Growing Wealth Archives | Page 8 of 194

Aug

2024

Understanding Cash in Lieu of Fractional Shares

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

It’s not uncommon for publicly-traded companies to restructure based on changing market conditions or their stock price. When companies merge, acquire competitors, or split their stock, it can raise the question of how to consolidate or restructure the company’s outstanding shares.

If such a corporate action generates fractional shares for investors, the company’s leadership has a few options for how to proceed: They could distribute the fractional shares to shareholders, round up to the nearest whole share, or pay cash in lieu of fractional shares. Investors need to be aware of cash in lieu because it can affect a portfolio and taxes.

What Is Cash in Lieu?

Cash in lieu is a type of payment where the recipient receives money instead of goods, services, or an asset.

In investing, cash in lieu refers to funds received by investors following structural company changes that unevenly disrupt existing stock prices and quantities. Instead of receiving fractional shares after a stock split or a merger, investors receive cash.

Following corporate actions like a stock split or a merger, the newly-adjusted stock supply can be uneven and often results in fractional shares. Rather than holding or converting fractional shares to whole shares, some companies opt to aggregate and sell all of the partial shares in the open market – where investors can buy stocks. After the sale of these shares, the company will pay cash to the investors who did not get fractional shares.

The company’s board ultimately determines how the company will maintain or return value to investors. Opting to distribute cash in lieu is a company’s method of disposing of fractional shares and returning the cash balance to investors that’s proportionate to prior holdings.

💡 Recommended: What Are Fractional Shares and How Do They Work?

Why Investors Receive Cash in Lieu

Investors can receive cash in lieu for various reasons involving company restructuring that affects the number of outstanding shares, stock price, or both.

The following events can lead to investors receiving cash in lieu of fractional shares.

Stock Split

A stock split occurs when a company’s board of directors determines that the company’s high share price may be too high for new investors. The company will then execute a stock split to lower the stock’s price by issuing more shares at a fixed ratio while maintaining the company’s unchanged value. Companies will often approve a stock split so its share price looks more attractive to more investors and gains more liquidity and marketability.

Depending on the predetermined ratio, a stock split could generate fractional shares. For example, a 3-to-2 stock split would create three shares for every two shares each investor holds. If you own five shares of the stock, you would have 7.5 shares after the split. Thus, a stock split would cause any investor with an odd number of shares to receive a fractional share.

However, suppose the company’s board isn’t keen to hold or deal with fractional shares. In that case, they will distribute investors’ whole shares and liquidate the uneven remainders, thus paying investors cash in lieu of fractional shares.

Conversely, a company may execute a reverse stock split because its stock price is too low, and they want to raise it. If stock prices get too low, investors may become fearful of buying the stock, and it may risk being delisted from exchanges.

When a stock undergoes a reverse stock split, investors usually receive one share for a specific number of shares they own, depending on the reverse split ratio. For example, a stock valued at $3.50 may undergo a reverse 1-for-10 stock split. Every ten shares are converted into one new share valued at $35.00. Investors who own 33 shares, or any number not divisible by ten, would receive fractional shares unless the company decides to issue cash in lieu of fractional shares.

Companies may notify their shareholders of an impending stock split or reverse split on Forms 8-K, 10-Q, or 10-K, as well as any settlement details if necessary.

Merger or Acquisition

Company mergers and acquisitions (M&As) can also create fractional shares. When publicly-traded companies combine or are bought, investors will often receive stock as part of the deal using a predetermined ratio. These stock purchase deals often result in fractional shares for investors in all involved companies.

In these cases, it’s rare for the ratio of new shares received to be a whole number. Companies may opt to return full shares to investors, sell fractional shares, and disburse cash in lieu to investors.

💡 Recommended: What Happens to a Stock During a Merger?

Spinoff

Suppose an investor owns shares of a company that spins off part of the business as a new entity with a separately-traded stock. In that case, shareholders of the original company may receive a fixed amount of shares of the new company for every share of the existing company held. Depending on the structure of the spinoff, investors may receive cash in lieu of fractional shares of the new company.

