Growing Wealth Archives | Page 162 of 224

Sep

2022

Should I Pull My Money Out of the Stock Market?

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

When markets are volatile, and you start to see your portfolio shrink, there may be an impulse to pull your money out and put it somewhere safe — but acting on that desire may actually expose you to a higher level of risk.

In fact, there’s a whole field of research devoted to investor behavior, and the financial consequences of following your emotions (hint: the results are less than ideal).

A better strategy might be to anticipate your own natural reactions when markets drop — or when there’s a stock market crash — and wait to make investment choices based on more rational thinking (or even a set of rules you’ve set up for yourself in advance).

After all, for many investors — especially younger investors — time in the market often beats timing the stock market. Here’s an overview of factors investors might weigh when deciding whether to keep money in the stock market.

Investing Can Be an Emotional Ride

An emotion-guided approach to the stock market, whether it’s the sudden offloading or purchasing of stocks, can stem from an attempt to predict the short-term movements in the market. This approach is called timing the market.

And while the notion of trying to predict the perfect time to buy or sell is a familiar one, investors are also prone to specific behaviors or biases that can expose them to further risk of losses.

Giving into Fear

When markets experience a sharp decline, some investors might feel tempted to give in to FUD (fear, uncertainty, doubt). Investors might assume that by selling now they’re shielding themselves from further losses.

This logic, however, presumes that investing in a down market means the market will continue to go down, which — given the volatility of prices and the impossibility of knowing the future — may or may not be the case.

Focusing on temporary declines might compel some investors to make hasty decisions that they may later regret. After all, over time, markets tend to correct.

Following the Crowd

Likewise, when the market is moving upwards, investors can sometimes fall victim to what’s known as FOMO (fear of missing out) — buying under the assumption that today’s growth is a sign of tomorrow’s continued boom. That strategy is not guaranteed to yield success either.

Why Time in the Market Matters

Answering the question, “Should I pull my money out of the stock market?” will depend on an investor’s time horizon — or, the length of time they aim to hold an investment before selling.

Many industry studies have shown that time in the market is typically a wiser approach versus trying to time the stock market or give in to panic selling.

One such groundbreaking study by Brad Barber and Terence Odean was called, “Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors.”

It was published in April 2000 in the Journal of Finance, and it was one of the first studies to quantify the gap between market returns and investor returns.

• Market returns are simply the average return of the market itself over a specific period of time.

• Investor returns, however, are what the average investor tends to reap — and investor returns are significantly lower, the study found, particularly among those who trade more often.

In other words, when investors try to time the market by selling on the dip and buying on the rise, they actually lose out.

By contrast, keeping money in the market for a long period of time can help cut the risk of short-term dips or declines in stock pricing. Staying put despite periods of volatility, for some investors, could be a sound strategy.

An investor’s time horizon may play a significant role in determining whether or not they might want to get out of the stock market. Generally, the longer a period of time an investor has to ride out the market, the less they may want to fret about their portfolio during upheaval.

Compare, for instance, the scenario of a 25-year-old who has decades to make back short-term losses versus someone who is about to retire and needs to begin taking withdrawals from their investment accounts.

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Is It Okay to Pull Out of the Market During a Downturn?

There is nothing wrong with deciding to pull out of the markets if they go south. But if you sell stock or other assets during a downturn, you run the risk of locking in your losses, as they say. Depending on how far values have declined, you might lose some of your gains, or you might lose some or all of your principal.

In a perfect world if you timed it right, you could pull your money out at the right moment and avoid the worst — and then buy back in, just in time to catch the rebound. While this sounds smart, it’s very difficult to pull off.

Benefits of Pulling Out of the Market

The benefit of pulling out of the market and keeping your money in cash is that cash isn’t volatile. Generally speaking, your cash won’t lose value over night, and that can provide some financial as well as psychological comfort.

As noted above if you make your move at the right time, you might prevent steeper losses — but without a crystal ball, there are no guarantees. That said, by using stop-limit orders, you can create your own guardrails by automatically triggering a sale of certain securities if the price hits specific lows.

Disadvantages of Pulling Out of the Market

There are a few disadvantages to pulling cash out of the market during a downturn. First, as discussed earlier, there’s the risk of locking in losses if you sell your holdings too quickly.

Potentially worse is the risk of missing the rebound as well. Locking in losses and then losing out on gains basically acts as a double loss.

When you realize certain losses, as when you realize gains, you will likely have to deal with certain tax consequences.

And while moving to cash may feel safe, because you’re unlikely to see sudden declines in your cash holdings, the reality is that keeping money in cash increases the risk of inflation.

💡 Recommended: How to Protect Your Money From Inflation

Using Limit Orders to Manage Risk

A market order is simply a basic trade, when you buy or sell a stock at the market price. But when markets start to drop, a limit order does just that — it puts a limit on the price at which you’re willing to sell (or buy) securities.

Limit orders are triggered automatically when the security hits a certain price. For sell limit orders, for example, the order will be executed at the price you set or higher. (A buy limit order means the trade will only be executed at that price or lower.)

By using certain types of orders, traders can potentially reduce their risk of losses and avoid unpredictable swings in the market.

Alternatives to Getting Out of the Stock Market

Here’s an overview of some alternatives to getting out of the stock market:

Rotating into Safe Haven Assets

Investors could choose to rotate some of their investments into safe haven assets (i.e. those that aren’t correlated with market volatility). Gold, silver, and bonds are often thought of as some of the safe havens that investors first flock to during times of uncertainty.

By rebalancing a portfolio so fewer holdings are impacted by market volatility, investors might reduce the risk of loss.

Reassessing where to allocate one’s assets is no simple task and, if done too rashly, could lead to losses in the long run. So, it may be helpful for investors to speak with a financial professional before making a big investment change that’s driven by the news of the day.

Having a Diversified Portfolio

Instead of shifting investments into safe haven assets, like precious metals, some investors prefer to cultivate a well-diversified portfolio from the start.

In this case, there’d be less need to rotate funds towards “safer” investments during a decline, as the portfolio would already offer enough diversification to help mitigate the risks of market volatility.

