Commodity ETF: What It Is and Examples

Commodity exchange-traded funds are ETFs that invest in hard and soft commodities. Commodities are raw materials — e.g. grain, precious metals, livestock, energy products — used for direct consumption or to produce other goods. Crude oil, corn, and copper are examples of commonly traded commodities.

Investing in a commodity ETF can offer exposure to one or more types of commodities within a single vehicle. There are different types of commodity ETFs to choose when building a diversified portfolio.

What Is a Commodity ETF?

A commodity ETF is an exchange-traded fund that specifically invests in commodities or companies involved in the extraction or production processing of commodities.

An ETF or exchange-traded fund combines features of mutual funds and stocks, in that they offer exposure to an underlying group of assets (e.g. stocks, bonds, derivatives). But unlike mutual funds, ETFs trade on an exchange.Whether you have broad or narrow exposure to commodities within a single ETF can depend on how it’s managed and its objectives.

Like other exchange-traded funds, commodity ETFs can be bought and sold inside a brokerage account. Each fund can have an expense ratio, which determines the cost of owning it annually, and brokerages may charge transaction fees when you buy or sell shares.

Commodity ETFs fall under the rubric of alternative investments, which also applies to private equity and hedge funds.

💡 Quick Tip: Alternative investments provide exposure to sectors outside traditional asset classes like stocks, bonds, and cash. Some of the most common types of alternative investments include commodities, real estate, foreign currency, private credit, private equity, collectibles, and hedge funds.

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How Do Commodity ETFs Work?

Commodity ETFs are pooled investments, with multiple investors owning shares. The fund manager determines which commodities the fund will hold and when to buy or sell holdings within the fund. When you buy shares of a commodity ETF, you invest in everything that’s held within the fund.

In many cases, that includes commodities futures contracts. A commodity futures contract is an agreement to buy or sell a set amount of a commodity at a future date for a specified price. That’s an advantage for investors who may be interested in trading futures but lack the know-how to do so.

A commodity ETF may follow an active or passive management strategy. Many commodity ETFs are structured as index funds. An index fund aims to track and match the performance of an underlying benchmark. These types of commodity ETFs are passively managed.

Actively-managed funds, by comparison, typically aim to outstrip market returns but may entail more risk to investors.

Types of Commodity ETFs

Commodity ETFs aren’t all designed with the same objectives in mind. There are different types of commodity ETFs you might invest in, depending on your goals, diversification needs, and risk tolerance.

Here are some of the most common ETF options commodities investors may choose from.

Physically Backed ETFs

A physically backed ETF physically holds the commodity or commodities it trades. For example, a physically backed ETF that invests in precious metals may store gold, silver, platinum, or palladium bars in a secure vault at a bank.

It’s more common for physically backed ETFs to hold hard commodities like precious metals, since these are relatively easy to transport and don’t have a shelf life expiration date. It’s less likely to see physically backed ETFs that invest in agricultural goods like wheat or corn, as they cannot be stored for extended periods.

Futures-Based ETFs

Futures-based ETFs invest in commodities futures contracts, rather than holding or storing physical commodities. That can reduce the overall management costs, resulting in lower expense ratios for investors.

A futures-based ETF may hold commodities contracts that are close to expiration, then roll them into new contracts before the expiration date. Depending on the price of the new futures contract, this strategy may result in a cost or gain for investors.

Commodity Company ETFs

Commodity company ETFs invest in companies that produce or process commodities. For example, this type of ETF may invest in oil and gas companies, cattle farming operations, or companies that operate palm oil plantations.

These types of commodity ETFs are similar to equity ETFs, since the investment is in the company rather than the commodity itself.

Examples of Commodity ETFs

Commodity ETFs are not always easily identifiable for investors who are new to this asset class. Here are some of the largest commodity ETF options with a focus on mitigating inflation.

•   SPDR Gold Trust (GLD). SPDR Gold Trust is the largest physically backed gold ETF in the world. The ETF trades on multiple stock exchanges globally, including the New York Stock Exchange (NYSE) and the Tokyo Stock Exchange.

•   Energy Select Sector SPDR Fund (XLE). This commodity ETF invests in companies in the energy industry, including oil and gas companies, pipeline companies, and oilfield services providers.

•   Invesco DB Agriculture Fund (DBA). The Invesco DB Agriculture Fund tracks changes in the DBIQ Diversified Agriculture Index Return, plus the interest income from the fund’s holdings. The index itself is composed of agricultural commodity futures.

•   First Trust Global Tactical Commodity Strategy Fund (FTGC). This commodity ETF is an actively managed fund that offers exposure to energy commodities futures.

•   Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC). PDBC is another actively managed ETF that invests in commodity-linked futures and other financial instruments offering exposure to the most in-demand commodities worldwide.

Pros and Cons of Commodity ETFs

Commodity ETFs have pros and cons like any other investment. It’s helpful to weigh both sides when deciding whether this type of alternative investment aligns with your overall wealth-building strategy.

