painless process.

You’ll need to start with some basics, though, by learning the difference between an investment advisor and a registered investment advisor, what to look for when you hire an advisor, and more.

Key Points

• Investment advisors assist in setting goals, creating financial plans, and executing them.

• Research and due diligence are essential in selecting an advisor.

• Credentials and ongoing education are important factors when researching options.

• Fee structures vary; it’s essential to understand how advisors are compensated.

• Chemistry and communication style are crucial for a good fit.

What Is an Investment Advisor?

An investment advisor is an individual or company that offers advice on investments for a fee. The term itself, “investment advisor,” is a legal term that appears in the Investment Advisers Act of 1940. It may be spelled either “advisor” or “adviser.”

Investment advisors might also be known as asset managers, investment counselors, investment managers, portfolio managers, or wealth managers. Investment advisor representatives are people who work for and offer advice on behalf of registered investment advisors (RIAs).

What Is a Registered Investment Advisor (RIA)?

A registered investment advisor, or RIA, is a financial firm that advises clients about investing in securities, and is registered with the Securities and Exchange Commission (SEC), or other financial regulator. While you may think of RIAs as people, an RIA is actually a company, and an investment advisor representative (IAR) is a financial professional who works for the RIA.

That said, an RIA might be a large financial planning firm, or it could be a single financial professional operating their own RIA.

An RIA has a fiduciary duty to its clients, which means they must put their clients’ interests above their own. The SEC describes this as “undivided loyalty.” This is different from non-RIA companies whose advisors are often held only to a suitability standard, meaning their recommendations must be suitable for a client’s situation. Under a suitability standard, an advisor might sell a client products that are suitable for their portfolio but which also result in a higher sales commission for the advisor.

RIAs generally offer a range of investment advice, from your portfolio mix to your retirement and estate planning.

What’s Required to Become a Registered Investment Advisor?

The following steps are required to become a registered investment advisor (RIA).

• Pass the Series 65 exam, or the Uniform Investment Adviser Law Exam, which is administered by the Financial Industry Regulatory Authority (FINRA). Some states waive the requirement for this exam if applicants already hold an advanced certification like the CFP® (CERTIFIED FINANCIAL PLANNER™) or CFA (Chartered Financial Analyst).

• Register with the state or SEC. If an RIA has $100 million in assets under management (AUM), they must register with the SEC, though there are sometimes exceptions to this requirement. If they hold less in AUM, they must register with the state of their principal place of business. This requires filing Form ADV.

• Set up the business. These steps require making a variety of decisions about company legal structure, compliance, logistics and operations, insurance, and policies and procedures.

How to Choose an Investment Advisor

Finding the right investment advisor is about finding the right fit for you. While personal preference plays a part, there are a variety of other things you might consider when you’re searching:

Start Local

Look to helpful databases of financial professionals that can help you pinpoint some advisors in your area. Here are a few to consider:

• Financial Planning Association. Advisors in this network are CERTIFIED FINANCIAL PLANNERS™ (CFP®s) and you can search by location, area of specialty, how they’re paid and any asset minimums that may exist.

• National Association of Personal Financial Advisors. All advisors in this database are fee-only financial planners, meaning they receive no commissions for selling products.

• Garrett Planning Network. All advisors in this network charge hourly.

Get Referrals

One of the best ways to find a financial professional is to ask friends, family, and acquaintances if they’ve worked with someone they can recommend. While there are ways to build wealth at any age, it may be beneficial to ask people who are in a similar financial situation or stage of life. For instance, if you’re relatively young with a lot of debt and very little savings, you may not want the same investment advisor who’s working with wealthy retirees.

Ask About Credentials

Ask investment advisors what certifications they have, what was required to get the certification, and whether any ongoing education is necessary to keep it. Some certifications require thousands of hours of professional experience or passing a rigorous exam, while others may only require a few hours of classroom time.

