25+ Potential Ways to Invest in a Carbon-free Future

27 Potential Ways to Invest in a Carbon-free Future

Impact investing and socially responsible investing has been growing in popularity in recent years, and will continue to grow for the foreseeable future.

Investing in a carbon-free future is one of the most powerful ways for individuals to help restore the climate. Studies have shown that investing in climate mitigation and adaptation now will prevent trillions of dollars in future losses from disaster relief, GDP decreases, and property losses, and it will cost far less to act now than to deal with future damages.

Another reason to start investing in a carbon-free future now: Since there will be a worldwide focus on the transition to a carbon-free economy in the coming years and decades, some investors might consider investing in green stocks to be one way to build a strong long-term portfolio. As with all investing, it’s essential to carefully consider the risks involved in your chosen investment strategies. Some, all, or none of the below strategies may be appropriate for you.

How Carbon Impacts Our Planet

Current carbon dioxide (CO2) levels in the atmosphere are higher than they have been in at least 800,000 years, and likely higher than they have been in the past 3 million years.

Human activities ranging from automobile use and building construction to agriculture results in greenhouse gas emissions. Over millions of years prior to the Industrial Revolution, carbon was removed from the atmosphere naturally through plant photosynthesis and other processes—but by fossil fuels like coal and oil, humans have put that carbon back into the atmosphere in just a few hundred years. Once emitted, that CO2 stays in the air for centuries.

Changing the concentration of greenhouse gases in the atmosphere changes the Earth’s carbon cycles and results in global climate change. Some effects of climate change are already visible: rising sea levels, more intense hurricanes and fires, disappearing glaciers, and more. Around half of the CO2 emitted since 1850 is still in the atmosphere, and the rest of it is in the oceans causing ocean acidification, which interferes with the ability of marine life to grow skeletons and shells.

Currently, CO2 emissions continue to increase yearly—so it’s just as important for us to scale up the removal of CO2 from the atmosphere as it is to continue working on reducing emissions.

There are ways companies can do construction, agriculture, and all other industrial activity without emitting greenhouse gases into the atmosphere, but scaling up these solutions will require a massive amount of investment. That’s where individual investors can make a difference—by putting money behind companies that are working to create a carbon-free planet.

Climate-Friendly Industries and Companies to Invest In

Ready to make a difference by supporting climate visionaries? Here are 25+ ways to invest in a carbon-free future.

1. Carbon Offsets

Individuals and companies can purchase carbon offsets to zero out their carbon emissions. How they work: You can calculate your estimated emissions from air or car travel or other activities, and invest in local or international projects that contribute to the reduction of emissions. For instance, an individual could invest in a solar energy project in Africa to offset their annual emissions.

Although carbon offsets are controversial because they don’t directly work to reduce one’s emissions, they do help to build out renewable energy infrastructure, regenerative agriculture, and other important initiatives. They are also helpful for offsetting certain activities that are often unavoidable and have no carbon neutral option, such as flying in a plane.

2. Carbon Credits

Carbon credits give a company the right to emit only a certain amount of carbon dioxide or other greenhouse gases.
They create a cap on the amount of emissions that can occur, and then the right to those emissions can be bought and sold in the market. Caps may be placed on nations, states, companies, or industries.

Carbon credits are controversial because larger companies can afford more credits which they can either use or sell for a profit, and some believe the program may lower the incentive for companies to reduce their emissions.

However, companies may be incentivized to reduce emissions in two different ways:

1. They can sell any extra credits they don’t use, thus making money.
2. Generally, limits are lowered over time, and companies that exceed their limits are fined—therefore, transitioning to lower emissions practices is in their best interest.

Although carbon credits are used by companies, individuals can invest in the market through ETFs, or consider carbon emissions alternative investments.

3. ESG Indices and Impact Investing ETFs

Individuals can invest in ESG (environmental social governance) and impact investing ETFs, which are funds made up of companies focused on socially and environmentally responsible practices. Companies included in these funds may be working on renewable energy, sustainable agriculture, plastics alternatives, or other important areas.

4. Climate and Low-Carbon ETFs

Within the impact investing and ESG investing space, there are ETFs specifically focused on climate change and carbon reduction. These exclude companies that rely on fossil fuels, focusing exclusively on companies deemed as climate-friendly.

5. Carbon Capture, Sequestration, and Storage

There are many ways that carbon can be removed from the atmosphere, including through trees and other plants, or by machinery. CO2 can also be captured at the source of emission before it is released into the atmosphere. Once captured, the carbon needs to be stored in the ground or in long-lasting products, so it doesn’t get leaked into the air. Interested investors might want to consider buying stocks in companies that sequester millions of tons of CO2 each year.