Reinvesting Dividends

Reinvesting dividends may also lead the long-term investor’s portfolio to continue growing at a steady pace, even when share prices decline temporarily. Knowing where and when to reinvest earnings is another factor investors may want to chew on when deciding which strategy to adopt.

(Any dividend-yielding stocks an investor holds must be owned on or before the ex-dividend date. Otherwise, the dividend won’t be credited to the investor’s account. So, if an investor decides to get out of the stock market, they may miss out on dividend payments.)

Rebalancing a Portfolio

Sometimes, astute investors also choose to rebalance their portfolio in a downturn — by buying new stocks. It’s difficult, though not impossible, to profit from new trends that can come forth during a crisis.

It’s worth noting that this investment strategy doesn’t involve pulling money out of the stock market — it just means selling some stocks to buy others.

For example, during the initial shock of the 2020 crisis, many stocks suffered steep declines. But, there were some that outperformed the market due to certain market shifts. Stocks for companies that specialize in work-from-home software, like those in the video conferencing space, saw increases in value.

Bear in mind, though, that these gains are often temporary. For example, home workout equipment, like exercise bikes, became in high demand, leading related stocks higher. Some remote-based healthcare companies saw share prices rise. But in some cases, these gains were short-lived.

Also, for newer investors or those with low risk tolerance, attempting this strategy might not be a desirable option.

Reassessing Asset Allocation

During downturns, it could be worthwhile for investors to examine their asset allocations — or, the amount of money an investor holds in each asset.

If an investor holds stocks in industries that have been struggling and may continue to struggle due to floundering demand (think restaurants, retail, or oil in 2020), they may opt to sell some of the stocks that are declining in value.

Even if such holdings get sold at a loss, the investor could then put money earned from the sale of these stocks towards safe haven assets — potentially gaining back their recent losses.

Holding Cash Has Its Benefits

Cash can be an added asset, too. Naturally, the value of cash is shaped by things like inflation, so its purchase power can swing up and down. Still, there are advantages to stockpiling some cash. Money invested in other assets, after all, is — by definition — tied up in that asset. That money is not immediately liquid.

Cash, on the other hand, could be set aside in a savings account or in an emergency fund — unencumbered by a specific investment. Here are some potential benefits to cash holdings:

First, on a psychological level, an investor who knows they have cash on hand may be less prone to feel they’re at risk of losing it all (when stocks fluctuate or flail).

A secondary benefit of cash involves having some “dry powder” — or, money on hand that could be used to buy additional stocks if the market keeps dipping. In investing, it can pay to a “contrarian,” running against the crowd. In other words, when others are selling (aka being fearful), a savvy investor might want to buy.

The Takeaway

Pulling money out of the market during a downturn is a natural impulse for many investors. After all, everyone wants to avoid losses. But attempting to time the market (when there’s no crystal ball) can be risky and stressful.

For many investors, especially younger investors with a longer time horizon, keeping money in the stock market may carry advantages over time. One approach to investing is to establish long-term investment goals and then strive to stay the course — even when facing market headwinds.

Always, when it comes to investing in the stock market, there’s no guarantee of increasing returns. So, individual investors will want to examine their personal economic needs and short-term and future financial goals before deciding when and how to invest.

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FAQ

Should you pull out of the stock market?

Ideally, you don’t want to impulsively pull your money out of the market when there is a crisis or sudden volatility. While a down market can be unnerving, and the desire to put your money into safe investments is understandable, this can actually expose you to more risk.

When is it smart to pull out of stocks?

In some cases it might be smart to pull your money out of certain stocks when they reach a predetermined price (you can use a limit order to set those guardrails); when you want to buy into new opportunities; or add diversification to your portfolio.

What are your options for getting out of the stock market?

There are always options besides the stock market. The ones that are most appealing depend on your goals. You can invest in safe haven investments (e.g. bonds or precious metals), you can put your money into cash; you can consider other assets such as real estate.

Sep

2022

9 Ways to Save $10,000 in a Year

By Bob Haegele | Budgeting & Goals, Growing Wealth, money | Comments Off

Saving $10,000 in a year may sound like a lofty or even impossible goal, but it is indeed doable. Provided you take the right steps, that is. And saving that five-figure chunk of change can have many benefits, such as helping you get out of debt, save, and invest.

How you go about saving $10,000 a year is up to you. You can accomplish it through budgeting, a side hustle, and other means. It’s a matter of finding what makes sense for your personal situation and financial style.

If you’re interested in achieving this kind of savings, read on. You’ll learn the scoop on:

• Is saving $10,000 a year possible?

• What are the benefits of saving $10,000 a year?

• What are the best ways to save $10,000 a year?

Is Saving $10,000 a Year Possible?

Wondering how to save $10,000 in a year? It’s possible if you can create at least that large a difference between your income and expenses. In other words, it’s just simple math.

If you don’t have at least $10,000 a year left over after all of your expenses are accounted for, you have two options to close the gap. You can either increase your income or reduce your expenses, or try a combination of the two techniques. Of course, you will also need systems in place to save that extra money, too.

Socking away $10,000 can be well worth your while. It can set you up with a significant amount of money that can help improve your financial wellness today and tomorrow. Next, take a closer look at how that could play out for you.

Benefits of Saving $10,000 a Year

The benefits of saving $10,000 may vary depending on your finances, but there are several ways it can be beneficial to the average person. Here are some things you can accomplish:

• Start an emergency fund

• Pay off debt — credit cards, student loans, personal loans, etc.

• Invest money in a portfolio

• Take a vacation

• Fund a wedding

• Save for retirement

• Add to one’s savings for a down payment on a house

• Help you buy a car

• Tackle a home renovation project

• Lower your stress levels and boost your self-esteem.

These are just a few of the potential benefits of saving $10,000 a year, but there are limitless ways in which putting that much money away can help. It may not be easy at first to save such a big sum ($833.33 a month in after-tax dollars), but you will likely be glad you did it.

12 Helpful Tips for Saving $10,000 a Year

As mentioned earlier, there are two basic ways to help you save $10,000 a year: decreasing your expenses and increasing your income. Saving money is important, for sure, but saving five figures in a single year can require true dedication, sacrifice, and smart financial management. Here, powerful steps to take to succeed in this money mission. Saving $10,000 in a single year will probably require a few of these tactics simultaneously:

1. Setting Your Goals

Setting financial goals is important because once you have a large aspiration in mind, you can then create smaller, actionable steps that can ultimately lead to success.