Pros

•   Diversification. Commodity ETFs can offer a very different risk/return profile than traditional stocks or bonds. Commodities in general tend to have a low correlation with stocks, which can help spread out and manage risk in a portfolio.

•   Inflationary protection. Commodities and inflation typically move in tandem. As the prices of consumer goods and services rise, commodity prices also rise. That can offer investors a hedge of sorts against the impacts of inflation.

•   Access. Direct investment in commodities is generally out of reach for the everyday investor, as it may be quite difficult to hold large quantities of physical goods or raw materials. Commodity ETFs offer a simple and convenient package for investing in commodities without taking physical possession of underlying assets.

Cons

•   Volatility. Compared with other investments, commodities can be much more susceptible to pricing fluctuations as supply and demand wax and wane. Unexpected events, such as a global drought or a war that threatens crop yields, can also catch investors off guard.

•   No dividends. While some ETFs may generate current income for investors in the form of dividends, commodity ETFs typically do not. That could make them less attractive if you’re looking for an additional stream of passive income or are interested in reinvesting dividends to buy more shares.

•   Cost. Physically backed ETFs may pay storage fees to hold underlying commodities. Those costs may be folded into the expense ratio, making the ETF more expensive for investors to own.

Why Invest in Commodity ETFs?

Commodity ETFs can be worth investing in for those who wish to hedge against inflation or generate positive returns when stocks appear to be faltering. They also represent a more accessible alternative to direct investment in commodities, which may be difficult for an individual investor to manage.

Investors who are already trading futures contracts or are learning how to do so may appreciate the accessibility that commodity ETFs can offer. Commodity ETFs tend to be highly liquid, meaning it’s relatively easy to buy and sell shares on an exchange, a feature other alternative investments don’t always share.

A commodity ETF may be less suitable for an investor who has a lower risk tolerance or isn’t knowledgeable about the commodities market or futures trading. Talking to a financial advisor can help you determine whether commodities are something you should be pursuing as part of your broader investment plan.

💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

Tax Considerations When Holding Commodity ETFs

The type of commodity ETF you invest in can determine their tax treatment. Futures-based ETFs, for example, may experience losses or gains as contracts that are approaching expiration are replaced with new ones. Additionally, commodity ETFs that hold gold, silver, platinum, or palladium may be subject to a higher capital gains tax rate as the IRS considers precious metals to be collectibles.

Furthermore, the IRS 60/40 rule specifies that 60% of commodity capital gains or losses will be treated as long-term, while 40% are treated as short-term capital gains or losses for tax purposes. This rule does not consider how long you hold the investments, which could make commodity ETFs less favorable for investors who hold assets for one year or more.

It’s also important to be aware of how a commodity ETF is structured legally. Many operate as limited partnerships (LPs), which means they pass on annual income and gains or losses as a return of capital. Investors bear the responsibility of reporting their portion of fund profits and losses on Schedule K-1. If you’re not familiar with how to do so, that could add another wrinkle to your year-end tax prep.

The Takeaway

Adding a commodity ETF or two to your portfolio may appeal to you if you’re hoping to add some diversification to your holdings, and are comfortable with a potentially more volatile investment. When deciding which commodity ETFs to invest in, it’s wise to consider the underlying investments and the fund’s overall management strategy, as well as the fees you’ll pay to own it.

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 in alts to take your portfolio beyond stocks and bonds.

FAQ

Why is it risky to invest in commodities?

Commodities can be volatile. Commodity prices depend on supply and demand, which can change dramatically owing to weather patterns, technological innovations, supply chain issues, and more.

Do commodity ETFs pay dividends?

Commodity ETFs typically don’t pay dividends to investors, regardless of which type of ETF you have. The goal of investing in commodity ETFs is more often capital appreciation rather than current income.

Is it better to trade physical commodities or ETFs?

For most investors, trading raw material commodities simply isn’t feasible. There are issues of transport, storage, insurance, and liquidity. For that reason, commodity ETFs have emerged to give investors exposure to desired commodities without the physical demands.


Photo credit: iStock/Nastassia Samal

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.


An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

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

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.


*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.
Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.


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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How to Invest in Commodities: Ways to Invest, Pros/Cons

Commodities are the raw materials or basic goods that are used to produce many of the things you use every day. Investing in commodities such as crude oil, soybeans, livestock, and wheat can be an effective way to diversify a portfolio, hedge against inflation, and potentially generate returns.

Why Invest in Commodities?

Commodities are alternative investments that offer a low correlation to traditional asset classes like stocks or bonds. Thus, holding commodities in your portfolio can help minimize the impact of market volatility, as commodities prices are driven largely by supply and demand rather than the mood of the market.

Investing in commodities can also be a strategic play for investors who are hoping to counter the effects of rising inflation. As prices for consumer goods rise, the prices of the underlying commodities used to produce them also tend to rise. Stock prices, by comparison, do not always move in tandem with inflation.

