May
13
2025
What every new investor should know about risk

Investment Risk: What Every New Investor Should Know

By | Growing Wealth, invest, Investing | No Comments

Risk is a critical component of each and every investment, and there are several things about risk, and an individual’s ability to handle it, that investors need to know. Those include the types of risk involved in investing, the relationship between risk and potential returns, and how to effectively manage it.

Investors should consider their appetite and tolerance for risk, and try to determine which assets are suitable for them. Investing involves understanding the risk profiles of the different assets, among other things, too.

Key Points

•   Higher risk investments typically offer greater potential returns but also increase the potential for loss.

•   Understanding risk tolerance helps align investments with financial goals and comfort levels.

•   A longer time horizon allows for more risk, as there is more time to recover from market downturns.

•   Various risks include market, business-specific, price volatility, and interest-rate risks.

•   Diversification and asset allocation are key strategies for managing investment risk.

Higher Risk, Higher Potential Return

The most important thing to understand about risk is something you’ve probably heard before: Generally, the higher the risk of your investment, the greater return you should expect on your money. It is, however, the nature of risk that the return you expect might not be the return you actually get.

The concept of “Modern Portfolio Theory” emphasizes that risk and reward are linked. If you hope for a higher return, you should also expect higher volatility — the variability of actual returns. The returns on an exchange-traded fund (ETF) may be up one year and down the next.

Returns on a mutual fund of emerging market stocks will likely have much wider changes in returns from year-to-year, or even month-to-month. You might make a lot more money, but you also could lose much more.


💡 Quick Tip: When people talk about investment risk, they mean the risk of losing money. Some investments are higher risk, some are lower. Be sure to bear this in mind when investing online.

How Much Risk Should You Take?

When determining a level of risk that you’re comfortable with, you want to first look at the goals you have (buying a house, saving for college, and retiring, to name a few), as well as how many years will it be before you need the money for each goal. That’s called a “time horizon.”

balancing risk

As seen in the visual, an investor’s risk tolerance and risk capacity are important elements to take into consideration. Generally speaking, the longer the time horizon, the more risk you can afford to take, because you have more time to recover from market downturns. Both your tolerance and capacity can change over time, as your goals change as well.

This is why young people are advised to put their retirement savings in a more aggressive portfolio. As you get closer to retirement, you’ll generally want to be more conservative. You can also consult a retirement calculator to see where you stand on your retirement goals.

Risk Tolerance Quiz

Take this 9-question quiz to see what your risk tolerance is.

⏲️ Takes 1 minute 30 seconds

What Types of Risk Are There?

There are several types of risk that every investor should be aware of. Here are a few:

•   market

•   business-specific

•   price volatility

•   interest rate

•   concentration

Some risks you can’t avoid, like market risk or beta. The market goes up and down, and this often affects all stocks. Investors can measure the risk in their stock holdings by finding their portfolio’s beta. This will show how sensitive one’s portfolio is to volatility in the market.

You can, however, reduce other risks. For example, if you buy individual stocks, you open yourself up to business-specific risk. But, if you buy an index fund, you are buying assets in multiple companies. If one of these companies falters, it will impact the index, but it won’t have the same harsh impact on your investment. This is why seasoned investors tend to emphasize portfolio diversification so much.

How Should You Manage Risk?

On a broad level, how do you use these concepts to manage your investing risk? One method is to utilize asset allocation strategies that map to your goals and risk profile.

For example, if you wanted to take a particularly low-risk, or conservative position, you could allocate your portfolio to contain more bonds than stocks. Bonds tend to be safer investments than stocks (though it’s important to remember that there’s no such thing as a “safe” investment), and as such, may be less volatile if the market experiences a downturn or correction.

If you still wanted to play it safe but allow for some risk (and potentially bigger returns), you could split your portfolio’s allocation — that could include 50% stocks, 50% bonds, or something along those lines. Further, if you feel like you have a high risk tolerance, you could take an aggressive position, and invest most of, or your entire portfolio in stocks.


💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

Managing Specific Types of Risk

If you want to get more granular, you can try to manage specific types of risk in your portfolio, such as interest rate risk, business-specific risk, etc.

Interest rate risk, for one, has to do with investment values fluctuating due to changing interest rates. This generally involves bond investments, and one way to try and manage it is through diversification, or even by participating in hedge funds — though that can be its own can of worms, so do your research before jumping into hedge funds.