If saving $10,000 in a year is your goal, you might then see how you can alter your budget to get there. Having your goal might motivate you to save. For instance, if you typically go out for lunch Monday through Friday, you might pursue the smaller, actionable goal of ratcheting that down to once or twice a week. At the same time, you might set a goal of bringing in an extra $100 or $200 a month in income (more on that below). The idea is, by establishing your goals, you can take the right steps to achieve them. .

2. Creating a Budget

Creating a budget is worthwhile for two big reasons:

• It helps you see where your money is going. It’s possible you are spending a lot of money on things that are not very important to you. Thus, you might identify some areas where you can cut back.

• Budgeting helps hold you accountable. Having a budget means you can’t always spend money however you please. While that can be a harsh reality check at times, it will likely help keep you progressing towards saving $10,000 a year.

One important aspect of creating a budget is finding one that works for you. For some people, that means going all in on the 50/30/20 budget rule. For others, it might be keeping track of expenses with an app. Experiment a bit, and find a method that suits your personal and financial style.

3. Spending Less on Eating Out

One way to cut back on spending is to eat out less, as briefly mentioned above. The average American spends $198 a month on food prepared away from home, according to the Bureau of Labor Statistics’ Consumer Expenditure Survey.

Not only is to-go food pricey, it can be less healthy than what you prepare at home. While going cold turkey and abandoning takeout altogether may make you feel deprived and lead to your abandoning the effort, why not take a smaller step? If you vow to, say, cut down on your to-go mochaccino every morning and make it an only-on-Friday treat, it might become a ritual you look forward to that much more. This treat at the end of the week can help reinforce that you’re doing a good job saving. Go on, pat yourself on the back for your success!

4. Tracking Your Progress

Tracking your savings is a good idea because you probably aren’t saving $10,000 all at once. You don’t want 11 months to go by and find that you’ve only saved $1,000.

It isn’t necessary to assess your progress every day, but seeing where you are at the end of each month tends to work well. You can do this at the same time as paying your bills, reconciling your budget, and any other month-end tasks. When you know you are on track, it will keep you motivated to save.

Another way to check your savings is to use the tools your bank provides; many have online or mobile methods to see your balance and how well you’re advancing toward a goal. There are also apps available, separate from your bank account, that can help you keep tabs on your savings.

5. Automating Your Finances

Thanks to online banking, it’s possible to entirely automate your savings strategy. For example, you can set up a high-yield savings account and schedule a transfer to it from your checking account each time you get paid or once a month.

Automating your finances is a good idea because not only is it convenient, but it also facilitates your staying on track. If you have to set money aside manually every month, you might wind up spending some of it instead because friends invite you to join a pricey dinner or there’s a sale on something you’ve been eyeing. When you automate a transfer, though, you likely raise the odds that the cash makes it into your savings.

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6. Having No-Spend Months and Weeks

Also known as a no-spend challenge, another strategy is to have certain periods when completely cut out some of your spending. This can come in the form of spending no money whatsoever on certain days. Or you might completely cut out certain categories for 30 days, such as buying new clothing. However you decide to cut back, this gamified technique may make it more engaging, delivering a big boost to your savings.

7. Spending Less on Entertainment

Going out can be fun, whether it’s to see a movie, a concert, or to a bar. But these nights out can also be expensive, especially when you are looking for easy ways to save money.

Of course, the goal doesn’t have to be to cut these things from your budget entirely. If you usually go to the movies a few times a month, you can make it once a month instead. If you are taking your whole family to the movies, that alone can easily save you over $100 per month.

Also take a look at your at-home entertainment costs. How many streaming platforms do you really need? It’s not uncommon for people to have several pricey ones, which can add up over the course of a year. Try canceling a couple and enjoy putting those savings towards your goal of $10,000.

8. Having a Side Hustle

Cutting back on expenses can be an obvious way to save, but some of us already have quite low expenses. If that is the case, you can earn money with a side hustle and use that income to bolster your savings.

One of the easiest ways to start a side hustle is to use the skills you already have to do some work on the side. For example, if you work as a programmer, you can do some extra coding on the side on a freelance basis. You might also consider opportunities that are possible in your free time, such as driving a rideshare on the weekends or walking dogs.

9. Selling Items That You Do Not Use

Many of us have items lying around that we don’t really use, whether it’s that espresso machine you never got the hang of or a leather jacket that just didn’t suit your style. Why not try selling some of your stuff? Items like electronics, jewelry, and furniture can be valuable, but any bit of cash can help pump up your savings.

Selling your gently used items can be relatively easy on sites like eBay and Facebook Marketplace. Take a look around, and see what you have that might be worth something.

The Takeaway

If you’re wondering how to save $10,000 in one year, know that it’s possible if you find the right combination of smart budgeting, expense whittling, and income building. The solution will be different for each person, depending on their income, expenses, lifestyle, and financial style. By budgeting carefully, cutting costs, and finding ways to bring in more cash, you can accomplish this goal.

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FAQ

Is saving $10,000 a year good?

Saving $10,000 a year is great. It can help you accomplish a variety of financial goals, such as saving, investing, and paying off debt.

Is $10,000 a lot to save in a year?

It is, for many people, a considerable amount. Here’s a point of reference: More than half of Americans can’t cover an unexpected $1,000 expense. And it may be unlikely that the rest of the population have $10,000 saved. While saving $10,000 a year is a lot, it is possible.

How much do you need to earn to be able to save $10K a year?

How much you have to earn to save $10K a year depends largely on your expenses. The average annual household expenses were $61,334 in 2020, according to the Bureau of Labor Statistics. Thus, if you are like the average household, you would either have to earn at least $71,000 after taxes to have a margin to save $10K, reduce your expenses by $10K, or do some combination of earning more and spending less.

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SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

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Sep

2022

Is It Possible to Negotiate a Higher Savings Interest Rate?

