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.

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. It cannot guarantee profit, or fully protect in a down market.

Mutual Funds (MFs): 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 clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.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 risk, include the risk of loss. 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 be subject to tax consequences.

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.

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.
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.

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

Third Party 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
22
2025
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Roth TSP vs. Roth IRA: How They Compare

By | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off on Roth TSP vs. Roth IRA: How They Compare

Both Thrift Savings Plans (TSPs) and Individual Retirement Accounts (IRAs) come in traditional and Roth versions. One of the main differences between a Roth TSP vs. Roth IRA is who can contribute. Federal employees and members of the military can save in a Roth TSP. Anyone with earned income that’s within IRS income thresholds can contribute to a Roth IRA.

In either case, your contributions are not tax-deductible, but you can make tax-free qualified withdrawals when you retire.

Key Points

•   Roth TSPs are available to federal employees and military members, while Roth IRAs are accessible to anyone with earned income within IRS income thresholds.

•   Contributions to both Roth TSPs and Roth IRAs are made with after-tax dollars, allowing for tax-free qualified withdrawals in retirement.

•   Roth TSPs have higher annual contribution limits and allow for employer matching contributions, unlike Roth IRAs.

•   Roth IRAs typically offer a broader choice of investment options than Roth TSPs.

•   Choosing between a Roth TSP and Roth IRA depends on employment status, contribution capacity, and retirement goals.

What Are Roth Thrift Savings Plans (TSP)?

The Thrift Savings Plan is a retirement plan that’s designed specifically for federal employees. You’re generally eligible to contribute to a TSP if you’re covered by the Federal Employees’ Retirement System (FERS) or the Civil Service Retirement System (CSRS). Members of the military can also save for retirement in a TSP.

A Roth TSP allows you to contribute after-tax dollars. When you make qualified withdrawals in retirement, those withdrawals are not taxed. Earnings are considered qualified if:

•   At least 5 years have passed since January 1 of the first year in which you began making contributions, and

•   You’re 59 ½ or older, permanently disabled, or deceased.

Contributions are made through elective salary deferrals, similar to a 401(k) plan. Catch-up contributions are allowed for workers aged 50 or older. Under the SECURE 2.0 Act, a higher catch-up contribution limit applies in 2025 and 2026 for those ages 60 to 63. The IRS determines how much you can save in a Roth TSP each year. Here are the contribution limits for 2025 and 2026.

2025

 2026
Elective Deferrals $23,500 $24,500
Catch-Up Contributions $7,500 $8,000
$11,250 for those ages 60-63
Annual Additions Limit $70,000 $72,000

The annual additions limit is the total amount you can contribute in a calendar year. It includes employee contributions, as well as automatic and matching contributions made by your employing agency. Catch-up contributions do not count in this total.

🛈 While SoFi does not offer a Roth TSP, we do offer a Roth IRA to help members save for retirement.

What Are Roth IRAs?

A Roth IRA retirement account is an individual retirement account that allows you to contribute after-tax dollars, then make qualified withdrawals tax-free. Roth IRAs are available to individuals through brokerages, banks, and other financial institutions, rather than through employers.

You’ll need to have earned income to contribute to a Roth IRA. The IRS sets the maximum annual contribution limit. Catch-up contributions are allowed if you’re 50 or older. Here’s how the limits compare for 2025 and 2026.

2025

 2026
Annual Contributions $7,000 $7,500
Catch-Up Contributions $1,000 $1,100

The annual limit does not apply to rollover or reservist contributions. How much you can contribute to a Roth IRA is based on your income and tax filing status.

You can make the full contribution in 2025 if:

•   You file single or head of household and your modified adjusted gross income (MAGI) is less than $150,000

•   You’re married, file separately, did not live with your spouse during the year and your MAGI is less than $150,000

•   You’re married and file jointly or are a qualifying widow(er) and your MAGI is less than $236,000

You can make a full contribution in 2026 if:

•   You file single or head of household and your MAGI is less than $153,000

•   You’re married, file separately, did not live with your spouse during the year, and your MAGI is less than $153,000

•   You’re married and file jointly or are a qualifying widow(er) and you’re MAGI is less than $242,000

There are no required minimum distributions for Roth IRAs, so you can leave money in your account until you need it. You can also withdraw original contributions at any time, without a tax penalty.

Similarities Between Roth TSP vs Roth IRA

It’s important to open a retirement account that fits your needs. In terms of what’s similar between a Roth IRA vs. Roth TSP, they both allow you to contribute money on an after-tax basis. In other words, you pay taxes on the money that goes into the plan upfront so you can withdraw it tax-free later.

Once you reach age 59 ½, you can begin taking distributions without triggering any tax consequences. In terms of early withdrawals from a TSP vs. Roth IRA, there’s no difference. The IRS can assess a 10% early withdrawal penalty when taking money out of either account prematurely.

Both Roth IRAs and Roth TSPs are subject to the five-year rule mentioned earlier. Again, that rule dictates that at least five years must have passed since making your first contribution in order to avoid a tax penalty when making withdrawals.

