Dec
26
2025
A smiling woman sits at her kitchen table typing on a computer with headphones around her neck.

Best IRA for Young Adults: 2026 Guide

By | invest, Investing, Preparing for Retirement | Comments Off on Best IRA for Young Adults: 2026 Guide

Saving for retirement may be lower on the priority list for young adults as they deal with the right-now reality of paying rent, bills, and student loans. But the truth is, it’s never too soon to start saving for the future. The more time your money has to grow, the better. And saving even small amounts now could make a big difference later.

An individual retirement account (IRA) allows you to save for the future over the long term. It’s one option that could help young adults start investing in their future.

There are different types of IRAs, and each has different requirements and benefits. Read on to learn about different types of IRAs, how much you can contribute, the possible tax advantages, and everything else you need to know about choosing the best IRA for young adults.

Key Points

•   By saving and investing for retirement, a young adult could benefit from compounding returns, which can potentially help the growth of a nest egg over the long term.

•   Traditional IRA contributions may help reduce current taxable income because they are made with pre-tax dollars, and withdrawals are taxed in retirement.

•   Roth IRA contributions are made with after-tax dollars, and withdrawals in retirement are tax-free.

•   A Roth IRA may be an option for young adults in a low tax bracket now who expect to be in a higher tax bracket in retirement.

•   Automating contributions may potentially enhance the growth of retirement savings by making savings a recurring process.

Why Start an IRA in Your 20s and 30s?

When you begin saving and investing in your 20s and 30s, you have more time to build a nest egg. Starting an individual retirement account (IRA) early in adulthood may potentially help you benefit from compounding returns and also give you a tax-advantaged way to help your money grow.

The Power of Compounding Returns

The younger you are when you start investing, the more time you have to take advantage of the power of compounding, which can help your investment grow over time.

With compounding returns, if the money you invest earns a profit, and that profit is then reinvested, you earn money both on your original investment and on the returns. That means your gains could potentially multiply over time. The more time you have to invest, the more time your returns potentially have to compound.

Building a Tax-Advantaged Nest Egg Early

An IRA typically also has tax advantages that may help you build your savings more efficiently. For example, with a traditional IRA, you contribute pre-tax dollars and pay taxes on the distributions in retirement. With a Roth IRA, you contribute after-tax dollars, and your withdrawals in retirement are tax-free. One type of IRA or the other might make the most sense for an investor, or perhaps even a combination of both types.

Understanding the Types of IRAs

There are several types of IRAs, but two of the most common are traditional IRAs and Roth IRAs.

How much you can contribute to either type of IRA each year is determined by the IRS, and the amount generally changes yearly. In 2025, those under age 50 can contribute a maximum of $7,000 annually to a traditional or Roth IRA. (Those 50 and up can contribute an extra $1,000 per year in 2025 in what’s called a catch-up contribution.) In 2026, those under age 50 can contribute up to $7,500 annually to a traditional or Roth IRA, while those 50 and up can contribute an extra $1,100 per year.

An IRA calculator can help you figure out how much you can contribute, depending on the type of IRA you’re interested in, among other factors.

What Is a Roth IRA?

A key difference between Roth and traditional IRAs is how they’re taxed. With a Roth IRA, you contribute after-tax dollars. Your contributions are not tax deductible when you make them. However, your earnings grow tax-free in the account, and you withdraw your money tax-free in retirement.

What Is a Traditional IRA?

With a traditional IRA, you contribute pre-tax dollars. Generally speaking, you take deductions on your contributions upfront, which may lower your taxable income for the year, and then you pay taxes on the distributions when you take them in retirement. Your earnings in the account grow tax-deferred.

What Are SEP and Simple IRAs?

Individuals who are self-employed or own a small business might want to explore a SEP IRA or a SIMPLE IRA.

A SEP IRA is available for freelancers, independent contractors, and small business owners. Contributions are capped at a limit set by the IRS. In 2025, individuals can contribute up to the amount that’s the lesser of $70,000 or 25% of an individual’s compensation. In 2026, they can contribute up to the amount that’s the lesser of $72,000 or 25% of their compensation. Contributions to a SEP are made with pre-tax dollars and are tax deductible, and withdrawals are taxed in retirement.

A SIMPLE IRA is also an option for those who are self-employed as well as small businesses that have no other retirement savings plan. The tax and withdrawal rules for a SIMPLE IRA are the same as for a SEP IRA. One big difference between them: A SIMPLE IRA allows employees under age 50 to contribute up to $16,500 in 2025 and $17,000 in 2026 (employers are required to contribute), while a SEP does not allow employee contributions, only employer contributions.

IRA Comparison: Roth vs. Traditional for Young Adults

For those exploring a Roth vs. traditional IRA for a young person, there are a number of different factors to weigh, including taxes, withdrawal rules, and income.

Taxes

An important consideration when looking at which IRA is best for young adults is taxes. For individuals who currently earn a lower income and are in a lower tax bracket, the upfront tax deductions with a traditional IRA may not be as beneficial. A Roth, with its tax-free distributions in retirement, might be worth exploring instead — especially if the individual expects to be in a higher tax bracket in retirement.

Your income also determines how much of your contributions you can deduct with a traditional IRA. Deduction limits depend on your modified adjusted gross income (MAGI), whether you are single or married, your tax filing status, and if you’re covered by a retirement plan at work.

Traditional IRA Deductions for 2025

For instance, in 2025, those who are single and not covered by a retirement plan at work can deduct the entire amount they contribute to a traditional IRA. However, if they are covered by a retirement plan from their employer, they can only deduct the full amount if their MAGI is $79,000 or less. If they earn more than $79,000 and less than $89,000, they can take a partial deduction. And if their MAGI is $89,000 or more, they can’t take any deductions.

Individuals who are married filing jointly and aren’t covered by a retirement plan at work can deduct the full amount of their traditional IRA contributions. But in 2025, if their spouse is covered by a workplace retirement plan, they can deduct the full amount only if their combined MAGI is $236,000 or less. If their combined MAGI is $246,000 or more, they can’t take a deduction.

And if they themselves are covered by a retirement plan at work, they can deduct the full amount of their traditional IRA contributions only if their combined MAGI is $126,000 or less. If their combined MAGI is $146,000 or more, they can’t take a deduction.

Traditional IRA Deductions for 2026

In 2026, individuals who are single and not covered by a retirement plan at work can deduct the entire amount they contribute to a traditional IRA. However, if they are covered by a retirement plan from their employer, they are able to deduct the full amount only if their MAGI is $81,000 or less. If they earn more than $81,000 and less than $91,000, they can take a partial deduction. And if their MAGI is $91,000 or more, they can’t take any deductions.

Those who are married filing jointly and aren’t covered by a retirement plan at work can deduct the full amount of their traditional IRA contributions. But in 2026, if their spouse is covered by a workplace retirement plan, they can deduct the full amount only if their combined MAGI is $242,000 or less. If their combined MAGI is $252,000 or more, they can’t take a deduction.

And if they themselves are covered by a retirement plan at work, they can deduct the full amount of their traditional IRA contributions only if their combined MAGI is $129,000 or less. If their combined MAGI is $149,000 or more, they can’t take a deduction.

Withdrawals

Another important consideration when choosing an IRA is withdrawals. Both traditional and Roth IRAs have early withdrawal penalties.