By Jacqueline DeMarco | Budgeting & Goals, Growing Wealth, money | Comments Off

It’s a simple equation: The higher the interest rate is on a savings account, the more money you will earn on your savings. And who wouldn’t want to see their savings grow faster?

In your quest to find the highest rate possible, you may wonder, “Can you negotiate interest rates on savings accounts?” While it is indeed possible to talk your way to a higher interest rate, there’s no guarantee that all banks will grant this.

To stack the deck in your favor, keep reading to gain insight and learn some strategies, including:

• What is the current national average for savings account interest rates?

• Can you negotiate savings account interest rates?

• How can you get a better rate on savings accounts?

What Is the Current Average National Savings Rate for 2022?

Savings rates ebb and flow over time and specifically throughout the year. They can vary greatly based on market conditions.
According to a Bankrate survey, the national average for interest rates on savings accounts was 0.13% at the end of the summer in 2022. While that is the average, you will likely find a great deal of variation in the numbers, possibly due to how banks calculate interest on savings accounts.

The type of financial institution that holds your money can also impact the rate offered. For instance, when looking at online banks vs. traditional banks, digital banks typically pay a higher rate than their bricks-and-mortar counterparts. Since they aren’t spending on building and staffing bank branches, they can pass the savings on to their customers. As of August 2022, several online banks were offering in the 1.7% to 2% range of interest on savings accounts.

Can I Negotiate a Higher Savings Rate?

The answer to “Can you negotiate savings interest rates?” is: It’s possible. There’s no guarantee a bank will agree to raise your interest rate, but they might. That being said, it can be easier to convince a bank to raise their interest rates for an individual if you have a longstanding relationship with the bank.

Typically, the key to making this request be approved is to be in good standing with the bank. For example, if you have held a business or personal loan or mortgage at a bank for many years and reliably made on-time payments to that loan, the bank may be willing to increase your personal checking and savings account interest rates to hold onto a good customer (that means you).

If you have bank accounts at a variety of different banks, you may find that a banker is willing to offer you a better interest rate if you agree to move all of your account balances to this single bank.

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Tips for Negotiating a Higher Savings Rate With Your Bank

The answer to whether you can negotiate interest rates on a savings account will depend on two factors: how you approach this request and how receptive the bank is. While there’s no guarantee of success when asking for a higher interest rate with a bank, these tips can help improve your odds of getting that rate boost and helping your money grow faster.

Contact Local Banks to Compare Rates With Your Current Bank

Before you start the negotiation process, do some research. Take a look at what types of interest rates other banks (including local small banks) and credit unions are offering to see if any of those rates are higher than your current one.

This research serves two purposes. Firstly, you can take this research to your bank and ask them to match their competitors or even exceed that rate. If the bank says no, then you have already done the legwork of finding a bank that can offer you superior rates. You can then decide whether you want to switch banks so you can earn more money on your savings.

Review Account History With Your Bank

As briefly noted earlier, the better someone’s history is with a bank, the more likely the financial institution will be to negotiate a higher interest rate. Consider your account history and whether you have made on-time payments to loans and credit cards issued by the bank, not overdrafted when using your debit card, and kept your account balance at the required minimum amount.

If you have had a troubled history with your bank, you might be better off opening an account at another bank that offers a higher interest rate and starting fresh.

Ask the Bank for a Higher Savings Interest Rate

As the saying goes, it never hurts to ask. One of the best ways you can improve your odds of getting your savings interest rate increased is simply by requesting an increase and seeing what the bank says. Contact a representative in person (if you bank at a traditional bank), via chat, phone, or email with a polite request vs. a threat to pull your money out, and see what response you get. The worst they can say is no, so there’s really no harm in asking.

There’s also the possibility that you can earn a higher interest rate on your savings if you keep more money in the account. Some financial institutions will pay a higher rate on what are known as premium accounts or high-yield accounts, which may have a minimum balance requirement. If that’s the case, you might see if you and the bank can meet in the middle in terms of the amount required to be on deposit to snag that higher annual percent yield, or APY.

Will My Bank Be Willing to Negotiate?

Some banks may be willing to negotiate savings interest rates, and others may not — it really just depends on their policies. That being said, if someone has a good relationship with their bank, the financial institution may be more likely to up their interest rate to keep a good customer happy.

Another angle on this: If you have multiple accounts with a bank (say, a couple of different kinds of savings accounts, plus a business checking account), they may be more likely to raise your interest rate. For instance, if you keep both your checking and savings at a financial institution and also have a mortgage with them, you may have a better shot at a rate hike.

Is it Worth Switching if You Find a Savings Account With Higher Interest Rates?

It can be worthwhile to switch banks if doing so will result in a higher savings interest rate, but this isn’t the only factor to keep in mind. The type of bank, the services they offer, and the fees they charge can also be taken into account. It’s important to look at the overall picture before making a move.

Earning a small percentage more in interest may not be worthwhile if you wind up with account fees, minimum balances, or other inconvenient and costly issues. So do your research before you make a shift.

Variables to Take Into Account When Looking To Switch Banks

Before switching banks, keep the following factors in mind to make an informed decision.

• Type of bank. Traditional banks with bricks-and-mortar locations, online-only banks (some of which offer high-yield savings accounts which pay higher interest rates), and credit unions can help meet different consumer banking needs.

• Features. Most banks and credit unions offer basic checking and saving accounts features, but you may want to keep the extra features in mind. For example, you may want to choose a bank that also issues a variety of loans, creates incentives to save money, has tax-free savings accounts, or offers free access to credit scores.

• Interest rate. Of course, savings interest rates are a great thing to keep in mind as banks that offer higher savings rates make it easier to earn more money and increase savings.

• Fees. See how much it will cost to work with each bank. While some banks charge monthly account maintenance fees, others do not. Some banks charge overdraft fees as well, which can be steep, around $35 per incident.

Can I Expect the Savings Account Rate to Change Soon?

Although interest rates are considered to be relatively low right now, some experts expect that savings rates will increase throughout 2022 and possibly beyond. However, there’s no guarantee that these predictions will be accurate.

