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Jan

2024

Happiest Places to Retire in the US in 2024: A SoFi Study

By SoFi | Budgeting & Goals, invest, Preparing for Retirement | Comments Off

Where you live can play a major role in how enjoyable your retirement is. So, where do the happiest retirees reside? To determine which cities in the U.S. are the happiest places to retire, we studied the 200 largest metropolitan statistical areas (MSAs) using the latest U.S. Census Bureau population estimates, and consulted multiple sources, including the Sharecare Community Well-Being Index, Tax Foundation, Walk Score, Sperling’s Best Places, and County Health Rankings & Roadmaps.

By identifying key elements that contribute to happiness — social networks, financials, and health — and examining 13 pivotal rankings within them, such as community, cost of living, and healthcare access, we created the Happiest Places to Retire in the U.S. in 2024. Read on to learn about the 20 best places to retire in the U.S. to help you explore your options for where to live in retirement.

Key Findings on Retirees’ Favorite Cities

• Barnstable, MA is the happiest city to retire to, ranking #1 of all 200 cities we analyzed. It has the highest ranking overall for community well-being, and one of the highest percentages of residents who are 65-plus. The other cities at the top of the list: Naples, FL at #2, and Ann Arbor, MI at #3.

• Colorado has the highest number of happiest cities for retirees on our top 20 list, beating out Florida. Boulder, CO is the #5 happiest city for retirees, and Fort Collins and Denver also made the list.

• Colder climates are now attracting retirees. Three of our top 5 cities for retirement (Barnstable, MA; Ann Arbor, MI; and Boulder, CO) have average high winter temperatures in the 30s or 40s.

• Naples, FL residents live the longest. The city has the highest average life expectancy (86.1 years) of all 200 cities we analyzed.

• Ann Arbor, MI, has the lowest tax burden for retirees on our top 20 list, followed by Myrtle Beach and Charleston in South Carolina. Meanwhile, Akron, OH has the lowest cost of living of the top 20 cities for retirees, 80.8% of the U.S. average.

Top 20 Happiest Cities to Retire

Looking for information on the happiest places to live after retirement? Whether you dream of an ocean breeze or mountain views, you have plenty of cities to consider.

The top 20 happiest cities for retirees offer a broad range of activities, amenities, and resources. They’re also located all across the nation, as shown in this map of the top 10, so you can find a place in the part of the country you’d most like to live in.

Happiest Cities to Retire

1. Barnstable, MA

Coming in at the top of the happiest cities to retire in the U.S. list is Barnstable. Located on Cape Cod, its beachside beauty attracts retirees, making it one of the top three cities for residents 65 and up. While living here can be expensive (the median household income is $91,438) and there’s less access to healthcare than the other top contenders have, residents enjoy a high level of social interaction and plenty of entertainment and activities.

2. Naples, FL

Those who want to live by the water and enjoy warmer weather can head south to Naples. The cost of living in this city is fairly reasonable, and there’s no state personal income tax, which means your retirement savings can go a lot further. Naples also has the highest life expectancy (age 86.1) of all 200 cities we analyzed.

3. Ann Arbor, MI

Want to enjoy city life without the high prices? Ann Arbor, a college town, has plenty of big city amenities at an affordable price point. Another draw for retirees: Ann Arbor residents enjoy the highest level of healthcare access of the cities on our list, and ranks #1 for health overall.

4. Durham, NC

Friendship and social interaction are important in retirement. Durham, one of the top cities to retire in the U.S., offers a strong sense of community and social well-being, according to the data. Residents will find plentiful healthcare in Durham as well. It ranks #2 out of the top 20 for healthcare access.

5. Boulder, CO

If you like to hit the slopes, Boulder may be the ideal location for your retirement years. The city is #3 on the top 20 list for housing and transportation, so you should be able to find the right place to live and get around easily.

6. North Port, FL

North Port is the second Florida city to make the top 20 list of the happiest places to live in the U.S. Community and social connection is high here, and there’s a sizable population of those aged 65 and up, making it easier to meet new friends. It also has one of the lowest tax burdens among the top 20 cities.

7. Olympia, WA

Retirees who want to live affordably on the west coast can check out scenic Olympia, WA. It ranks as #1 in the financial category, which takes into account factors such as cost of living and household income. It’s also one of the best states to retire in for taxes, which can help retirees stretch their savings. Olympia has the lowest number of residents living below the poverty level of all 200 cities we analyzed.

8. San Jose, CA

Retirees in San Jose enjoy the second-highest average life expectancy (after Naples, FL) of the 200 cities we studied, making it one of the top places for a long and healthy retirement. But there’s a tradeoff: The cost of living in San Jose is extremely high: a whopping 231% of the U.S. average.

9. San Luis Obispo, CA

If being in a comfortable environment is one of your top retirement priorities, look no further than San Luis Obispo. Along with San Jose, the city scored the highest level of comfort for retirees on our top 20 cities list, thanks to its temperate weather.

10. Madison, WI

A low average cost of living plus a high median household income ($83,214) make Madison not only one of the happiest places to live in retirement, but also one of the most affordable. In this relatively walkable city, you can save on transportation costs and live a healthier lifestyle.

Recommended: Average Retirement Savings By State

11. Honolulu, HI

Honolulu combines great weather, pristine beaches, and big city living. It gets high scores for comfortable weather and transportation. And Honolulu has some of the highest scores for social factors and community. Retiring in paradise comes at a price, however — namely, the city’s high cost of living (171.5% of the U.S. average).

12. Salisbury, MD

Salisbury, in the Eastern Shore area of Maryland, is a popular place for retirees. More than a quarter of the population is 65 and over, which means you should have plenty of peers to socialize and do activities with.

13. Washington, DC

If you’re interested in history and culture, Washington D.C. might be a good fit. And many of the city’s major attractions are free of charge. The nation’s capital is also the most walkable city on our top 20 list of the happiest places to live after retirement, so you’ll save on transportation as you get your steps in.

14. Portland, ME

In this city on the coast, you can enjoy all that the ocean has to offer plus metropolitan amenities. Portland ranks as one of the best cities to retire in when it comes to community, and it also has abundant options for art, recreation, and entertainment, which can help you stay happily busy in retirement.

15. Myrtle Beach, SC

Retirees settle down in this popular travel destination to take advantage of the reasonable cost of living and low tax burden. They also love the miles of beaches, plentiful golf courses, and comfortable weather. Myrtle Beach has the 4th highest population of people age 65-plus.

16. Harrisburg, PA

The capital city of Pennsylvania is an affordable place to retire. It has a low cost of living, which means the city’s average median income of $73,739 can go farther. Fewer people live below the poverty line here than in many other cities. Retirees can be active here as well: Harrisburg ranks as #2 of our top cities when it comes to walkability.

17. Fort Collins, CO

If you love the great outdoors, this city, located at the foot of the Rocky Mountains, has a lot to offer. All those outside adventures come with some nice health perks: Fort Collins has one of the higher life expectancies of our 20 top cities for retirees.

18. Denver, CO

Where is the happiest place to retire? It might just be the state of Colorado. Denver is the third Colorado city to make the top 20 list of happy places for retirees to live. Denver has a high level of community and social well-being, which could make retirement a lot more fulfilling. It’s very walkable, too, coming in at #5 out of the top 20 in the walking category.

19. Akron, OH

With the lowest cost of living (80.8% of the U.S. average) of the 20 best cities, Akron offers retirees affordability plus many opportunities for social and community connection. That can make it easier to make new friends in retirement.

20. Charleston, SC

A vibrant cultural scene, great food, ocean access, and lovely architecture make Charleston one of the best places to retire in 2024. Charleston ranks #2 for art, recreation, and entertainment out of the 200 cities studied, following only Los Angeles, so you’ll find plenty to do here in your golden years. And the tax burden is one of the lowest on our 20 happiest cities list.