Commodities can also be highly liquid assets, depending on how you’re trading them. Liquidity may be of importance to investors who are focused on generating short-term returns, versus a longer-term buy-and-hold approach.

💡 Quick Tip: While investing directly in alternative assets often requires high minimum amounts, investing in alts assets through a mutual fund or ETF generally involves a low minimum requirement, making them accessible to retail investors.

Alternative investments,
now for the rest of us.

Start trading funds that include commodities, private credit, real estate, venture capital, and more.


5 Ways to Invest in Commodities

If you’re considering investing in commodities, there are several options to choose from. The one that makes the most sense for you will depend on your risk tolerance, time frame for investing, and how much capital you have to invest.

1. Physical/Direct Ownership

Physical ownership of commodities may be impractical for most individual investors as it involves taking ownership of the actual commodity. Purchasing and storing two tons of wheat, or maintaining 1,000 live animals likely isn’t realistic if you don’t have the proper facilities.

On the easier end of the spectrum, precious metal investors may hold gold or silver as bullion, or coins inside a secure bank vault. But even then, holding quantities of specific metals also require storage, insurance; and reselling these commodities comes with liquidity issues.

2. Commodity Mutual Funds and Exchange-Traded Funds (ETFs)

Commodity mutual funds and exchange-traded funds can offer exposure to commodities without requiring you to hold anything physically. There are three broad categories of commodity funds you might invest in:

•   Physically backed funds. These funds maintain direct ownership of commodities, specifically, precious metals. A gold commodity ETF, for example, may hold gold bars at a bank.

•   Futures-based funds. Futures-based commodity ETFs invest in futures contracts. We’ll explain those in more detail shortly, but in general, a future contract is an agreement to buy or sell an asset at a predetermined price on a set date.

•   Commodity company funds. Commodity company funds invest in commodity producers. For example, you might buy shares in an oil ETF that invests in oil and gas companies, oilfield servicers, and pipeline companies.

The main difference between a commodity mutual fund and a commodity ETF is how they’re traded. Mutual fund prices are set at the end of the trading day, while ETFs trade on an exchange just like a stock. Both commodity mutual funds and ETFs charge expense ratios, which represent the cost of owning the fund on an annual basis.

3. Commodity Futures Contracts

Commodity futures contracts are an agreement to buy or sell an underlying asset at a future date. The contract includes the price at which commodities will be bought or sold. Futures are derivative investments, meaning their value is determined by the price of another asset, i.e., the commodities you’re agreeing to trade.

Trading commodity futures contracts can be risky, as outcomes rely largely on investors making correct assumptions about which commodity prices will move. It’s possible to lose money on futures contracts if you’re expecting prices to increase but they decline instead.

4. Individual Stocks

Investing in stocks of commodity companies is another way to gain exposure to this asset class. For example, if you’re interested in adding energy sector assets to your portfolio you might buy shares in companies that produce oil, natural gas, solar technology, and so on.

Purchasing individual stocks can ensure that you’re only owning the companies that you want to, unlike a commodity mutual fund or ETF, which can hold dozens of different investments. However, picking individual stocks can be a bit more time-consuming and it may take more capital to buy shares if you’re choosing high dollar stocks.

5. Hedge Funds

Hedge funds are private investments that pool money to buy and sell assets, similar to a mutual fund. The difference is that hedge funds tend to use high-risk strategies like short-selling and may require a higher minimum investment to buy in or limit access to accredited investors only. Under SEC rules, an accredited investor is someone who:

•   Has $200,000 or more in annual income ($300,000 for married couples) for the previous two years and expects the same level of income going forward

•   Has a net worth exceeding $1 million, not including their primary residence

Financial professionals who hold certain securities licenses also qualify for accredited status.

Hedge funds can potentially offer higher returns than other commodity investments, but the risks are greater as well. If you’re considering private investment in commodities through a hedge fund you may want to talk to a professional about the pros and cons.

💡 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.

How Do You Open a Commodities Investing Account?

Opening a commodities trading account is no different from opening any other type of brokerage account. You’ll first need to decide which brokerage you want to trade with, then complete the necessary paperwork and funding requirements to start trading.

Personal Information

When you open a brokerage account, you’ll need to provide some basic details about yourself. That includes your:

•   Name

•   Date of birth

•   Social Security number

•   Email and phone number

•   Mailing address

•   Driver’s license number

•   Annual income

•   Net worth

•   Employment status

•   Investment objectives and risk tolerance

You may also be asked about your experience with investing and your citizenship status. You’ll need to disclose whether you’re employed by a brokerage firm.

All of this information is required to verify your identity, meet FINRA’s suitability requirements, and comply with anti-money laundering regulations. Net worth and income information may also be used to determine whether you meet the standards for an accredited investor.