Business-specific risk refers to specific or particular companies or industries. For example, the aerospace industry faces a different set of challenges and risks than the food production industry. So, changes to the Federal Aviation Administration could, as a hypothetical, cause price fluctuation to aerospace stocks, but not other types of stocks. Again, this can largely be addressed through diversification.

There are numerous other types of risks, too, and managing them all is difficult, if not impossible, for the typical investor. You can consider consulting a financial professional for further advice, however.

The Takeaway

Risk is unavoidable when investing, and as such, it’s important to understand the nature of the risk, avoid taking risks you can’t afford, and monitor and adjust your investments over time to align with your risk tolerance. Think about it like driving a car: It’s risky, but you understand that risk and mitigate it by maintaining your car, obeying traffic laws, and buying insurance. The return is the peace of mind of having your future destination in sight.

There are no guarantees in investing, but you can make an informed choice of the amount of risk you are willing to take and invest intelligently to reach your goals.

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

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

FAQ

What is risk tolerance?

Risk tolerance in investing refers to an investor’s appetite for risk, or how much risk they’re willing to assume in order to try and achieve higher returns. Some investors have higher risk tolerance than others.

What are common types of investing risk?

There are numerous types of investment risks, but some of the most common include market risk, business-specific risks, price volatility, interest rate risk, and concentration risk.

What strategies can be used to manage risk?

Some common strategies used to mitigate or manage portfolio risk include diversification and strategic asset allocation, and dollar-cost averaging.

SoFi Invest®

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

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

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

Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

Dollar Cost Averaging (DCA)
Dollar cost averaging is an investment strategy that involves regularly investing a fixed amount of money, regardless of market conditions. This approach can help reduce the impact of market volatility and lower the average cost per share over time. However, it does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals, risk tolerance, and market conditions when deciding whether to use dollar cost averaging. Past performance is not indicative of future results. You should consult with a financial advisor to determine if this strategy is appropriate for your individual circumstances.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOIN-Q225-081

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May
13
2025
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Pros & Cons of Global Investments

By | Growing Wealth, invest, Investing | Comments Off on Pros & Cons of Global Investments

Individual investors have access to a wide variety of investments in and outside of the U.S., which include international and domestic assets. Global investing involves investing in securities that originate all around the world. Global allocation may provide diversification benefits, which is a pillar of wealth management. It can also help investors position their portfolio for long-term growth.

Increased geographic diversification may also offer some downside risk mitigation, as the relative performance of U.S. vs. international stocks has historically alternated. In other words, the U.S. markets may have a different rhythm than international markets. Therefore, investing in both has the potential to give investors the best of both worlds if one rises while the other falls, helping minimize return losses.

Key Points

•   Global investing provides diversification, potentially higher growth, and access to a broader range of opportunities.

•   Risks include currency fluctuations, liquidity issues, political and economic instability, and higher costs.

•   Diversification through global investing helps reduce vulnerability to single-market downturns by spreading assets.

•   Information access in global markets is challenging due to varying regulations and financial disclosure standards.

•   Managing currency risk can be achieved through strategies like dollar-cost averaging and diversification.

Investing in Global Investments

There are several ways, or assets that investors can use to get started in the global market. But before an investment decision is made, it’s important to learn as much as possible about each investment option and understand the risks involved.

Mutual Funds

A mutual fund is a type of security that pools money collected from investors and invests in different assets such as stocks and bonds. The portfolio of a mutual fund is made up of the combination of holdings selected. U.S.-registered mutual funds may invest in international securities. These types of mutual funds include:

•  Global funds that invest primarily in non-U.S. companies, but can invest in domestic companies as well.

•  International funds that invest in non-U.S. companies.

•  Regional or country funds that primarily invest in a specific country or region.

•  International index funds designed to track the returns of an international index or another foreign market.

U.S.-registered mutual funds are composed of a variety of different international investments. As with any mutual fund, when an investor purchases a U.S.-registered mutual fund, they’re buying a fraction of all of the securities, which increases diversification.

For investors to create this level of diversification on their own with individual stocks and bonds would be difficult, expensive, and time-consuming. Therefore, buying shares of U.S.-registered mutual funds may give investors access to more diversification.

Exchange-Traded Funds (ETFs)

An ETF is an investment fund that pools different types of assets, such as stocks and bonds, and divides ownership into shares. Most ETFs track a particular index that measures some segment of the market.