Best Places to Retire for a Happy Retirement

Want to consider some of the different places that could make for a very happy retirement? The map below shows the top five cities out of the 200 analyzed in each of the three key categories that contribute to happiness: social, financial, and health.

Happiest cities for retirees by category

200 Cities Studied for Happiest Places to Retire

Reviewing the full list of 200 cities studied for the Happiest Places to Retire can reveal additional great options for retirement. For example, following Naples, FL, the next three cities with the highest life expectancy — San Jose, CA, San Francisco, CA, and New York, NY — are all bustling, well-populated cities that also rank highly for community and social factors. Take a look at what cities across the U.S. have to offer.

Overall Rank	City	Total Score	Social rank	Financial Rank	Health Rank
1	Barnstable, MA	62.05	1	6	120
2	Naples, FL	61.43	2	18	32
3	Ann Arbor, MI	61.40	64	14	1
4	Durham, NC	57.56	57	13	2
5	Boulder, CO	56.95	21	16	13
6	North Port, FL	56.77	4	37	129
7	Olympia, WA	56.46	32	1	88
8	San Jose, CA	55.52	5	113	7
9	San Luis Obispo, CA	55.18	9	11	41
10	Madison, WI	55.13	84	5	11
11	Honolulu, HI	54.82	7	71	12
12	Salisbury, MD	54.70	11	3	177
13	Washington DC	54.33	23	17	19
14	Portland, ME	53.86	17	35	22
15	Myrtle Beach, SC	53.66	8	20	181
16	Harrisburg, PA	52.39	50	24	24
17	Fort Collins, CO	52.11	34	19	80
18	Denver, CO	52.03	86	9	33
19	Akron, OH	51.64	55	10	69
20	Charleston, SC	51.62	37	55	30
21	Manchester, NH	51.49	47	22	58
22	Seattle, WA	51.44	19	101	15
23	Minneapolis, MN	51.22	48	26	28
24	Richmond, VA	50.56	24	46	40
25	Bridgeport, CT	50.52	25	83	8
26	Daphne, AL	50.50	31	12	171
27	Des Moines, IA	50.49	106	2	158
28	San Francisco, CA	50.42	6	172	4
29	Santa Rosa, CA	50.11	14	81	43
30	Raleigh, NC	50.08	45	42	56
31	Prescott Valley, AZ	49.92	3	118	193
32	Oxnard, CA	49.38	16	78	49
33	Asheville, NC	49.35	10	125	57
34	Bremerton, WA	49.22	22	52	108
35	Boston, MA	49.18	33	139	6
36	Colorado Springs, CO	49.18	95	7	141
37	Pittsburgh, PA	49.14	35	82	47
38	Portland, OR	49.03	58	96	14
39	Hartford, CT	49.02	62	36	16
40	Omaha, NE	49.00	87	25	37
41	St. Louis, MO	48.88	56	73	36
42	Lancaster, PA	48.80	46	48	74
43	Chattanooga, TN	48.79	43	53	122
44	Appleton, WI	48.78	41	30	128
45	Sioux Falls, SD	48.48	92	34	83
46	Salt Lake City, UT	48.42	125	23	25
47	Charlotte, NC	48.40	38	61	90
48	Allentown, PA	48.35	52	43	42
49	Crestview, FL	47.95	61	15	183
50	Cape Coral, FL	47.88	13	119	110
51	New Haven, CT	47.81	73	65	9
52	Austin, TX	47.76	123	40	48
53	San Diego, CA	47.73	27	103	29
54	Peoria, IL	47.60	66	27	91
55	Tucson, AZ	47.56	69	59	67
56	Green Bay, WI	47.33	80	33	92
57	Lexington, KY	47.28	94	79	31
58	Deltonah, FL	47.24	18	58	198
59	Reno, NV	47.08	44	67	117
60	Tyler, TX	47.07	127	28	99
61	Ogden, UT	47.07	101	8	160
62	Santa Cruz, CA	46.99	12	147	27
63	Atlanta, GA	46.97	54	100	60
64	York, PA	46.96	53	49	112
65	Palm Baye, FL	46.89	20	84	182
66	Boise City, ID	46.89	96	32	98
67	Grand Rapids, MI	46.89	140	39	55
68	Cincinnati, OH	46.77	71	74	63
69	Wilmington, NC	46.53	40	105	79
70	Canton, OH	46.52	100	29	131
71	Fargo, ND	46.49	154	21	71
72	Savannah, GA	46.37	107	63	59
73	Provo, UT	46.20	135	4	175
74	Norwich, CT	46.08	49	31	115
75	Roanoke, VA	46.05	28	123	46
76	Baltimore, MD	45.92	29	120	68
77	Philadelphia, PA	45.91	63	109	44
78	Nashville, TN	45.89	99	68	105
79	Anchorage, AK	45.87	136	87	86
80	Indianapolis, IN	45.73	119	44	95
81	Sacramento, CA	45.72	42	98	50
82	Trenton, NJ	45.67	70	110	18
83	Lincoln, NE	45.63	103	38	93
84	Port St. Lucie, FL	45.51	15	126	173
85	Albany, NY	45.48	60	62	38
86	Vallejo, CA	45.16	36	97	89
87	Louisville, KY	45.03	117	47	106
88	Worcester, MA	44.90	82	94	51
89	Virginia Beach, VA	44.90	83	70	64
90	Huntsville, AL	44.81	77	60	142
91	Chicago, IL	44.70	79	107	26
92	Kalamazoo, MI	44.57	149	64	70
93	Poughkeepsie, NY	44.47	90	54	45
94	Spokane, WA	44.35	113	51	111
95	Eugene, OR	44.29	68	108	81
96	Columbia, SC	44.22	105	91	104
97	Kansas City, MO	44.13	75	88	103
98	Phoenix, AZ	43.94	89	104	85
99	Jacksonville, FL	43.71	67	102	152
100	Salinas, CA	43.70	85	86	66
101	Little Rock, AR	43.63	144	80	61
102	Dallas, TX	43.55	130	90	97
103	Cleveland, OH	43.47	139	142	10
104	Greenville, SC	43.41	118	106	75
105	Lansing, MI	43.35	150	56	125
106	Rochester, NY	43.26	114	93	20
107	Cedar Rapids, IA	43.25	104	50	161
108	Winston, NC	43.23	91	116	73
109	Greeley, CO	43.15	141	41	162
110	Detroit, MI	43.15	72	122	116
111	Reading, PA	42.88	76	117	87
112	Fort Wayne, IN	42.52	152	45	168
113	Dayton, OH	42.43	111	95	127
114	Davenport, IA	42.37	110	77	139
115	Atlantic City, NJ	42.26	39	131	100
116	Fayetteville, AR	42.17	122	75	151
117	Santa Maria, CA	42.11	59	134	53
118	Evansville, IN	41.59	161	57	144
119	Knoxville, TN	41.58	74	138	149
120	Oklahoma City, OK	41.21	148	89	150
121	Milwaukee, WI	41.18	98	141	54
122	South Bend, IN	41.14	145	85	167
123	Hagerstown, MD	40.26	81	112	179
124	Columbus, OH	40.23	166	72	137
125	Ocala, FL	40.11	26	153	199
126	Birmingham, AL	39.94	65	159	107
127	Montgomery, AL	39.91	134	92	189
128	Rockford, IL	39.80	143	76	157
129	Pensacola, FL	39.44	133	121	153
130	New York, NY	39.32	51	184	5
131	Syracuse, NY	39.27	137	124	35
132	Killeen, TX	39.26	186	69	114
133	Lynchburg, VA	39.22	155	66	174
134	Buffalo, NY	38.98	128	128	39
135	Wichita, KS	38.67	97	135	163
136	Tallahassee, FL	38.65	147	132	134
137	Providence, RI	38.62	112	167	34
138	Los Angeles, CA	38.60	30	187	23
139	Kennewick, WA	38.45	151	127	123
140	Flint, MI	38.34	171	111	156
141	Orlando, FL	38.33	153	155	72
142	Tulsa, OK	38.31	174	99	169
143	Las Vegas, NV	38.31	121	146	135
144	Salem, OR	38.25	138	130	133
145	Duluth, MN	38.21	116	136	126
146	Erie, PA	37.91	126	137	154
147	Springfield, MA	37.88	115	162	62
148	Hickory, NC	37.71	93	140	194
149	Tampa, FL	37.66	102	174	77
150	Albuquerque, NM	37.59	146	157	65
151	Gainesville, FL	37.58	178	182	3
152	Huntington, WV	37.41	88	161	159
153	Toledo, OH	37.11	168	144	82
154	Scranton, PA	37.05	109	156	143
155	Jackson, MS	36.89	175	148	76
156	Amarillo, TX	36.78	142	149	176
157	Kingsport, TN	36.67	158	133	190
158	Springfield, MO	36.65	164	129	165
159	Youngstown, OH	36.63	78	158	188
160	Houston, TX	35.66	179	164	52
161	Binghamton, NY	35.66	162	114	124
162	Charleston, WV	34.97	132	168	138
163	San Antonio, TX	34.88	184	152	94
164	Waco, TX	34.80	176	143	170
165	Greensboro, NC	34.68	108	175	148
166	Augusta, GA	34.56	120	176	145
167	New Orleans, LA	34.48	172	181	21
168	Utica, NY	34.17	167	115	155
169	Memphis, TN	34.17	182	160	130
170	Lubbock, TX	33.95	183	166	84
171	Lakeland, FL	33.94	124	173	178
172	Stockton, CA	33.82	156	154	146
173	Riverside, CA	33.53	129	169	121
174	Macon, GA	33.03	163	180	101
175	Spartanburg, SC	32.77	131	177	185
176	Longview, TX	31.85	185	150	191
177	Miami, FL	31.74	157	192	17
178	Baton Rouge, LA	31.69	181	170	136
179	College Station, TX	30.49	193	165	96
180	Tuscaloosa, AL	30.35	165	179	180
181	Clarksville, TN	30.17	189	145	200
182	Mobile, AL	29.95	170	185	113
183	Shreveport, LA	29.22	177	191	78
184	Fayetteville, NC	28.42	187	171	184
185	Fort Smith, AR	27.72	159	186	196
186	Beaumont, TX	27.36	197	151	195
187	Gulfport, MS	27.33	173	183	197
188	Fresno, CA	26.58	188	178	119
189	Corpus Christi, TX	26.09	192	189	102
190	Modesto, CA	26.05	169	190	147
191	Visalia, CA	25.28	196	163	166
192	Columbus, GA	24.08	160	193	192
193	Lafayette, LA	23.64	180	196	109
194	Bakersfield, CA	21.84	190	188	186
195	Merced, CA	18.10	191	194	187
196	Yakima, WA	17.32	195	195	164
197	El Paso, TX	8.56	194	198	118
198	McAllen, TX	3.30	200	197	132
199	Brownsville, TX	2.10	198	199	140
200	Laredo, TX	-3.32	199	200	172