6. Products and Materials Made from Captured Carbon

Once removed from the atmosphere, carbon can be used to make many products and materials, including carbon fiber, graphene, and cement. The construction industry is one of the biggest emitters of carbon dioxide, so replacing standard materials with ones made from sequestered CO2 would have a huge impact. All of these materials industries are poised to see huge growth in the coming years, and investing in them helps promote market growth, which can lower the cost of materials and make them more accessible to customers.

7. Tree-Planting Companies and Sustainable Forestry

The business of planting trees is growing. Newer tree planting companies are currently private, but investors can buy stocks, REITs and ETFs in companies that practice sustainable forestry and land management, as well as companies that allow investors to purchase a tree.

8. Regenerative Agriculture

The way the majority of agriculture is currently practiced worldwide depletes the soil and land over time. This not only makes it harder to grow food, it also decreases the amount of CO2 that gets removed from the atmosphere and stored in the soil. But with regenerative agricultural practices, the quality of soil improves over time. Spreading the knowledge and use of regenerative farming is extremely important to both food security and greenhouse gas management. Individuals can invest in regenerative agriculture through REITs, or even by investing in individual farms.

9. Green Bonds and Climate Bonds

Green bonds function the same way as other types of bonds, but they are specifically used to raise money to finance projects that have environmental benefits. Projects could include biodiversity, rewilding, renewable energy, clean transportation, and many other areas in the realm of sustainable development. In addition to buying individual bonds, investors can buy into bond funds.

10. Blue Bonds

Blue bonds focus on protecting the oceans by addressing plastic pollution, marine conservation, and more.

11. Refrigerant Management and Alternatives

Refrigerants used for cooling are among the top five highest emitters in the world, according to nonprofit org Project Drawdown . There are several ways to invest in improvements in the refrigerant industry:

•  Invest in alternative refrigerants such as ammonia and captured carbon dioxide.
•  Invest in companies making new types of cooling devices.
•  Invest in refrigerant management companies that reclaim refrigerants.

Other companies are working to retrofit old buildings and provide new buildings with more efficient HVAC systems.

12. Plant-based Foods

Raising livestock for food has a huge environmental footprint: It leads to huge amounts of deforestation, and cows emit methane when they burp, which is a much stronger greenhouse gas than CO2. Raising cows also uses a lot of water, transportation, chemicals, and energy. Replacing meat and materials with plant-based options can significantly reduce emissions and resource use.

13. Food Waste Solutions

Food waste in landfills does not biodegrade naturally—instead it gets buried under more layers of refuse and biodegrades anaerobically, emitting greenhouse gases into the atmosphere for centuries. Landfills are one of the biggest contributors to global emissions, with food waste contributing 8% of greenhouse gas emissions worldwide.

Some companies are heavily investing in waste-to-energy and landfill gas-to-energy facilities, which turn landfill waste into a useful energy source—essentially making products out of food ingredients and byproducts that would otherwise have gone to waste. One has developed a promising food waste recycling unit that could help reduce the amount of waste that sits in landfills as well.

14. Biodiversity and Conservation

Protecting biodiversity is key to creating a carbon-free future. Biodiversity includes crucial forest and ocean ecosystems that sequester and store carbon while also maintaining a planetary balance of nutrient and food cycles.

Interest in biodiversity investments has been growing, and there is even an ETF focused on habitat preservation.

15. Sustainable Aquaculture

The demand for fish rises every year, in part because eating fish is better for the planet and emissions than eating livestock. But a lot of work goes into making sure fishing is done sustainably to avoid overfishing and species depletion, and prevent widespread disease and wasted seafood. Investors may choose to support sustainable aquaculture by seeking out new and established businesses in the industry, or by investing in ETFs that include companies involved in responsible use and protection of ocean resources.

16. Green Building Materials

Creating construction materials such as steel and concrete results in a significant amount of CO2 emissions. There is currently a race in the materials industry to develop new materials and improve the processes of making existing ones. Both new and established businesses are part of this race. Besides steel and concrete, other key building materials that can contribute to a carbon-free future include bamboo and hemp.

17. Water

Clean water systems are essential to the health of the planet and human life. As the population grows, there will be more demand for water, which requires increased infrastructure and management. Proper water management can have a huge impact on emissions as well.

There are three main ways for individuals to invest in the future of water. One is to invest in public water stocks such as water utilities, equipment, metering, and services companies. Another is to invest in water ETFs or in ESG funds that focus on water.

18. Green Shipping

The transportation of goods around the globe is a huge contributor to greenhouse gas emissions. In order to improve shipping practices, a massive shift is underway. The future of green shipping includes battery-operated vessels, carbon-neutral shipping, and wind-powered ships. Other technologies that play into green shipping including self-driving vehicle technology and AI. Investing in any of these areas can help the shift towards a carbon-free future.