There are some differences, however. With a traditional IRA, individuals who take withdrawals before age 59 ½ will generally be subject to a 10% penalty, plus taxes. A Roth IRA typically offers more flexibility: Individuals may withdraw their contributions penalty-free at any time before age 59 ½. However, any earnings can typically only be withdrawn tax- and penalty-free once the individual reaches age 59 ½ and the account has been open for at least five years.

That said, there are exceptions to the IRA withdrawal rules, including:

•   Death or disability of the individual who owns the account

•   Qualified higher education expenses for the account owner, spouse, or a child or grandchild

•   Up to $10,000 for first-time qualified homebuyers to help purchase a home

•   Health insurance premiums paid while an individual is unemployed

•   Unreimbursed medical expenses that are more than 7.5% of an individual’s adjusted gross income

The chart below gives a side-by-side comparison between a traditional and Roth IRA to help you quickly see what the key differences are.

Traditional IRA vs. Roth IRA: Key Differences

Traditional IRA Roth IRA
Contributions Made with pre-tax dollars Made with after-tax dollars
Pay taxes on withdrawals in retirement Yes No
Potential earnings Grow tax-deferred Grow tax-free
Contributions tax deductible Yes, if you meet income requirements No
Early withdrawal penalty May have to pay tax on earnings plus a 10% penalty before age 59 ½ No taxes or penalties on contributions, but earnings are subject to taxes and a 10% penalty before age 59 ½

Who Should Choose a Roth IRA?

How a Roth IRA works is that your MAGI must be below a certain level to qualify. In 2025, single individuals who earn up to $150,000 can contribute the full amount to a Roth. Single filers with a MAGI of $150,000 or more but less than $165,000 can contribute a partial amount, and those who earn $165,000 or more are not eligible to open or contribute to a Roth. For married couples who file jointly, the limit in 2025 is up to $236,000 for a full contribution to a Roth, and between $236,000 to $246,000 for a partial contribution.

In 2026, single filers with a MAGI of up to $153,000 can contribute the full amount to a Roth IRA. If their MAGI is $153,000 or more but less than $168,000, they can contribute a reduced amount, and those who earn $168,000 or more cannot contribute to a Roth. Individuals who are married filing jointly can make the full contribution to a Roth IRA if their MAGI is up to $242,000, and they can make a partial contribution if their MAGI is between $242,000 and $252,000.

Since young adults starting out in their career might be earning less than they will in the future, it could make sense for a young adult to open a Roth now when they are more likely to qualify. Plus for individuals earning less now and who expect to have a higher income in retirement, taking tax-free withdrawals after age 59 ½ could make financial sense as well. However, it’s essential to check the annual MAGI limits every year to help prevent exceeding contribution thresholds.

A Roth IRA calculator can help you determine how much you can contribute annually.

Who Should Choose a Traditional IRA?

With a traditional IRA, you contribute pre-tax dollars. That means you take deductions on your contributions upfront, which may lower your taxable income for the year, and then pay taxes on the distributions when you take them in retirement. If you’re earning more now than you expect your income to be in retirement, a traditional IRA may make sense for your situation.

2025 and 2026 IRA Contribution & Income Limits at a Glance

The charts below offer a handy comparison on the contribution limits of traditional and Roth IRAs, the income eligibility limits for Roth IRAs, and the traditional IRA tax deduction limits for 2025 and 2026.

2025 IRA Annual Contribution Limits

Age

 Maximum Annual Contribution (2025)
Under age 50 $7,000
Age 50 and over $8,000 (includes $1,000 “catch-up” contribution)

2026 IRA Annual Contribution Limits

Age

 Maximum Annual Contribution (2026)
Under age 50 $7,500
Age 50 and over $8,600 (includes $1,100 “catch-up” contribution)

2025 Roth IRA Income Eligibility Limits

Tax Filing Status

 Can Make Full Contribution

 Can Make Partial Contribution

 Cannot Contribute
Single / Head of Household MAGI up to $150,000 MAGI between $150,000 – $165,000 MAGI of $165,000 or more
Married & Filing Jointly MAGI up to $236,000 MAGI between $236,000 – $246,000 MAGI of $246,000 or more

2026 Roth IRA Income Eligibility Limits

Tax Filing Status

 Can Make Full Contribution

 Can Make Partial Contribution

 Cannot Contribute
Single / Head of Household MAGI up to $153,000 MAGI between $153,000 – $168,000 MAGI of $168,000 or more
Married & Filing Jointly MAGI up to $242,000 MAGI between $242,000 – $252,000 MAGI of $252,000 or more

2025 Traditional IRA Deduction Limits (if Covered by a Workplace Plan)

Tax Filing Status

 Can Take Full Deduction

 Can Take Partial Deduction

 Cannot Take a Deduction
Single / Head of Household MAGI of $79,000 or more MAGI between $79,000 – $89,000 MAGI of $89,000 or more
Married Filing Jointly MAGI of $126,000 or more MAGI between $126,000 – $146,000 MAGI of $146,000 or more

2026 Traditional IRA Deduction Limits (if Covered by a Workplace Plan)

Tax Filing Status

 Can Take Full Deduction

 Can Take Partial Deduction

 Cannot Take a Deduction
Single / Head of Household MAGI of $81,000 or less MAGI between $81,000 – $91,000 MAGI of $91,000 or more
Married Filing Jointly MAGI of $129,000 or less MAGI between $129,000 – $149,000 MAGI of $149,000 or more

Could You Be Eligible for an IRA?

Building a Strong Investment Strategy

As you explore a suitable IRA for young adults, you’ll want to make sure that you’re getting the most out of your investing strategy to help you achieve your financial goals. Here are some ways to do that.

Contributing to a 401(k) and an IRA.

If your employer offers a 401(k), enrolling in it and contributing as much as you can may help you get started. If possible, aim to contribute enough to get the matching contribution, which is, essentially, “free” or extra money that can help you build your savings.

If you don’t have a workplace 401(k) — and even if you do — you might consider opening an IRA as another account to help save for retirement. Contribute as much as you are able to. With an IRA, you typically have more investment options than you do with a 401(k), and you can also choose the type of IRA that could give you potential tax advantages.

Automating your contributions.

With a 401(k), your contributions usually happen automatically. Opening an investment account for an IRA could help you do something similar. Many brokerages allow you to set up automatic repeating deposits in an IRA. This way you don’t have to even think about contributing to your account — it just happens.

Understanding your risk tolerance.

When you’re deciding what assets to invest in, consider your risk tolerance. All investments come with some risk, but some types are riskier than others. In general, assets that potentially offer higher returns (like stocks) come with higher risk.

If a drop in the market is going to send your anxiety level skyrocketing, you may want to make your portfolio a little more conservative. If you’re willing to take risks, you might want to be a bit more aggressive. Either way, try to find an asset allocation that balances your tolerance for risk with the amount of risk you may need to take to help meet your investment goals.

You might even choose to do automated investing to help match your financial aims and risk tolerance.

Diversifying your investments.

Building a diversified portfolio across a range of asset classes — such as stocks, bonds, and cash, for instance — rather than concentrating all of it in one area — may help you offset some investment risk. Just be aware that diversification doesn’t eliminate risk.

Reassessing your portfolio regularly.

Once or twice a year, review the performance of your portfolio to make sure it’s on track to help you get where you want to be in terms of your financial future.