How Is Cash in Lieu of Fractional Shares Taxed?

Like many other forms of investment profits, cash in lieu of fractional shares is taxable, even though the payment occurred without the investor’s endorsement or action. Investors will pay a capital gains tax on the payment.

However, if you have a tax-advantaged account, like a 401(k) or individual retirement account (IRA), you do not have to worry about reporting or paying taxes on the gains of cash in lieu payment.

Some investors may simply report the payment on the IRS Form 1040’s Schedule D as sales proceeds with zero cost and pay capital gains tax on the entire cash settlement. However, the more accurate and tax-advantageous method would apply the adjusted cost basis to the fractional shares and pay capital gains tax only on the net gain.

💡 Recommended: A Guide to Tax-Efficient Investing

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How to Report Cash in Lieu of Fractional Shares

As noted above, if you receive cash in lieu of fractional shares, you’ll have to pay capital gains taxes on the windfall. To ensure you’re paying the right amount of tax, you’ll have to take a few extra steps to determine your cost basis and accurately report the cash in lieu payment.

Gather Your Documents

Investors may receive the cash through their investment broker and an IRS Form 1099-B at year-end with a “cash in lieu” or “CIL” notation. To accurately report your cash in lieu payment, you’ll need the Form 1099-B, your original cost basis, the date you purchased the stock, the date of the stock split or other corporate action, and the reason why you received the cash in lieu of fractional shares.

Calculate Your Cost Basis

Calculating the cost basis for cash in lieu of fractional shares is a little tricky due to the share price and quantity change. The new stock issued is not taxable, nor does the cost basis change, but the per-share basis does.

Consider the following example:

• An investor owns 15 shares of Company X worth $10.00 per share ($150 value)

• The investor’s 15 shares have a $7.00 per share cost basis ($105 total cost basis)

• Company X declares a 1.5-to-1 stock split

After the stock split, the investor is entitled to 22.5 shares (1.5 x 15 shares = 22.5 shares) valued at $6.67 each ($150 value / 22.5 shares = $6.67 per share), but the company states they will only issue whole shares. Therefore, the investor receives 22 shares plus a $3.34 cash in lieu payment for the half share ($6.67 x 0.5 = $3.34 per half share).

The investor’s total cost basis remains the same, less the cash in lieu of the fractional shares. However, the adjusted cost basis now factors in 22 shares instead of 15, equaling a $4.77 per share cost basis ($105 total cost basis / 22 shares = $4.77 cost basis) and a $2.39 fractional share cost basis.

Finally, the taxable “net gain” for the cash payment received in lieu of fractional shares equates to:

$3.34 cash in lieu payment – $2.39 fractional share cost basis = $0.95 net gain.

So, rather than paying capital gains taxes on the $3.34 payment, you pay taxes on the $0.95 gain. You report this figure on the IRS Form 1040’s Schedule D.

The Takeaway

It’s not always possible to anticipate a company’s actions, like a merger or stock split, and how it will affect shareholders’ stock. If the company doesn’t wish to deal with fractional shares, shareholders need to understand the alternative payments, such as cash in lieu of fractional shares, and how it affects them. While cash in lieu can be burdensome, knowing the nuances of the payment and how it is taxed may benefit your portfolio.

Though you may receive cash in lieu of fractional shares, investors may still consider fractional shares to add to their investment portfolio.

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For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

Is cash in lieu of fractional shares taxable?

If you receive cash in lieu of fractional shares, the cash is taxable. The payment can be taxed as a short-term or long-term capital gain, depending on how long you’ve held the stock.

Is cash in lieu a dividend?

Investors can receive cash in lieu of fractional shares for a dividend payment. However, cash in lieu is not a dividend and is not taxed like a dividend.

Is cash in lieu a capital gain?

Cash in lieu is treated as a capital gain because the IRS considers it a stock sale. When you receive cash in lieu of fractional shares, you may have to pay capital gains taxes on the payment.