19. Electric cars and bicycles

The use of electric cars and bicycles can significantly reduce the amount of CO2 emissions that go into the atmosphere. Interested investors might want to research stocks in the electric vehicle, charging, and battery space.

20. Telepresence

As has been proven during the COVID-19 pandemic, the reduction of work-related travel can significantly reduce global CO2 emissions. Video conferencing and telepresence tools continue to improve over time, which reduces the need for people to fly and drive to different locations for business meetings. Investing in companies working on these technologies may help solidify and continue the trend of remote work.

21. Bioplastics

Bioplastics include plastics that are completely biodegradable as well as plastics that are made partially or entirely out of biological matter. Currently bioplastics make up a very small portion of global plastic use, but increasing their use can greatly help to reduce waste and emissions.

22. Energy Storage

One of the biggest hurdles to scaling up renewable energy is creating the technology and infrastructure to store the energy, as well as reducing the costs of energy storage to make it more accessible. Investing in energy storage can help develop and improve the industry to help hasten the transition away from fossil fuels.

23. Green Building

Making the construction industry carbon-free goes beyond the creation and use of green building materials to include LED lighting, smart thermostats, smart glass, and more. These technologies can drastically reduce the energy used in buildings. There are many companies to invest in in the green building industry, as well as ETFs that include green building stocks.

24. Recycling and Waste Management

As the world’s population grows and becomes more urbanized, waste management and recycling will become even more important. Preventing waste from going to landfills is key to reducing emissions, as is the reuse of materials. For interested investors, there are many companies to invest in within waste management.

25. Sustainable Food

Food production is heavily resource-intensive, with many moving parts. In addition to companies working to improve soil health, refrigeration, plant-based foods, and food waste, there are also companies working on sustainable fertilizers, pesticides, irrigation, seeds, and other areas. One way to invest in sustainable food is through an ETF.

26. Sustainable Fashion

The fashion industry is one of the world’s worst polluters. In fact, the fashion industry produces about 10% of global carbon emissions, in addition to its huge water use and polluting the ocean with plastics. Several of the world’s most well-known sustainable fashion brands are privately held, but increasingly, public companies are also making big strides in sustainability. Individuals can also support sustainable fashion by investing in material companies and agricultural producers that make bioplastics, bamboo, hemp, and sustainable leather alternatives.

27. Renewable and Alternative Energy

Energy is another important area to invest in for a carbon-free future. Within the renewable and alternative energy space, individuals can invest in companies working on wind, solar, biomass, hydrogen, geothermal, nuclear, or hydropower. There are countless companies and ETFs to invest in within renewable energy.

The Takeaway

Every industry around the world needs to make big shifts in the coming years to reduce emissions and build a carbon-free future. As an individual, investors can make their voices and their choices heard with their dollars, by investing in companies leading the way in sustainability.

Looking to start building your investment portfolio? SoFi Invest® is a great place to start. Using the investing platform, you can research and track stocks and ETFs, view your financial information in one simple dashboard, and buy and sell stocks right from your phone.

Find out how to get started with SoFi Invest.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.

Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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What is Stellar Crypto? How to Buy Stellar Lumens

Is the Stellar Lumen a Good Crypto Investment?

As a key component in Stellar’s global payment system, the Lumen (XLM) has attracted increasing attention since it came out in 2014. Lumen has seen major growth since its inception, and its recent gains have attracted fresh attention from investors.

Here’s what you need to know about this blockchain-based cryptocurrency, and whether to invest in it.

What are Stellar Lumens?

Lumen is a cryptocurrency that trades on the open-source, decentralized payment protocol Stellar network. The Stellar network was built to help users large and small send money and assets around the globe. As such, Stellar has positioned itself as a fast, global exchange network that can host thousands of trades between a wide array of traditional, government-issues currencies and a host of blockchain-based tokens and coins per second.

Currently, investors who want to exchange cryptocurrency tokens for established currencies can run into a lengthy and expensive process. Stellar pitches itself as a way to make those trades faster and cheaper, using Lumens to pay transaction fees and maintain investor accounts within the Stellar network.

There are roughly 22.1 billion Lumen coins in circulation, with a maximum supply of 50 billion. As of late January 2020, it had a market capitalization of more than $6 billion.

How Lumens Work

Like most cryptocurrencies, Lumens use a blockchain-based technology, and so the transactions on the Stellar network go into a shared, distributed, public ledger, which can be accessed by anyone around the globe. That public ledger is essential for anyone trying to buy or sell a token, and requires consensus on the ledger about the ownership and value of the tokens in order to function.