Minimum Funds

The minimum amount of money you’ll need to invest in commodities through your brokerage can depend on what you’re investing in. If you’re buying individual commodities stocks, then the stock’s share price will determine how much you’ll need based on the number of shares you plan to buy.

With commodity mutual funds minimums are typically determined by the brokerage. So you might need $1,000, $3,000, or $5,000 to get started, depending on what you’re buying. Commodity ETFs sell on a per-share basis, similar to stocks.

Some brokerages offer fractional share trading, which allows you to buy shares of mutual funds, ETFs, or stocks in increments. The minimum investment may be as low as $1, though it’s important to keep in mind that it can take time to build up the commodity portfolio of your portfolio when investing in such small amounts.

Trading futures can be a little trickier as you may need to meet a minimum investment requirement and margin requirements. Margin is a set amount of money you’re required to deposit with the brokerage as a condition of trading futures contracts.

Margin is typically calculated as a percentage of the contract but it can easily run into the thousands of dollars.

Pros and Cons of Investing in Commodities

Investing in commodities has advantages and disadvantages, and it may not be right for every investor. Examining the pros and cons can help you make a more informed decision about whether it’s something you should pursue.

Pros

•   Commodities can help you diversify your portfolio beyond traditional stocks and bonds.

•   Investing in commodities can act as an inflationary hedge since commodity prices usually move in sync with increases in consumer prices.

•   Commodity ETFs and mutual funds offer a lower barrier to entry versus direct investment or hedge funds, making commodities more accessible to a wider range of investors.

•   Returns may potentially outstrip stocks, bonds, and other investments.

•   Commodity trading may generate short-term profits

Cons

•   Commodity prices can be volatile, as they may be affected by natural disasters, geopolitical conditions, and other factors.

•   Investing in commodities is generally riskier than other types of investments since supply and demand can impact trading.

•   Holding physical ownership of commodities may not be feasible for every investor.

•   Futures trading in commodities is highly speculative and while there may be potential for higher returns, there’s also more risk involved.

Is Investing in Commodities Right for Me?

Whether commodity trading makes sense for you can depend on your preferences concerning risk and your time horizon for investing. You might consider commodities if you are:

•   Comfortable trading the potential for higher returns against higher risk

•   Looking for short-term gains versus a long-term, buy-and-hold investment

•   Savvy about futures contracts (if you plan to trade futures)

•   Have sufficient capital to meet minimum investment requirements

Before investing in commodities, it’s helpful to learn more about the different types and their associated return profiles. It’s also wise to consider any costs you might pay to trade commodity ETFs, mutual funds, and stocks or the margin requirements for commodity futures trading.

The Takeaway

Although the commodities market is complex, commodities themselves are tangible products that are relatively easy to understand. Investing in commodities can take many forms, including direct or cash investment via the spot market, or by investing in commodity-related funds.

Although trading commodities comes with its own set of risks, commodities may offer some protection against inflation and traditional market movements, because these products are driven by supply and demand.

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 in alts to take your portfolio beyond stocks and bonds.

FAQ

Are there IRA accounts that specialize in commodity trading?

Some brokerages offer an IRA that’s designed for trading commodity futures contracts. You may also be able to gain exposure to commodity ETFs or mutual funds with a regular traditional or Roth IRA.

How much money do I need to invest in commodities?

The amount of money you’ll need to invest in commodities will depend on which vehicle you’re using. With a commodity stock or ETF, the amount of money required would depend on the share price and the number of shares you plan to purchase. Direct investment, hedge fund investments, or commodity futures contracts may require a larger financial commitment.

Can you make money with commodities?

Investors can make money with commodities through capital appreciation or by trading futures contracts. Returns may be higher than traditional assets but you may need to accept a greater degree of risk when trading commodities.

What is the risk profile for someone investing in commodities?

Investing in commodities often means being comfortable with more risk, as commodity prices can fluctuate quickly. You may want to limit your commodities allocation to 5%-10% of your portfolio to minimize your risk exposure.


Photo credit: iStock/filadendron

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.


An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

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

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.


*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.
Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.


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

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What Are Commodities? How Do They Fit Into the Stock Market?

Commodities are the raw materials that are the building blocks of most types of production, whether for commercial, military, or industrial goods. Different types of grain, livestock, metals, and energy sources (such as crude oil) are some of the most common commodities.

Although commodities may offer some advantages to investors, commodities are considered a high-risk market, as prices can fluctuate based on numerous factors that are hard to anticipate: e.g. weather events; regional political changes; supply chain issues, and more.

Nonetheless, investing in commodities can be useful for diversification because commodities tend to have a low correlation with traditional asset classes like stocks and bonds. Commodities are considered alternative investments, and thus they may be better suited to some investors than others.

What Is a Commodity?

A commodity is a raw material that can be bought, sold, or traded according to its value in producing other types of goods. Some commodities, like sugar or beef, may be consumed directly.