What is a cash in lieu settlement?

A cash in lieu settlement is an agreement between two parties in which one party agrees to pay the other party an agreed-upon amount of cash instead of some other form of payment or consideration.

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SOIN-Q324-023

Aug

2024

What Is Credit Card Arbitrage and Is It Worth It?

By Kim Franke-Folstad | Credit, credit card, Growing Wealth | Comments Off

Credit card arbitrage is a strategy in which you borrow money with a 0% or low-interest credit card and then put that money into an investment that earns a higher rate of return. It can sound like a way to make easy money, but it does carry some risks. And it isn’t necessarily a good fit for average investors.

If you’ve heard of credit card arbitrage and wondered if it’s something you should try, read on for a rundown of the risks and rewards.

Recommended: Can You Buy Crypto With a Credit Card

What Is Credit Card Arbitrage?

With credit card arbitrage, or balance transfer arbitrage, you sign up for a credit card with a low or 0% annual percentage rate (APR). Then, you use that credit card account to put money into an investment that will earn more than the interest rate you’re paying on the credit card balance you’re carrying.

You follow one of the basic credit card rules of making at least the minimum credit card payment on time each month. When the card’s introductory rate expires, you take the money you need out of the investment, pay off the remaining balance on the card, and keep the difference as your profit.

Recommended: When Are Credit Card Payments Due

Credit Card Arbitrage Strategies

What you decide to invest in using a credit card may depend on a few different factors. This includes how much you can borrow, the length of your introductory rate (which is often between 12 and 21 months), and your tolerance for risk.

Some possible investments for your credit card arbitrage strategy include a high-yield savings account, a certificate of deposit, and short-term bond ETFs.

High-Yield Savings Account

A high-yield savings account may be a good option for risk-averse investors attempting credit card arbitrage. You can’t lose the money because it’s protected at banks by the Federal Deposit Insurance Corporation (FDIC) and at credit unions by the National Credit Union Administration (NCUA). However, you may have to keep a minimum balance to avoid a monthly service fee.

An alternative to attempting credit arbitrage using a high-yield savings account might be to save using an online-only financial institution. Online banks tend to offer more competitive rates than brick-and-mortar banks.

Certificate of Deposit

Another investment with limited risk is a short-term (six months to a year) or no-penalty certificate of deposit, or CD. A CD may offer a higher interest rate than a savings account, and it also will be insured by the FDIC.

The benefit of a no-penalty CD over a short-term CD is that if you find a higher return elsewhere, you can withdraw your money and move it without paying a fee. Otherwise, you’ll face an early withdrawal penalty if you try to take your money out of a CD before the term is over.

Recommended: How to Avoid Interest on a Credit Card

Short-Term Bond ETFs

A bond exchange-traded fund (ETF) that holds short-term bonds may be another low-risk option to consider. Bond ETFs are traded on the stock market, so they’re more liquid than other types of bonds and bond funds. And funds that have a shorter term are less exposed to changing interest rates.

Still, if you’re unfamiliar with bond ETFs, you may want to take some time to research the pros and cons of this investment — including the risk and potential for loss and how to reduce trading costs.

Pros and Cons of Credit Card Arbitrage

As mentioned, there are definite downsides to credit card arbitrage. However, there’s the potential for gains, too. Here’s a quick rundown of the pros and cons of credit arbitrage:

Pros	Cons
May be an easy way to make money if you can find the right investment	Difficult to find a safe investment that makes the strategy worth the effort and risk
A low-interest card with cash-back rewards or points could add to the strategy’s benefits	Consequences for late payment could eat into expected profit
Making timely payments could help build your credit score	Taking out a card and using up your available credit could negatively affect your credit score

The upside to using credit card arbitrage is the potential to make some extra money with very little effort. If you’ve worked hard to earn and maintain a credit score that qualifies you for a credit card with a 0% or low-interest rate, you can use that card to fund an investment and, if all goes well, quickly pocket a profit.