Consensus within that shared public ledger is where Stellar differs from many other forms of cryptocurrency, such as Bitcoin. Bitcoin uses what’s probably the most popular way to reach consensus on a blockchain, called proof-of-work (PoW). In PoW, a single market participant announces their conclusion about the information that’s been submitted in a blockchain, which all other participants can then verify. This process protects against false conclusions, while rewarding participants who verify the true information with newly mined bitcoins.

But the Stellar network takes a different approach, by distributing the consensus function to mini-networks. Each Stellar network participant chooses other participants whose consensus they agree with. And the consensus of each mini-network will function as valid for the overall Stellar network, as long as the conclusions of mini-networks overlap.

By relying on mini-networks rather than mining, Stellar’s consensus method is designed to offer faster and less-expensive transactions between Lumens and any other crypto or traditional currency. Stellar didn’t invent the process, but adapted an open-source version of it from Ripple.

How to Buy Stellar Lumens

For those still learning the basics of crypto investing, Lumens may not be as familiar as Bitcoin, Ethereum, and other cryptocurrencies. But investors who want to buy Stellar Lumens have a wide range of options.

The coins themselves are available for purchase on every major cryptocurrency exchange, including Coinbase, Kraken, Bittrex, Coincheck and more. Investors can also buy Lumens on Stellar’s own free peer-to-peer trading network StellarX. And investors without a crypto wallet can buy crypto through an exchange-traded-fund (ETF) that invests in cryptocurrencies, including Lumens.

Recommended: Understanding the Different Types of Cryptocurrencies

Stellar Lumens Price

As of this writing in early April 2021, the price of Stellar Lumens was $0.50. It experienced an all-time high of $0.87 in early 2018.

History of Stellar Crypto

Stellar and Lumens came into being in 2014, when Ripple co-founder Jed McCaleb launched the new network in collaboration with Stripe CEO Patrick Collison. Ripple is also a blockchain-based network, with its own currency, called XRP, which had a market cap of just over $12 billion as of late January.

Stellar quickly gained traction. By August of 2014, the first Brazilian bitcoin exchange, Mercado Bitcoin, selected the Stellar network for its transactions. And by the beginning of 2015, roughly 3 million user accounts operated on the Stellar network, and the market cap of the Lumen was almost $15 million at the time.

A year later, Stellar entered into a partnership with global consultancy Deloitte to develop a new payments app. And in 2017, Stellar made headlines when it partnered with IBM to establish “currency corridors” in the South Pacific. Its goal was to process up to 60 percent of the cross-border payments between countries including Australia, Fiji, and Tonga.

The connections between Stellar’s Lumen and Ripple’s XRP may prove more important than just having the same co-founder. In many ways, the two are competitors. They use similar technology and offer similar advantages, when it comes to allowing quick and inexpensive transfers of funds. The difference at the moment is that Ripple’s XRP are targeted at large financial institutions, while Stellar is also intended for individual users—especially populations around the globe without easy access to banks.

Is Stellar Crypto a Good Investment?

For investors in Lumen, the developing legal situation with XRP may be worth watching. In late 2020, the Securities and Exchange Commission sued Ripple for not registering XRP coins as securities. The regulator claims that because Ripple owns the majority of the existing 100 billion XRP coins, and sells some each quarter, they fall under securities laws.

Whether Stellar and the Lumen will benefit from that development, or face similar challenges, remains to be seen.

When investing in crypto, most seasoned investors stress caution. While there are regular headlines about one form of crypto or another reaching record heights, many other forms have fallen to zero, and many estimates list more than 1,000 cryptocurrencies that have become “dead coins.”

Some failed cryptos were scams, but others simply failed to catch on. At the same time, the entire cryptocurrency asset class faces other risks, such as hacks and the possibility of large-scale crackdown by crypto regulators. And as with any investment, investors should be mindful of the impact of paying crypto taxes on their returns.

Lumen is one of the more larger cryptocurrencies. As of late January 2020, it was the 11th-largest crypto with a market capitalization of more than $6 billion, according to coinmarketcap.com. By comparison, bitcoin had a market cap of just over $602 billion. And Ripple’s XRP was the fifth largest, with a market cap of more than $12 billion.

Being relatively established helps Lumen by making it more heavily traded and liquid than lesser-known cryptocurrencies. But like many other cryptos, it is subject to big price swings. After months in the 6-to-8-cent range, it jumped to 44 cents in early January 2021, only to drop to 27 cents in the following days, making for a wild ride.

The Takeaway

Stellar Lumen is a blockchain-based cryptocurrency that has much in common with Ripple. While its intended use is as a secure and accessible way to process cross-border payments between individuals all over the world who may not have access to traditional banking options, it has become the 11th-largest crypto, and investors have taken note.

While Bitcoin launched a new asset class little more than a decade ago, today there are many different cryptocurrencies for investors to learn about and invest in. If your curiosity about cryptocurrency is fueled by a desire to start investing, SoFi Invest® can be a great place to start. SoFi members can manage crypto investments in the SoFi app, with the confidence of knowing their crypto is in a secure platform.