This is important to understand — the ETF is simply the suitcase that packs investments together. When investing in an ETF, investors are exposed to the underlying investment.

ETFs that are U.S.-registered may include foreign markets in their tracking but trade on U.S. stock exchanges. These types of investments may offer similar benefits as U.S.-registered mutual funds.

Stocks

While many non-U.S. companies use Amercian Depositary Receipts (ADRs) to trade their stock, other non-U.S. companies may list stock directly on a U.S. market, known as U.S. Trade foreign stocks. For example, Canadian stocks are listed on Canadian markets and are also listed on U.S. markets instead of using ADRs.


💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

Why Invest in Global Markets?

While some of these investments may seem confusing, there are a few reasons why investors might choose global investments.

Diversification

Again, choosing global investments can diversify an investor’s portfolio. It may be tempting for an investor to concentrate money in a few familiar sectors or in companies for which there is a personal affinity. But putting all their eggs in one basket could potentially lead to vulnerability.

There is no guarantee against the possibility of loss completely — after all, all investments have risk. But spreading assets to international and domestic equities may reduce an investor’s vulnerability because their money is distributed across areas that aren’t likely to react in the same way to the same occurrence.

Global Growth

Another reason investors might choose to invest globally is because of the growth potential. The U.S. is considered a mature market and may not have as much growth potential as other economies. Choosing global investments allows investors to potentially capitalize on profits from growing economies, particularly in emerging markets.

Greater Selection

If you choose not to invest outside of the U.S., you are narrowing your investment opportunity set. Even though investment information may be more challenging to obtain and analyze, there is the potential for a great deal of growth (or decline!).

The Risks of Global Investments

As with any financial decision, careful consideration is required when selecting an investment. But, there are a few unique global investment risks and issues that need to be accounted for before investing in any global investment.

Currency and Liquidity Risk

Currency risk is also known as exchange-rate risk. It stems from the price differences when comparing one currency to another. When the exchange rate between the U.S. dollar and a foreign currency fluctuates, the return on that foreign investment may fluctuate as well. It’s possible that a non-U.S. investment might increase its value in its home market but may decrease in value in the U.S. because of exchange rates.

In addition to the risk of exchange rates, some countries may restrict or limit the movement of money out of certain foreign investments. Conversely, some countries may limit the amount or type of international investment an investor can purchase. This could prevent investors from buying and selling these assets as desired.

Instability

Countries in the midst of transition, war, or economic uncertainty may also be experiencing adverse economic effects, and companies within those countries may be impacted. These days, news can change by the minute, and it might be difficult to keep on top of what’s happening when so much news is happening all at once.

Cost

Sometimes it can be more expensive to invest in non-U.S. investments than investing domestically. This is due to possible foreign taxes on dividends earned outside the U.S., as well as transaction costs, brokers’ commissions, and currency conversions.

Limited Access to Information

Different countries may have various jurisdictions that require foreign businesses to provide different information than the information required of U.S. companies. Also, the frequency of disclosures required, standards, and the nature of the information may vary from what you would see in the U.S.

For example, the Securities and Exchange Commission or SEC is responsible for protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation in the U.S. The SEC does this by requiring public companies to disclose “meaningful financial and other information to the public.” This allows investors to make informed investment decisions about particular securities.

Other countries may have different organizations and guidelines for monitoring and regulating capital markets.

Additionally, analyzing individual investments is challenging enough with all the information available. But when investing internationally, the analysis adds another layer of complexity, since investors need to figure out different issues such as account, language, customs, and currency.


💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

Consider Investment Risk When Building Your Portfolio

Risks are a part of life. It’s difficult to grow, change, or improve without taking chances. What’s safe isn’t always what’s best, so getting the best of something typically involves some risk.

When creating an investment portfolio, determining risk tolerance, which ranges from conservative investments (low risk) to aggressive investments (high risk), is a typical first place to begin.

Higher-risk investments may have the potential for higher returns, but they also have greater potential for losses. Therefore, by assessing your risk tolerance, you won’t take risks that you can’t afford to take.

Just like in life, there are no guarantees when taking an investment risk, but considering informed risks, based on research and experience, may put financial goals within reach.

Becoming a Global Investor

Even though the world’s political, economic, and sociological landscape is ever changing, considering investments in global markets may help minimize risk exposure.