Tips for a Happy Retirement

You’ve worked hard, now it’s time to enjoy yourself! These smart strategies can help you find happiness in retirement.

• Create a budget. You may have fewer expenses when you’re retired, but you’ll still need a roadmap for managing them. This is where retirement planning and a budget come in handy. If you are already retired, create a budget that works well for your retirement income. If retirement is still in the future, map out a plan to see how much you’ll need to save to be properly prepared.

• Keep tabs on your retirement savings. Don’t forget to check on your retirement savings regularly to ensure that you’re on track financially. And, of course, make sure you have retirement savings accounts like a 401(k) or a traditional or Roth IRA to help you reach your goal.

Don’t yet have a retirement account? Learn how to open an IRA account.

• Prioritize health and wellness. To be at your best, strongest, and happiest in retirement, prioritize your physical and mental health with regular exercise, a balanced diet, and lots of social interaction.

• Pursue your passions. Don’t let retirement slow you down. You can pursue your favorite hobbies, work on fulfilling and meeting your top ambitions and challenges, and do the activities you’ve always wanted to try now that you have the time and freedom for them. When choosing among the best retirement cities, be sure to look for places that cater to your interests.

Methodology

To find the happiest cities for people to retire in the U.S., we looked at the 200 largest metropolitan statistical areas (MSAs) based on the U.S. Census Bureau’s 2022 population estimates for 13 ranking factors across three categories (Social, Finance, and Health).

We graded each factor on a 100-point scale, where 100 was the highest possible score. Each factor was weighted differently.

Socioeconomic Score Factors

• Community well-being

• Social well-being

• Comfort index*

• Percentage of population age 65 and over

• Percentage of art, recreation, and entertainment businesses

Financial Score Factors

• Housing & transportation

• Cost of living index*

• Median household income

• Percentage of people aged 65 and over living below poverty level

• Tax burden**

Health Score Factors

• Healthcare access

• Life expectancy

• Walk Score*

*Data represents city proper data (excluding surrounding metro).
**Data represents state level data.

Sources: U.S Census Bureau, Sharecare Community Well-Being Index, Walk Score, Tax Foundation, County Health Rankings & Roadmaps, Sperling’s Best Places.

The Takeaway

When you’re ready to retire, choosing where to settle down is a big and important decision. Exploring our list of top 20 happiest places is a great place to start. You can look for cities that offer affordability, good access to healthcare, entertainment and cultural activities, and opportunities for making social and community connections.

And to ensure that your retirement is as happy and stress-free as possible, you’ll want to have your retirement savings in order. Contributing to your 401(k) or IRA can help you build the retirement nest egg you’ll need.

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

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

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.

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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Jan

2024

What Is an ETF? ETF Trading & Investing Guide

By Samuel Becker | Growing Wealth, invest, Investing | No Comments

Table of Contents

What Is an ETF?
How Do ETFs Work?
What Are the Advantages of ETFs?
What Are the Disadvantages of ETFs
What Are Common Types of ETFs?
What Is ETF Trading?
3 Steps to Invest in ETFs
How to Build an ETF Portfolio

An exchange-traded fund, or ETF, bundles many investments together in one package so it can be sold as shares and traded on an exchange. The purchase of one ETF provides exposure to dozens or even hundreds of different investments at once, and there are numerous types of ETFs on the market.

ETFs are generally passive investments, i.e. they don’t have active managers overseeing the fund’s portfolio. Rather most ETFs track an index like the S&P 500, the Russell 2000, and so forth.

ETFs are an investment vehicle that allows even small and less-established investors to build diversified portfolios, and to do so at a relatively low cost. But before you start buying ETFs, it’s important to understand how they work, the risks of investing in ETFs, as well as other pros and cons.

What Is an ETF?

An ETF is a type of pooled investment fund that bundles together different assets, such as stocks, bonds, commodities, or currencies, and then divides the ownership of the fund into shares. Unlike mutual funds, ETFs give investors the ability to trade shares on an exchange throughout the day, similar to a stock.

Unlike investing in a single stock, however, it’s possible to buy shares of a single ETF that provides exposure to hundreds or thousands of investment securities. ETFs are often heralded for helping investors gain diversified exposure to the market for a relatively low cost.