Find out how SoFi Invest can help you with your investment goals.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.

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chalkboard worldmap financial charts

A Guide To Investing in International Stocks

Investors can easily exhibit signs of “home country bias”–the tendency to favor stocks from one’s own country. But wagering on international markets can be an important way to diversify and gain exposure to companies benefiting from rapid growth. And while American companies tend to pay higher dividends, investors may find attractive valuations abroad.

Since the 2008-2009 financial crisis, U.S. stocks have trounced foreign equities. The forces behind this trend have been easy Federal Reserve monetary policy, impressive U.S. corporate earning growth, and jaw-dropping rallies by a handful of mega-cap technology stocks.

But financial markets have a tendency to revert to their long-term averages–a concept known as mean reversion. And starting in 2021, money flows into overseas stock funds picked up, a sign that investor preferences are already shifting. However, foreign stocks also pose significant risks: such as local instability, differing reporting requirements, and volatile growth.

Here’s a closer look at foreign stocks and a guide to how to invest in them:

Pros & Cons of Foreign Stocks

Advantages of Investing in Foreign Companies

The U.S. stock market is the biggest in the world, accounting for a little more than half of the $95 trillion global equity market. But just because the U.S. market is the biggest, that doesn’t mean it’s the fastest growing or holds the best value. Here are some of the benefits of investing in international companies:

•  Valuations: A staggering bull market in U.S. shares has left companies richly valued relative to foreign companies. For instance, the cyclically adjusted price-to-earnings ratio for the S&P 500 stood at 29.5 times in November 2020, while for the MSCI All-Country World Index, it was 18.3 times, according to Bloomberg data.
•  Economic Growth: The U.S. stock market is outsized relative to its economy. While U.S. shares account for 56% of the global market, as a national, it only makes up 15% of global gross domestic product. Buying overseas stocks can be a way to participate in the rapid growth that many regions could see as more of their population joins the middle class.
•  Geographic Diversification: Foreign-stock investing allows investors to hedge some U.S.-specific risks, by investing in the economies of other countries.
•  Sector Diversification: The U.S. stock market is overwhelmingly concentrated in tech or tech-linked companies, with the 10 biggest stocks in the S&P 500 making up close to 30% of the index.

Recommended: A Guide to Tech IPOs

Risks of Investing in Foreign Stocks

While there are many reasons to invest in international markets, these investments also come with risks that will surprise investors who are accustomed to domestic markets.

Volatile Growth: While overseas countries can post faster-paced growth than the U.S., that expansion can be jumpy. The International Monetary Fund said in April 2021 that while the U.S. was likely to experience a red-hot recovery after the Covid-19 economic downturn, emerging-market countries may lag behind and experience a more sluggish rebound.
Political or social instability: Depending on the country where they invest, an investor may have to grapple with the possibility of revolution, war or economic collapse.
Reporting Requirements: Not every market is rigorous in the transparency and reporting it requires from the companies on its public markets. That can make it hard to get the full story of what’s happening with an investment. Securities regulation as a whole varies from country to country.
Liquidity: International stocks trade in smaller markets, and certain markets may lack a large amount of buyers and sellers that could make the market efficient. That makes it more likely prices of assets will move with buy or sell orders.
Currency Risk: If a country’s currency sinks relative to the U.S. dollar, then a U.S. investor will lose a portion of the gains in any stocks that are traded in that currency. In the case of a foreign stock traded in the U.S., the currency of which that company does business will have a bearing on how U.S. investors view the company’s earnings.
Higher Fees: commissions and other trading costs related to international stocks are much higher than they are for domestic stocks. That translates into higher fees for a fund, or higher brokerage commissions if the investor buys and sells those stocks directly.

Recommended: What Are Liquid Assets?

How to Trade Foreign Stocks in the U.S.

International-Stock ETFs and Mutual Funds

Most investors who want more exposure to overseas markets will want to consider a mutual fund or an exchange-traded fund (ETF).

Investors based in the U.S. aren’t allowed to invest in mutual funds that are domiciled in other countries. That leaves U.S.-based funds that trade foreign securities. Those funds are usually categorized as either “global” or “international. ”

They sound interchangeable, but they have one big difference. Global funds own securities from all over the world, including the U.S. International funds, on the other hand, invest only in securities from countries outside the U.S.

Both global and international mutual funds include actively managed funds, where a portfolio manager and a team of analysts pick the securities in the fund. They offer professional investing in unfamiliar lands, but often come with high expense ratios.

And there are also funds and ETFs that invest in indexes. The wide array of indexes and the explosion of ETFs allows investors to use these tools to invest in very specific regions, countries and sectors within those countries and regions.