If you choose a credit card that offers credit card rewards, such as cash back or points, that could be an added benefit. Further, by always making at least the minimum payments on the credit card and repaying the balance on time, you might help build your credit score. (Although if you qualify for a low-interest card, you probably already have good credit.)

Unfortunately, there are also plenty of downsides to credit card arbitrage — starting with finding an investment that works well with the strategy. Though in recent months the Federal Reserve has been bumping up its benchmark interest rate, it may take a while before those increases lead to noticeably higher yields on savings accounts and CDs.

Depending on how much you decide to borrow and how long your introductory period lasts, the small amount you might earn from your investment may not be worth the effort or risk of using your credit card.

And there are risks involved with credit arbitrage. For starters, you can expect to feel some effects if you make a late payment on your card. You might have to pay a late fee or, worse, the credit card company could cancel your promotional interest rate and immediately begin charging a substantially higher interest rate on the account. That could take a significant bite from your profits.

Your credit score also could suffer — even if you make timely payments. Just opening a new line of credit may temporarily lower your score. And if you borrow all or a large portion of your available credit, it could affect your credit card utilization ratio, which also can negatively affect your credit score.

You also can expect your credit score to go down if you do end up making a late payment (or payments). Payment history is the No. 1 factor in determining your FICO Score®.

Considering Credit Card Arbitrage? What to Know

There’s an old saying in investing: Don’t risk more than you can afford to lose. Or, as your mom might put it: Just because you can doesn’t mean you should.

Credit arbitrage may look like an easy and “free” way to make some extra money, but it’s a strategy that’s probably best left to investment professionals. If you do decide to attempt it, here are a few things you can do in advance to protect yourself:

• Have a backup plan. What would happen if you suddenly lost your job or had unexpected expenses from an illness or accident? Unless you have a healthy emergency fund or your investment can be easily liquidated, you could quickly run into financial trouble.

• Make sure you understand the terms of your credit card agreement. How long does the introductory period last? (The longer the better.) What happens if you miss a payment? What’s the rate when the promotional period expires?

• Know yourself. This strategy requires using a credit card responsibly. If you aren’t clear on how credit cards work or think you’ll be tempted to use your card for a spending spree instead of investing, you may want to think twice before moving forward.

• Don’t forget about fees. Run the numbers to be sure your investment will still pay off after you cover fees and other costs.

Recommended: 10 Credit Card Rules You Should Know

Other Ways to Save and Make Money Using Your Credit Card

If the concept of credit card arbitrage is new to you, it may be because there are other popular ways to use a credit card to save and make money. Here are some other options to consider.

Earning Cash Back

With a cash-back rewards card, cardholders can get back a percentage of the money they spent on purchases during a billing cycle. That percentage varies from one card to the next — and there also may be different ways you can receive your cash rewards. You may be able to apply the cash directly to your balance, put it toward gift cards or charitable giving, or have the money deposited directly into your checking account.

Getting cash-back rewards can be an especially effective strategy if you use your card for frequent and/or major purchases and pay down your balance every month.

Earning Rewards Points

Some card issuers offer a rewards program based on credit card points. Cardholders may be able to put their points toward multiple purposes, including travel (flights, hotels, car rentals), statement credits, cash back, and more. The value of points may vary depending on the specific credit card as well as how you opt to redeem earned points.

Investing Your Rewards

You also may be able to invest with credit card rewards. For instance, if you earned cash-back rewards from your credit card spending, you could redeem your rewards as a direct deposit or check. Then, you could use that money to invest with credit card rewards basically — either in a literal investment, such as stocks or index funds, or even in yourself, through additional job training or classes.

Shopping Online to Earn Bonus Rewards

Some credit cards offer bonus rewards for shopping online or through an app. Card issuers may have different rules for their rewards (think goods instead of services or certain brands only,) so it’s a good idea to check out a rewards program’s requirements before signing up.