This is important to understand: Just like a mutual fund, an ETF is the suitcase that packs investments together. For example, if you are invested in a stock ETF, you are invested in the underlying stocks. If you are invested in a bond ETF, you are invested in the underlying bonds. Thus you are exposed to the same risk levels of those specific markets.

Recommended: Active vs Passive Investing

Passive vs Active ETFs

Most ETFs are passive, which means to track a market index. Their aim is to provide an investor exposure to some particular segment of the market in an attempt to return the average for that market. If there’s a type of investment that you want broad, diversified exposure to, there’s probably an ETF for it.

Though less popular, there are also actively managed ETFs, where a person or group makes decisions about what securities to buy and sell within the fund. Generally, active funds charge a higher fee than index ETFs, which are simply designed to track an index or segment of the market.

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

How Do ETFs Work?

As discussed, most ETFs track a particular index that measures some segment of the market. For example, there are multiple ETFs that track the S&P 500 index. The S&P 500 index measures the performance of 500 of the biggest companies in the United States.

Therefore, if you were to purchase one share of an S&P 500 index fund, you would be invested in all 500 companies in that index, in their proportional weights.

What Is the Difference Between an ETF and a Mutual Fund?

ETFs are similar to mutual funds. Both provide access to a wide variety of investments through the purchase of just one fund. But there are also key differences between ETFs and mutual funds, as well as different risks that investors must bear in mind.

• ETFs and mutual funds have different structures. A mutual fund is fairly straightforward: Investors use cash to buy shares, which the fund manager, in turn, uses to buy more securities. By contrast, an ETF relies on a complex system whereby shares are created and redeemed, based on underlying securities that are held in a trust.

• ETFs trade on an open market exchange (such as the New York Stock Exchange) just as a stock does, so it is possible to buy and sell ETFs throughout the day. Mutual funds trade only once a day, after the market is closed.

• ETF investors buy and sell ETFs with other ETF investors, not the fund itself, as you would with a mutual fund.

• ETFs are typically “passive” investments, which means that there’s no investment manager making decisions about what should or should not be held in the fund, as with many mutual funds. Instead, passive ETFs aim to provide the same return for the benchmark index they track. For example, an ETF for environmental stocks would mimic the returns of green stocks overall.

What Are the Advantages of ETFs?

There are a number of benefits of holding ETFs in an investment portfolio, including:

• Ease of trading

• Lower fees

• Diversification

• Liquidity

Trading

ETFs are traded on the stock market, with prices updated by the minute, making it easy to buy and sell them throughout the day. Trades can be made through the same broker an investor trades stocks with. In addition to the ease of trading, investors are able to place special orders (such as limit orders) as they could with a stock.

Fees

ETFs often have lower annual fees (called an expense ratio) — typically lower than that of mutual funds — and no sales loads. Brokerage commissions, which are the costs of buying and selling securities within a brokerage account, may apply.

Diversification

Using ETFs is one way to achieve relatively cheap and easy diversification within an investment strategy. With the click of a button, an investor can own hundreds of investments in their portfolio. ETFs can include stocks, bonds, commodities, real estate, and even hybrid funds that offer a mix of securities.

Liquidity

Thanks to the way ETFs are structured, ETF shares are considered more liquid than mutual fund shares.

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

What Are the Disadvantages of ETFs

There are some potential downsides to trading ETFs, too, including:

Trading Might Be Too Easy

With pricing updated instantaneously, the ease of ETF trading can encourage investors to get out of an investment that may be designed to be long term.

Understanding ETF Costs

Even if ETFs average lower fees than mutual funds, a brokerage might still charge commissions on trades. Commission fees, plus fund management fees, can potentially make trading ETFs pricier than trading standalone stocks.

In addition, some ETFs can come with higher bid/ask spreads (depending on trading volume and liquidity), which can increase the cost of trading those funds.

Lower Yield

ETFs can be great for investors looking for exposure to a broad market, index, or sector. But for an investor with a strong conviction about a particular asset, investing in an ETF that includes that asset will only give them indirect exposure to it — and dilute the gains if it shoots up in price relative to its comparable assets or the markets as a whole.

What Are Common Types of ETFs?

The ETF market is quite varied today, but much of it reflects its roots in the equities market. The first U.S. ETF was the Standard & Poor’s Depository Receipt, known today as the SPDR. It was launched on the American Stock Exchange in 1993. Today, ETFs that cover the S&P 500 are one of the most common types of ETFs.

Since the SPDR first debuted, the universe of exchange-traded funds has greatly expanded, and ETF trading and investing has become more popular with individual investors and institutions. Although index ETFs — those that passively track an index — are still the most common type of fund, ETFs can be actively managed. In addition, these funds come in a range of different flavors, or styles.

Because of the way these funds are structured, ETFs come with a specific set of risk factors and costs — not all of which are obvious to investors. So, in addition to the risk of loss if a fund underperforms (i.e., general market risk), investors need to bear in mind that some ETFs might get different tax treatment; could be shut down (dozens of ETFs close each year); and the investor may pay a higher bid/ask spread to trade ETFs, as noted above.

With that in mind, ETFs can offer an inexpensive way to add diversification to your portfolio. Here are some common types of ETFs.

Index ETFs

These provide exposure to a representative sample of the stock market, often by tracking a major index. An index, like the S&P 500, is simply a measure of the average of the market it is attempting to track.

Sector ETFs

These ETFs track a sector or industry in the stock market, such as healthcare stocks or energy stocks.

Style ETFs

These track a particular investment style in the stock market, such as a company’s market capitalization (large cap, small cap, etc.) or whether it is considered a value or growth stock.

Bond ETFs

Bond ETFs provide exposure to bonds, such as treasury, corporate, municipal, international, and high-yield.

Caveats for Certain ETFs

A handful of ETFs may require special attention, as they may incur higher taxes, costs, or expose investors to other risks.

Foreign Market ETFs

These ETFs provide exposure to international markets, both by individual countries (for example, Japan) and by larger regions (such as Europe or all developed countries, except the United States). Note that ETFs invested in foreign markets are subject to risk factors in those markets, which may not be obvious to domestic investors, so be sure to do your homework.

Commodity ETFs

Commodity ETFs track the price of a commodity, such as a precious metal (like gold), oil, or another basic good. Commodity ETFs are governed by a special set of tax rules, so be sure to understand the implications.

Real Estate ETFs

Real estate ETFs provide exposure to real estate markets, often through what are called Real Estate Investment Trusts (REITS). Dividends from REITs also receive a different tax treatment, even when held within the wrapper of a fund.

Additional ETFs

In addition, there are inverse ETFs, currency ETFs, ETFs for alternative investments, and actively managed ETFs. (While most ETFs are passive and track an index, there are a growing number of managed ETFs.) These instruments are typically more complicated than your standard stock or bond ETF, so do your due diligence.

What Is ETF Trading?

ETF trading is the buying and selling of ETFs. To trade ETFs, it helps to understand how stocks are traded because ETF trades are similar to stock trades in some ways, but not in others.

Stocks trade in a marketplace called an “exchange,” open during weekday business hours, and so do ETFs. It is possible to buy and sell ETFs as rarely or as frequently as you could a stock. You’ll be able to buy ETFs through whomever you buy or sell stocks from, typically a brokerage.

That said, many investors will not want to trade ETFs frequently. The bid-ask spread — the difference between the highest price a buyer is willing to pay and the lowest price a seller will accept — can add to the cost of every trade.

A simple ETF trading strategy is to buy and hold ETFs for the purpose of long-term growth. Whether you choose a buy and hold strategy or decide to trade more often, the ease of trading ETFs makes it possible to build a broad, diversified portfolio that’s easy to update and change.