An ETF can also allow investors to buy quick exposure to the broader international markets. For example, an index fund or ETF that tracks the MSCI World Index would give an investor access to equities in 23 developed countries.

Recommended: The Pros and Cons of Thematic ETFs

What Are American Depository Receipts (ADRs)

Investing directly in overseas securities is where things get a little more complicated. One popular way to own international stocks is to buy American depository receipts (ADRs).

Many foreign companies use ADRs to raise capital in U.S. markets. Each ADR represents some number of underlying shares of the company’s stock, and trades throughout the day. Global Depository Receipts (GDRs) are another way to buy shares in overseas companies. But they are typically traded on the London Stock Exchange and Luxembourg Stock Exchange.

But there are also ways for investors to directly purchase foreign stocks. One is to open a global account with a domestic broker, and most large brokerages offer this option. If investors are targeting opportunities in a specific country, they can open an account with a local broker in that country.

Different Types of International Markets

International stocks as a broad category may be enough for an investor who sees them as a simple way to diversify their overall equity holdings. But different international investments have widely varying risk/reward profiles.

Investing in Developed Markets

The first category of countries to invest in are so-called “Developed Markets.” These are countries with industrial and post-industrial economies and mature capital markets, such as England, Australia, and Japan. As a general rule, these offer similar growth and risk to the U.S.

Investing in Emerging Markets

The next category is “Emerging Markets,” which are still growing and modernizing to an industrial or information-driven economy. They include places like Thailand, Russia and South Korea. Investments in these markets may come with much bigger opportunities for growth. But they also carry the risk that comes with often-political climates, along with other risks unique to the countries they’re in.

Investing in Frontier Markets

The third category consists of “Frontier Markets,” which are also known as pre-emerging markets. Companies in these countries, such as Argentina, Bangladesh and Kenya, come with even larger opportunities, but even more risk, including political and currency instability, as well as very little regulation.

The Takeaway

International stocks offer diversification, unique opportunities, and can help investors hedge any U.S.-specific risk. But they also bring their own set of costs and risks.

The question of how much of an investor’s total assets should be allocated to international stocks depends on the investor’s expertise, risk tolerance and long-term goals. But some investors have said they allocate 30% of equities internationally, a level that allows for diversification while recognizing higher volatility.

Recommended: What Is Asset Allocation?

You could get started investing today by opening an account with SoFi Invest®. The Active Investing platform allows you to buy stocks, ETFs, and fractional shares without paying commission fees. For those who want a more hands-off approach, the Automated Investing service invests money for you based on your goals and risk tolerance, without charging a SoFi management fee.

Get started with SoFi Invest today.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
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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When Can I Retire? This Formula Will Help You Know

When it comes to retirement savings, there are a number of factors to consider: Social Security, inflation, and health care costs. But ultimately all these concerns boil down to one question: How much do you need to save to retire?

Thankfully, there’s a formula for calculating these costs, which might help you plan for the future. But first, decide at what age you want to retire and then see how that decision affects your finances.

When Can You Get Full Social Security Benefits?

At what age does the government allow people to retire with full Social Security benefits? And at what age can people start withdrawing from their retirement accounts without facing penalties? For Social Security, the rules are based on your birth year.

The Social Security Administration has a retirement age calculator . For example, people born between 1943 and 1954 could retire with full Social Security benefits at age 66.

Meanwhile, those born in 1955 could retire at age 66 and two months, and those born in 1956 could retire at age 66 and four months. Those born in or after 1960 can retire at age 67 to receive full benefits.

Social Security Early Retirement

A recipient will be penalized if they retire before full retirement age. The earlier a person retires, the less they’ll receive in Social Security.

Let’s use John Doe as an example and say he was born in 1960, so full retirement age is 67. If he retires at age 66, he’ll receive 93.3% of Social Security benefits; age 66 will get John 86.7%. If he retires on his 62nd birthday–the earliest he can receive Social Security–he’ll only receive 70% of earnings.

Here’s a retirement planner table for those born in 1960, which shows how one’s benefits will be reduced.

Social Security Late Retirement

If a person wants to keep working until after full retirement age, they could earn greater monthly benefits.

For example, if the magic retirement number is 66 years but retirement is pushed back to 66 and one month, then Social Security benefits rise to 100.7% per month. So if your monthly benefit was supposed to be $1,000, but you wait until 66 years and one month, then your monthly allotment would increase to $1,007.

If retirement is pushed back to age 70, earnings go up to 132% of monthly benefits. But no need to calculate further: Social Security benefits stop increasing once a person reaches age 70. Here is a SSA table on delayed retirement .

When Can You Withdraw From Retirement Accounts?