To become an international investor, a good place to start might be by adding certain mutual funds and ETFs to an investment portfolio. Newer investors might be more comfortable starting with U.S. stocks.

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

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

FAQ

What does global investing entail?

Global investing may involve purchasing assets from around the world, such as mutual funds, ETFs, or stocks, that give investors exposure to markets and economies outside of the United States.

What are the advantages of global investing?

Global investing can allow investors to diversify their portfolios, gain exposure to growing economies outside of the United States, and even open up a broad swath of investments that may not have been on their radar before.

What are some common risks of global investing?

Some risks of investing globally include currency and liquidation risk, instability (economic, political, etc.), the prospect of additional costs, and even limited access to information about international companies or assets.

About the author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.


SoFi Invest®

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

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

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

Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

Dollar Cost Averaging (DCA)
Dollar cost averaging is an investment strategy that involves regularly investing a fixed amount of money, regardless of market conditions. This approach can help reduce the impact of market volatility and lower the average cost per share over time. However, it does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals, risk tolerance, and market conditions when deciding whether to use dollar cost averaging. Past performance is not indicative of future results. You should consult with a financial advisor to determine if this strategy is appropriate for your individual circumstances.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOIN-Q225-083

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May
13
2025
man with laptop and tablet at table mobile

Is 24/7 Stock Trading Available?

By | Growing Wealth, invest, Investing | Comments Off on Is 24/7 Stock Trading Available?

Stock exchanges typically have set hours during which they operate, but trading activity isn’t restricted to traditional operating hours. After-hours trading sessions allow investors to continue making trades once the markets have closed for the day.

While after-hours trading isn’t exactly the same as regular day trading, there are some advantages to 24/7 trading. For investors who are interested in trading outside normal stock exchange hours, there are some important things to keep in mind.

Key Points

•   24/7 stock trading allows trading at any time through an electronic communication network (ECN), matching buy and sell orders outside regular hours.

•   Benefits include trading convenience and the ability to react to news outside market hours.

•   Risks involve increased volatility and difficulty in executing limit orders.

•   Pre-market trading occurs from 4:00 am to 9:30 am (ET), while post-market runs from 4:00 pm to 8:00 pm.

•   Some online platforms offer 24/7 trading, but availability and securities vary.

Reviewing After-Hours Trading

In the U.S., the NYSE and the Nasdaq are the two primary stock exchanges investors can use to trade stocks and other securities. Like the NYSE, the Nasdaq also follows a 9:30 am ET to 4:00 pm ET operating schedule, with certain holidays observed.

Both the NYSE and the Nasdaq allow after-hours trading. After-hours trading is divided into two distinct windows: pre-market trading and post-market trading.

What Is Pre-Market Trading?

Pre-market trading allows investors to make portfolio moves in the hours before the market officially opens for the day. For both the NYSE and the Nasdaq, the pre-market trading period extends from 4:00 am ET to 9:30 am ET.

The NYSE also allows for a 30-minute pre-opening season beginning at 3:30 am ET in which limit orders can be entered and queued ahead of the pre-market session.

What Is Post-Market Trading?

Post-market trading, also referred to as extended trading, runs from 4:00 pm ET to 8:00 pm ET on both exchanges. If an investor is completing after-hours trading with an online brokerage, the brokerage may set its own hours for when trading can occur, within the time frames the NYSE and the Nasdaq follow.

Of course, this timing pertains to the U.S. markets only. Globally, foreign markets have their own operating hours. Due to time zone differences, stock markets in the U.S. and markets in other countries don’t always operate during the same time periods.


💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Put your money to work and make
your first trade with active invest.

How After-Hours Trading Works

After-hours trading takes place outside the regular markets, so it doesn’t work exactly like regular day trading. During the day, trades occur through exchanges — but during pre-market or post-market trading, they’re completed through a different type of exchange — technically, an alternative trading system known as an electronic communication network (ECNs).

An ECN matches up buy orders with sell orders from different investors to execute trades. Orders can only be matched if the buy and sell prices are the same.

All trades placed after-hours have to be limit orders — with buyers and sellers agreeing to the price — rather than market-on-open orders, since the markets are closed.

Just like regular day trades, investors may pay commissions to execute an after-hours trade. But the fees charged may be higher than the fees for normal day trades.

Is 24/7 Trading an Option?

While after-hours trading allows investors more time to execute trades, there is a gap in between the post-market and pre-market hours. Technically, an investor wouldn’t be able to trade between the end of the post-market period at 8:00 pm ET and the beginning of the pre-market period at 4:00 am ET.