Understanding Commodities

Many of the things you use or consume in everyday life start off in commodity form. For example, the gas you put in your car is created by refining crude oil.

The hallmark of a commodity is that a unit of one type of commodity rarely differs substantially from another unit of that commodity. Thus one bushel of corn is equivalent to any other bushel of corn. One bar of gold is interchangeable with any other bar of gold.

This is quite different from traditional investments like stocks and bonds, where the quality of one stock can vary widely from another; or where one bond may get a triple-A rating and another is rated as junk.

Another difference is that the market forces that impact the movement of stocks or bonds often don’t apply to commodities, which are driven by supply and demand. So an inflationary period could hurt the performance of stocks or bonds, but might benefit commodities when the prices of certain goods rise.

This is one reason why commodities are considered alternative investments, which are not correlated with the movements of more traditional assets and thus can offer investors some diversification.

Trading Commodities

While stocks are traded on a stock exchange, such as the New York Stock Exchange (NYSE) or Nasdaq, commodities and commodities futures are traded on a commodities exchange, such as the New York Mercantile Exchange (NYME) or the Chicago Mercantile Exchange (CME).

The Chicago Board of Trade has established standards of measurement and grades of quality for different types of commodities that facilitate commodities trading. For example, there are 5,000 bushels of #2 yellow corn per corn contract, and corn can be traded on the spot or cash market, or the futures market.

💡 Quick Tip: While investing directly in alternative assets often requires high minimum amounts, investing in alts through a mutual fund or ETF generally involves a low minimum requirement, making them accessible to retail investors.

Alternative investments,
now for the rest of us.

Start trading funds that include commodities, private credit, real estate, venture capital, and more.


Commodity Types and Examples

Broadly speaking, commodities can be divided into one of two categories: hard or soft.

•   Hard commodities generally must be mined or otherwise extracted from the earth.

•   Soft commodities are sourced naturally either through agriculture or cultivation.

Hard and soft commodities can serve different purposes in the global economy and supply chain. Within these broader categories, you can further distinguish specific types of commodities from one another.

Types of Commodities Examples

Hard

•   Energy

•   Precious Metals

•   Industrial Metals

•   Aluminum Copper

•   Crude Oil

•   Diesel

•   Gold

•   Lead

•   Natural Gas

•   Nickel

•   Palladium

•   Platinum

•   Silver

•   Tin

•   Zinc

Soft

•   Agricultural Products

•   Livestock

•   Cattle

•   Coffee

•   Corn

•   Cotton

•   Orange juice

•   Palm Oil

•   Pork

•   Soybeans

•   Sugar

•   Tea

•   Wheat

Hard and soft commodities may be traded globally but have a smaller geographic footprint in terms of where they’re sourced from.

For example, nearly 100 countries around the world produce crude oil, but five countries are responsible for 52% of the supply. China, meanwhile, is the world’s largest producer of wheat, generating around 17% of total production.

How Are Commodities Traded on the Stock Market?

Commodities are most often traded on an exchange using futures contracts. A commodity futures contract is an agreement to either buy or sell a specified quantity of a commodity at some future date at a predetermined price. It’s important to note that commodities futures are not regulated by the Securities and Exchange Commission.
Futures are not the only way to trade commodities, however. Investors may also choose to pursue:

•   Direct investment via cash (on the spot market)

•   Mutual funds

•   Exchange-traded funds (ETFs)

•   Exchange-traded notes (ETNs)

•   Commodity-linked stocks and bonds

Of these options, direct investment tends to prove the most difficult for individual investors. Trading commodities through direct investment requires the exchange of physical goods. However, physically holding one ton of wheat or 1,000 head of cattle isn’t a realistic expectation for most commodities traders.

Mutual funds and ETFs can offer an easier access point to the commodities market while allowing investors to diversify. Rather than tying up investment dollars in a single commodity, an investor may diversify across several different types of commodities within a single fund or ETF.

Regardless of how someone invests in commodities, there are real risks to weigh. Commodities can be highly volatile as there are a variety of outside factors that can influence the direction in which prices move.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

What Determines Commodities Prices?

Supply and demand play an integral role in determining how commodities are valued. When supply exceeds demand, e.g. if there were a drop-off in the demand for copper, the price of that commodity would also likely drop. But if a new technology like AI emerges, creating demand for precious metals, that could drive some commodities prices up.

Global events, such as widespread flooding or war can also trigger fluctuations in commodity prices.

Volatility in commodities pricing can have far-reaching effects on the global economy. Research from the International Monetary Fund (IMF) suggests that swings in commodity prices, meaning what a country pays for its imported commodities vs. what it collects for exported ones, have the potential to hinder long-term economic growth, particularly for those countries that are significant exporters.5

The IMF also determined that instability in commodity prices may also increase volatility in domestic inflation. Rising prices for basic domestic goods, such as food or energy, can be especially burdensome in countries that have developing economies.