Other certifications are geared toward investors at a specific life stage or with specific questions. The Retirement Income Certified Professional (RIPC) certification, for instance, focuses on retirement financial planning. Those with a Certified Public Accountant (CPA) certification are probably good sources for tax planning.

Check Complaint History

Depending on who oversees the advisor or the firm, you should be able to check whether there are complaints on record. If FINRA provides oversight, you can research them on FINRA’s BrokerCheck tool. If the SEC oversees them, the SEC has an investment advisor search feature to find information on the advisor and the company. Remember: One complaint might not be a red flag, but multiple complaints might give you pause.

Find Out About Fees

Investment advisors may be paid, or charge fees, several different ways. They may charge a percentage of assets under management, meaning that the fee will depend on the assets they’re managing for you. For example, if the fee is 1% of assets under management and you’re having them manage $500,000, you’d pay $5,000 annually for their services.

Others may charge an hourly fee or a flat project fee for specific services. There are also advisors that are paid commissions from the products that they sell to clients. It’s important to understand how an investment advisor makes money and how much you’ll pay in fees each year, and then decide what you’re comfortable with.

Get Details on Their Work Style

Communication and working style may be just as important as credentials and expertise. For instance, how often do they want to meet with you? Would you be working with them directly or with a wider team of people? Do they like to communicate via phone call, email, or text? This is something else to consider.

Take a Test Drive

Many advisors will offer a phone consultation or in-person visit to see if you’re a good fit. You may want to take them up on it. Finding the right investment advisor is as much a matter of chemistry as credentials.

Questions to Ask an Investment Advisor Before Hiring Them

It can be a good idea to find out as much as possible about an investment advisor so you can make an informed decision. Here’s a list of questions you might want to ask:

• What are your qualifications?

• What type of clients do you typically work with?

• Are you a fiduciary?

• How are you paid? And how much will I be charged?

• Do you have any minimum asset requirements?

• Will you work with me, or will members of your team work with me?

• How (and how often) do you prefer to communicate? (Phone, email, text?)

• How often will we meet?

• What’s your investment philosophy?

• What services do you provide for your clients?

• How do you quantify success?

• Why would your clients say they like working with you?

The Takeaway

An investment advisor can help you think about investing for the future, plan to save enough for all your goals, and understand how to get it all done. Finding one isn’t hard, but it does take time and some research to connect with an investment advisor that meets your expectations and feels like a good match.

With that in mind, getting the right advice can be critical even before you start investing. Someone with experience in the markets helping guide you can be invaluable.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q225-006

Apr

2025

Coattail Investing Basics

By Brian Nibley | Growing Wealth, invest, Investing | Comments Off

Coattail investing, also known as copycat investing, is an investment strategy where investors try to replicate the results of others who already have a proven track record of success. In effect, investors look at what other successful investors are doing and try to follow suit.

For newer investors, this method has some obvious advantages, and can help ease the learning curve a bit. But, of course, there are both benefits and drawbacks, and it’s helpful to know who you’re able or should perhaps try to replicate, as well as the risks involved, rather than choosing some coattails to ride at random.

Key Points

• Coattail investing involves mirroring the strategies of successful investors.

• Activist investors, money managers, and large corporations are common targets.

• Information for coattail investing can be sourced from SEC filings and financial news.

• Risks include losing money as a result of following less experienced investors or those with different objectives or risk profiles.

• Personal due diligence and a long-term perspective are essential.

How to Be a Coattail Investor

For the most part, coattail investing incorporates a buy-and-hold strategy, where an investor buys stocks and holds them for the long term, such as a period of several years or several decades. Publicly available information from the financial press and the Securities Exchange Commission (SEC) website can give copycat investors information on how investors (those managing more than $100 million) have invested their money.

Coattail investing begins with choosing what person or group to watch. Then, based on their investment choices, a copycat investor can choose to replicate those investing strategies either in whole or in part.