However, some online trading platforms have begun rolling out 24/7 trading as a brokerage account option. With this feature, investors would be able to make trades at all times of day — during regular market trading hours, pre-market trading hours, post-market trading hours, and beyond.

For example, if an investor wanted to place a limit order to purchase 100 shares of stock at midnight, they could do so if their online brokerage offered 24/7 trading.

Depending on which trading platform investors are on, they may be limited as to the type of securities they can trade after-hours. For example, some brokerages may only allow 24/7 trades of select individual stocks and exchange-traded funds (ETFs).

Pros of 24/7 Stock Trading

Being able to make trades on one’s own schedule, rather than following the market’s standard trading hours, can yield some benefits.

Trading stocks and other securities after the market closes and before it opens could pay off if an investor is able to capitalize on overnight news or market developments that could affect stock prices, including:

•   Earnings reports. It’s common for companies to release earnings reports after the market has officially closed for the day. If the earnings report looks to boost a stock’s price or cause it to decline, an investor might choose to place an after-hours trade to buy or sell, according to their investment strategy.

•   The announcement of a merger or acquisition.

•   A major political event. For example, the results of a presidential election can influence market outlooks and trading activity.

Trading overnight could allow an investor to get the jump on other investors who normally trade during the day.

There’s also the convenience factor: 24/7 trading is helpful for investors who don’t have time to watch the markets and schedule trades throughout the day.

Trading after-hours means they don’t have to miss out on any opportunities to build and grow their investment portfolio if their day job keeps them busy.


💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

Risks of After-Hours Trading

While having access to 24/7 trading can have its advantages, there are a few potential downsides to keep in mind.

•   Limit orders aren’t guaranteed. There’s no guarantee that limit orders placed after-hours will be executed. For a trade to be completed, an ECN has to be able to match up your order with another investor’s. Since trading volumes are typically lower during the pre-market and post-market periods, finding a match could prove difficult. Or you could get stuck in a trade at a less than desirable price.

•   The potential for increased volatility. Lower trading volume can also lead to increased volatility and sharper, more sudden price movements. For example, an investor may see a much wider gap between the bid price and ask price during after-hours trading.

Those things make 24/7 trading of stocks or other securities riskier overall. For investors considering this strategy, it might require them to pay closer attention to market movements to minimize the potential for losses.

The Takeaway

While 24/7 stock trading was a long-time dream for some investors, now it’s becoming a reality. As online trading platforms start to offer 24/7 trading to their investors, trading at any hour of the day or night is increasingly possible.

While there are risks to 24/7 trading — notably the chance of increased volatility as well as that a limit order won’t get executed — there are also benefits, such as the convenience of not being limited to the 9:30 am to 4:00 pm ET confines of the NYSE and Nasdaq.

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

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

FAQ

When are the stock markets open?

Typical trading hours are between 9:30 am ET and 4:00 pm ET, Monday through Friday, with pre-market and post-market trading buttressing those hours.

Is it possible to trade 24/7?

Some trading platforms and brokerages allow investors to trade 24/7, but there may be certain limits or restrictions on what specific securities or types of trades that can be made.

Are there additional risks to trading after hours?

It’s possible that limit orders won’t be executed if they’re initiated after-hours, and investors should also know that markets may experience increased volatility outside of traditional trading hours.

About the author

Rebecca Lake

Rebecca Lake

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


SoFi Invest®

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

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

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

Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN-Q225-082

Read more
May
13
2025
financial chart shapes

5 Tips to Hedge Against Inflation

By | Financial Independence, Growing Wealth, invest, Investing | Comments Off on 5 Tips to Hedge Against Inflation

Inflation refers to the ever-increasing price of goods and services as measured against a particular currency. The purchasing power of a currency depreciates as a result of rising prices. Put differently, a rising rate of inflation equates to a decreasing value of a currency.

To achieve financial freedom and build wealth over long periods of time, it’s vital to understand the concept of inflation, and some strategies to protect or hedge against it.

Key Points

•   Inflation decreases currency value, impacting savers negatively.

•   Moderate inflation encourages spending, benefiting economic growth.

•   ETFs offer diversified investment, potentially hedging against inflation.

•   Gold has historically maintained purchasing power, serving as a long-term inflation hedge.