The Takeaway

What are commodities? Commodities are all around you, from the clothes you wear to the foods you eat, to the technology you use at home and at work.

Within the financial markets, commodities play an important role in price regulation for consumer goods. As an investor, commodities trading can open up new avenues to diversification, though it’s wise to consider how these investments align with your personal risk tolerance.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.


Invest in alts to take your portfolio beyond stocks and bonds.

FAQ

What Is a Commodity vs. a Stock?

A commodity is a raw material that’s used to create something else, such as crude oil that’s refined into gasoline or wheat that’s used to produce bread. Whereas a stock represents an ownership share in a company.

Are commodities riskier than stocks?

Commodities can be riskier than stocks because they’re often speculative in nature and their pricing can be highly volatile. Some types of commodities may prove more stable than others, though it’s important to consider how supply and demand may affect pricing.

What is the safest commodity to invest in?

There are no “safe” investments, and there is always the risk of loss when investing. With commodities, choosing one that is more insulated from fluctuations in pricing can be beneficial, but this can be difficult to predict. Gold and some precious metals may fare well when inflation rises, or there’s increased uncertainty in the markets about interest rates. Again there are no guarantees.


Photo credit: iStock/deyanarobova

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.


An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

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

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.


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

Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

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How to Invest in Real Estate: 7 Ways for Beginners

Real estate investing can be an effective way to hedge against the effects of inflation in a portfolio while generating a steady stream of income. When it comes to how to invest in real estate, there’s no single path to entry.

Where you decide to get started can ultimately depend on how much money you have to invest, your risk tolerance, and how hands-on you want to be when managing real estate investments.

Why Invest in Real Estate?

Real estate investing can yield numerous benefits, for new and seasoned investors alike. Here are some of the main advantages to consider with property investments.

•   Real estate can diversify your portfolio, allowing you to better balance risk and rewards.

•   Provides the opportunity to generate investment returns outside of owning securities such as stocks, ETFs, or bonds.

•   Historically, real estate is often seen as a hedge against inflation, since property prices tend to increase in tandem with price increases for other consumer goods and services.

•   Owning real estate investments can allow you to generate a steady stream of passive income in the form of rents or dividends.

•   Rental property ownership can include some tax breaks since the IRS allows you to deduct ordinary and necessary expenses related to operating the property.

•   Real estate may appreciate significantly over time, which could result in a sizable gain should you decide to sell it. However, real estate can also depreciate in value, leading to a possible loss or negative return. Investors should know that the real estate market is different than the stock market, and adjust their expectations accordingly.

There’s one more thing that makes real estate investing for beginners particularly attractive: There are many ways to do it, which means you can choose investments that are best suited to your needs and goals.

💡 Quick Tip: While investing directly in alternative assets often requires high minimum amounts, investing in alts through a mutual fund or ETF generally involves a low minimum requirement, making them accessible to retail investors.

Alternative investments,
now for the rest of us.

Start trading funds that include commodities, private credit, real estate, venture capital, and more.


7 Ways to Invest in Real Estate

Real estate investments can take different forms, some of which require direct property ownership and others that don’t. As you compare different real estate investments, here are some important things to weigh:

•   Minimum investment requirements

•   Any fees you might pay to own the investment

•   Holding periods

•   Past performance and expected returns

•   Investment-specific risk factors

With those things in mind, here are seven ways to get started with real estate investing for beginners.

1. Real Estate Investment Trusts (REITs)

A real estate investment trust (REIT) is a company that owns and operates income-producing properties. The types of properties you might find in a REIT include warehouses, storage facilities, shopping centers, and office space. A REIT may also own mortgages or mortgage-backed securities.

REITs allow investors to enjoy the benefits of property ownership without having to buy a building or land. Specifically, that means steady income as REITs are required to pay out 90% of taxable income annually to shareholders in the form of dividends. Most REIT dividends are considered to be ordinary income for tax purposes.

Many REITs are publicly traded on an exchange just like a stock. That means you can buy shares through your brokerage account if you have one, making it relatively easy to add REITs to your portfolio. Remember to consider any commission fees you might pay to trade REIT shares in your brokerage account.

2. Real Estate Funds

Real estate funds are mutual funds that own a basket of securities. Depending on the fund’s investment strategy, that may include:

•   Individual commercial properties

•   REITs

•   Mortgages and mortgage-backed securities

Mutual funds also trade on stock exchanges, just like REITs. One of the key differences is that mutual funds are not required to pay out dividends to investors, though they can do so.

Instead, real estate funds aim to provide value to investors in the form of capital appreciation. A real estate fund may buy and hold property investments for the long term, in anticipation of those investments increasing in value over time.

Investing in a real estate fund vs. REIT could offer broader exposure to a wider range of property types or investments. A REIT, for instance, may invest only in hotels and resorts whereas a real estate mutual fund may diversify with hotels, office space, retail centers, and other property types.