How to Open an IRA in 3 Simple Steps

Opening an IRA is typically a straightforward process. This is what it entails:

1. Choose Your IRA Type (Roth or Traditional)

Explore a traditional IRA vs. A Roth IRA to decide which one is right for you. Be sure to take into consideration your income now and in retirement, the tax situation that makes the most sense for your situation, the contribution level, and early withdrawal rules.

You can open an IRA at any one of a number of financial institutions, including a bank or an online brokerage, among others.

2. Fund Your Account

After you open an IRA, contribute up to the annual limit if you can to help maximize your investments. If you’re not sure how to fund an IRA, you can start with a few basic techniques.

For instance, you could use your tax refund to contribute to an IRA. That way, you won’t be pulling money out of your savings or from the funds you have earmarked to pay your bills. The same is true if you get a raise or bonus at work, or if a relative gives you money for a birthday. Put those dollars into your IRA.

Another way to fund an IRA is to make small monthly contributions to it. You could start with $50 or $100 monthly. You could even set up a vault bank account specifically for money designated to your IRA so that you don’t end up spending it on something else.

3. Choose Your Investments

Once you fund your IRA, you can start investing your money.That means you need to decide what assets to invest in. Consider your time horizon (or how long you have to invest), your goals, and how much risk you are comfortable with.

As mentioned earlier, assets that can potentially provide higher returns like investing in stocks come with higher risk than fixed-income assets like bonds. Figure out an allocation of the different types of assets that will help you reach your goal without keeping you up at night.

Considerations for Young Adults Looking to Start Investing

Young adults who are ready to begin investing should typically aim to get started as soon as possible. Thanks to the power of compounding returns, the longer your money has to compound, the bigger your account balance may be when you reach retirement.

When choosing an IRA, consider the tax advantages of traditional and Roth IRAs to decide which type of account may be most beneficial for your situation. Once you’ve opened an IRA, try to contribute as much as you can afford to each year, up to the annual limit.

Young adults should also think about their financial goals, at what age they plan to retire, and what their tolerance is for risk. Each of these factors can affect how they invest and what kinds of assets they invest in.

The Takeaway

An IRA can be a way for young adults to start saving for retirement. The earlier they begin, the longer their money may have to grow, which can make a big difference over time.

In order to choose the best IRA for young people, weigh the different tax benefits of Roth and traditional IRAs. If you’re leaning toward a Roth IRA, make sure you meet the income limit requirements, and if you’re considering a traditional IRA, check to see if you can deduct your contributions.

Once you’ve chosen the right IRA for you, start contributing to it regularly if you can. And no matter how much you’re able to contribute, remember this: Getting started with retirement savings is one of the most important steps you can take to build a nest egg and help secure your financial future.

Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA through SoFi Securities or an automated robo IRA with SoFi Wealth, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.

Help build your nest egg with a SoFi IRA.

FAQ

What are the different types of IRAs?

There are several types of IRAs. Two of the most popular are traditional and Roth IRAs, which individuals with earned income can open and contribute to. Contributions to traditional IRAs are made with pre-tax dollars and the contributions are generally tax deductible; the money is taxed on withdrawal in retirement. Contributions to Roth IRAs are made with after tax dollars, and the money is withdrawn tax-free in retirement.

Other types of IRAs include SEP IRAs for self-employed individuals and small business owners, and SIMPLE IRAs for small businesses with 100 employees or fewer.

Which IRA is suitable for young adults?

It depends on an individual’s specific situation, but for young adults choosing between a traditional or Roth IRA, a Roth may be a suitable choice for those in a low tax bracket now and who expect to be in a higher tax bracket in retirement. That’s because with a Roth, contributions are made with after tax dollars and distributions are withdrawn tax-free in retirement. With traditional IRAs, contributions are deducted upfront and you pay taxes on distributions when you retire.

Still, it’s important to weigh the different options and benefits to choose the IRA that’s best for you.

Can I have a 401(k) and an IRA at the same time?

Yes, you can have a 401(k) and an IRA at the same time. In fact, this could potentially be a way to increase retirement savings. You may be able to save more for retirement by having both a 401(k) — and contributing enough to get the employer match — and an IRA. Plus, with an IRA, you typically have a wider range of investment options than with a 401(k), and there may be tax advantages. For example, having a traditional 401(k) and a Roth IRA might provide flexibility when it comes to managing taxes now and in retirement.

What is the maximum I can contribute to my IRA in 2025 and 2026?

The maximum you can contribute to a traditional or Roth IRA in 2025 is $7,000 if you are under age 50. Those ages 50 and up can contribute up to $8,000, including $1,000 in catch-up contributions. In 2026, the maximum contribution you can make to a traditional or Roth IRA is $7,500 if you’re under age 50, or up to $8,600, including $1,100 in catch-up contributions, if you are age 50 or older.

Photo credit: iStock/andresr

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Investment Risk: Diversification can help reduce some investment risk, but cannot guarantee profit nor fully protect in a down market.

Calculator: This calculator is for educational purposes only and based on mathematical principles that do not reflect actual performance of any particular investment, portfolio, or index. Results are not gaurenteed and should not be considered investment, tax, or legal advice. Investing involves risks and results vary based on a number of factors including market conditions and individual circumstances. Past performance is not indicative 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.

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.

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Dec
26
2025
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Investing in Index Funds in a Roth IRA

By | Growing Wealth, invest, Investing | Comments Off on Investing in Index Funds in a Roth IRA

An index fund is a type of mutual fund or exchange-traded fund that aims to track the performance of a specific stock index. A Roth IRA is a type of tax-advantaged investment account. Index funds are one type of investment you could hold inside a retirement plan like a Roth IRA.

Here’s a closer look at investing in index funds through a Roth IRA.

Key Points

•   A Roth IRA is a tax-advantaged retirement account, while index funds are investments that can be held within such accounts.

•   Investing in index funds within a Roth IRA allows for tax-free growth and withdrawals.

•   Index funds provide diversification and offer the potential for long-term growth, which could make them an efficient choice for retirement savings.

•   When selecting an index fund, consider factors like risk tolerance, investment goals, expense ratios, and historical performance.

•   It’s important to regularly review your Roth IRA and the investments in it and make any necessary adjustments to meet your financial objectives and comply with contribution limits.

Understanding Your Investing Options in a Roth IRA

A Roth IRA is an individual retirement account that allows you to set aside after-tax dollars for retirement. Because you’ve already paid taxes on the money you contribute to the Roth IRA, you can withdraw it tax-free in retirement, which is an attractive feature to some investors.

Roth IRAs can offer a number of different investment options, including:

•   Index funds

•   Target-date funds

•   Exchange-traded funds (ETFs)

•   Real estate investment trust (REIT) funds

•   Bonds

Index funds, target-date funds, and REITs can feature a mix of different investments. So, you might invest in a target-date fund that has a 70% allocation to stocks, and a 30% allocation to bonds, for instance. When comparing different funds it’s important to consider the expense ratio you might pay to own it and its past performance.

Some brokerage companies that offer IRAs may also offer other investments, such as individual stocks or commodities. Evaluating your personal risk tolerance, investment timeline, and goals can help you decide how to invest your money if you’re opening a retirement account online like a Roth IRA.

What Are Index Funds?

An index fund is a type of mutual fund or ETF that aims to track the performance of a specific stock index. A stock index measures a specific segment of the market. For example, the S&P 500 index tracks the 500 largest companies listed on public stock exchanges in the U.S.