Banking With SoFi

It is possible to negotiate interest rates on savings accounts, and there could be an upside to asking for a boost. Specifically, you might earn a higher interest rate so your money can grow faster, whether it’s earmarked for a rainy-day fund or for a future vacation.

Among the best deals you can find for savings accounts: SoFi’s Checking and Savings. It’s a high-yield bank account where you can spend, save, and earn an ultra competitive APY. Plus, you’ll pay no account fees.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Can you negotiate savings account interest rates?

So, can you negotiate interest rates on savings accounts? Yes, it is possible to negotiate a savings account interest rate hike, but there’s no guarantee a bank will agree to this increase. That being said, asking for an increase and being shot down doesn’t do any harm.

Can you get a higher interest rate on a savings account?

It is possible to get a higher interest rate on a savings account. Account holders can ask their bank for an increase any time. It helps to have a good history with the bank. So if you always make your loan payments on time, don’t overdraft your checking account, and meet minimum balance requirements every month, the bank may want to give you this perk to retain a good customer.

How can I negotiate with a bank for a better interest rate?

There are a few ways you can increase the odds that your negotiation with your bank will be successful. To start, do competitor research so you can point out if other banks are offering higher interest rates. You can also offer to close other bank accounts and move all of your money into this one account if you get an interest rate increase.

Photo credit: iStock/matdesign24

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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The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SOBK0622011

Sep

2022

Tracking Down Lost Bitcoins and Other Cryptos

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

It’s a common crypto problem: Because people tend to forget the private keys that give them access to their crypto investments, countless coins — e.g. Bitcoin, Ethereum, Litecoin, Dogecoin — have been lost. As much as 20% of the entire supply of Bitcoin might be lost owing to lost private keys.

Does that mean your lost Bitcoin or other crypto are truly irretrievable?

In many cases, unfortunately, recovering lost Bitcoin or any other crypto is impossible. There are, however, some ways to try and recover an old or lost crypto wallet along with the crypto stored there. The best methods for doing so — and whether or not it will work — depends on how you lost the wallet.

This guide will take you through the process of finding lost crypto, if it’s possible.

What Does It Mean for Crypto to Be Lost?

Crypto is generally considered “lost” if it’s irretrievable, unrecoverable, or otherwise out of circulation. But how you lose your crypto can determine whether you can ever recover it.

Lost Keys

Most often, crypto is lost when people lose the “keys” to their wallet. That is, they have possession of their coins, but may have forgotten their seed phrase or other tools that would help them access the wallet. Their crypto is essentially stuck in the wallet, with no way to get it out.

That’s why it’s important for users who choose to hold their own private keys — a 256-bit string of numbers — to have a backup seed phrase (like a secret password) stored safely.

If you’re able to find or remember your keys, or otherwise access your wallet, you may be in luck. There are some services that may be able to help, but beware of scams.

Sent to the Wrong Address

Coins also get “lost” when they are sent to the wrong address. Sometimes people make the mistake of sending Bitcoin (BTC) to a bitcoin cash (BCH) address, for example. This often results in permanent loss of funds.

Fortunately, this has become increasingly rare, now that many wallets validate a recipient’s address (read more about what a Bitcoin address is) before allowing a transaction to go through.

Forgotten Passwords

Finally, you could lose your crypto by forgetting your password for a crypto exchange account. In most cases, however, the crypto exchange will let you create a new password.

Having a platform’s help in reaccessing your wallet and holdings if you lose your password is one of the advantages of investing in a crypto exchange. Similarly, if you lose a hardware wallet, you can get a new wallet and restore your crypto balances using your old backup seed phrase — assuming you have those safely stored away.

What Happens if You Lose Your Crypto Wallet?

Recovering unclaimed crypto isn’t easy. There are cautionary tales about people who have lost millions of dollars worth of Bitcoin and still don’t have access to it. That’s not the end of the story, though, as some people who have lost Bitcoin might still be able to recover their coins.

Recovering Private Keys

Some developers have created software programs that can help recover the private keys to a Bitcoin wallet. But this only works in cases in which the individual who lost their keys has deleted some or all of their keys. Software usually can’t help those who have forgotten their passwords, PIN numbers, or backup seed phrases.

But if the user mistakenly deleted files with the relevant information, they may be able to recover them. And if a user has a portion of the private key, it may be possible to find the rest of the key.

Recovering the Assets from a Lost Wallet

When you use a wallet, you’ll be able to unlock both the wallet and the crypto inside using your seed phrase. So, as long as you have the backup recovery seed, you can enter that into a new wallet and regain access to your crypto assets in a wallet, even if it’s lost.

But ultimately, whether you can recover assets from a lost wallet will depend on how the assets were lost.

Scammers

If you fall victim to one of the many Bitcoin scams out there, it may be possible to recover your assets. For example, if you’re somehow tricked into giving a scammer your seed phrase or wallet passwords, they can access it, change those passwords, and effectively take ownership of your wallet.

In that case, you may be able to get help from the wallet’s support team. But in many cases, keeping passwords and seed phrases secure is on the user, and no one would be able to help.

You should also be aware that some scammers may pose as crypto recovery specialists in an effort to gain access to your wallet. If you hope to hire a company to help you recover lost Bitcoin wallets, do some serious research to make sure it’s a legit operation.

Losing Cold Wallets

If you lose your cold wallet — and most cold wallets are hardware wallets — it is usually possible to recover the assets you had stored on it. It all depends on whether you have your recovery phrase. If you do, you should be able to safely and securely recover your assets and store them in a new wallet.

But again, it all comes down to whether you kept and securely stored your keys.

Prevent Lost Bitcoin by Safely Storing and Sending It

In a way, Bitcoin allows anyone to become their own bank. This has several advantages, but it also has several risks. Mainly, the risk that users might not be able to recover an old bitcoin wallet if they’ve lost their private keys.

Many people choose to store their private keys in a cold storage wallet in their personal possession. These include hardware, software, audio, and paper storage options that exist offline; cold wallets can be a more secure, long-term method of holding coins. The big tradeoff is that doing so puts 100% of the responsibility for securing those assets in the hands of the holder — if you lose them, there’s no recourse.

The best way to prevent permanent loss of Bitcoin is to make sure that you safely and securely store your coins from the get go, and avoid mistakes when sending Bitcoin.