TSP Roth vs. Roth IRA Similarities
Funded with… After-tax dollars
Contributions are… Not tax-deductible
Qualified withdrawals are… Tax-free

Differences Between Roth TSP vs. Roth IRA

While they do have some things in common, there are some notable differences between a Roth IRA vs. TSP.

First, the TSP is an employer-sponsored plan, while an IRA is not. If you don’t work for the federal government you wouldn’t have access to a Roth TSP, but you could still open a Roth IRA and contribute to it.

Next, Roth TSPs have much higher annual contribution limits and catch-up contribution limits. They also allow for employer matching contributions, something you won’t get with a Roth IRA. Your ability to contribute to a TSP is not limited by your income either.

While Roth IRAs allow you to withdraw original contributions at any time without a tax penalty, that’s not the case for Roth TSPs.

TSP Roth vs. Roth IRA Differences
Contribution limits… Are higher for Roth TSPs
Matching contributions… Only apply for Roth TSPs
Contribution withdrawals… Only Roth IRAs allow you to withdraw original contributions at anytime without a tax penalty

Roth TSP vs. Roth IRA: The Pros

There are several types of retirement plans that can offer tax advantages, including both Roth TSP and Roth IRA accounts. In terms of the pros, the main benefits of choosing either of these accounts lies in the ability to withdraw money when you retire tax-free.

If you expect to be in a higher tax bracket when you retire, Roth TSP or Roth IRA withdrawals won’t increase your tax liabilities. That’s a good thing if the value of your investments within either account has risen significantly since you first began making contributions.

Roth TSPs may help you save a decent amount of money for retirement if you’re able to max out your plan each year. The addition of employer matching contributions is another benefit, since that’s essentially “free” money. You don’t get that with Roth IRAs, but these accounts can still be a good way to save if you don’t have access to a retirement plan at work.

Roth TSP Pros Roth IRA Pros

•   Contribute money on an after-tax basis

•   Contributions grow tax-free

•   Qualified withdrawals are tax-free

•   High annual contribution and catch-up contribution limits

•   Employer matching contributions may help your savings grow faster

•   Eligibility to contribute is not tied to your income

•   Contribute money on an after-tax basis

•   Contributions grow tax-free

•   Qualified withdrawals and withdrawals of original contributions are tax-free

•   Save for retirement even if you don’t have a workplace retirement plan

Roth TSP vs. Roth IRA: The Cons

While there are some advantages to saving in a Roth TSP or Roth IRA, there are also some potential downsides. For one thing, you’ll need to have a federal job (that is, work for the federal government is some capacity) in order to contribute to a Roth TSP. With a Roth IRA, your ability to make a contribution hinges on your income and filing status.

Roth TSPs are also known for offering a narrower range of investment options. If you make an in-service withdrawal from your account and you’re not age 59 ½ yet, you should be prepared to pay a tax penalty.

A Roth IRA doesn’t offer matching contributions, nor can you borrow from it. Any early withdrawals that are not qualified or don’t otherwise meet the five-year rule could be subject to tax penalties. While you might have more investment options to choose from, it’s important to be mindful of the fees you may pay.

Roth TSP Cons Roth IRA Cons

•   Must be an eligible federal employee to contribute

•   Investment selection may be limited

•   In-service withdrawals only allowed for financial hardship

•   Early withdrawal penalty may apply

•   Must be within the IRS threshold guidelines to contribute

•   How much you can contribute is tied to income and filing status

•   No option to take loans

•   No employer matching contributions

•   Early withdrawal penalty may apply

Roth TSP vs. Roth IRA: Which Is Better for Your Retirement Goals?

Selecting a retirement plan is an important decision as you want to choose an option that aligns with your needs, goals, risk tolerance, and objectives. Contributing to a Roth TSP could be wise if you’re a federal employee, since you can take advantage of higher contribution limits and employer matching contributions.

A Roth IRA, meanwhile, could make sense if you don’t have access to a retirement plan at work or you want to supplement your employer’s plan. Contributing to a retirement plan at work doesn’t bar you from also contributing to a Roth IRA, as long as you’re within the income limits set by the IRS.

The one that’s better for you may depend on where you work, how much money you’re able to contribute to retirement savings each year, and when you plan to retire. When comparing investment options for a Roth TSP vs. Roth IRA, consider the overall track record of those investments as well as the fees you might pay.

The Takeaway

Whether you choose a Roth IRA vs. Roth TSP or something else, it’s important to save for retirement early and often. Even if you can only afford to contribute small amounts to a retirement account, they can add up over time as long as you remain consistent.

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.

Easily manage your retirement savings with a SoFi IRA.

FAQ

Should I max out my TSP or Roth IRA?

If you can afford to max out your TSP, it might make sense to do so before maxing out a Roth IRA. The simple reason for that is TSPs have higher annual contribution limits and you can also get a matching contribution from your employer. If you only have a Roth IRA, then maxing it out each year can help you save the most money possible toward your retirement goals.

Is a Roth IRA better for retirement or a Roth TSP?

A Roth IRA is a good retirement savings option if you want to be able to make tax-free withdrawals later. However, a Roth TSP allows you to contribute a larger amount of money each year and your employer can also make matching contributions on your behalf.

Does a Roth TSP reduce taxable income?