Using a Balance Transfer Card to Pay Down Debt

Another possibility is to use a no-interest balance transfer credit card to pay down debt. Once you move your balance from a high-interest card to the new card, you’ll have several months to pay down your debt without accruing any additional interest.

Just as with credit card arbitrage, it’s important to be sure you make your monthly payments on time, though, or you could see a big jump in your card’s interest rate. Also keep in mind that a balance transfer fee will apply, so be sure to factor that into the equation.

Using a 0% APR Card

Planning to take a dream trip or make a major purchase? A no-interest credit card could allow you to finance your big spend without accruing interest. You’ll just want to make sure you can pay off the balance within the promotional period, and make your payments on time.

The Takeaway

You may have heard credit card arbitrage, or balance transfer arbitrage, touted as an easy way to make some extra cash. But the process, which involves using a no- or low-interest credit card to finance an investment that earns a higher rate of return, isn’t as simple as it may seem. It can require careful planning, financial savvy, and some research to find the right investment for this strategy. And even if all goes well, the payoff may not be worth the time and effort to use credit cards in this way.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Are there risks involved in credit card arbitrage?

Yes. Even if your investment seems super safe and like it won’t lose money, if you don’t make your monthly payments on time or if you can’t pay off the balance before the promotional period is up, you could find yourself in a financial bind.

Is credit card arbitrage legal?

Yes. But just because you can do it doesn’t mean you should. There are other more proven ways to save and invest using a credit card.

How much can you make with credit card arbitrage?

The amount you can make using credit card arbitrage depends on several factors. This includes how much you choose to borrow and invest, your card’s interest rate, how much your investment pays, the length of your card’s promotional period, and the fees you might incur when investing.

Photo credit: iStock/Prostock-Studio

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOCC-Q324-035

Aug

2024

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.

💡 Recommended: How to Invest in Web 3.0 for Beginners

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.

💡 Recommended: Lessons From the Dotcom Bubble

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.

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.

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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 $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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Aug

2024

Do You Pay Capital Gains on Roth IRAs and IRAs?

By Dan Miller | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

You don’t have to pay capital gains tax on investment profits while they are held in a traditional or a Roth IRA account. In most cases, the question of taxes comes into play when you withdraw money from a traditional or Roth IRA.

Each type of IRA is subject to a different set of tax rules, and it’s essential to know how these accounts work, as the tax implications are significant now as well as in the future.

IRAs, Explained

An Individual Retirement Account (IRA) is a tax-advantaged account typically used for retirement savings. There are two main types of IRAs — traditional IRAs and Roth IRAs — and the tax advantages of each are quite distinct.

Generally speaking, all IRAs are subject to contribution limits and withdrawal rules, but Roth IRAs have strict income caps as well as other restrictions.

Contribution Limits

For tax year 2024, the annual contribution limits for both Roth and traditional IRAs is $7,000, and $8,000 for those 50 or older.

It’s important to know that you can only contribute earned income to an IRA; earned income refers to taxable income like wages, tips, commissions. If you earn less than the contribution limit, you can only deposit up to the amount of money you made that year.

One exception is in the case of a spousal IRA, where the working spouse can contribute to an IRA on behalf of a spouse who doesn’t have earned income. Like ordinary IRAs, spousal IRAs can be traditional or Roth in style.

Traditional IRAs

All IRAs are tax advantaged in some way. When you invest in a traditional IRA, you may be able to take a tax deduction for the amount you contribute in the tax year that you make the contribution.

The contributions you make may be fully or partially tax-deductible, depending on whether you or your spouse are covered by a workplace retirement plan. If you’re not sure, you may want to check IRS.gov for details.

The money inside the account grows tax-deferred, meaning any capital appreciation of those funds is not subject to investment taxes, i.e. capital gains tax, while held in the account over time. But starting at age 59 ½ , qualified withdrawals are taxed at regular income tax rates.

If you think about it, this makes sense because you make contributions to a traditional IRA on a pre-tax basis. When you take withdrawals, you then owe income tax on the contributions and any earnings.