Index funds typically work by investing in the same securities that are included in the index they’re trying to match. So, for example, if an index fund is using the S&P 500 as its benchmark, then its holdings would reflect the companies that are included in that index.

Index funds are a type of passively managed fund, since assets turn over less frequently. In terms of performance, index funds are not necessarily designed to beat the market but they can be more cost-friendly for investors as they often have lower expense ratios.

Long-term Benefits

Index funds offer the opportunity for long-term appreciation. Because they track the stock market, which historically has an annual return of about 7% (as measured by the S&P and adjusted for inflation), index funds may be able to get a similar rate of return over time, minus any fund fees.

Why Invest in Index Funds Through a Roth IRA?

As noted above, you can hold a range of investments in a Roth IRA, including index funds. Investing in index funds may help diversify your portfolio. Here are some of the other possible factors to consider.

Tax-free Growth and Withdrawals

Because you’ve already paid taxes on the money you contribute to a Roth IRA, you can withdraw it tax-free in retirement, as long as you are age 59 ½ and meet the five-year rule, which dictates that your account has to be open for at least five years before you start withdrawing funds. Tax free withdrawals in retirement might appeal to you if you expect to be in a higher tax bracket at that time.

Any earnings you have from index funds or other investments grow tax-free in a Roth IRA and they can be withdrawn tax-free in retirement.

Supporting Retirement Goals

Because they offer the potential for long-term growth, index funds can be part of a retirement savings strategy. An investor can choose the funds that best fit their risk tolerance and investment goals. The fees are also lower for index funds than some other types of investments, which means you can keep more of your earnings over the long term.

How to Invest in Index Funds in a Roth IRA

If you’ve decided to invest in index funds through your Roth IRA, the process for getting started is relatively simple:

1.    Decide which index fund or funds you’d like to invest in (see more on that below).

2.    Log into your Roth IRA account.

3.    Find the fund you’d like to purchase and select “Buy.” You may be able to specify a specific dollar amount you want to spend or choose the number of shares you want to buy.

4.    Review your order to make sure it is correct, then finalize it.

Tips on Choosing the Right Index Funds

While index funds operate with a similar goal of matching the performance of an underlying benchmark like the S&P 500, they don’t all work the same. There can be significant differences when it comes to things like the expense ratio, the fund’s underlying assets, its risk profile, and its overall performance.

When choosing an index fund to invest in, consider the following factors:

•   Risk tolerance. How much risk are you willing to take with your investments? Knowing if you’re a conservative, moderate, or aggressive investor is important to choosing index funds that make the most sense for you. Our risk tolerance quiz can help you figure out which category you fall into.

•   Your goals. What specifically, are you hoping to get out of your investment? Are you saving for the long term and aiming for it to grow over time? Are you putting away money for retirement? Determining exactly what you want to do with your investment will help you decide what type of index funds to invest in.

•   Broad vs. specialized fund. Broad funds attempt to mimic the performance of a stock market as a whole, while a specialized fund like a small cap index fund, for example, targets companies with a smaller market capitalization. A specialized fund can be riskier because you’re invested in one type of asset, while a broad fund can provide some diversification, although like any investment, there are still risks involved.

•   Performance history. A fund’s performance history can help you see how the fund has handled different market conditions. Look to see how it has consistently performed relative to the benchmark it tracks. You can also compare its performance to other index funds in the same category.

•   Expense ratios. These ratios represent the annual cost of managing an index fund. They’re expressed as a percentage of your total investment. Keep in mind that a small difference in expense ratios can add up over time. With a smaller expense ratio, less of your investment goes to management costs.

Managing Your Index Funds

Even though index funds are passively managed, it’s a good idea to review them from time to time.

First, check their performance to see if they are mirroring the index they follow, minus the expense ratio. If their performance is not keeping up, you may want to consider another fund.

Also, keep an eye on fees. If you see that the fees for your index funds are growing over time, you may want to change your investment.

Managing Your Roth IRA

Similarly, with a Roth IRA, it’s wise to review your account and the investments inside it at least once a year. Monitor how well your assets are performing and see if they are on track to help you reach your goals.

You may find that you need to do some portfolio rebalancing. Based on how your assets have performed, you might have a different asset allocation than you originally started out with, as some things may have performed better than others. For instance, maybe stocks outperformed bonds. Review your asset allocation carefully and make any adjustments needed to help stay true to your risk tolerance and investment goals.

Finally, contribute to your Roth IRA each year if you can, but be sure not to over-contribute. The IRS sets the maximum limit for annual Roth IRA contributions. For 2025, the maximum limit is $7,000, or $8,000 if you’re age 50 or older. You have until the tax filing deadline to make contributions for that tax year. For 2026, the maximum limits are higher: $7,500 or $8,600 if you’re 50 or older.

It’s important to note that the limits are cumulative. If you have more than one Roth IRA, or a Roth IRA and a traditional IRA, your total contributions to all accounts cannot be greater than the limit allowed by the IRS. Unlike traditional IRA contributions, Roth IRA contributions are not tax-deductible.

Also, be aware that you’ll need to have earned income for the year to contribute to a Roth IRA, but there are limits. The IRS sets a cap on who can make a full contribution, based on their filing status and modified adjusted gross income (MAGI).

Here are the income thresholds for the 2025 and 2026 tax years:

Filing Status

 You Can Make a Full Contribution for 2025 If Your MAGI is…

 You Can Make a Full Contribution for 2026 If Your MAGI is…
Single or Head of Household Less than $150,000 Less than $153,000
Married Filing Jointly Less than $236,000 Less than $242,000
Married Filing Separately and Did Not Live With Your Spouse During the Year Less than $150,000 Less than $153,000
Qualifying Widow(er) Less than $236,000 Less than $242,000

Contribution amounts are reduced as your income increases, eventually phasing out completely. The 2025 phaseout limits are $150,000 for single filers, heads of households, and qualifying widows or widowers. The limit for couples is $236,000.

If you’re married and file separate returns but lived with your spouse during the year, you’d only be able to make a reduced contribution for 2025 if your MAGI is less than $10,000.

The 2026 phaseout limits are $153,000 for single filers, heads of households, and qualifying widows or widowers. The limit for couples is $242,000. And if you’re married and filed separate returns and lived with your spouse during the year, you can make a reduced contribution only if your MAGI is less than $10,000.

Recommended: Roth IRA Calculator

The Takeaway

A Roth IRA is a tax-advantaged account that can help you save for retirement. There are a number of different investment options to choose from when you have a Roth IRA, including target-date funds and index funds.

If you decide to invest in index funds, research different funds to find the best ones for you, and be sure to look at their performance and expense ratio, among other factors. Also, consider your risk tolerance and goals when choosing index funds to make sure that they are aligned to help you reach your financial goals.

Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA through SoFi Securities or an automated robo IRA with SoFi Wealth, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.

Help build your nest egg with a SoFi IRA.

FAQ

Can I lose money investing in index funds?

It is possible to lose money investing in index funds. All investments involve risk and can lose money. However, broad index funds, such as those that use the S&P 500 as a benchmark, are diversified and hold many different types of stocks. Even if some of those stocks lose value, they may not all lose value at the same time.

Is it better to invest in index funds or individual stocks for a Roth IRA?