Roth TSP contributions are made using after-tax dollars, so they do not reduce your taxable income for the year. You can, however, manage your tax liability by taking advantage of any deductions and credits you might be eligible for.

Photo credit: iStock/nortonrsx

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.

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®

SOIN-Q425-090

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Dec
22
2025
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Crypto Arbitrage: A Comprehensive Guide

By | Growing Wealth, invest, Investing | Comments Off on Crypto Arbitrage: A Comprehensive Guide

Arbitrage involves attempting to profit from price differences in the same good or product, and crypto arbitrage is no different: Market participants may be able to make money by exploiting price differences for the same cryptocurrency. Those differences may occur across different exchanges or platforms, opening up the opportunity to buy, sell, and possibly generate a return.

Note, though, that arbitrage involves substantial risk, so caution is warranted.

Key Points

  • Crypto arbitrage involves buying and selling the same cryptocurrency on different exchanges for profit.
  • Price differences may arise from varying trading volumes, fees, and lack of regulation.
  • Common strategies include simple, triangular, and spatial arbitrage.
  • Risks can include price slippage, transaction delays, high fees, and platform issues.
  • Each transaction is a taxable event, requiring detailed record-keeping.

What Is Crypto Arbitrage?

Cryptocurrency arbitrage is a strategy in which market participants buy a cryptocurrency on one exchange, and then attempt to quickly sell it on another exchange for a higher price. Cryptocurrencies are purchased or sold on many different exchanges, and often the price of a coin or token may differ slightly on one exchange versus another.

That’s where the strategy of arbitrage comes in: Similar to using arbitrage in other capital markets, crypto arbitrage is a legal way to earn a potential profit when an asset is selling cheaper in one market and at a higher price in another. That said, crypto arbitrage comes with some potential risk factors.

Why Do Price Differences Exist Between Exchanges?

The regulations of crypto markets are nuanced and varied, and cryptocurrencies are decentralized and therefore (with the exception of stablecoins) not pegged to government or fiat currencies like the dollar. This is one of the primary reasons why the prices of different crypto can vary widely: there is no standard price for any particular coin or token.

Related to this, some crypto exchanges are bigger than others, with higher trading volume. Thus the supply and demand on one exchange could be quite different from another, affecting the price.

Finally, crypto trading fees also vary, and can add to the cost of your transactions.

Crypto is
back at SoFi.

SoFi Crypto is the first and only national chartered bank where retail customers can buy, sell, and hold 25+ cryptocurrencies.

How Does Crypto Arbitrage Trading Work? A Step-by-Step Look

As noted, crypto arbitrage involves trading the same cryptocurrency for different prices on different platforms or exchanges. Arbitrage comes with the risk of prices changing during the process of buying and selling cryptocurrency. However, here’s how crypto arbitrage might work in theory, assuming prices remain the same.

Step 1: Identifying Arbitrage Opportunities

In a very general sense, identifying an arbitrage opportunity in the crypto market could be as simple as noticing that some type of cryptocurrency, let’s say Crypto X, is trading for $1 on Exchange 1, but trading for $1.50 on Exchange 2.

That price discrepancy means there’s an opportunity to generate a profit by purchasing Crypto X for $1 and then selling it for $1.50.

Step 2: Executing the Purchase and/or Sale

The next step to take advantage of the price discrepancy is to actually execute the transactions. That could be a bit more intensive than it sounds, since you’re trading on two different exchanges or platforms.

But in effect, let’s say you purchase $10 worth of Crypto X on Exchange 1, and transfer it to your crypto wallet. Then, you log on to Exchange 2, make sure your wallet and holdings are connected, and then sell Crypto X for $15.

Step 3: Calculating Profits (and Losses)

When all is said and done, you should now have $15 in cash, a profit of $5 from when you first started (not taking any fees into account), and a 50% return due to your arbitrage activities. Don’t forget there’s taxes to pay, of course.

And always keep in mind that you can lose money through crypto arbitrage, too, such as if the price of the cryptocurrency purchased drops before it’s sold. There’s no guarantee that you’ll come out ahead in the crypto markets.

Common Arbitrage Strategies

There are some different ways that crypto arbitrage can be conducted with different types of cryptocurrencies.

Simple Arbitrage (Cross-Exchange Arbitrage)

This type of arbitrage is more or less what was spelled out in our example above. It involves finding a price discrepancy between exchanges, buying from one, and selling to the other to attempt to generate a profit. While this is a simple tactic that can take advantage of price discrepancies, it may expose you to risks like transfer times and costs.

Spatial Arbitrage

Spatial arbitrage is very similar to simple arbitrage, but is distinct in that there are price differences between an asset trading in different geographic locations.

Triangular Arbitrage

Triangular arbitrage takes advantage of pricing inefficiencies among different pairs of cryptocurrencies, often on the same exchange. With this strategy, someone starts with one cryptocurrency and then sells it for another cryptocurrency — one which is undervalued relative to the other.

The participant would then transact that second cryptocurrency for a third cryptocurrency which is relatively overvalued when compared with the first. Finally, they would transact that third cryptocurrency for the first crypto, completing the circuit potentially a little richer.