•   Gold prices can rise sharply during periods of rapid inflation, though this is never assured.

What Is Inflation, and How Is It Measured?

Inflation is most commonly measured by the Consumer Price Index (CPI), which averages the national cost of many consumer items such as food, housing, healthcare, and more.

The opposite of inflation is deflation, which happens when prices fall. During deflation, cash becomes the most valuable asset because it can buy more. During inflation, other assets become more valuable than cash because it takes more currency to purchase them.

As for which assets tend to perform best during times of inflation? This is a much-debated topic among investment analysts and economists, with many differing opinions. And while there may be no single answer to that question, there are still some generally agreed-upon concepts that can help to inform investors on the subject.

Is Inflation Good or Bad for Investors?

For the average person who tries to save money without investing much, inflation could generally be seen as negative. A decline in the purchasing power of the saver’s currency leads to them being less able to afford things, ultimately resulting in a lower standard of living.

For wealthier investors who hold a lot of financial assets, however, inflation might be perceived in a more positive light. As the prices of goods and services rise, so do financial assets. This leads to increasing wealth for some investors. And because currencies always depreciate over the long-term, those who hold a diversified basket of financial assets for long periods of time tend to realize significant returns.

It’s generally thought that there is a certain level of inflation that contributes to a healthier economy by encouraging spending without damaging the purchasing power of the consumer. The idea is that when there is just enough inflation, people will be more likely to spend some of their money sooner, before it depreciates, leading to an increase in economic growth.

When there is too much inflation, however, people can wind up spending most of their income on necessities like food and rent, and there won’t be much discretionary income to spend on other things, which could restrict economic growth.

Central banks like the Federal Reserve try to control inflation through monetary policy. Sometimes their policies can create inflation in financial assets, like quantitative easing has been said to do.

5 Tips for Hedging Against Inflation

There are a number of different strategies investors use to hedge against inflation. The common denominators tend to be hard assets with a limited supply and financial assets that tend to see large capital inflows during times of currency devaluation and rising prices.

Here are five tips that may help investors hedge against inflation.

1. Consider Investing in Real Estate Investment Trusts (REITs)

A Real Estate Investment Trust (REIT) is a company that deals in real estate, either through owning, financing, or operating a group of properties. Through buying shares of a REIT, investors can gain exposure to the assets that the company owns or manages.

REITs are income-producing assets, like dividend-yielding stocks. They pay a dividend to investors who hold shares. In fact, REITs are required by law to distribute 90% of their income to investors.

Holding REITs in a portfolio might make sense for some investors as a potential inflation hedge because they are tied to a hard asset—real estate. During times of high inflation, hard assets tend to rise in value against their local currencies because their supply is limited. There will be an ever-increasing number of dollars (or euros, or yen, etc.) chasing a fixed number of hard assets, so the price of those things will tend to go up.

Owning physical real estate — like a home, commercial complex, or rental property — also works as an inflation hedge. But most investors can’t afford to purchase or don’t care to manage such properties. Holding shares of a REIT provides a much easier way to get exposure to real estate.

2. Know How Bonds and Equities Could React to Inflation

The recurring theme regarding inflation hedges is that the price of everything goes up. What investors are generally concerned with is choosing the assets that go up in price the fastest, with the greatest possible return.

In some cases, it might be that stocks and bonds very quickly rise very high in price. But in an economy that sees hyperinflation, those holding cash won’t see their investment, i.e., cash, have the purchasing power it may have once had.

In such a scenario, the specific securities aren’t as important as making sure that capital gets allocated to stocks or bonds in some amount, instead of holding all capital in cash.

3. Consider Investing in Certain Exchange-Traded Funds

An exchange-traded fund (ETF) that tracks a particular stock index or group of investment types is another way to get exposure to assets that are likely to increase in value during times of inflation and can also be a strategy to maximize diversification in an investor’s portfolio.

ETFs are generally passive investments, which may make them a good fit for those who are new to investing or want to take a more hands-off approach to investing. Since they are considered a diversified investment, they may be a good hedge against inflation.

4. Consider Gold and Gold Mining Stocks

For thousands of years, humans have used gold as a store of value. Although the price of gold or other precious metals can be somewhat volatile in the short term, few assets have maintained their purchasing power as well as gold in the long term. Like real estate, gold is a hard asset with limited supply.