With some exceptions, early withdrawals from a traditional IRA prior to age 59 ½ are subject to income tax and a 10% penalty.

Recommended: IRA Tax Deduction Rules

Roth IRAs

Roth IRAs follow a different set of rules. You contribute to a Roth IRA with after-tax money. That means you won’t get a tax deduction for contributions you make in the year that you contribute.

Your contributions grow inside your Roth IRA tax-free, along with any earnings. When you reach retirement age and start to make withdrawals, you won’t owe income tax on money you withdraw because you already paid tax on the principal (i.e. your original contribution amounts) — and the earnings are not taxed on qualified withdrawals.

Boost your retirement contributions with a 1% match.

SoFi IRAs now get a 1% match on every dollar you deposit, up to the annual contribution limits. Open an account today and get started.

Only offers made via ACH are eligible for the match. ACATs, wires, and rollovers are not included.

What Are Capital Gains Taxes?

Capital gains refer to investment profits. In a taxable investment account you would owe capital gains tax on the profits you made from selling investments: e.g., stocks, bonds, real estate, and so on.

You don’t owe capital gains tax just for owning these assets — it only applies if you profit from selling them. Depending on how long you held an investment before you sold it, you would owe short- or long-term capital gains.

Retirement accounts, however, are subject to their own set of tax rules, and traditional and Roth IRAs each handle capital gains taxes differently.

Are Gains Taxed in Traditional IRAs?

Traditional IRA plans, as noted above, are tax-deferred, which essentially means that investment profits are not subject to capital gains tax while they remain in the account. Given this, the sale of individual investments like stocks inside an IRA is not considered a taxable event.

However, with tax-deferred accounts like traditional IRAs, you do have to pay ordinary income tax on withdrawals (meaning, you’re taxed at your marginal income rate).

So when you take withdrawals from a traditional IRA, you will owe income tax on the amount you withdraw, including any investment gains (i.e., earnings) in the account.

Are Gains Taxed in Roth IRAs?

The same principle applies to Roth IRAs, even though these are after-tax accounts: You don’t have to pay taxes on investment income or any assets that you buy or sell inside your Roth IRA.

Because you contribute to a Roth IRA with after-tax money, your money grows tax-free inside your IRA. Also, the earnings in the account grow tax-free over time and those gains are not taxed within the account.

In addition, qualified withdrawals of contributions and earnings from a Roth IRA are tax free. But remember: early or non-qualified withdrawal of earnings from a Roth IRA would be subject to taxes and a penalty (with some exceptions; for details see IRS.gov).

Roth IRA Penalties

Because you contribute to a Roth IRA with after-tax money, you can always withdraw your contributions (meaning your principal) without paying any tax or penalties.

If you wait to withdraw money from your Roth IRA until you reach age 59 ½, you can also withdraw your earnings without tax or penalties — as long as you’ve had the account for at least five years.

If you withdraw Roth IRA earnings before age 59 ½ or before you’ve held the account for five years, you may be charged a 10% early withdrawal penalty, though there are IRA withdrawal rules that may help you avoid the penalty in certain situations.

Are Gains Taxed in 401(k)s?

An IRA and a 401(k) work in a similar way when it comes to capital gains tax. Just as there are traditional and Roth IRAs, there are also traditional and “designated” Roth 401(k) plans, and they work similarly to their corresponding IRA equivalents.

So, generally speaking, you do not owe any capital gains tax on the sale of any investments held inside either type of 401(k) account.

Opening an IRA With SoFi

Most people are familiar with the basic tax advantages of using an IRA to save for retirement. Traditional IRAs are tax-deferred accounts and may provide a tax deduction in the years you make contributions. Roth IRAs are after-tax accounts that can provide tax-free income in retirement.

But the fact that you don’t have to pay capital gains tax is also worth noting. With both a traditional IRA and a Roth IRA, buying and selling stocks or other investments is not considered a taxable event. That means that you will not owe capital gains tax when you sell investments inside your IRA.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Help grow your nest egg with a SoFi IRA.