Weighing the Opportunity: The Pros and Cons of Crypto Arbitrage

Crypto arbitrage has some pros and cons to be aware of.

The Appeal of Crypto Arbitrage

Crypto arbitrage can be an appealing strategy for a few key reasons. Notably, it’s a market-neutral strategy, meaning that it’s theoretically possible to make money regardless of overall market conditions. So, if the stock market is taking a downturn, that doesn’t mean you couldn’t potentially generate returns through crypto arbitrage.

Additionally, the crypto trading markets go non-stop, worldwide, and there are thousands of cryptocurrencies out there. That means there’s a potentially large number of opportunities for crypto arbitrage, if you can find them.

The Risks of Crypto Arbitrage

There are also significant risks you should take into account when engaging in crypto arbitrage. Perhaps most notably, price slippage, which means that the price discrepancy that you are attempting to exploit suddenly disappears, leaving someone “holding the bag,” so to speak, after they initially purchase the cryptocurrency.

There can also be delays and congestion on platforms, which can slow down transactions and potentially lead to price slippage. There are transaction fees to take into account, as well, and it may even be possible to break the rules of a given platform, meaning that your activity is frozen or put on hold.

Tax Implications of Arbitrage

Arbitrage can trigger tax liabilities.

In the U.S., where cryptocurrency adoption has skyrocketed in recent years, the IRS has created a tax guide which categorizes cryptocurrencies as property, like stocks, bonds, and other capital assets.

Entities that engage in arbitrage are required to pay capital gains taxes on cryptocurrency when selling, trading, or disposing of their holdings. (Additionally, cryptocurrencies can be taxed as income if an individual receives the crypto as a gift, from mining, or for services rendered.)

With that in mind, you must account for any capital gains taxes on their federal income tax return, but may also be able to take deductions based on any losses. Be aware that state taxes may also need to be reported, where applicable. You should also receive a form from your brokerage or trading platform to help you calculate your tax liabilities and fill out your tax return.[1]

As always, it may be helpful to discuss with an accountant or financial professional.

Note, too, that cryptocurrency taxation rules are evolving, so it’s best to try and keep track of the latest changes to rules and regulations.

Why Every Arbitrage Transaction May Be a Taxable Event

Given that cryptocurrency is considered “property” in the U.S. for taxation purposes, each transaction will result in either a capital gain or loss. In the case of crypto arbitrage, gains from transactions would likely be taxed as short-term gains, which applies when a digital asset is held (as a capital asset) for one year or less. Short-term gains are taxed as ordinary income, which is typically higher than the rates for digital assets held for longer than a year.[2]

In short, that’s why each arbitrage transaction triggers a taxable event: You’re generating a capital gain or loss with each transaction.

The Importance of Meticulous Record-Keeping

New rules are making it easier to keep track of your transactions through a brokerage or trading platform, along with capital gains or losses and respective tax liabilities. But it’s still a good idea to try and keep meticulous records, to ensure that you’re paying any applicable taxes that you owe.

Until recently, keeping track of your capital gains or losses on crypto holdings was entirely up to the individual, which is why it was so important. It’s still up to you to report your transactions correctly, as it’s possible that your platform or exchange could make a mistake.

A Note on Professional Advice

Again: It could be a good idea to ask an accountant or financial professional for help or to answer any questions you may have about your tax liabilities resulting from crypto trading activity. It can be confusing, and the laws and rules are in flux, so don’t be afraid to reach out.

Crypto Arbitrage Bots and Platforms

A couple of other things that you should know about: Arbitrage bots and platforms.

What Are Crypto Arbitrage Bots?

Why manually buy or sell when you could use bots to do it for you? That’s actually an option, as there are programs on the market that can identify arbitrage opportunities, and automatically execute purchases or sales on someone’s behalf. Of course, this requires some technical know-how and a fairly high risk tolerance, but these “bots” are more or less automated software sequences that are used by some to try to generate returns.

Popular Arbitrage Platforms and Scanners

There are numerous crypto trading platforms, services, and software on the market. Some incorporate trading bots directly into their platforms, too. Some examples of these include Pionex, Bitsgap, Cryptohopper, ArbitrageScanner, and 3Commas. It’s important to do your own research to figure out if any platform might work for your specific situation and strategy.

The Takeaway

Arbitrage exists across the capital markets, in stocks, bonds, and commodities, wherever the same asset buys or sells for different prices in different places. Since cryptocurrencies are digital and aren’t based on an underlying asset (with some exceptions, such as stablecoins), it is harder to place a value upon these currencies, and they don’t have the same pricing conventions as equities and bonds, which are tied to the performance of a company, municipality, or nation.

Cryptocurrency is complicated, and arbitrage strategies can be even more complex. But the practice is legal, and has the potential to yield rewards while also exposing a participant to high risk.

SoFi Crypto is back. SoFi members can now buy, sell, and hold cryptocurrencies on a platform with the safeguards of a bank. Access 25+ cryptocurrencies, such as Bitcoin, Ethereum, and Solana, with the first national chartered bank to offer crypto trading. Now you can manage your banking, investing, borrowing, and crypto all in one place, giving you more control over your money.