Still, the question of “is gold a hedge against inflation?” has different answers depending on whom you ask. Some critics claim that because there are other variables involved and the price of gold doesn’t always track inflation exactly, that it is not a good inflation hedge. And there might be some circumstances under which this holds true.

Investors seeking to add gold to their portfolio have a variety of options. Physical gold coins and bars might be the most obvious example, although these are difficult to obtain and store safely. But investors can also invest in mining companies, or others that have exposure to the gold market.

5. Do Your Homework About Inflation and the Market

Ultimately, no assets are 100% protected from inflation, but some investments might be better than others for some investors. Understanding how inflation affects investments is the beginning of growing wealth over time and achieving financial goals.

The Takeaway

Inflation is marked by a period of rising prices, and is a normal side effect of a healthy economy — within certain bounds. Inflation may have positive effects for certain people, and bad ones for others, but overall, inflation is generally a negative for savers and consumers. Still, there may be certain investment strategies that can help hedge against inflation.

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

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

FAQ

What is inflation?

Inflation refers to the tendency of prices to rise over time, and is often measured by the Consumer Price Index, or CPI.

Is inflation good for investors?

While inflation is generally a bad thing for consumers and savers, it’s debatable as to whether it’s a positive thing for investors. It largely depends on the specific assets the investor holds.

What assets do some investors invest in during times of inflation?

Some investors may invest in precious metals like gold, real estate through vehicles like REITs, or various stock or bond-related instruments. But it’s important to remember that no asset is likely to be immune to inflation.


SoFi Invest®

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

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

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

Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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May
13
2025

Intrinsic Value vs Market Value, Explained

By | Growing Wealth, invest, Investing, Terminology | Comments Off on Intrinsic Value vs Market Value, Explained

The term market value refers to the current market price of a security. Intrinsic value represents the price at which investors believe the security should be trading, based on company fundamentals.

When it comes to value vs. growth stocks, value investors look for companies that are out of favor and below their intrinsic value. The idea is that sooner or later stocks return to their intrinsic value. A deeper understanding of intrinsic value vs. market value may help your strategy.

What Is Market Value?

In a sense, there is only one measure of market value: the price the market assigns to a stock, based on existing demand.

Market value tends to be influenced by public sentiment and macroeconomic factors. Fear and greed are the primary emotions that drive markets. During a stock market crash, for example, fear may grip investors and the market value of many stocks could fall well below their fair market values.

News headlines can drive stock prices above or below their intrinsic value. After reading a company’s annual report that’s positive, investors may pile into a stock. Even though better-than-expected earnings might increase the intrinsic value of a stock to a certain degree, investors can get greedy in the short-term and create overextended gains in the stock price.

The rationale behind value vs. price, and behind value investing as a whole, is that stocks tend to overshoot their fair market value to the upside or the downside.

When this leads to a stock being oversold, the idea is that investors could take advantage of the buying opportunity. It’s assumed that the stock will then eventually rise to its intrinsic value, and could be sold at a profit.


💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

What Is Intrinsic Value?

It can be tricky to figure out how to evaluate a stock. Analysts can come to different conclusions about the intrinsic value of a stock, depending on which factors they examine, and how they interpret them. The factors that can be used to determine intrinsic value are related to the fundamental operations of a company.

Some assets can be considered intangible because they have no physical, measurable value — but they impact a company’s performance and bottom line. Intangible assets include things like copyrights, patents, company reputation, consumer loyalty, and so on.

Tangible assets include things like cash reserves, corporate bonds, equipment, land, manufacturing capacity, etc. These tend to be easier to value because they can be assigned a dollar value.


💡 Quick Tip: Newbie investors may be tempted to buy into the market based on recent news headlines or other types of hype. That’s rarely a good idea. Making good choices shouldn’t stem from strong emotions, but a solid investment strategy.

Calculating Intrinsic Value vs Market Value

There can be multiple different ways to determine the intrinsic value of an asset. These methods are broadly referred to as valuation methods, or using fundamental analysis on stocks or other securities.

How Intrinsic Value Is Different

Using fundamental measures to assess share price — such as cash flow, assets vs. liabilities, and earnings — enables investors to get a sense of a stock’s inherent value versus relying on market sentiment, which can drive the price of an asset above or below its fundamental value.

It depends on the investor’s view. There are different philosophies about what determines value vs. price, and whether a stock can even be considered overvalued relative to its intrinsic worth.

•   Efficient market adherents argue that the market has already priced in all information into the security’s price, which makes it hard to view a security as over- or undervalued.