Now let’s look at retirement accounts. Each type of account has different rules about when money can be taken out.

If a Roth IRA account has existed for at least five years, withdrawals from the account are usually okay after age 59½ without consequences. Taking out money earlier or withdrawing money from a Roth IRA that’s been open for fewer than five years could result in paying penalties and/or taxes.

There is a little wiggle room. Retirement withdrawal rules do have exceptions for issues like disability or educational expenses, and there is an option to withdraw money early and pay taxes or penalties.

If a person is at least 59½ and has a Roth IRA that is less than five years old, taxes will need to be paid upon withdrawal but not penalties. Taxes or penalties might not need to be paid at age 59½ and if the Roth IRA has been open for five years or more.

People with a traditional IRA can make withdrawals from ages 59½ to 72 without being penalized. The government will charge a 10% penalty on withdrawals before age 59.5, and depending on location, a state penalty tax might also be charged.

People with 401(k)s can typically retire by age 55 and make withdrawals without receiving a penalty. People with either a traditional IRA or 401(k) must start making withdrawals by age 72 or face a hefty penalty.

How Much to Save for Retirement? Here’s the Formula

Everyone’s situation is different, so it might make perfect sense for one person to retire at age 62 and another at 55. However, waiting until full retirement age or even age 70 not only gives Social Security more time to accrue—it gives a potential retiree more time to accumulate savings in a nest egg.

So is working till the age 70 absolutely necessary to earn enough money to live off of after retirement, or will there be enough in savings by age 67 or 68? This is where the question “How much do you need to save to retire?” comes in.

Fidelity’s research shows that if a 30-year retirement is planned and annual spending is expected to be 4% to 5% of savings, adjusting for inflation, there is about a 90% chance of not running out of money.

The exact percentage can depend on the age of retirement and life expectancy. That number changes if a person retires at age 60 and plans a 35-year retirement—about 4.3% could be withdrawn per year to retain that 90% likelihood of financial security.

To break it down, $1 million in savings is a fair number to get through the retirement years.

How Much Money Is Needed Each Year to Live On?

The rule of thumb was once 80% of current income. But that assumes the mortgage is paid off and taxes will be lower. Many people will still have mortgages.

Since a large part of a retirement income comes from withdrawals from retirement plans that give taxable income, the tax rate might not go down much. Plus, many people might want to travel or spend money on hobbies in the early years of retirement, and many might need expensive health care as they live into their 90s and beyond. That means more than a current income might be necessary.

A retiree may be living off money from both Social Security and a retirement account. If Social Security is an option, and if it’s still around at retirement, that could reduce the amount that needs to be withdrawn from a retirement account each year.

Here’s the Retirement Savings Formula: Start with current income, subtract estimated Social Security benefits, and divide by 0.04. That’s the target number in today’s dollars.

The Takeaway

Nobody knows what the future holds—tax rates, inflation, health care reform, and Social Security are all outside our control. But the amount saved and invested is not.

With SoFi Invest®, you can track investments and choose exactly how active you are in the process. You can follow stocks online or sign up for automated investing. SoFi financial advisors are available to answer investing questions and help you plan for the future.

Check out SoFi Invest today.


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

When to Start Saving for Retirement

If you ask any financial advisor when to start saving for retirement, their answer would likely be simple: Now.
It’s certainly not easy prioritizing investing for retirement. If you’re in your 20s or 30s, you might have student loans or other goals that seem more “immediate,” such as a down payment on a house or your kid’s tuition.

But setting aside a little every year starting in your 20s could mean an additional hundreds of thousands of dollars of accumulated investment earnings by retirement age. Retirement may also be the single biggest expense in many peoples’ lives. Think about it: You may be living for 20 or more years with no active income.

Plus, while your parents or grandparents may have had a pension plan that kicked off right at the age of 65, that may not be the case for many workers in younger generations. Instead, the 401(k) model of retirement that’s more common these days requires employees to do their own saving.

To see where you are heading with your savings you could use a simple retirement savings calculator. But here are more basics on how to get started on your retirement savings strategy.

Different Types of Retirement Plans

Here are the most common types of retirement accounts and who can use them. This isn’t a comprehensive list of retirement accounts, so it might be a good idea to discuss retirement planning with a financial planner or accountant.

401(k) or Other Workplace Plans

A 401(k) is a workplace retirement account offered by employers. Typically, you contribute a portion of your paycheck, pre-tax.

One of the benefits of using your workplace’s retirement plan is that your company may offer a “match.” A match is when your company contributes to your account when you do. The current average employer match is 3.5%, according to the Bureau of Labor Statistics.

At the very least, you might want to contribute to take advantage of your match since it’s essentially free money. You don’t have to stop there though—in 2021, the IRS set the maximum 401k contribution limit to $19,500, with an additional $6,500 catch-up contribution allowed for those older than 50.