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FAQ

Is crypto arbitrage still profitable?

Crypto arbitrage can be profitable, but it also involves considerable risk. There’s no guarantee of a positive return.

How much money do you need to start crypto arbitrage?

It’s possible to attempt to profit from discrepancies in crypto prices with a relatively small amount of money, especially since many cryptocurrencies buy and sell for fractions of a cent. It’s important to remember that arbitrage is risky, however, so any amount of money put toward crypto arbitrage — big or small — could potentially be lost.

Is crypto arbitrage legal?

Yes, crypto arbitrage is legal in most regions so long as you’re doing it in a place where crypto trading is legal.

What is the fastest way to find crypto arbitrage opportunities?

Perhaps one of the quickest ways to find crypto arbitrage opportunities is to use a scanner or trading bot to flag those opportunities for you. Otherwise, it could take considerable time and effort to manually compare prices between exchanges and platforms.

Can you lose money with crypto arbitrage?

Yes, there is a high risk of losing money with crypto arbitrage, as prices are always in flux.

Can you make a living off of crypto arbitrage?

It theoretically may be possible to make a living off of crypto arbitrage, but it would likely be challenging to do, and it’s important to remember there are significant risks involved with crypto arbitrage, as well.

Article Sources
  1. Bloomberg Tax. Cryptocurrency Tax by State.
  2. IRS. Digital assets.

CRYPTOCURRENCY AND OTHER DIGITAL ASSETS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE


Cryptocurrency and other digital assets are highly speculative, involve significant risk, and may result in the complete loss of value. Cryptocurrency and other digital assets are not deposits, are not insured by the FDIC or SIPC, are not bank guaranteed, and may lose value.

All cryptocurrency transactions, once submitted to the blockchain, are final and irreversible. SoFi is not responsible for any failure or delay in processing a transaction resulting from factors beyond its reasonable control, including blockchain network congestion, protocol or network operations, or incorrect address information. Availability of specific digital assets, features, and services is subject to change and may be limited by applicable law and regulation.

SoFi Crypto products and services are offered by SoFi Bank, N.A., a national bank regulated by the Office of the Comptroller of the Currency. SoFi Bank does not provide investment, tax, or legal advice. Please refer to the SoFi Crypto account agreement for additional terms and conditions.

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.

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

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Aiming to Become a Millionaire? These Steps Could Help

By | Financial Independence, Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off on Aiming to Become a Millionaire? These Steps Could Help

Do you find yourself dreaming about what you would do if you were a millionaire? Maybe you fantasize about retiring early and traveling the world. Or perhaps what excites you is the thought of being able to donate to causes you care about. But, you might be wondering how to become a millionaire? You may suspect the only way you’ll ever be that rich is if you win the lottery.

Fortunately, the road to wealth isn’t that narrow; there are many ways to become a millionaire. For instance, some individuals retire with over a million dollars in savings because they made good financial decisions. Others may have started businesses that brought them success, advanced their careers so that they made enough to save seven figures, or made smart investments. Read on to learn more about how to become a millionaire, and strategies that could help get you there.

Key Points

•   Eliminating high-interest debt through methods like the debt avalanche and building an emergency fund helps free up money for wealth-building investments and prevents future financial setbacks.

•   Starting to invest early allows compounding returns to maximize growth over time, with strategies adjusted from aggressive to conservative as retirement approaches and circumstances change.

•   Maximizing retirement account contributions through 401(k) employer matches and and contributing to IRA investments may help you make progress over time toward achieving millionaire status and financial security.

•   Increasing income through career advancement, additional education, salary negotiations, or side hustles can provide more resources to save and invest, while cutting unnecessary expenses preserves existing wealth.

•   Maintaining discipline by avoiding lifestyle inflation, staying focused on long-term financial goals, and consulting with investment professionals can help ensure sustained progress toward building millionaire-level net worth.

Introduction to the Millionaire Mindset and Goals

Many millionaires are not born into wealthy families or individuals who suddenly struck it rich. In fact, many millionaires are people who work for a living every day. In general, what tends to set them apart is that they have a millionaire mindset. They are smart and disciplined when it comes to their money. And they stay focused on their financial goals.

Defining What It Means to be a Millionaire

The true definition of a millionaire is someone with a net worth of at least $1 million. That means that their assets, minus any debt, is $1 million or more.

So, if you have $500,000 in savings and investments, plus a house that’s worth at least $500,000, you’d meet the criteria. If, that is, you own the house outright and don’t have a lot of debt such as car loans, student loans, or credit cards to pay off. But if you still owe money on your house and you’ve got a fair amount of debt to repay, you probably aren’t a millionaire. At least, not yet.

To do the math for your situation, total up your assets. Then subtract your debts from that amount. This will show you how close you are to reaching millionaire status, and possibly give you a sense of what you might have to do to get there.

Following these eight strategies can help when it comes to how to become a millionaire.

Step 1: Try to Avoid Debt

As we just saw in the example above, one thing that could be holding you back from becoming a millionaire is debt, especially if that debt is “bad debt,” a term often used for high-interest debt. Eliminating your debt is key because it’s difficult to build wealth if you’re paying a significant portion of your income toward interest.