Risks of Trading ETFs

As noted in the discussion about common types of ETFs, it bears repeating that some ETFs can expose investors to more risk — but all exchange-traded funds come with some degree of risk. For example, investing in one of the most common types of ETFs, an S&P 500 ETF which tracks that index, still comes with the same risk of loss as that part of the market.

If large-cap U.S. stocks suddenly lose 30%, the ETF will also likely drop significantly.

This caveat applies to other asset classes and sectors as well.

3 Steps to Invest in ETFs

If you want to start investing in ETFs, there are a few simple steps to follow.

1. Do Your Research

Are you looking to get exposure to an entire index like the S&P 500? Or a sector like technology that may have a different set of prospects for growth and returns than the market as a whole? Those decisions will help narrow your search.

2. Choose an ETF

For any given market, sector, or theme you want exposure to, there is likely to be more than one ETF available. One consideration for investors is the fees involved with each ETF.

3. Find a Broker

If you’re already trading stocks, you’ll already have an investment broker that can execute your ETF trades. If you don’t have a broker, finding one should be relatively painless, as there are many options on the market. Once your account is funded, you can start trading stocks and ETFs.

How to Build an ETF Portfolio

Are you willing to take on more investment risk to see more growth? Would you prefer less risk, even if it means potentially lower returns? How will you handle market volatility? Understanding your personal risk tolerance can help you choose ETFs for your portfolio that round out your asset allocation.

For example, if you decide that you would like to invest in a traditional mix of stocks and bonds at a ratio of 70% to 30%, you could buy one or several stock ETFs to gain exposure to the stock market with 70% of your money and some ETFs to fulfill your 30% exposure to the bond market.

The risk factors of equity and bond ETFs are relatively easy to anticipate, but if you venture into foreign stock ETFs, emerging markets, or gold and other commodities, it’s wise to consider the additional risk factors and tax implications of those markets and asset classes.

Once you’ve determined your desired allocation strategy and purchased the appropriate ETFs, you may want to take a hands-on approach when managing your portfolio throughout the year. This could mean rebalancing your portfolio once a year, or utilizing a more active approach.

The Takeaway

ETFs bundle different investments together, offering exposure to a host of different underlying securities in one package. There’s likely an ETF out there for every type of investor, whether you’re looking at a particular market, sector, or theme. ETFs offer the bundling of a mutual fund, with the trading ease of stocks, although the total costs and tax treatment of ETFs require some vigilance on the part of investors.

Though a DIY approach to investing using ETFs is doable, many investors prefer to have the help of a professional who can provide guidance throughout the investment process.

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

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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 email customer service at [email protected]. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

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.

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

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

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Dec

2023

How to Pick Stocks: Essential Steps for Investors

By Samuel Becker | Growing Wealth, invest, Investing | Comments Off

You’re ready to start buying stocks. But as you look at all the stocks available, you may be wondering which ones to choose. What’s the best way to pick a stock? And how do you know which stocks might be right for your portfolio?

This guide will walk you through what you need to know about how to pick stocks.

Step 1: Define Your Investment Goals

Before you start exploring different stocks, think about what you’re investing for. Of course you’re investing to make money, but what do you want to accomplish overall? In other words, what are your investment goals? Figuring out your purpose can help you when you’re choosing investments and determining how to pick stocks.

Understanding Your Financial Objectives

What are you hoping to achieve with your investments? Think about this carefully. Is it retirement? Are you saving for a downpayment on a home or your child’s college education? Knowing your financial goals is very important to your investment strategy.

Also, consider your timeframe. Will you need access to the money in the next several years? If so, you may want to be more conservative with your investments. Or are you investing for the far-off future? In that case, you may be interested in stocks that have higher growth potential — with the understanding that higher-growth investments can also carry more risk.

Identifying Your Investor Profile

There are different types of investors. Pinpointing which type you are can help as you’re building your portfolio.

Investors who are looking for income (for instance, retirees who want to supplement their retirement funds) may want to buy stocks in companies that pay regular dividends. Investors who want to safeguard their money will likely want to look for stocks in companies that are stable. And investors who want to try to increase their earnings as much as possible might focus on buying higher-risk, higher-growth stocks.

💡 Quick Tip: If you’re opening a brokerage account for the first time, consider starting with an amount of money you’re prepared to lose. Investing always includes the risk of loss, and until you’ve gained some experience, it’s probably wise to start small.

Step 2: Learn the Art of Diversification

Diversifying your portfolio may help mitigate investment risk and may even improve investment performance, studies show. However, diversification is no guarantee and there is still risk when you invest.

The Role of Diversification in Risk Management

When you choose stocks, your inclination might be to stick to just a few companies you’ve researched and feel good about. This approach might seem like it could protect you from losses. But, in fact, limiting your portfolio could actually increase your chances of losing money.

Here’s why: Unsystematic risk is a risk that’s unique to a particular company or industry. So if you invest in the stocks of food manufacturers, for instance, and extreme weather damages some of the crops they use for their products, their stock prices could plummet, which could cause investment losses for you. But if your portfolio is diversified and holds a range of stocks from different sectors or industries, it helps mitigate risk. That’s because while one stock might drop, others could remain stable.

Techniques for Effective Portfolio Diversification

To build a diversified portfolio, there’s something known as the 60/40 rule that calls for investing 60% of your portfolio in equities like stocks, and 40% in fixed income vehicles like bonds and cash.

However, even if you’re building a strictly stock portfolio, you can still diversify it. Instead of owning shares in just one company, for example, you can buy shares in a number of different companies.

You can also choose stocks in different sectors, such as consumer goods, energy, and agriculture. And you can vary the types of stocks by buying stocks in a mix of small-, mid-, and large-cap companies.

If this sounds too complicated and involved, you might be interested in investing in mutual funds or exchange-traded funds (ETFs) that contain assets from many different companies. This is another way to diversify your portfolio.

Step 3: Research and Select Potential Stocks

Now you can start considering which stocks to buy. How to pick stocks? One strategy could be to go with a company for which you have an affinity or one that you’re quite familiar with. Think of the brands that are household names, for instance.

Once you have a few companies in mind, it’s time to find out more about them.

Conducting Company Research

When doing research on companies, these are some of the things you’ll want to look into: Are the companies profitable? How do they perform against others in their industry? Has there been bad news recently about them?

Here are some resources to discover more.

Company filings. The U.S. government requires most companies to file financial data on their performance and notable changes in the corporation. Look for the company’s quarterly and annual balance sheet, income statement, and the cash-flow statement. It’s also a good idea to look at each company’s retained-earnings statement and its shareholders’ equity.

You can find these on the company’s website under the Investor Relations section, or you can go to the Securities and Exchange Commission website to find any required filing. You’ll need to get acquainted with financial ratios. They will help you contrast and compare different companies so you can make a final decision. You’ll find them invaluable for selecting your first stock to buy.

Market news sites. Plenty of sites devote pages of content on what companies are doing, where sectors are heading, and how the market is reacting. Get in the habit of browsing a few every day. You can even set up alerts. That way, when you learn how to buy your first stock, you can keep up with all the news.

Deep analysis sites. Many companies offer stock-market research and make the task of evaluating stocks easier. Some offer information at no cost, others charge a subscription. Zacks Stock Screener and Stock Rover are examples of sites that do not charge. The sites that offer even deeper analysis, like Morningstar, may charge a fee. Many online brokerages also offer analysis content you can use.

Step 4: Analyze Stock Value and Performance

Next, you can look at the performance of the stock over time and its price to see if it represents a good value. Here’s how to do that.

Assessing Financial Health and Earnings

To evaluate a stock’s price, you can look at its price-to-earning ratio (you can generally find this information on the company’s website), which is a company’s share price divided by its earnings per share over the past year. If a stock’s PE is below its historic average, this typically indicates the stock is at a good price.