3. REIT ETFs

A REIT ETF or exchange-traded fund is similar to a mutual fund, but the difference is that it trades on an exchange just like a stock. There’s also a difference between REIT ETFs and real estate mutual funds regarding what they invest in. With a REIT ETF, holdings are primarily concentrated on real estate investment trusts only.

That means you could buy a single REIT ETF and gain exposure to 10, 20 or more REITs in one investment vehicle.

Some of the main advantages of choosing a REIT ETF vs. real estate funds or individual REITs include:

•   Increased tax efficiency

•   Lower expense ratios

•   Potential for higher returns

A REIT ETF may also offer a lower minimum investment than a REIT or real estate fund, which could make it suitable for beginning investors who are working with a smaller amount of capital.

But along with those advantages, investors should know about some of the potential drawbacks:

•   ETF values may be sensitive to interest rate changes

•   REIT ETFs may experience volatility related to property trends

•   REIT ETFs may be subject to several other types of risk, such as management and liquidity risk more so than other types of ETFs.

As always, investors should consider the risks along with the potential advantages of any investment.

4. Real Estate Crowdfunding

Real estate crowdfunding platforms allow multiple investors to come together and pool funds to fund property investments. The minimum investment may be as low as $500, depending on which platform you’re using, and if you have enough cash to invest you could fund multiple projects.

Compared to REITs, REIT ETFs, or real estate funds, crowdfunding is less liquid since there’s usually a required minimum holding period you’re expected to commit to. That’s important to know if you’re not looking to tie up substantial amounts of money for several years.

You’ll also need to meet a platform’s requirements before you can invest. Some crowdfunding platforms only accept accredited investors. To be accredited, you must:

•   Have a net worth over $1 million, excluding your primary residence, OR

•   Have an income of $200,000 ($300,000 if married) for each of the prior two years, with the expectation of future income at the same level

You can also qualify as accredited if you hold a Series 7, Series 65, or Series 82 securities license.

5. Rental Properties

Buying a rental property can help you create a long-term stream of income if you’re able to keep tenants in the home. Some of the ways you could generate rental income with real estate include:

•   Buying a second home and renting it out to long-term tenants

•   Buying a vacation home and renting it to short-term or seasonal tenants

•   Purchasing a multi-unit property, such as a duplex or triplex, and renting to multiple tenants

•   Renting a room in your home

But recognize the risks or downsides associated with rental properties, too:

•   Negative cash flow resulting from tenancy problems

•   Problem tenants

•   Lack of liquidity

•   Maintenance costs and property taxes

Further, the biggest consideration with rental properties usually revolves around how you’re going to finance a property purchase. You might try for a conventional mortgage, an FHA loan if you’re buying a multifamily home and plan to live in one of the units, a home equity loan or HELOC if you own a primary residence, or seller financing.

Each one has different credit, income, and down payment requirements. Weighing the pros and cons of each one can help you decide which financing option might be best.

6. Fix and Flip Properties

With fix-and-flip investments, you buy a property to renovate and then resell it for (ideally) a large profit. Becoming a house flipper could be lucrative if you’re able to buy properties low, then sell high, but it does take some knowledge of the local market you plan to sell in.

You’ll also have to think about who’s going to handle the renovations. Doing them yourself means you don’t have to spend any money hiring contractors, but if you’re not experienced with home improvements you could end up making more work for yourself in the long run.

If you’re looking for a financing option, hard money loans are one possibility. These loans let you borrow enough to cover the purchase price of the home and your estimated improvements, and make interest-only payments. However, these loans typically have terms ranging from 9 to 18 months so you’ll need to be fairly certain you can sell the property within that time frame.

7. Invest in Your Own Home

If you own a home, you could treat it as an investment on its own. Making improvements to your property that raise its value, for example, could pay off later should you decide to sell it. You may also be able to claim a tax break for the interest you pay on your mortgage.

Don’t own a home yet? Understanding what you need to qualify for a mortgage is a good place to start. Once you’re financially ready to buy, you can take the next step and shop around for the best mortgage lenders.

How to Know If Investing in Real Estate Is a Good Idea for You

Is real estate investing right for everyone? Not necessarily, as every investor’s goals are different. Asking yourself these questions can help you determine where real estate might fit into your portfolio:

•   How much money are you able and willing to invest in real estate?

•   What is your main goal or reason for considering property investments?

•   If you’re interested in rental properties, will you oversee their management yourself or hire a property management company? How much income would you need them to generate?

•   If you’re considering a fix-and-flip, can you make the necessary commitment of time and sweat equity to get the property ready to list?

•   How will you finance a rental or fix-and-flip if you’re thinking of pursuing either one?

•   If you’re thinking of choosing REITs, real estate crowdfunding, or REIT ETFs, how long do you anticipate holding them in your portfolio?

•   How much risk do you feel comfortable with, and what do you perceive as the biggest risks of real estate investing?