Paying off debt could help free up money to invest and build wealth. One way to repay debt is to use the debt avalanche method. With this technique, you pay off your debts with the highest interest rates first and then focus on debts with the next highest interest rates (while still making minimum payments on all of your debt, of course).

Eliminating debt isn’t just about paying off existing debt, though, it’s also about avoiding the chances of going into debt in the future. Part of a debt payoff strategy could involve spending less so that you don’t need to rely on credit. You can also set a strict budget and pay with cash whenever possible.

In addition, you may want to create an emergency fund by setting aside a certain amount of money every month. That way, if you have a financial setback, you don’t have to go into credit card debt.

Recommended: Ready to build your emergency fund? Use our emergency fund calculator to determine the right amount.

Step 2: Invest Early and Consistently

Investing successfully doesn’t happen overnight. It takes time. That’s why you need to start early. There are a few rules to know that could help you improve your chances of becoming a millionaire.

Benefits of Compounding Returns

First, compounding returns can make all the difference. They can help your money grow, as long as the returns are reinvested.

Here’s how they work: Compounding returns depend on how much an investment gains or loses over time, which is known as the rate of return. The longer your money is invested, the more compounding it can do. That’s why some individuals start saving aggressively when they’re young.

Saving $100,000 by the time you’re 30 might not be possible for everyone, but the more you save early on, the greater impact it could have on your net worth.

And here’s the thing: Even if you’re in your 30s, 40s, or 50s now, it’s never too late to start saving. The important thing is that you start, period. And that you keep saving.

There are other investing strategies that could help as you work on how to become a millionaire. For instance, you could reduce the amount you spend on investment fees. High investment fees can have a big impact on your returns, so you might want to look into low-fee investments.

Also, you should make sure that you invest in a way that’s right for you throughout your life. That may mean investing more aggressively when you’re younger and gradually becoming more conservative in your investments as you get older and closer to retirement.

Step 3: Make Saving a Priority

Your savings is the amount of money you have left after paying taxes and spending money.

Many Americans aren’t saving enough to become a millionaire — in September 2025, the average personal savings rate was 4.7%, according to the Bureau of Economic Analysis. You’ll likely need to save more than three times that amount to become a millionaire.

Effective Saving Strategies for Long-term Wealth

To save for your goals, you might consider starting by investing in your company’s 401(k). Max out your 401(k) if you can. At the very least, invest at least enough to earn the employer match, if there is one. That way your employer is contributing to your savings.

In addition, consider opening a traditional IRA or a Roth IRA and contribute as much as possible, up to the limit set by the IRS. These IRAs are tax-advantaged, so they’ll help with your tax bill, too.

And investigate other savings options, as well, such as contributing to a child’s 529 college savings plan.

Step 4: Increase Your Income

You can’t join the ranks of millionaires if you’re not bringing in more money than you need for your basic necessities. The more money you make, the more you can save and invest.

Tips for Boosting Earnings and Maximizing Income

Some ways to boost your income include asking for a raise or looking for a new higher-paying job. You could also go back to school to earn an advanced degree that could lead to a position with a higher income. Your current employer might even help you cover the cost; check with your HR department.

Another one of the ways to earn extra money is to take on a side hustle. You could tutor students on evenings or weekends, do freelance writing, or dog sit. And those are just some of the options to consider.

Step 5: Cut Unnecessary Expenses

Getting control of your spending is critical to building wealth. That doesn’t mean you have to cut back on everything that gives you pleasure, but you could consider the happiness return on investment you get from the money that you spend. How big of an apartment or home do you truly need to be content? What kind of car do you need? Do you have to buy lunch out every day or could you bring your own lunch from home?

Identifying and Eliminating Non-Essential Spending

You could find ways to cut back on the things that don’t matter so much, but not skimping to the point that you miss out on things you love. For example, maybe you need your gym sessions (and there are plenty of low-cost gyms out there), but you can do without purchasing a coffee every morning.

Also, you could focus on cutting back on big expenses instead of those that won’t have a huge impact on your budget. For example, dining out only once a month, adjusting your thermostat higher or lower depending on the season, or finding a less expensive, smaller home could help you save a significant amount of money over time.

Step 6: Keep Your Financial Goals in Focus

To become a millionaire, you’ll need to stay laser-focused on your financial goals. When everyone else around you is spending money, going on fancy vacations, and buying expensive cars, remind yourself what’s truly important to you. Keep your spending in check, continue to save and invest, and avoid taking on debt.

It takes discipline. But instead of thinking about the stuff you don’t have, appreciate all the good things in your life, like your family and friends. Remember that you’re saving for your future. You’ll be able to enjoy yourself then if you have the money you need to live comfortably and happily.

Think of it this way: You’re making yourself and your financial security the priority. Make that your mantra.

Step 7: Consult With Investment Professionals

Investing can be complicated because there are so many options to choose from. If you need help figuring out what investments are right for you, consider working with a qualified financial advisor.

Leveraging Advice for Wealth Building

A good financial advisor could help you select the right investments and the best investing strategies for your situation. They can also help you plan and budget to reach your goals. But be sure to be an active participant in the process. Ask questions, be involved. Why are they suggesting a specific investment? And if you don’t feel comfortable with something, say so.