Another metric to check out is a stock’s dividend yield. If the dividend yield is above average, that could be an indication that the stock is at a good price.

These types of metrics can give you an idea of how profitable and efficient a company might be.

💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.

Step 5: Learn Risk Management in Stock Picking

A risk management strategy can help protect you from big losses. That involves never risking more money than you can afford to lose and knowing what your risk tolerance level is.

Balancing Risk and Potential Returns

How comfortable are you with risk? Are you the aggressive type who is willing to accept higher risk if it means you have the potential for higher returns? Or are you a conservative investor whose priority is to safeguard their money, so you are willing to accept lower returns for investments with lower risk?

In general, higher-growth stocks tend to be riskier, which aggressive investors may gravitate to. Stocks that are more stable and offer lower returns might appeal to a conservative investor.

Understanding how much risk you can tolerate, and balancing that risk with the potential rewards it might offer, is key to choosing which stocks to invest in.

Strategy for Long-Term vs Short-Term Investments

Investors who have a longer investment timeframe — for instance, those investing for retirement, which is 20 or more years away — may be willing to choose higher growth, higher risk stocks because they have time to try to recoup any losses they suffer.

Investors who are investing for the short-term — perhaps they want to buy a new house in two years, or their child will soon be heading off to college — may do best choosing a more conservative investment strategy to help maximize their savings and minimize their losses.

Step 6: Utilize Tools for Effective Stock Selection

There are tools that help you screen stocks. They’re available on many brokerage trading platforms, usually for free.

In addition, when selecting stocks, it can be a good idea to keep on top of news regarding the market in general as well as any specific sector or industry you might be interested in.

Navigating Stock Screeners and Tools

Stock screeners are tools that let you filter through many different stocks using criteria you choose based on your personal investment goals. You could screen by the industry or sector you’re considering, for instance, and by such data as on return on investment (ROI) or earnings per share (EPS). Look for these tools on brokerage trading platforms.

Keeping Up-to-Date with Market Trends

As discussed earlier, there are a number of market news sites you can follow to stay on top of the latest trends and happenings in the market. There are also financial podcasts you can listen to.

Step 7: Seek Answers to Your Stock-Picking Questions

Finally, before buying a stock, there are some key questions you should ask. These questions include:

• What does the company do?

• What is the company’s profit or revenue?

• What is the market for the company and who are the customers?

• What is the company’s price-to-earnings (PE) ratio?

• How does it differentiate itself from competitors?

• Why are you investing in this stock? What do you want it to do for your portfolio?

Once you research the answer to these questions, if the stock seems profitable and well-positioned for the future, you may want to consider it for your portfolio.

The Takeaway

Picking stocks involves a number of steps, such as determining your investment goals, understanding your risk tolerance, and researching companies and stocks that are a good fit with your purpose for investing.

Consider carefully which stocks look strong and could help you meet your investment objectives. And remember to look for stocks that can help you diversify and balance your portfolio as you work to set yourself up for financial success.

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

FAQ

What is the best formula for picking stocks?

There is no one best formula for picking stocks. One strategy you can use involves several steps, such as: figuring out your investing goals, researching companies to make sure they are a good fit with your goals and that they’re profitable and have a good business plan in place for the future, and evaluating the stock’s price to make sure it’s a good value.

How does Warren Buffett pick a stock?

Warren Buffet’s strategy for picking a stock includes looking for stocks that are undervalued by the market in order to maximize returns. Buffet tends to buy stocks in businesses he understands and those that make sense to him. He also looks at a company’s management to see how it performs.

How do you know if a stock is good?

To help determine if a stock might be a good investment, get answers to questions about the way the company operates. For instance, how does it make money? How has it performed in the past? Are its products in demand? Is the company positioned for growth? Does it have a good management team in place?

Additionally, look at key metrics such as the price-to-earning (PE) ratio to help measure a stock’s value, and earnings per share (EPS) for an indication of its financial strength.

Dec

2023

The Savvy Investor’s Guide: Top 10 Ways to Aim to Build Your $1,000

By Samuel Becker | Growing Wealth, invest, Investing | Comments Off

If you’re looking for ways to invest $1,000, particularly in 2024, there are numerous options available to you, including stocks, bonds, treasuries, and even your own skill set. While investing has always been crucial to growing wealth, these days, it’s probably more important than ever as prices rise and many people struggle to sock enough money away to reach their financial goals.

Fortunately, there is an array of options available to investors, as mentioned, who are looking for ways to invest $1,000 — or any other amount.

1. Dive Into the Stock Market With Index Funds

Investors may want to dip their toes into the stock market and invest in index funds. Investing in index funds comprises a passive investing strategy, which can be less risky than buying individual stocks or securities. These types of funds track or follow a market index, or benchmarket, and track it so as to mimic the performance of the larger market, or a segment of it.

Why S&P 500 Index Funds Make Sense

If you’re looking at investing $1,000, it may make sense to check out S&P 500 index funds, which track the S&P 500 index — more or less, most of the stock market. These index funds give investors exposure to 500 of the biggest stocks on the market.

Notably, investing in one of these index funds can be advantageous because it’s easy, gives investors immediate and broad exposure in the markets, and offers a degree of built-in diversification into their portfolios. That’s not to say that investing in S&P 500 index funds is foolproof, of course, as they do have their risks. In the event of a broad market downturn, for instance, your portfolio would likely take a significant hit, depending on the specific makeup of the portfolio.

As such, index fund investing has some advantages, such as ease of management, relatively low entry costs in some cases, and the ability to quickly diversify a portfolio. But there can be disadvantages, too: Index funds don’t necessarily directly follow indexes, it’s a form of passive investing (which may be disappointing to investors who want a more active approach), and depending on your overall strategy, they may not be the best fit – they may be better for long-term investors, for instance.

The Long-Term Benefits of Market Matching

The true magic of broad index funds is that many of them will track the larger performance of the market over time. Which, if you’ve looked at the historical run of the market, tends to go up. As for the S&P 500, specifically? It has grown significantly over time — but not without some hiccups along the way. The S&P 500 has annualized approximately 10% over time.

2. Embrace Diversification With ETFs

Exchange-traded funds, or ETFs, are another good option for investors looking at how to invest $1,000. They can also serve as an alternative to index funds, as ETFs can be a great tool for some new and experienced investors to gain broad exposure to a wide variety of different asset classes. These days, there are ETFs for almost anything.

How ETFs Offer Accessibility to Beginners

Purchasing shares of an ETF works just like purchasing shares of an individual company’s stock. Which means it can be easy for beginners.

ETF trading, like other types of trading or investing, has its pros and cons, though. As for the pros, ETFs can be easy to trade (again, good for beginners), offer a degree of built-in diversification, tend to have lower associated costs, and may be more tax-efficient than other investment types, like mutual funds. As for cons, ETFs may lack personalization, suffer from tracking errors, introduce counterparty and market risks, and may incorporate complex trading strategies (like leveraged or inverse ETFs).

So, keep in mind that while ETFs may be beginner-friendly, there are advantages and disadvantages.

Comparing Popular ETF Options

As mentioned, investors can look at broad index-focused ETFs, or any number of others. An internet search will yield many options, no matter an investor’s interest.

Imagine an investor who wants exposure to gold mining stocks. But researching all of the many different mining companies out there, examining their plans, management, profitability and more all seems overwhelming. What could such an investor do? They may want to consider buying shares of any number of different ETFs that include a basket of gold mining stocks. There are ETFs for real estate, oil, bonds, and stocks of different companies in many different industries.