FAQ

Are Roth IRAs subject to capital gains tax?

No, buying and selling stocks or other investments inside a Roth IRA is not considered a taxable event. This means that you will not owe capital gains tax for buying or selling investments inside your Roth IRA. And because contributions to Roth IRAs are made with after-tax money, you also won’t owe income tax on qualified withdrawals.

Do you have to pay taxes if you sell stocks in a Roth IRA?

Selling stocks inside a Roth IRA is not considered a taxable event. So whether you regularly buy and sell stocks inside your Roth IRA, or just have unrealized gains and losses, you won’t need to worry about capital gains tax.

What happens when you sell a stock in your Roth IRA?

Buying and selling stocks inside an IRA is not considered a taxable event. So you won’t owe capital gains tax on stock you sell, but you also won’t be able to offset gains with a loss you capture from a stock sale inside your IRA.

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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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
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.

SOIN0523004

Aug

2024

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.

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.

While managing money during a market downturn might seem tricky, getting started with investing doesn’t need to be. It’s easy, convenient, and secure to set up an investment account with SoFi Invest.

SoFi Invest® is a secure app where users can take care of all their investment needs — including trading stocks, investing in IPO shares, and more. It also gives SoFi members access to complimentary financial advice and actionable market insights. Ready to start investing?

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

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.

SoFi Invest®

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

Understanding Cash in Lieu of Fractional Shares

What Is Cash in Lieu?

Why Investors Receive Cash in Lieu

Stock Split

Merger or Acquisition

Spinoff

How Is Cash in Lieu of Fractional Shares Taxed?

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What is a cash in lieu settlement?

What Is Credit Card Arbitrage and Is It Worth It?

What Is Credit Card Arbitrage?

Credit Card Arbitrage Strategies

High-Yield Savings Account

Certificate of Deposit

Short-Term Bond ETFs

Pros and Cons of Credit Card Arbitrage

Considering Credit Card Arbitrage? What to Know

Other Ways to Save and Make Money Using Your Credit Card

Earning Cash Back

Earning Rewards Points

Investing Your Rewards

Shopping Online to Earn Bonus Rewards

Using a Balance Transfer Card to Pay Down Debt

Using a 0% APR Card

The Takeaway

FAQ

Are there risks involved in credit card arbitrage?

Is credit card arbitrage legal?

How much can you make with credit card arbitrage?

Tips for Investing in Tech Stocks

Why Investors Are Investing in Technology

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, auto investing, IRAs, and more. Get started in just a few minutes.

Popular Technology Stocks to Own

How Can You Invest in Tech Stocks?

Different Sectors for Technological Investment

Artificial Intelligence

Transportation

Streaming

Information Technology

Semiconductor Technology

Web 3.0

Evaluating a Tech Stock Before Investing

Pros of Adding Tech Stocks to a Portfolio

Cons of Investing in Technology

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

How Frequently Should You Invest in Tech Stocks?

What Percentage of Your Portfolio Should Be Tech Stocks?

Mistakes to Avoid When Investing in Tech Stocks

The Takeaway

FAQ

Why is investing in tech stocks so popular?

How can you start investing in tech stocks today?

Do You Pay Capital Gains on Roth IRAs and IRAs?

IRAs, Explained

Contribution Limits

Traditional IRAs

Roth IRAs

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SoFi IRAs now get a 1% match on every dollar you deposit, up to the annual contribution limits. Open an account today and get started.

What Are Capital Gains Taxes?

Are Gains Taxed in Traditional IRAs?

Are Gains Taxed in Roth IRAs?

Roth IRA Penalties

Are Gains Taxed in 401(k)s?

Opening an IRA With SoFi

FAQ

Are Roth IRAs subject to capital gains tax?

Do you have to pay taxes if you sell stocks in a Roth IRA?

What happens when you sell a stock in your Roth IRA?

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