Finally, be sure to check your investment performance regularly. Know what you are investing in, how much, and why.

Recommended: How to Find the Best Investment Advisor For You

Step 8: Repeat and Refine Your Financial Plan

The final step to becoming a millionaire is to stay committed to your goal and your plan. Keep saving and investing your money. Stay out of debt. Let time and the power of compounding returns kick in. Be patient.

But also, don’t be afraid to refine or change your plan if need be. For instance, as you get closer to retirement, you will likely want to choose safer, less aggressive investments. You can keep saving and growing money throughout different ages and stages, but your method for doing so can evolve to make sense for where you are in your life.

Additional Tips for Wealth Building

In addition to all of the strategies above, there are a few other techniques that may help you reach millionaire status.

Lifestyle Considerations and Spending Habits

As you work your way up the ladder and earn more money throughout your career, you may be tempted to increase your lifestyle spending, too. After all, you have more money now, so you may feel the urge to spend it.

But here’s the thing: Giving in to these temptations can be a slippery slope. It might start with a bigger house in a nice neighborhood, and then grow to taking extravagant vacations and driving a luxury car. Before you know it, you could be spending way more than you’re saving.

Try to avoid lifestyle splurging if you want to be a millionaire. Instead, take the extra money and save and invest it. That way, you’ll be able to reach your goal even faster.

The Takeaway

Becoming a millionaire is possible if you take the right approach. It involves saving and investing your money, spending wisely, and avoiding debt. You need to be disciplined and focused, and it won’t always be easy. But staying committed to your goals can reward you with financial security and success.

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.


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FAQ

How much money does the average person save?

As of September 2025, the average personal savings rate in the United States was 4.7%, according to data from the Bureau of Economic Analysis.

How many millionaires are there in the U.S.?

There are nearly 24 million millionaires in the United States as of 2025, which is roughly 40% of the world’s total.

What steps can people follow to try and become a millionaire?

Some strategies that could help individuals reach $1 million net worths include avoiding debt, investing early and consistently, prioritizing saving, increasing income, cutting unnecessary expenses, keeping goals in focus, working with professionals, and periodically refining your financial plan.

Photo credit: iStock/pixelfit

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.

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.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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.

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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22
2025
A lone black swan among several white swans arranged in neat rows.

Black Swan Events and Investing, Explained

By | Growing Wealth, invest, Investing | Comments Off on Black Swan Events and Investing, Explained

The term “black swan event” is widely used in finance today to describe an unanticipated event that severely impacts the financial markets. The name stems from the discovery of avian black swans by Dutch explorer De Vlamingh while exploring Australia in the late 1600s. Historians credit de Vlamingh with separating the “expected” (i.e., a white swan, which were plentiful) with the “unexpected” (i.e., a black swan, which was a rare sighting).

Writer, professor and former Wall Street trader Nassim Nicholas Taleb popularized the financial theory of “black swan” events in his 2007 book The Black Swan: The Impact of the Highly Improbable. Taleb described the occasional, but highly problematic, arrival of black swans on the investment landscape, and outlined what, in his opinion, economists and investors could do to better understand those events and protect assets when they occur.

Key Points

•   Black swan events are extremely rare, unpredictable occurrences with severe consequences that become obvious only in hindsight, a concept popularized by Nassim Nicholas Taleb in his 2007 book.

•   Historical black swan events include the Soviet Union’s collapse, 9/11 terrorist attacks, the dot-com bubble burst, and the 2008-2009 financial crisis, each causing catastrophic economic damage.

•   Black swan events are identified by three characteristics: extreme rarity with no prior similar events, severe widespread impact on economies and societies, and retrospective recognition of preventability.

•   Predicting specific black swan events is virtually impossible due to complex interactions among political, financial, environmental, and social factors that create unpredictable chains of consequences.

•   Preparing for black swan events requires portfolio diversification, avoiding panic-driven market timing, maintaining conservative investment strategies, and potentially capitalizing on opportunities during market downturns through dollar-cost averaging.

What Is a Black Swan Event?

According to Taleb, a black swan event is identifiable due to its extreme rarity and to its catastrophic potential damage to life and health, and to economies and markets. Taleb also notes in the book that once a black swan landed and devastated everything in its path, it was obvious in hindsight to recognize the event occurred.

This is how Taleb describes a black swan event in his book: “A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences,” Taleb wrote in his book. “Black swan events are characterized by their extreme rarity, their severe impact, and the widespread insistence they were obvious in hindsight.”

It can be a difficult concept for investors. Who, after all, throughout the history of the stock market, would leave their finances unprotected from a black swan onslaught if they knew the event was imminent?

By definition, predicting the arrival of a black swan is largely outside the realm of probability. All anyone needs to know, Taleb maintains, is that black swans occur and investors should not be surprised when they do happen.

Taleb outlines three indicators that signal the arrival of a black swan event. Each is meaningful in truly understanding a black swan scenario.

1.    Black swan events are outliers. No similar and prior event could predict the arrival of a particular black swan.

2.    Black swan events are severe, and typically inflict widespread damage. That damage also has a severe impact on economies, cultures, institutions, and on families and communities.