Which investment is best depends on an investor’s financial situation, goals, and risk tolerance. There is no one-size-fits-all answer. But in general, individual stocks can be more volatile with more potential for risk (they may also have more potential for higher returns). Broad index funds that provide significant diversification may help minimize risk and maximize returns over the long term.

Photo credit: iStock/Ridofranz

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Mutual Funds (MFs): Investors should read and carefully consider the information contained in the prospectus, which contains the Mutual Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or SoFi's customer service at: 1.855.456.7634. Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risks. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may have tax implications.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Investment Risk: Diversification can help reduce some investment risk, but cannot guarantee profit nor fully protect in a down market.

S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
Calculator: This calculator is for educational purposes only and based on mathematical principles that do not reflect actual performance of any particular investment, portfolio, or index. Results are not gaurenteed and should not be considered investment, tax, or legal advice. Investing involves risks and results vary based on a number of factors including market conditions and individual circumstances. Past performance is not indicative of future results.

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

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Dec
24
2025
A man consults his smartphone while working on a computer.

What Is Spoofing in Trading? How It Works and Its Consequences

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Is Spoofing in Trading? How It Works and Its Consequences

In the financial space, the term “spoofing” refers to an illegal form of stock market and exchange trickery that is often used to change asset prices. Given that the stock markets are a wild place, and everyone is trying to gain an advantage, spoofing is one way in which some traders bend the rules to try and gain an advantage.

Spoofing is also something that traders and investors should be aware of. This tactic is sometimes used to change asset prices – whether stocks, bonds, or other types of assets.

Key Points

•   Spoofing is an illegal trading tactic where traders place and cancel orders to manipulate asset prices, influencing market supply and demand dynamics.

•   Traders often use algorithms to execute high volumes of fake orders, creating a false perception of demand that can inflate or deflate security prices.

•   The practice of spoofing is a criminal offense in the U.S., established under the Dodd-Frank Act, with serious penalties for those caught engaging in it.

•   Significant fines have been imposed on both institutions and individual traders for spoofing, highlighting the risks of detection and legal consequences.

•   Investors should remain vigilant against spoofing, as it can distort market activity and impact trading strategies, particularly for active traders and day traders.

What Is Spoofing?

Spoofing is when traders place market orders — either buying or selling securities — and then cancel them before the order is ever fulfilled. In a sense, it’s the practice of initiating fake orders, with no intention of ever seeing them executed.

Spoofing means that someone or something is effectively spamming the markets with orders, in an attempt to move security prices.

What’s the Point of Spoofing?

Because stock market prices are determined by supply and demand — for instance, the more demand there is for Stock A, the higher Stock A’s price is likely to go, and vice versa — they can be manipulated to gain an advantage. That’s where spoofing comes in.

By using bots or an algorithm to make a high number of trades and then cancel them before they go through, it’s possible for spoofers to manipulate security prices. For a trader looking to buy or sell a certain security, those valuations may be moved enough to increase the profitability of a trade.

Spamming the markets with orders creates the illusion that demand for a security is either up or down, which is then reflected in the security’s price. Because it would require an awful lot of “spoofed” orders to move valuations, spoofers might rely on an algorithm to place and cancel orders for them, rather than handle it manually. For that reason, spoofing is typically associated with high-frequency trading (HFT).

Is Spoofing Illegal?

If it sounds like spoofing is essentially cheating the system, that’s because it is. In the United States, spoofing is illegal, and is a criminal offense. Spoofing was made illegal as a part of the Dodd-Frank Act, which was signed into law in 2010. Specifically, spoofing is described as a “disruptive practice” in the legislation, straight from the U.S. Commodity Futures Trading Commission (CFTC), which is the independent agency responsible for overseeing and policing spoofing on the markets:

Dodd-Frank section 747 amends section 4c(a) of the CEA to make it unlawful for any person to engage in any trading, practice, or conduct on or subject to the rules of a registered entity that —

(A) violates bids or offers;

(B) demonstrates intentional or reckless disregard for the orderly execution of transactions during the closing period; or

(C) is, is of the character of, or is commonly known to the trade as ‘spoofing’ (bidding or offering with the intent to cancel the bid or offer before execution).

Additionally, there are laws and rules related to spoofing under rules from the Securities and Exchange Commission (SEC), and the Financial Industry Regulatory Authority (FINRA), too.

Example of Spoofing

A hypothetical spoofing scenario isn’t too difficult to dream up. For instance, let’s say Mike, a trader, has 100,000 shares of Firm Y stock, and he wants to sell it. Mike uses an algorithm to place hundreds of “buy” orders for Firm Y shares — an algorithm that will also cancel those orders before they’re executed, so that no money is actually spent.

The influx of orders is read by the market as an increase in demand for Firm Y stock, and the price starts to increase. Mike then sells his 100,000 shares at an inflated price — an artificially inflated price, since Mike effectively manipulated the market to increase his profits.

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

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

*Customer must fund their Active Invest account with at least $50 within 45 days of opening the account. Probability of customer receiving $1,000 is 0.026%. See full terms and conditions.

Consequences of Spoofing

Because spoofing is a relatively easy way to manipulate markets and potentially increase profits, it’s also a fairly common practice for some traders and firms, despite being against the law. That transgression can cost spoofers if and when they’re caught.

For example, one financial institution was fined nearly $1 billion by the SEC during the fall of 2020 after the company was caught conducting spoofing activity in the precious metals market.

But it’s not just the big players that can be on the receiving end of a smack down by the authorities. During August of 2020, an individual day trader was caught manipulating the markets through spoofing activity — actions that netted the trader roughly $140,000 in profits. The trader was ultimately ordered by the CFTC to pay a fine of more than $200,000.

Despite the cases that make headlines, it’s generally hard to identify and catch spoofers. With so many orders being placed and executed at once (especially with algorithmic or computer aid) it’s difficult to identify fake market orders in real time.

How to Protect Against Spoofing

There are a number of parties that are constantly and consistently trying to gain an edge in the markets, be it through spoofing or other means. For investors, it’s worth keeping that in mind while sticking to an investing strategy that works for you, rather than investing with your emotions or getting caught up in the news cycle.

In a time when a single social media post or errant comment on TV can send stock prices soaring or into the gutter, it’s critical for investors to understand what’s driving market activity.

Test your understanding of what you just read.

The Takeaway

Spoofing is meant to gain advantage in the markets, but as such it’s illegal and penalties can be steep. Beyond the spoofers trying to manipulate the market, spoofing has the potential to affect all investors.

If spoofers are manipulating prices for their own gain, that can cause traders and investors to react, not realizing what is going on behind the scenes. While this is more of an issue for active investors or day traders, it’s something to be aware of.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

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

FAQ

What does spoofing mean in the stock market?

In the financial space, the term “spoofing” refers to an illegal form of stock market and exchange trickery that may be used to alter asset prices. Spoofing is one way in which some traders bend the rules to try and gain an advantage.

Is spoofing legal?

In the United States, spoofing is illegal, and is a criminal offense. Spoofing was made illegal as a part of the Dodd-Frank Act in 2010, and is policed by the Commodity Futures Trading Commission (CFTC).

How can you protect yourself from spoofing?

There’s no foolproof way to protect yourself and your portfolio from spoofing, so it may be best to stick to your investing strategy and try not to get caught up in market hype. Further, you can keep an eye out for unusual market movements, use limit orders, and even reporting suspicious activity to the SEC.

Photo credit: iStock/visualspace

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. 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.


¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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.