In most cases, the average investor probably doesn’t have enough capital to keep up with big money managers and institutions in an exact 1:1 ratio. But watching what they buy and sell (and when), and acting accordingly to some degree, is the heart of coattail investing.

While investors used to have to manually follow their favorite investors by searching the SEC website or elsewhere, today, certain online services exist that help to automate the process.

Some brokerages may even offer “mirror investing” services that allow investors to set their own portfolios to make the same exact trades that their favorite investors make, with customized asset allocations.

Who Do Coattail Investors Follow?

When attempting coattail investing, following those who adopt a “buy and hold” strategy could prove beneficial. Because markets move fast, by the time a trade is executed, the most profitable opportunity may have already passed. Buying and holding takes a long-term time horizon or perspective, meaning it could take some of the timing and guesswork out of the equation, making it easier to realize profits.

A copycat investor could choose to copy just about anyone. That said, there are a few choices most commonly used by those who are successful at copycat investing. These include financial professionals and other investors who can influence markets simply by announcing their positions.

Activist Investors

Activist investors are known for causing stocks to rise when they reveal their own investments. These influencers may be ahead of the curve on investment trends, and financial news media reports on the actions of these investors regularly. Activist investors also often publicize their own moves through blog posts or press releases as well. This tends to make it easy for coattail investors to keep up and act accordingly.

Money Managers

People and institutions that manage over $100 million are required to report their holdings to the SEC. The SEC then publishes this information, making it public. Rather than hire a money manager, some copycat investors simply search for investments that large money managers have made and then choose those they think would be best for their own portfolios.

Large Corporations and CEOs

Successful companies that have accumulated cash reserves are challenged with figuring out where to put that money — and coattail investors sometimes follow suit.

For many years, holding cash and bonds was probably the least risky option for investors. But bonds and cash have their risks, too, such as interest rate fluctuations and inflation. This has led some companies to look elsewhere for returns, often in the form of alternative investments.

Unlikely Visionaries

Following more nontraditional investors — people outside the financial world who have made successful investments — could entail more risk than following activist investors or proven money managers, but there can still be insight to be gained.

That may include professional athletes or social media influencers. There are numerous examples of both who have made what turned out to be successful investments of various types. Of course, even if you start to mirror an athlete’s or influencer’s portfolio activity, there’s no guarantee that they’ll continue to make wise choices.

While watching athletes or celebrities for investment advice might not be something anyone would recommend, it can bring a unique perspective from outside the echo chamber and herd mentality of those within the financial world. People who come from outside that world tend to have a different outlook and could see something that others miss.

That said, an investor who looks to popular culture icons for investment advice does run the risk of racking up significant losses. It might not be realistic to establish an entire portfolio around this idea. It’s widely believed that in coattail investing, investors should follow only the most esteemed professional money managers.

What Are the Risks of Coattail Investing?

The main risk of copycat investing is that one might end up following an investor who loses, rather than gains. Or an investor may follow someone who has a different risk profile than they do. There could also be psychological risks, such as thinking that because one is copying a successful investor’s moves, all personal responsibility has been taken out of the equation.

In reality, investing always comes with risk, and always requires investors to conduct their own due diligence. Unless a copycat investor is using an automated program that buys and sells as soon as a big investor announces their trade, like a robo-advisor of one type or another, they will still have to stay on top of their own investments, even if the decisions of what/when to buy/sell are all recommended by someone else.

The Takeaway

Coattail or copycat investing is a strategy that involves mirroring another investor’s market moves. Copycat investing could be pursued in almost any fashion imaginable. It’s possible to follow anyone for investment insights, using their trades as a game plan.

Investors with an interest in pursuing coattail investing, however, would do well to consider sticking to tracking these types of people and their portfolios. While it can be useful to watch and try to learn from others with more experience, matching their actions exactly could bring a false sense of security to some investors, reducing their sense of the personal responsibility involved in researching investments and deciding when to buy or sell.

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