💡 Quick Tip: The best stock trading app? That’s a personal preference, of course. Generally speaking, though, a great app is one with an intuitive interface and powerful features to help make trades quickly and easily.

3. Bet on Yourself: Invest in Personal Development

If you’re wondering how to invest $1,000 outside of traditional financial securities, look inward! An investment in yourself and your own personal development can also pay dividends.

Education as an Investment

Earning a degree, certificate, or otherwise investing in education is, for many people, a first step toward a brighter financial future. While there are risks and significant costs associated with going to college or earning a degree, it may increase your earning potential significantly, and over the years, that should add up in a big way.

If this is something you’re seriously considering, you could also compare the pros and cons of attending a community college versus a four-year institution, and look at programs that tend to lead to more career opportunities. But remember that there’s no guarantee that a degree or certificate will lead to future job opportunities, or additional earnings.

4. Secure Your Future With Retirement Funds

Another way to invest $1,000 is to sock it away in a retirement account or retirement fund, and there are several options available to investors. For instance, you could open an IRA, or enroll in an employer-sponsored account, like a 401(k).

The Advantage of IRAs

Individual retirement accounts, or IRAs, come in different varieties, such as traditional and Roth IRAs. It’s worth checking out the differences to see which may be the best fit for you and your specific situation or goals, but the general idea is that you can invest money in these accounts, and they’re tax-advantaged. Plus, anyone can open one — they’re not employer-sponsored.

The Magic of 401(k) Matches

Maximizing a 401(k) retirement plan can be another option for investors who are looking to grow their money. Some employers will match employee contributions to 401(k) accounts, effectively supercharging their ability to save. While there are annual contribution limits, investors who have a little extra money to invest may want to see if they can or should put it in their 401(k).

While both IRAs and 401(k)s have some advantages for investors, you’ll want to keep the potential downsides in mind, too. Depending on the type of account you open (Roth versus traditional, for instance), there may not be any immediate tax benefits, for one. Further, it may be difficult to withdraw money quickly if you need it, and there are fees and penalties for doing so depending on your age. You may also be required to take distributions at one point, which some investors may not want to do.

5. Step Into Tech With Robo-Advisors

Robo-advisors are algorithms that pick investments for investors automatically. That may be of interest to some investors looking to put some extra money to work. And letting technology take the reins when it comes to making investment decisions can be appealing to many investors, as it takes much of the guesswork, calculation, and research out of the investing process.

Simplifying Investments With Technology

As for how they work? Generally, an online robo-advisor will ask the investor some simple questions about their investment goals, risk tolerance, and where they are in their wealth-building journey (basically, current age and desired retirement age). Then, based on those answers, a portfolio will be generated, and the amount of money the investor would like to invest will be allocated accordingly.

There are typically several different model portfolios that will be recommended to investors, ranging from conservative risk-off, to moderately risk-on, to aggressively risk-on.

The various model portfolios usually provide a mix of assets according to how much risk an investor ought to take, which is determined by the answers given to the robo-advisor’s questions.

For example, traditional wisdom dictates that younger investors can take more risk because they have more time to make up for potential losses. On the other hand, older investors who find themselves closer to retirement are generally urged to take as little risk as possible, since steep losses could ruin their retirement plans.

Also keep some of the downsides of using a robo-advisor in mind, too. For example, there may be limited personalization and flexibility when using one, which may be a turn-off for some investors who want to take a more active hand in their portfolio. There’s also a lack of human contact, so you won’t be able to speak with someone at your brokerage as easily as you might like. The fees and costs, too, may be more than some investors want to pay.

6. Pay Down High-Interest Debts

While paying down debt may not seem like an “investment” in the traditional sense, it can serve as a sort of investment in your financial future by freeing up money that might go toward interest payments. Instead, you may be able to repurpose that money and funnel it into index funds, your retirement account, or more.

While how or if you choose to target your debt balances will depend on any number of factors, in most cases, it may be wise to try and pay down your debts with the highest applicable interest rate first — that will end up saving you the most money in the long run, as you save the most in interest.

As for how to do it? There are a lot of strategies to pay down debt out there, but it can start with some simple steps: Create a budget, set goals, utilize balance transfers, and more.

A couple of common debt-payoff strategies are the “snowball” and “avalanche” methods, which involve either paying off your debts with the lowest overall balance first, or your debts with the highest applicable interest rate – as mentioned. One or the other may work better for you, and it may be a good idea to try different strategies out to see what works.

Paying down debt is generally a good idea, but if there’s a downside to it, it’s the opportunity costs associated with the money you’re using to pay balances down. Think about this: If you instead invested or saved the money you’re using to pay down debt with, that money could grow or appreciate in the meantime – though there are no guarantees. Again, lowering debt burdens isn’t a bad thing, but opportunity costs may be something to keep in mind.

7. Create a Safety Net With High-Yield Savings Accounts

As interest rates shot up in 2022 and 2023, another potential avenue for growing your money is by putting it in a high-yield savings account. These accounts tend to offer higher interest than standard checking or savings accounts, and many banks offer them. It’s been some time since interest rates were actually attractive to investors, but heading into 2024, it may be worth seeing what your options are.

Finding the Best High-Yield Accounts

You’re likely to find numerous options for high-yield savings accounts out there, but some things you’ll want to look for include annual percentage yields (APY), required initial deposits, minimum balance requirements, applicable fees, and whether there’s a penalty for withdrawing your money.

What makes one account more attractive to you versus another will depend on your personal preferences. But generally, you’re looking for the highest APY, and lowest fees or costs associated with an account.

8. Explore Passive Income Opportunities

Why not invest in a passive income venture? That could be a side hustle, side gig, small business, or something similar. A lot of those opportunities will likely require at least a little startup capital, and many can be started for less than $1,000 — much less, in some cases.

Getting Started With Passive Ventures

There are dozens and dozens of ways to put your money to work and start a passive venture. Consider some of these ideas: Lend your money through a peer-to-peer lending platform, advertise using your personal vehicle, become a pet sitter, become a house cleaner, or even use some money to start a blog or publish an ebook.

Again, some of these will require a little startup cash, but if the chips fall in the right way, they could end up being lucrative passive income ventures.

Low-Investment Ideas for Passive Earnings

If you’re looking for investment opportunities, specifically, you can look at crowdfunding opportunities, buying an ETF or index fund, or even experimenting with a robo-advisor — all as mentioned. These may not provide passive “earnings” in the same way a small business venture would, but if the market sways in the right way, could provide some returns over time.

But, as always, do consider that all investing involves risk, as discussed. Not only that, but business ventures involve risk, as does lending out your money. These may be ways to earn or generate some passive income, but they all do have their associated risks.

9. Invest in Your Child’s Education with a 529 Plan

If you have children, or children in your life, you can also look at the possibility of investing in a 529 college savings plan. With education costs increasing every year, they’ll likely be thankful you did.

The Basics of 529 Plans

A 529 plan, or qualified tuition plan, allows parents or others to essentially pre-pay for a student’s tuition expenses, or contribution to an education-focused savings account. The contributions aren’t tax-deductible, but the distributions are tax-free for beneficiaries if they’re used on a qualified expense, such as tuition, books, and more.

Long-Term Benefits for Your Family

There are other options out there that can be used for saving or investing for education expenses. But the whole point is that these types of accounts can be used to ease the financial burden of college, offering tax-free growth. With student debt remaining a huge issue in the U.S., saving and investing for tuition earlier rather than later may be beneficial.

While 529 plans have benefits, there can be disadvantages as well. Funds can only be used for education purposes, for one, and there may be limited tax advantages depending on where you live and your specific financial situation. There are also fees and costs to consider, and investors should know that they won’t be able to take much of a hand in directing investments, either.