This article is not intended to be legal advice. Please consult an attorney for advice.

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Dec
24
2025
A bulletin board on a stand displays the words, Welcome to Chicago.

What Is the Chicago Board Options Exchange (CBOE)?

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Is the Chicago Board Options Exchange (CBOE)?

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

The Chicago Board Options Exchange (CBOE), is now known as CBOE Global Markets, and it is one of the world’s largest exchanges for trading options contracts, a type of derivative.

Like other global trading companies, CBOE is poised to offer extended trading hours in 2026.

CBOE also operates a range of exchanges and trading platforms for various securities (e.g., equities, futures, digital assets). The CBOE also originated one of the most popular volatility indices in the world, the VIX, a.k.a. the fear index.

While you may already be familiar with the New York Stock Exchange and Nasdaq, those are only two of the exchanges investors use to trade securities. Here’s where the CBOE fits in.

Key Points

•   The Chicago Board Options Exchange (CBOE), now CBOE Global Markets, is the world’s largest exchange for trading options contracts and other derivatives.

•   CBOE operates a variety of exchanges and trading platforms for different securities, including equities, futures, and digital assets.

•   The organization originated the CBOE Volatility Index (VIX), which is one of the most popular volatility indices, also known as the “fear index.”

•   Options contracts traded on CBOE are financial derivatives that derive their value from an underlying asset.

•   CBOE has a history of innovating tradable products, and plans to offer extended trading hours of almost 24 hours per day, five days a week, starting in 2026.

What Is the CBOE Options Exchange?

CBOE, or CBOE Global Markets, Inc., is a global exchange operator founded in 1973 and headquartered in Chicago. Investors may turn to CBOE to buy and sell both derivatives and equities. In addition, the holding company facilitates trading various securities across an array of exchanges and trading platforms.

What Does CBOE Stand For?

Originally known as the Chicago Board Options Exchange, the organization incorporated as a holding company in 2010, making the options exchange its core asset. The company changed its name to CBOE Global Markets in 2017.

The organization also includes several subsidiaries, such as The Options Institute (an educational resource), Hanweck Associates LLC (a real-time analytics company), and The Options Clearing Corporation or OCC (a central clearinghouse for listed options).

The group has global branches in Canada, England, the Netherlands, Hong Kong, Singapore, Australia, Japan, and the Philippines.

CBOE is also a public company with its stock (CBOE) traded on the CBOE exchange, which investors can find when they buy stocks online.

What Are Options Contracts?

Options are considered derivative investments, as they derive their value from underlying assets. Each option is a contract that can be bought and sold on an exchange (similar to the underlying assets they’re associated with). One option contract generally represents 100 shares of the underlying stock or other security.

Because investors trade option contracts, not the underlying security itself, buying or selling an options contract may enable investors to benefit from price changes in the underlying asset without actually owning it. But trading options is a complex endeavor.

First, an options contract generally costs less than the underlying asset, so trading options can offer investors leverage that may result in potentially amplified gains, depending on how the market moves — or amplified losses. For this reason, options are considered high-risk investments and they’re typically suited to experienced investors.

Recommended: A Beginner’s Guide to Options Trading

History of the Chicago Board of Options Exchange

Founded in 1973, CBOE represented the first U.S. market for traders who want to buy and sell exchange-listed options, in addition to investing in stocks. This was a significant step for the options market, helping it become what it is today.

In 1975, the CBOE introduced automated price reporting and trading along with the Options Clearing Corporation (OCC).

Other developments followed in the market as well. For example, CBOE added put options in 1977. And by 1983, the market began creating options on broad-based indices using the S&P 100 (OEX) and the S&P 500 (SPX).

How the CBOE Evolved

In 1993, CBOE created its own market volatility index called the CBOE Volatility Index (VIX).

In 2015, it formed The Options Institute. With this, CBOE had an educational branch to provide investors with information about options. The Options Institute schedules monthly classes and events to help with outreach, and it offers online tools such as an options calculator and a trade maximizer.

From 1990 on, CBOE began creating unique trading products. Notable innovations include LEAPS (Long-Term Equity Anticipation Securities) launched in 1990; Flexible Exchange (FLEX) options in 1993; week-long options contracts known as Weeklys in 2005; and an electronic S&P options contract called SPXPM in 2011.

Understanding What the CBOE Options Exchange Does

The CBOE Options Exchange serves as a trading platform, similar to the New York Stock Exchange (NYSE) or Nasdaq. It has a history of creating its own tradable products, including options contracts, futures, and more. CBOE also has acquired market models or created new markets in the past, such as the first pan-European multilateral trading facility (MTF) and the institutional foreign exchange (FX) market.

The CBOE’s specialization in options is essential, but it’s also complicated. Options contracts don’t work the same as stocks or exchange-traded funds (ETFs). They’re financial derivatives tied to an underlying asset, like a stock, but they have a set expiration date dictating when investors must settle or exercise the contract. That’s where the OCC comes in.

The OCC settles these financial trades by taking the place of a guarantor. Essentially, as a clearinghouse, the OCC acts as an intermediary for buyers and sellers. It functions based on foundational risk management and clears transactions. Under the Security and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), it provides clearing and settlement services for various trading options. It also acts in a central counterparty capacity for securities lending transactions.

Recommended: An Introduction to Stock Options

CBOE Products

CBOE offers a variety of tradable products across multiple markets, including many that it created.

For example, CBOE offers a range of put and call options on thousands of publicly traded stocks, ETFs, and exchange-traded notes (ETNs). Investors may use these tradable products for specific strategies, like hedging. Or, they might use them to gain income by selling cash-secured puts or covered calls.

These options strategies give investors flexibility in terms of how much added yield they want and gives them the ability to adjust their stock exposures.

Investors have the CBOE options marketplace and other alternative venues, including the electronic communication network (ECN), the FX market, and the MTF.

CBOE and Volatility

The CBOE’s Volatility Index (VIX), sometimes called the fear index, is a gauge of market volatility in U.S. equities. It also tracks the metric on a global scale and for the S&P 500. That opens up an opportunity for many traders. Traders, both international and global, use the VIX Index to get a foothold in the large U.S. market or global equities, whether it’s trading or simply exposing themselves to it.

In late 2021, CBOE Global Markets extended global trading hours (GTH) for its VIX options and S&P 500 Index options (SPX) to almost 24 hours per business day, five days a week. They did this with the intention to give further access to global participants to trade U.S. index options products exclusive to CBOE. These products are based on both the SPX and VIX indices.

This move allowed CBOE to meet growth in investor demand. These investors want to manage their risk more efficiently, and the extended hours could help them to do so. With it, they can react in real-time to global macroeconomics events and adjust their positions accordingly.

Essentially, they can track popular market sentiment and choose the best stocks according to the VIX’s movements.

The Takeaway

CBOE, or CBOE Global Markets, Inc., is more than just a hub of global exchanges. CBOE facilitates the trading of various securities across an array of equity and derivatives trading platforms. In addition, CBOE offers educational training and product innovations.

Like other global exchanges, CBOE will offer extended trading hours in 2026, ranging from 23 hours to 24 hours per day, five days a week.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.


Explore SoFi’s user-friendly options trading platform.

FAQ

What does CBOE do?

CBOE is the biggest options exchange worldwide. It offers options contracts on equities, indexes, interest rates, and more. CBOE is also known for creating the so-called fear index, or VIX — a widely used measure of market volatility.