3.    They’re usually recognized in hindsight. When black swans occur and eventually dissipate, recriminations take its place. While the specific black swan event wasn’t predicted, observers say the event could have and should have been prevented.

💡 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.

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Examples of Black Swan Events

It’s become common for politicians and investors to call any negative event a “black swan” event, whether or not it meets Taleb’s definition. However, history has no shortage of true black swan events, which led to large, unpredictable market corrections.

The following events are considered some of the most infamous among economists and historians.

The Soviet Union’s Historic Collapse

Economists consider the collapse of the Soviet Union in 1991 a major black swan. Only 10 years earlier, the Russian empire was considered a major global economic and military threat. A decade later, the Soviet Union was no more, significantly shifting the global geopolitical and economic stage.

The 9/11 Terrorist Attacks

In hindsight, the United States might have seen the attacks on the World Trade Center in New York City and the Pentagon in Washington, D.C. coming. International terrorism had long been a big risk management issue for the U.S. government, but the severity of the attack left the world stunned — and plunged the U.S. into a serious economic decline. Stocks lost $1.4 trillion in value the week after the attacks.

The Dot-com Bubble

In the late 1990s, investors were indulging in irrational exuberance and nowhere was that more clear than with the nation’s stock market — particularly with white-hot technology stocks. With an army of Internet stocks in the IPO pipeline, overvalued tech stocks plummeted, taking the entire stock market down in the process. The damage was staggering, with the Nasdaq Index losing 78% of its value between March 2000 and October 2002.

The 2008-2009 Financial Crisis

After a series of high-risk derivative bets by major banks, mounting losses in the U.S. mortgage market, and the collapse of Lehman Brothers, the U.S. economy teetered on the edge of disaster — a scenario it would take almost a decade to correct. The unemployment rate doubled to more than 10%, domestic product declined 4.3%, and at its worst point, the S&P 500 plummeted 57%, creating a bear market.

It’s worth noting that although some people have referred to the Covid-19 pandemic as a black swan event, Taleb does not consider it to be one since he feels there was enough historical precedence to foresee it.

Why Do Black Swan Events Happen?

Since black swan events are virtually impossible to predict, there is no concrete answer as to why they happen. The world is complicated, with many different factors — political, financial, environmental, and social, among others — impacting one another and setting off chains of events that could potentially become black swan events in scope and magnitude.

Can You Predict a Black Swan Event?

By its very definition, it’s nearly impossible to predict a specific black swan event. This makes it hard to prepare for black swans as you would for other investment risks.

Instead, investors may want to focus on making sure they’re prepared, generally, for the unknown. Here’s how to help do that:

•   Try to develop a pragmatic mindset. Investors are better off knowing unanticipated negative events do exist and could arrive on their doorstep at any time. Keep in mind the possibility of black swans and consider building an expectation of stock volatility into your overall portfolio-management strategy.

•   Try to avoid getting bogged down by long-term forecasts. Relying solely on expert predictions or far-off investment outlooks can be overwhelming, since unexpected events, including black swans can happen at any time and it’s normal for markets to fluctuate. Instead, some investors consider building a more conservative element into their investment portfolio, one that relies more on protecting assets, helping curb a potential desire to make rash moves during a black swan event. Have a candid conversation with your financial advisor, or educate yourself if you don’t have a financial advisor, about how proper diversification may help build a portfolio that balances the need for performance with the need for protection.

•   Don’t panic when a black swan event happens. As tempting as it might be to try to get out of a market during a black swan event and get back in when it fades away, resist the urge to engage in market timing.

•   Many investors try looking for opportunities. Putting money into the markets during a black swan event can be difficult and potentially risky, but investing in a down market may yield positive returns over the long-term.

Rather than trying to time the market, some investors may consider using a dollar-cost averaging strategy, when making regular purchases — even during a black swan event.

The Takeaway

For long-term investors, the prudent stance on black swan events is to acknowledge their existence, build some protection into your investment portfolio to help mitigate potential damage, and be ready to take full advantage of a market upturn once the black swan flies away.

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 is a black swan event in recent years?

One of the most recent black swan events was the 2008-2009 financial crisis known as the Great Recession. That’s when a series of high-risk derivative bets by major banks, mounting losses in the U.S. mortgage market, and the collapse of Lehman Brothers, the biggest U.S. bankruptcy ever, pushed the U.S. economy to the edge of disaster.

What was the biggest black swan event?

The Great Depression of 1929 was probably the most infamous black swan event. It started with the U.S. stock market crash in October 1929 and led to a worldwide drop in stock prices. The U.S. economy shrank by 36% between 1929 and 1933, many banks failed, and the U.S. unemployment rate skyrocketed to more than 25%. It was the longest and most severe economic recession in modern history.

What are the attributes that identify a black swan event?

According to Nassim Nicholas Taleb, who popularized the black swan theory, the attributes that identify a black swan event are: 1) black swan events are rare and no similar or prior event could predict them, 2) black swan events are severe and inflict widespread damage, and 3) after the fact, observers say the black swan event could have and should have been prevented.

Photo credit: iStock/by Martin Nancekievill

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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.

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