Storing Crypto

There are a number of ways you can store your crypto for safekeeping, but most investors will likely choose to either leave it on an exchange, or transfer it to a wallet.

Exchanges

Leaving your holdings on an exchange may be worth considering if you only have a relatively small amount of crypto. The chief risks in doing so are that your holdings are out of your hands — and aren’t technically “yours” (as the saying goes: Not your keys, not your coins!) — and they could be more vulnerable to a cyberattack or theft.

Using a custodial wallet on an exchange does, generally, mean that you would be able to gain access to them again if you lock yourself out of your account.

Wallets

If you’d rather get your holdings into your own wallet so that you have full possession and control over them, you can do so by transferring them to a hardware or paper wallet. Just know that if you lose access to that wallet, it could be permanent — that’s the risk.

To ensure that you don’t, however, you can take a few steps:

• When setting up a new hardware wallet, safely store the backup recovery seed phrase.

• Create a PIN or password — not one that’s easy to guess or remember — write it down and keep it somewhere safe. Some people even get a safe or a safe deposit box where they store their passwords or seed phrases.

• Keep your wallet somewhere that you won’t forget. Some people even elect to keep their hardware wallets on their person at all times, putting it on their keychains, for example.

You might want to also consider using a paid service that helps users keep track of their private keys, and that can help you re-access your wallet if you lose your seed phrase. It’s an extra expense, but can provide peace of mind.

Sending Crypto

Making a mistake when sending a crypto transaction, whether from an exchange or from a private wallet, can result in total and permanent loss of funds. If that happens, there’s zero opportunity or chance to find your lost crypto. Here’s how to prevent it from happening:

• Whenever possible, use a QR code to get the recipient’s address. Sending coins to a QR code prevents mistakes or typos in the address. Using a string of characters can result in the funds being lost if even one character is off.

• Always double-check to make sure the currency you’re sending matches the one received. For example, that Bitcoin being sent is going to a Bitcoin wallet. Many wallets and exchanges do this automatically, but it’s worth double checking.

• When sending a large transaction, send a smaller amount first, as a test. After the transaction has at least one confirmation on the network, then send the rest of the transaction.

These simple steps will go a long way toward helping holders avoid sending erroneous crypto transactions.

Total Amount of Lost Bitcoin

We don’t fully know the total amount of lost Bitcoin, but it’s estimated that roughly 20% of the Bitcoin mined thus far is unrecoverable. It may be in lost wallets, or in accounts or wallets that people have forgotten the passwords to.

However, there’s a chance that some of it could be recoverable, as new companies with recovery methods are sprouting up in recent years.

5 Largest Bitcoin Fortunes Lost

If you truly want to make your head spin (or at least force yourself to write down your recovery phrase), read on to learn about the biggest Bitcoin fortunes that have been lost — that are widely known about, anyway.

1. Satoshi Nakamoto

Next to nothing is known about Satoshi Nakamoto, the creator of Bitcoin, including whether it’s an actual person, or a group of individuals. But what is known is that Nakamoto has, or had, a wallet containing more than 1.125 million Bitcoins. At one time, it was worth billions of dollars.

Those coins are still out there, somewhere.

2. Stefan Thomas

Stefan Thomas is a software developer from California who held more than 7,000 Bitcoins, worth, at one time, hundreds of millions of dollars. But Thomas forgot the password to the USB wallet he held them on, and has not been able to recover them.

3. James Howells

James Howell, similar to Thomas, had a laptop that stored roughly 7,500 Bitcoins. And he ended up mistakenly throwing it away, losing hundreds of millions of dollars in digital assets. He offered money to people to try and help him search nearby landfills to find it, but it remains lost.

4. Gerald Cotten

Gerald Cotten, yet another would-be Bitcoin whale, co-founded a crypto exchange called QuadrigaCX. In what’s a fairly long and complicated story, Cotten ended up dying at the age of 30, and the keys and passwords to his exchange’s cold wallets were lost. Those wallets contained more than $100 million in assets.

5. Unknown

Another strange story: Allegedly there’s a Bitcoin wallet floating around with roughly 69,000 Bitcoins in it, and nobody has been able to access it. The U.S. Department of Justice reportedly has the wallet now, after it was passed around by hackers and crackers who had been trying to open it.

Does Lost Bitcoin Affect the Network?

Bitcoin that is lost and deemed irretrievable is presumably out of the market forever. It’s as if you took a $100 bill and burned it — it doesn’t exist anymore. The difference being that there is no particular limit to the supply of $100 bills, but Bitcoin has a capped supply of 21 million (meaning there can never be more than 21 million BTC).

Other types of crypto that have a capped supply include: Litecoin, Stellar, Chainlink.

For that reason, lost Bitcoin shrinks the maximum or existing supply of the asset on the market. Since it makes other Bitcoins more rare, these losses can, in effect, increase the value of the remaining Bitcoin or other capped crypto on the market.

The Takeaway

No matter what type of cryptocurrency you’ve lost, it can be almost impossible to recover — especially if you’ve lost the private keys that gave you access to that crypto.

The easiest way to avoid losing crypto is to make sure it never gets lost in the first place. Doing so involves securing your private keys and other passcodes; setting up and backing up a secure wallet; and being careful when sending transactions. While there are services that may claim to help you recover lost crypto, beware of scams and high fees.

FAQ

Is it possible to recover lost Bitcoin?

Depending on the circumstances, it might be possible to recover lost Bitcoin (for example, if you lose a hardware wallet, but still have your private keys and passwords). However, much of the Bitcoin that has been lost over the years is effectively lost forever.

What is the total amount of Bitcoin that has been lost?

While no one knows the exact amount, it’s estimated that roughly one-fifth, or 20% of the Bitcoin that’s been mined has been lost, chiefly because investors lost their private keys.

Is it possible to lose Bitcoins forever?

Yes, you can lose Bitcoin (or any crypto) forever. You can put your coins in a wallet and forget the passwords, for example, or have your crypto stolen — you could even send them to the wrong crypto address. In those cases, it’s typically impossible to recover your crypto.