Is the CBOE only for options trading?

No. While CBOE is known primarily for its roles as an options trading platform, it also operates four equity exchanges, as well as other trading platforms like the CBOE Futures Exchange (CFE), for trading this type of derivative.

What are derivatives?

The term derivatives is used to describe four main types of investments that are tied to underlying investments: futures, options, swaps, and forwards. Each of these types of derivatives can be used to trade an underlying asset such as stocks, foreign currencies, commodities, and more, without owning the underlying security.

Photo credit: iStock/USGirl

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

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.

SOIN-Q425-078

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Dec
23
2025
A man in a plaid shirt sits in front of his computer, resting his chin on his hand, as he reviews investment options.

10 Ways to Invest $1000 in 2026

By | Growing Wealth, invest, Investing | Comments Off on 10 Ways to Invest $1000 in 2026

If you’re looking for ways to invest $1,000, there are numerous options available, including stocks, bonds, Treasurys, and more. But how do you get started? And which option — or options — may be right for you?

While it’s impossible to predict how the market will perform in 2026, many investors have taken note of the economic and market conditions in 2025, e.g., increased interest in tech stocks, a slower real estate market, the impact of tariffs on global markets, and so on. Inevitably, these trends are likely to change, but understanding the different market dynamics can be valuable.

Read on to learn about different ways to invest $1,000 — or any other amount — how they work, and the pros and cons of each one to help you make an informed decision to help reach your financial goals.

Key Points

•   Align investments with financial goals, investment timeline, and risk tolerance.

•   Investing in an emergency fund can help cover unexpected costs.

•   A 529 plan is a tax-advantaged savings account that families can invest in to save for education expenses.

•   ETFs tend to offer ease of trading, lower fees, and potential tax efficiency.

•   Contributing to tax-advantaged IRAs could help build retirement savings.

A Look-Ahead for Investing in 2026

There’s a reason this classic investing mantra has stood the test of time: “Past performance is no guarantee of future returns.” Will the trends of 2025 — interest in artificial intelligence, worries about interest rates — persist in the year to come? It’s hard to say, and there’s no guarantee.

A better approach for investors who are curious about ways to invest in 2026 and beyond is not to focus on short-term trends, but rather use those markers as information about investor behavior and markets in general.

Getting to know those basics can help you make choices in light of your own goals and financial circumstances, as will the following 10 suggestions.

1. Getting Into the Stock Market With Index Funds

Investors who want to ease into the stock market may want to consider index funds. Investing in index funds is a passive investing strategy that may be less risky than buying individual stocks or securities. Index funds follow a market index and track it to mirror its performance.

Why S&P 500 Index Funds Might Make Sense

S&P 500 index funds track the S&P 500 index. These funds give investors exposure to the stock performance of about 500 of the leading companies on the market.

When you buy shares of an index fund, your money is basically invested in the many companies that make up the index. This helps provide some diversification to an investor’s portfolio.

Index fund investing has some advantages, such as ease of management and relatively low entry costs in some cases. However, investing in S&P 500 index funds does have risks. In the event of a broad market downturn, for instance, your portfolio could take a significant hit, depending on its specific makeup.

The Long-Term Benefits of Tracking the Market

Broad index funds track the performance of the market over time, which tends to go up based on historical data. As for the S&P 500, it has grown over time — but not without some hiccups along the way. The S&P 500 has averaged about 10% annually over time — or about 7% a year when adjusted for inflation.

2. Investing in ETFs

Exchange-traded funds, or ETFs, are another potential option for investors looking at how to invest $1,000. ETFs offer a way to gain broad exposure to a potentially wide variety of different types of investments, such as different sectors or asset classes.

How ETFs Offer Accessibility to Beginners

Purchasing shares of an ETF works much like purchasing shares of an individual company’s stock. Investors can find them on online investment platforms and as investment options for many retirement accounts, for example.

However, like other types of investment vehicles, ETFs have pros and cons, and it’s important to weigh the potential benefits and drawbacks. As for the advantages, ETFs can be easy to trade, offer a degree of built-in diversification, tend to have lower fees, and may be more tax-efficient than some other assets like mutual funds.

Disadvantages of ETFs may include lack of exposure to certain industries or asset types, or conversely, ready access to ETFs that might be based on highly complex and high risk assets or strategies. It’s important to research investments thoroughly before putting money in them, including ETFs. ETFs may also not precisely match the performance of the index they’re tracking — or might on some occasions go more widely offtrack.

Comparing Popular ETF Options

Interested investors can explore broad index-focused ETFs, or any number of others. There are ETFs for bonds, real estate, oil, other commodities, and even currency, among other types.

For example, say an investor wants exposure to gold mining stocks. But researching all of the different mining companies out there, examining their plans, management, profitability, and more could be overwhelming. Such an investor may want to consider ETFs that include some gold mining stocks instead.

3. Creating an Emergency Fund

Having an emergency fund is important. When unexpected expenses or situations pop up, as they inevitably do, an emergency fund can help cover those costs.

For instance, a person might need surgery and end up with a big medical bill they weren’t planning on. Or perhaps they get laid off from your job. The money in an emergency fund can help you cover the bills.

How Big Your Fund Should Be

Most financial professionals advise having three to six months’ worth of expenses in an emergency fund. It’s possible to start by investing $100, $1,000, or even $50 to get started, and commit to adding more of a cushion over time. It’s also possible to automate deposits, which can help you save.

4. Securing the Future With Retirement Funds

A tax-advantaged retirement account is designed to help people save for the future. Investors could consider opening an IRA or enrolling in an employer-sponsored account like a 401(k). There are also certain types of accounts, like SEP and SIMPLE IRAs, that are designed to help small business owners and people who are self-employed save for the future.

The Advantage of IRAs

There are different kinds of individual retirement accounts, including traditional and Roth IRAs. Both types of IRAs are tax-advantaged, but there are differences between them. With a traditional IRA, an individual contributes pre-tax dollars. These contributions are generally tax deductible because they lower taxable income. The money in the account grows tax deferred, and the individual pay taxes on withdrawals in retirement.

Contributions to a Roth IRA are made with after-tax dollars and are typically not tax deductible. The money grows in the account tax-free and withdrawals in retirement are also tax-free — as long as the account has been open for at least five years.

Maximizing 401(k) Matches

Maxing out a 401(k) retirement plan can be another option for investors to consider. Some employers match employee contributions to 401(k) accounts up to a certain amount. This employer match is essentially free money. Investors who have $1,000 to invest may want to consider putting it in a 401(k), if they have access to one, especially if doing so could help them get their employer’s match.

5. Stepping Into Tech With Robo Advisors

Robo advisors are not robots, but rather sophisticated computer algorithms that pick investments for investors and help them manage those investments. Using this kind of technology may be appealing to some investors because it takes much of the guesswork, calculation, and research out of the investing process — while still offering high-quality professional guidance.

Simplifying Investments With Technology

Generally, an online robo advisor will ask an investor some questions about their investment goals, risk tolerance, and desired retirement age (or the time until they’ll need the money for another goal). Then, based on those answers, the platform generates a portfolio, and the amount of money the investor would like to invest will be allocated accordingly.

There are typically several different pre-set portfolios robo advisors recommend to investors, ranging from conservative risk, to moderate risk, to aggressive risk.These portfolios usually provide a mix of assets that align with an investor’s tolerance for risk, which is determined by the answers given to the robo advisor’s questions.