•   Technical analysts believe that the future value of a stock can be determined by a careful reading of trading patterns and price charts, and are less interested in intrinsic factors.

•   Momentum investors similarly focus on price trends, and buy and sell according to market sentiment (without factoring in possible intrinsic value factors).

By contrast, an intrinsic value strategy would argue that fear and greed can influence the market price of any security, and that knowing the fundamentals gives a far more accurate picture of the value of a stock versus its price.

Recommended: How to Analyze a Stock

How to Calculate Intrinsic Value

Intrinsic value investors rely on certain measures like free cash flow (which indicates that a company has enough cash to invest in its priorities), as well as its price-to-book (P/B) ratio and price-to-earnings (P/E) ratio.

•   The P/B ratio helps investors assess whether the company value (based on share price) is above or below total assets.

•   The P/E ratio represents the company’s share price divided by the company’s earnings per share, and indicates whether the price reflects earnings.

Intrinsic investors may also consider earnings reports, interest rate fluctuations, economic indicators, as well as market trends when evaluating a stock.

Overall, though, evaluating free cash flow is essential to calculating intrinsic value. For this reason the Discounted Cash Flow (DCF) model is commonly used by intrinsic investors.

The Dividend Discount Model

For dividend-yielding stocks, for example, the dividend discount model provides a mathematical formula that aims to find the intrinsic value of a stock based on its dividend growth over a certain period of time. Dividends are periodic payouts given to shareholders by a company.

Upon calculating the dividend discount, an investor could then compare it to the current market value of a stock.

•   If the market value was lower, then the stock could be seen as undervalued and a good buy.

•   If the market value was higher, then the stock could be seen as overvalued and not worth buying or possibly an opportunity to sell short.

Another method for estimating intrinsic value is discounted cash flow analysis. This method attempts to determine the value of an investment in terms of its projected future cash flows.

While the dividend discount model and discounted cash flow analysis can be seen as objective ways to determine a stock’s value, they also have a large subjective component. Analysts must choose a timeframe to use in their model. Using different timeframes can lead to different conclusions.

Longer timeframes are often thought of as being more accurate because they include more data points. But they could also dilute the significance of more recent trends.

Example Using Dividend Discount Model

For example, if a company had years of steady dividend growth, but recently slashed its dividend by 50%, a dividend discount model analysis based on a long timeframe would show this reduction in dividend payments to be less severe than an analysis based on a shorter time frame.

The longer timeframe would include previous years of dividend growth, which would theoretically outweigh the recent reduction.

The reduction may have come from a large decrease in earnings. If that trend were to continue, the company could be doomed to the point of having to suspend its dividends. So in this hypothetical example, a shorter time frame could actually lead to a more realistic conclusion than a longer one.

Calculating Market Value

The determination of market value is rather simple by comparison. Someone can either simply look at what price a stock is trading at or calculate its current market capitalization.

The formula for market capitalization or market cap is:

Total number of outstanding shares multiplied by the current stock price.

Dividing market cap by number of shares also leads to the current stock price.

Sometimes companies engage in corporate stock buybacks, whereby they purchase their own shares, which reduces the total number of shares available on the market.

This increases the price of a stock without any fundamental, tangible change taking place. Value investors might say that stocks pumped up by share buybacks are overvalued. This process can lead to extreme valuations in stocks, as can extended periods of market euphoria.

The Takeaway

Intrinsic value and market value describe the value of a security as it’s currently trading versus where its underlying fundamentals suggest it should be trading. Using the intrinsic value vs market value method is likely best suited to a long-term buy-and-hold strategy.

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

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

What’s the difference between fair value and market value?

Fair value is the estimate of a company’s intrinsic value, whereas market value reflects the actual market price of company shares. While they may be used interchangeably, the two terms are different.

What if intrinsic value is higher than market price?

When an investor or analyst determines that the intrinsic value of a stock is higher than the market price, that could indicate the stock is undervalued. Value investors typically seek out such stocks, believing their price could rise over time to match the true value.

Why is it hard to calculate intrinsic value?

Intrinsic value is a more complex calculus, and can vary depending on the factors someone chooses to evaluate. This is partly because intrinsic value includes the dollar value of tangible assets, cash flow, liabilities, and so on — as well as intangible assets like patents, copy rights, brand reputation, and so forth.

SoFi Invest®

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

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

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.

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