These accounts are tax-deferred, meaning you pay income taxes when withdrawing the savings in retirement. One of the many benefits of using a 401(k) or similar workplace plan is that it lowers your taxable income. For instance, if you’re making $85,000 and you’re contributing $10,000 annually to your 401(k), then you’ll only be taxed on $75,000 of that income.

One of the downsides to a 401(k) is that withdrawing these funds early could trigger a 10% tax penalty in addition to income taxes. Other workplace plans include SIMPLE IRAs, 403(b)s, 457 plans, and Thrift Savings Plans. If you’re self-employed, you could consider opening a Solo 401(k) or SEP IRA.

Recommended: SEP IRA vs. Simple IRA

Traditional IRAs

An Individual Retirement Account or IRA is another account you may use to save for retirement. Like a 401(k), a traditional IRA is tax-deferred and provides a place for your investments to grow free from capital gains tax.

Again, tax-deferred means that the money is taxed upon withdrawal at retirement. Therefore, a traditional IRA also carries a penalty for early withdrawal. An IRA is an investment account that is not tied to your workplace. That makes a traditional IRA an option for those that are self-employed or freelancers.

Unfortunately, traditional IRA accounts have a much lower contribution limit: $6,000 in 2021 if you’re younger than 50. Those 50 and older can contribute $7,000 annually.

Recommended: What is an IRA?

Roth IRAs

Like a traditional IRA, a Roth IRA is an account that you would open on your own, separate from your workplace. It’s also possible to contribute up to $6,000 into a Roth IRA each year, although how much is tied to your income. Here are the IRS rules for 2021: Roth IRA Contributions .

Both those covered by workplace retirement plans and those who are self-employed can contribute to a Roth IRA, although there are income limitations. In 2021, a single person earning under $140,000 can contribute to a Roth IRA. For married couples filing jointly, the modified adjusted gross income must be under $208,000.

Unlike a Traditional IRA and a 401(k), which are tax-deferred, a Roth IRA is tax-exempt. You pay income taxes on the money that is contributed to the account, but not when you withdraw the money. Even so, it should be a financial last resort to withdraw from a Roth IRA account.

Like all retirement accounts, Roth IRAs are also free of capital gains taxes, or the levies charged on money you earn from profitable investments.

Recommended: What Is the Current Capital Gains Tax Rate?

What Is a Wealth Management Account?

Like a 401(k) or an IRA, a wealth account is also an investment vehicle. But unlike an account designed specifically for retirement, these accounts do not have the same tax benefits.

You might consider using a wealth account if you want to invest for a goal other than retirement, or you’ve “maxed out” (contributed the maximum allowable amount to) your retirement accounts.

Because a wealth account does not have the tax benefits of a 401(k) or IRA, it also doesn’t come with the same early withdrawal penalties. Wealth accounts are often called “after-tax accounts” because you contribute and invest money you’ve already paid income taxes on—and you pay taxes on the capital gains when you withdraw your cash.

Just like checking and savings accounts at banks, these accounts can also have maintenance fees.

Investing for Retirement

Once money has been contributed to a retirement account, it’s time to invest that money. To say “saving for retirement” is a bit misleading—really, it can be considered to be “investing for retirement.” And you can invest within any of the above-mentioned accounts.

If you have a workplace plan, you may be given a list of mutual funds to choose from. To choose a fund, you might want to determine whether the underlying investment is appropriate given your goals and risk tolerance. The categories are usually stocks, bonds, domestic equities, foreign equities, or emerging-market stocks and bonds.

You may also want to consider the management fees of the fund, called the expense ratio. This is usually expressed as a percentage which is subtracted from the amount invested each year.

For those without a workplace plan, you might want to open a retirement account, fund the account with cash, and then invest the money. Investors can do this by signing up for a traditional brokerage account if they want to pick and choose investments themselves. They might also consider a robo-advisor, or computer generated investing services.

Recommended: Are Robo-Advisors Worth It?

The Takeaway

Investing in retirement and wealth accounts is a great way to jump-start saving and investing for your golden years, whether you invest $10,000 or just $100 to get started.

The first step is to open an account or use the one that’s already open. You could also increase your contribution. If you’re opening an account, you may want to consider one without fees, which cut directly into your bottom line.

SoFi Invest® offers retirement and wealth management accounts. You can also decide how you’d like to invest the money within the account. If you are comfortable picking out your own stocks and funds, SoFi Active Investing may be the service for you. The platform charges no commissions for trading stocks, ETFs or fractional shares.

For those looking for a more hands-off approach, SoFi Automated Investing will consider your goals, investing timeline, and risk tolerance to build you a diversified portfolio.

Get started with SoFi Invest today.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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