For example, conventional wisdom says that younger investors may take more risk because they have more time to make up for potential losses. On the other hand, older investors who are closer to retirement are generally advised to be more conservative, since steep losses could compromise their retirement plans.

Disadvantages of Automated Portfolios

It’s important to understand the potential downsides of using a robo advisor. For example, there may be limited personalization and flexibility, which could be a turn-off for investors who want to take a more active hand in their portfolio.

Typically, there is also a lack of human input, so an investor may not be able to speak with someone at their brokerage as easily as they might like. And finally, robo advisors generally have fees and costs investors should be aware of, though they are typically much less than those of a financial advisor.

6. Paying Down High-Interest Debts

Paying down debt may not seem like an “investment” in the traditional sense. However, an individual could think of it as an investment in their financial future since wiping out debt could free up money that might otherwise go toward interest payments. They could then invest or save that money instead.

There are a lot of different strategies to pay down debt, but the process can start with some simple steps: Create a budget, set goals, and stick to them.

In terms of specific methods, one common debt-payoff strategy is the snowball method, which involves paying debt with the lowest overall balance first, and then moving on to the next lowest debt and so on.

With the avalanche method, an individual focuses on paying off the debt with the highest interest rate first, and then moves to the debt with the next highest rate.

7. Investing in Stocks

Stocks are shares of ownership in a company. An investor interested in buying stocks could do research and find a company that they believe will appreciate in value over time and then buy shares of that stock through a brokerage account. However, while stocks may potentially offer a bigger return on investment than some other assets, such as certain bonds, they can also be highly volatile and involve more risk.

Fractional Shares

Because of their risk and volatility, stocks may be best for those with a diversified portfolio who are willing to take on more risk. Another option is something called fractional shares. A fractional share is less than one whole equity share of stock. For example, it might be 0.42 of a share of a stock.

Fractional shares allow access to stocks that might otherwise be out of reach because of their expense. For beginning investors, they could be a way to invest small amounts of money into part of a share of stock. If a stock is $100 a share, for instance, an investor could potentially buy 0.50 of a share for $50, hypothetically.

There are some disadvantages of fractional shares to be aware of. Among other drawbacks, fractional shares may incur higher transaction fees. Also, some fractional shares might be less liquid than full shares of stock, making them more difficult or time consuming to sell. Investors should carefully consider the pros and cons of fractional shares before investing.

8. Exploring Passive Income Opportunities

Passive income is income that typically comes from a source that requires less time and effort than most regular jobs do. It could be a side hustle, renting out something a person owns like their car or bike, or starting a blog or YouTube channel. Some passive income opportunities may require a little capital to get off the ground; even so, many can be started for $1,000 or less.

Getting Started With Passive Ventures

There are dozens of ways to put money to work and start a passive income venture. In addition to the passive income ventures mentioned above, alternatives include publishing an ebook, selling homemade artwork or clothing online, or creating an online course around something that teaches a skill, like photography.

Some of these options will require a little start-up cash, but they could end up bringing in some extra money.

Low-Investment Ideas for Passive Earnings

Some other potential ways to earn passive income is through certain investments with $1,000. For example, if an individual owns stocks or ETFs that pay dividends, those dividends are considered passive income. Or, if they own property, they could use their $1,000 to spruce it up and then rent it out and possibly earn passive income that way.

Just remember, investing involves risk, as does starting a new business venture. There are no guarantees that it will be successful.

9. Investing in Your Child’s Education With a 529 Plan

For those with children, investing in a 529 college savings plan can be a way to help pay for their education, especially as school costs continue to rise. Think of it as investing in their future.

The Basics of 529 Plans

A 529 plan is a tax-advantaged savings account that allows families to save for education expenses. Contributions to the account grow tax-free, and as long as the money is withdrawn for qualified education expenses like tuition, books, and room and board, the withdrawals are also tax-free.

529 plans aren’t just for college. They can be used to help pay for some K-12 expenses and also for trade schools.

Long-Term Benefits for Your Family

529 plans can be used to ease the financial burden of school and/or college, and they offer tax-free growth. With the rising costs of schooling, saving and investing for tuition early on can be helpful.

Beneficiaries of 529 plans (aka your children) can even withdraw up to $10,000 tax-free (this is a lifetime amount) to help repay their student loans later on, thanks to the SECURE Act. And any unused 529 funds can be used to fund a Roth IRA for the student.

10. Consider Bonds and T-Bills

When deciding how to invest $1,000, individuals may want to explore lower-risk investments, such as savings bonds and T-bills.

The Stability of Government Bonds

Savings bonds are issued by the federal government, and they are generally considered to be one of the least-risky investment options. Individuals are essentially guaranteed to get back the amount they invested in them. They buy these bonds for their face value and the bonds pay interest over a specific period of time. When the bonds mature, the individual gets their principal back.

A Treasury bill is a short-term debt obligation — similar to a loan — issued by the U.S. government. T-bills typically mature in one year or less, and at that point a person gets back the amount they invested plus interest.

Making Your Investments Work Harder

Choosing how to invest requires some research and careful consideration. And monitoring investments regularly could help an individual make sure they are satisfied with them. If an investment option isn’t working, they can always make a change.

When to Pivot Your Investment Strategy

Reasons to pivot or change an investment strategy include a change in financial goals (maybe an individual wants to start saving for a house, for instance), a change in financial situation (perhaps job loss — or landing a new job with a higher salary), or a major life event (like getting married or having a baby). These can all be times for an individual to reevaluate strategy and decide whether they need to switch it up to meet their new priorities.

It might also be time to pivot to a new strategy if there are changes in the market or investments aren’t performing the way an investor hoped they would.

A person’s appetite for risk and/or investment timeline may change as well. For example, as they get closer to retirement, they may want to be more conservative with their investments and pivot to lower-risk options.

The Takeaway

There are many different ways to invest $1,000, including investing in the market, contributing to a retirement account, or launching a passive income strategy. An individual could consider different options to help determine what works best for their current financial situation and priorities.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest®. You can trade stocks, ETFs, or options through self-directed investing with SoFi Securities, or simply automate your investments with a robo advisor from SoFi Wealth. You'll gain access to alternative investments and upcoming IPOs, and can plan for retirement with a tax-advantaged IRA. With SoFi, you can manage all your investments, all in one place.


Take a step toward reaching your financial goals with SoFi Invest.

FAQ

What is the safest investment with the highest return?

There is no single safe investment with a guaranteed highest return. An investor should consider their own personal risk tolerance, investing timeline, and goals when choosing an investment. However, generally speaking, lower-risk investment options could include savings bonds and T-bills that are backed by the federal government, give an investor back the principal they invested, and pay interest.

Where should I put $1,000 right now?

Where to put $1,000 right now is up to you and depends on your personal situation, investing timeline, risk tolerance, and financial goals. However, some options to potentially consider include starting an emergency fund if you don’t yet have one, putting the money in a retirement account like a 401(k) or IRA to save for your future, or investing in a 529 plan for your child’s education.

What is the smartest thing to do with a lump sum of money?

What you choose to do with a lump sum of money depends on your financial goals and personal circumstances. Some potential options include using the money to pay off debt, start an emergency fund, or put into a retirement account.

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

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

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Investment Risk: Diversification can help reduce some investment risk, but cannot guarantee profit nor fully protect in a down market.

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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.

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