Photo credit: iStock/anilakkus

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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. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

²Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

First Trade Amount		Bonus Payout
Low	High	Bonus Payout
$50	$99.99	$10
$100	$499.99	$15
$500	$4,999.99	$50
$5,000+		$100

SOIN0822014

Sep

2022

Tips for Investing in Tech Stocks

By Matthew Zeitlin | Growing Wealth, invest, Investing | No Comments

It’s almost become a trope at this point. Your friend’s aunt bought some Apple stock way back when and now lives full-time on a yacht. Or your cousin knows somebody who knows somebody who bought some Microsoft stock for a few dollars a share in the ’80s, and now they’re a multimillionaire.

These stories are practically the stuff of urban legend. But if you’re looking to buy a first tech stock or want to add some diversity to your portfolio, you may find the reality to be slightly different from the stories. There are many kinds of tech stocks, each with its own performance trends, pros, and cons. Here are a few fundamental truths worth knowing about investing in tech stocks.

Why Investors Are Investing in Technology

Much of the recent growth in the stock market overall has been concentrated in the shares of technology companies. Technology stocks, as measured by the S&P Technology Select Sector Index, rose 129.8%, or 18.11% annually, during the past five years. In contrast, during that period, the broad S&P 500 Index grew by 60.2%, or 9.9% annually.

The top five most valuable companies in the S&P 500 are technology-related companies. These firms — Apple, Microsoft, Alphabet (the parent company of Google), Amazon, and Tesla — have an average market capitalization, or overall stock value, near $1 trillion or more. And during the past five years, the stocks of these companies have experienced substantial growth.

Five Largest Companies in the S&P 500 Index
Company	Ticker	Market Cap^*	5-year growth^*
Apple	AAPL	$2.5 trillion	302.5%
Microsoft	MSFT	$1.9 trillion	256.0%
Alphabet	GOOGL	$1.4 trillion	134.7%
Amazon	AMZN	$1.3 trillion	170.6%
Tesla	TSLA	$868.5 billion	1,104.6%
^*As of Sep. 2, 2022

Investors flock to technology companies, especially the previously mentioned tech giants, because they’re often considered solid businesses.

The products of technology companies — especially software companies — are relatively cheap to reproduce but can be quite expensive to buy. Apple, for example, prices iPhones ahead of their competitors, sells a lot of them, and then operates an ecosystem of apps and services that generate steady revenue. Amazon’s success is attributed to the effectiveness of its operations and low prices. For Alphabet, the sheer scope of its networks and the popularity of its services allows them to sell more ads than its competitors.

Aside from the giants that have established business models, many investors pour money into tech companies due to the promise of future earnings. Even when tech companies are not profitable or see regular cash flows, investors will still support the stocks because of the potential for future earnings. Companies like Amazon and Tesla took years before they turned steady profits.

Popular Technology Stocks to Own

The technology industry is incredibly diverse. Beyond the five companies mentioned above, these are some of investors’ most widely held technology stocks.

Companies in the S&P Technology Select Sector Index
Company	Ticker	Technology Sector	Market Cap^*	5-year growth^*
Nvidia	NVDA	Semiconductors	$539.4 billion	233.8%
Broadcom	AVGO	Semiconductors	$198.7 billion	104.7%
Adobe	ADBE	Software	$219.7 billion	137.0%
Cisco Systems	CSCO	Communications Equipment	$187.5 billion	41.6%
Salesforce	CRM	Software	$153.5 billion	59.9%
^*As of Sep. 2, 2022

How Can You Invest in Tech Stocks?

At the most basic level, you can invest in tech stock by buying the individual stocks of an appealing company.

Another way to invest in tech is by trading technology-focused exchange-traded funds (ETFs) or mutual funds. Tech ETFs and mutual funds allow investors to diversify their investments in a single security, which may be less risky than buying a specific company’s stock.

If you are interested in a particular tech sector — like artificial intelligence or green tech — you can invest in more targeted funds rather than broad-based technology-focused ETFs.

Different Sectors for Technological Investment

The technology industry is vast, filled with companies specializing in different areas of the market. For an investor, this means it’s possible to diversify, investing in tech stocks across various sectors.

Artificial Intelligence

Artificial intelligence (AI), which refers to ways that computers can process data and automate decision-making that humans would otherwise do, is a burgeoning tech sector. Many companies are operating in this sector, using new technologies to support fields like finance and healthcare. Artificial Intelligence, along with the related field of Machine Learning (ML), has long been one of the most exciting technology areas.

Transportation

Another bustling sector of the industry is transportation. Tech underlies all transportation, and some of the most exciting companies are building electric cars, creating the batteries and software that support the navigation and operational systems in automobiles, or using software to connect drivers and passengers.

💡 Recommended: Investing in Transportation Stocks for Beginners

Streaming

Streaming companies have completely revolutionized the entertainment industry. These companies offer direct-to-consumer content, including shows and movies, that is bundled in a monthly subscription. There are standalone streaming companies, companies that include streaming as an ever-growing part of their business, and companies that build digital and physical infrastructure to support streaming services.

Information Technology

Information technology (IT) is one of the broadest and most valuable sectors of the technology industry. It typically refers to how businesses store, transmit, and use information and data within and between networks of computers.

Semiconductor Technology

Semiconductors are arguably the foundation of all technology. Semiconductor companies make components found in phones, computers, and other electronic devices. The manufacturing process for semiconductors is incredibly precise and expensive, making the industry ruthlessly competitive.

Web 3.0

In recent years, cryptocurrency, blockchain technology, and Web 3.0 have been the focus of many investors. That’s because computer engineers and companies are now developing new technologies that will allow users to interact with the web in a more interactive, personal, and secure way. These new technologies, like blockchain, crypto, and the metaverse, may usher in new opportunities for investors.

💡 Recommended: Web 3.0 Guide for Beginners

Evaluating a Tech Stock Before Investing

When investing, you must carefully evaluate the stocks you’re interested in.

Technology companies, in particular, tend to have high price-to-earnings (P/E) ratios, meaning that the company’s profits may seem low compared to the price of their shares. This is often because investors are expecting rapid future growth.