10. Consider Safe Bonds and T-Bills

If stocks, index funds, ETFs, or other investments seem a bit too risky, you can always look at relatively safe investments — which could include bonds and treasuries, or T-bills.

The Stability of Government Bonds

Treasuries, which are bonds that are issued by the federal government, and are generally considered to be one of, if not the safest investment on the market. That’s not to say that they aren’t without risk, but if treasuries become risky investments, there’s likely bigger issues to deal with in the economy than worrying about the value of your bond holdings. They can also be purchased directly from the government.

While Treasuries are relatively safe investments, they’re not without risk or downsides. For most investors, the primary disadvantage of Treasuries are that they provide low returns compared to other investments – but that’s typically the trade-off investors make to assume less risk.

Making Your Investment Work Harder

Investing your money — however you choose to do it — requires at least some research and consideration. At first, that is, depending on how you choose to invest or save it. But the point is to put the money away in a savings or investment account, allowing the market and time to work its magic, and hopefully seeing your balance or holdings accrue value over time.

When to Pivot Your Investment Strategy

Many investors may want to take a hands-off approach to investing, and that can work. Others may want to be more active. While you should perhaps consult with a financial professional to get a sense of what might work best for you, there are going to be times where you’ll want to consider pivoting your strategy.

As you move through life, your goals, risk tolerance, and time horizon will change – and so will your investment strategy. It may be difficult to tell when it’s time to adjust your strategy, but it can be a good idea to keep the fact that your strategy will change, at some point, in mind.

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

Dec

2023

What Are Marginable Securities & Non-Marginable Securities?

By Samuel Becker | Growing Wealth, invest, Investing | Comments Off

Marginable securities are assets including stocks, bonds, exchange-traded funds (ETFs), and others that an investor can buy using borrowed funds via a margin account with their brokerage firm. Non-marginable securities are those that cannot be purchased using margin, usually because these assets are less liquid and higher risk.

Margin accounts, as well as the securities that are designated as marginable or non-marginable, are closely regulated because of the level of risk associated with margin trading.

For that reason, only some investors qualify to open a margin account and execute margin trades.

What Is Margin?

As a reminder: margin trading is an advanced investment strategy in which you trade securities using a loan from your broker. Trading on margin is similar to buying on credit. As with most types of credit, a margin loan requires collateral and must be repaid with interest.

Using margin for a trade is considered a type of leverage because you can use margin to amplify your investment. But using margin also amplifies losses because it exposes you to the risk of losing even more than the amount you invested.

Recommended: Cash Account vs Margin Account

How Margin Trading Works

To execute trades using a cash account, the broker directly withdraws funds for a cash trade. Thus every cash trade is secured 100% by money you’ve already deposited, entailing no risk to your broker.

With margin accounts, though, part of each trade is secured by cash, known as the initial margin, the rest is covered with funds you borrow from your broker. Typically, a margin account requires a minimum deposit of at least $2,000. And the margin terms at most brokerages dictate that investors can buy up to 50% of their purchase using margin. So a $10,000 margin account would allow you to buy up to $20,000 worth of marginable securities.

While margin trading gives you more buying power than you could achieve with cash alone, there is also a higher risk of loss. If you place a bigger bet using margin and the price moves in the wrong direction, you could lose all your cash, the amount of the margin loan, and still owe the interest on the margin loan.

That additional risk means that you’ll always need to maintain a minimum level of collateral to meet margin requirements.

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

What Is a Marginable Security?

Because margin trading can be higher risk than standard cash trades, certain securities can be traded using borrowed funds while others cannot.

Marginable securities are generally those that have high liquidity, trade on a major U.S. exchange, are worth at least $5 per share: e.g. stocks, bonds, mutual funds, ETFs.

The rules governing margin accounts and marginable securities are set out by the Federal Reserve Board in Regulation T and Regulation U. The Financial Industry Regulatory Authority (FINRA) and the individual brokerages themselves have their own margin rules, including which securities traders can buy or sell on credit.

If you have a margin account, you can get a marginable securities list from your brokerage by asking your representative or looking online.

Marginable Securities Example

Most brokerages that allow margin trading would allow investors to trade large, blue-chip stocks on margin. That means that investors can borrow from their brokerage to buy that stock.

Traders might also use margin to short a stock, or bet that its price is about to go down. In that instance, they’d borrow shares from their brokerage and sell them on the open market to another investor, with the hopes of buying them back later at a lower price.

What Is a Non-Marginable Security?

Non-marginable securities are securities that investors cannot purchase using borrowed funds, typically because these securities already entail a higher degree of risk.

If an investor or trader wants to purchase a non-marginable security, then, they must do so with a cash account, rather than a margin account.

Non-marginable Securities Example

Non-marginable securities typically include those considered high risk, perhaps because of low liquidity and higher levels of volatility. That can include stocks that trade over-the-counter (OTC), or penny stocks ( valued at less than $5 per share).

Non-marginable securities may also include IPO stocks, because these stocks are part of a company’s initial public offering and can be highly volatile. IPO stock may be marginable after 30 days post-IPO.

In general, securities held in an IRA account or a 401(k) retirement account are non-marginable because those accounts do not allow for margin trading.

Increase your buying power with a margin loan from SoFi.

Borrow against your current investments at just 10%* and start margin trading.

*For full margin details, see terms.

Differences Between Marginable and Non-Marginable Securities

Here’s a quick rundown of the main differences, as well as pros and cons between marginable and non-marginable securities:

Marginable & Non-Marginable Securities: Key Differences
Marginable Securities	Non-Marginable Securities
Can be purchased using borrowed funds via a margin account	Can only be purchased with cash
Higher liquidity	Lower liquidity, more volatile
Typically includes stocks, bonds, ETFs, and mutual funds	Typically includes penny stocks, IPO stocks, OTC stocks

💡 Quick Tip: One of the advantages of using a margin account, if you qualify, is that a margin loan gives you the ability to buy more securities. Be sure to understand the terms of the margin account, though, as buying on margin includes the risk of bigger losses.

Why Are Some Securities Marginable vs Non-Marginable?

The reason for establishing a difference between marginable and non-marginable securities is to protect both traders and brokerages. Marginable securities have a degree of risk built into them that non-marginable securities lack.

Specifically, there is risk associated with using leverage, or margin, that could result in some traders finding themselves in debt or subject to a margin call by their brokerage.

By designating some securities as marginable, and restricting others as non-marginable, this provides some protection for both investors and financial institutions.

The Takeaway

Marginable securities are those that you can purchase by borrowing money from your broker, while you must purchase non-marginable securities with cash on hand. Trading on margin is riskier than trading cash since you can lose more money than you’ve invested, but there’s also potential for higher returns.

If you’re an experienced trader and have the risk tolerance to try out trading on margin, consider enabling a SoFi margin account. With a SoFi margin account, experienced investors can take advantage of more investment opportunities, and potentially increase returns. That said, margin trading is a high-risk endeavor, and using margin loans can amplify losses as well as gains.

Get one of the most competitive margin loan rates with SoFi, 10%*

FAQ

What securities can’t be margined?

Non-marginable securities are generally those that are less liquid and higher risk (e.g. some IPO stocks, penny stocks, and OTC stocks). Investors must purchase non-marginable securities with cash. Also, non-marginable securities don’t count as collateral in your margin account.

What is an example of marginable securities?

Marginable securities include stocks, bonds (including government and municipal bonds), mutual funds, and ETFs that trade on public exchanges. Marginable securities are more liquid and less volatile, generally, than non-marginable securities.

Who determines which securities are marginable?

The Federal Reserve Board has two regulations that govern the use of margin accounts and marginable securities: Regulation T and Regulation U.

Photo credit: iStock/Delmaine Donson

*Borrow at 10%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
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