Other key metrics include price-to-sales, which compares the stock price to the company’s revenue. This is something to consider in the case of a fast-growing company that doesn’t yet have substantial profits.

Another critical factor is the company’s overall revenue growth — the pace at which revenue increases year-over-year or even quarter-over-quarter.

A more detailed metric that can be useful for tech companies is “gross margins,” which is the difference between a company’s revenue or sales and the cost of generating those sales, divided by total revenue. The resulting percentage indicates whether the company can make money on the actual product it sells and how much. If the company’s other costs can go down as a percentage of total revenue, profits can grow more quickly.

💡 Recommended: The Ultimate List of Financial Ratios

Pros of Adding Tech Stocks to a Portfolio

There are many benefits to investing in tech stocks, most notably attractive returns. With artificial intelligence, blockchain, and Web 3.0 technologies on the horizon, there are increasing opportunities to invest in this sector. These are some possible benefits of adding tech stocks to a portfolio.

• There are many blue chip tech companies. Blue chip stocks typically refer to stocks from long-established companies with good returns. Today’s blue chips include huge tech companies like Apple, Alphabet, and Amazon.

• Some tech stocks pay dividends. There can be benefits to dividend-paying stocks, including consistent earnings, which might indicate that the company is positioned to deliver strong performance.

• Investors can buy shares in things they use. Most people use some tech in their daily routines. You might have a smartphone, or a laptop, hop on a social network, or order groceries or clothing online. With a tech stock, investors can buy a little piece of the companies they know and like.

• It’s easy to diversify in tech. Tech stocks aren’t a monolith. Investors can add diversity to their portfolio by purchasing different aspects of the tech sector, for example, buying stock in social media companies, smartphone glass manufacturers, hardware makers, software companies, and even green tech companies.

A great thing about the tech sector investing space is that there’s so much of it out there, and investors should be able to find something that works for their goals, ambition, and knowledge base.

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Cons of Investing in Technology

All stocks come with their own risks and potential downsides. Tech stocks are no different. As with any stock purchase, it’s helpful to do a good amount of research before buying a stock. Take these considerations into account before deciding to pull the trigger on a tech stock.

• The potential for tech backlash. Some experts think increased regulation and government scrutiny could lead to a backlash against tech stocks that could affect their prospects. They cite 2018’s passage of the European Union’s General Data Protection Regulation (GDPR) and Facebook’s hearings before Congress as evidence that even more regulation might be coming in the future. But like many other sectors of the stock market, various tech stocks react differently in the face of volatility.

• Buying what you know can be complicated. You might have a solid grasp on some social media giants, for example, but some of the nuances of emerging semiconductor firms might be a little harder to wrap your head around. You may have to ask yourself if you want to invest in a company that you might not fully understand.

• Stocks may be priced too high. Some tech companies, like Amazon and Google, often have shares that venture into the four figures, so for a first-time tech stock investor, those companies may feel out of reach. However, many tech companies occasionally engage in a stock split to decrease their share prices.

Do You See the Most Returns When Investing in Tech Stocks?

Most returns when investing in tech stock can vary depending on the specific company and the current market conditions. Nonetheless, many investors believe that tech stocks generally have a higher potential for growth than other types of stocks, making them a good choice for those looking to generate returns. During the past five years, technology stocks rose a total of 129.8%, while the broad S&P 500 Index grew by 60.2%.

But just because tech stocks have outperformed other industries, it doesn’t mean that it will always be that way. During 2022, for example, tech stocks have declined 22.7% through Aug., while the S&P 500 fell 16.8% year-to-date.

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How Frequently Should You Invest in Tech Stocks?

The frequency you invest in tech stocks will depend on your individual investment goals and risk tolerance. Some investors may choose to trade tech stocks monthly or quarterly to take advantage of any short-term price fluctuations. Others may invest in tech stocks on a more long-term basis, holding onto their shares for several years to benefit from any potential long-term growth.

What Percentage of Your Portfolio Should Be Tech Stocks?

The percentage of a portfolio allocated to tech stocks differs for every investor. Some experts recommend that investors allocate no more than 20-30% of their investment portfolio to tech stocks, but this percentage may be higher or lower depending on the investor’s risk tolerance, investment goals, and other factors.

Mistakes to Avoid When Investing in Tech Stocks

Many investors are drawn to tech stocks because of the potential for a significant return. But the allure of large gains may cause investors to take on too much risk or lose sight of their overall investment goals.

For example, you don’t want to invest in a tech stock just because it’s popular. It’s easy to fear you are missing out when you see a particular stock’s price skyrocket. You may hear about a tech stock lot in the financial media, and you know many people who say they own it, but that doesn’t mean it’s a good investment.

Additionally, you should avoid investing in a stock just because the company is a household name. While sometimes the stocks of well-known companies do well, there are other cases of these companies not being well run and thus not being a good investment.

The Takeaway

The tech sector is vast and getting bigger by the moment as blockchain, artificial intelligence, and other technologies push boundaries. New founders are working on startups in garages and basements, potentially developing the next new thing that could change the world. Investors looking to invest in tech stocks can find a stock or ETF out there that could meet their needs. For instance, SoFi ETFs can remove some of the headache from picking individual stocks by allowing you to invest in a bundle of companies all at once.

SoFi makes it easy to invest in tech stocks and more with an online brokerage account. With the SoFi app, you can trade stocks, ETFs, and fractional shares with no commissions for as little as $5. You’ll also get real time investing news, curated content, and other relevant data for the stocks that matter most to you. For a limited time, funding an account gives you the opportunity to win up to $1,000 in the stock of your choice. All you have to do is open and fund a SoFi Invest account.

Get started trading technology stocks and ETFs with SoFi Invest® today

FAQ

Why is investing in tech stocks so popular?

Tech stocks are popular because they are some of the largest and best performing assets in the financial markets. As a whole, the technology sector is one of the fastest growing sectors in the economy. This means that there are a lot of new and innovative companies that are constantly coming out with new products and services. This provides investors with a lot of growth potential.

How can you start investing in tech stocks today?

You can start investing in tech stocks by trading individual stocks, invest in a tech-focused mutual fund or ETF, or invest in a more general stock market index fund that includes a mix of tech and non-tech companies.

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