Talking to a financial advisor may be helpful if you’re wondering how real estate investments might affect your tax situation, or have a bigger goal in mind, like generating enough passive income from investments to retire early.

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

The Takeaway

Real estate investing is one of the most attractive alternative investments for portfolio diversification. While you might assume that property investing is only for the super-rich, it’s not as difficult to get started as you might think. Keep in mind that, depending on how much money you have to invest initially and the degree of risk you’re comfortable taking, you’re not just limited to one option when building out your portfolio with real estate.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.

Invest in alts to take your portfolio beyond stocks and bonds.

FAQ

How Can I Invest in Property With Little Money?

If you don’t have a lot of money to invest in property, you might consider real estate investment trusts or real estate ETFs for your first investments. REITs and ETFs can offer lower barriers to entry versus something like purchasing a rental property or a fix-and-flip property.

Is Real Estate Investing Worth It?

Real estate investing can be worth it if you’re able to generate steady cash flow and income, hedge against inflation, enjoy tax breaks, and/or earn above-average returns. Whether investing in real estate is worth it for you can depend on what your goals are, how much money you have to invest, and how much time you’re willing to commit to managing those investments.

Is Investing in Real Estate Better Than Stocks?

Real estate tends to have a low correlation with stocks, meaning that what happens in the stock market doesn’t necessarily affect what happens in the property markets. Investing in real estate can also be attractive for investors who are looking for a way to hedge against the effects of inflation over the long term.

Is Investing in Real Estate Safer Than Stocks?

Just like stocks, real estate investments carry risk meaning one isn’t necessarily safer than the other. Investing in both real estate and stocks can help you create a well-rounded portfolio, as the risk/reward profile for each one isn’t the same.


Photo credit: iStock/Pheelings Media
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.

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

[cd_fund-fees]
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.


Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.


An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

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REITs vs. REIT ETFs: What’s the Difference?

Both real estate investment trusts (REITs) and exchange-traded funds (ETFs) that invest in REITs offer some benefits of real estate investing, without having to own any properties directly. The main differences between a real estate ETF vs. REIT lie in how they’re structured, dividend payouts, taxes, and the fees investors might pay to own them.

Also, REITs are considered alternative investments, which means they tend not to move in sync with traditional investments like stocks and bonds.

Overview of REITs

A real estate investment trust is a legal entity that owns and operates income-producing properties. REITs can hold a single property type or multiple property types, including:

•   Hotels and resorts

•   Self-storage facilities

•   Warehouses

•   Retail space, including shopping centers

•   Apartment buildings or multi-family homes

•   On-campus housing

•   Assisted living facilities

REITs that own and manage properties typically generate most, if not all, of their income through rents. Some REITs may also invest in mortgages and mortgage-backed securities. REITs that invest in mortgages can collect interest on those loans.

There are two conditions to qualify for a REIT. A company must:

•   Derive the bulk of its income and assets from real estate-related activities

•   Pay out at least 90% of dividends to shareholders

Companies that meet these conditions can deduct all of the dividends paid to shareholders from corporate taxable income.

💡 Quick Tip: Alternative investments provide exposure to sectors outside traditional asset classes like stocks, bonds, and cash. Some of the most common types of alt investments include commodities, real estate, foreign currency, private credit, private equity, collectibles, and hedge funds.

Alternative investments,
now for the rest of us.

Start trading funds that include commodities, private credit, real estate, venture capital, and more.


What Is a REIT ETF?

An exchange-traded fund or ETF is a pooled investment vehicle that shares some of the features of a mutual fund but trades on an exchange like a stock. A REIT ETF is an exchange-traded fund that owns a basket or collection of REIT investments.

While REITs own properties, REIT ETFs do not. REIT ETFs have a fund manager who oversees the selection of securities held in the fund. The fund manager also decides when to sell off fund assets, if necessary.

A REIT ETF may be actively or passively managed. Actively managed ETFs often pursue investment strategies that are designed to beat the market. Passively managed ETFs, on the other hand, aim to mimic the performance of an underlying market benchmark or index.

Recommended: What Is a Dividend?

How REIT ETFs Work

REIT ETFs work by allowing investors to gain exposure to a variety of real estate assets in a single investment vehicle. For example, a REIT may hold:

•   Stocks issued by REITs

•   Other real estate stocks

•   Real estate derivatives, such as options, futures, or swaps

Investors can buy shares of a REIT ETF on a stock exchange and sell them the same way. Like other ETFs, REIT ETFs charge an expense ratio that reflects the cost of owning the fund annually. Expense ratios for a REIT ETF, as well as performance, can vary from one fund to the next.

REIT ETFs pay dividends to investors, which may be qualified or non-qualified. The fund may give investors the option to reinvest dividends vs. collecting them as passive income. Reinvesting dividends can allow you to purchase additional shares of a fund, without having to put up any money out of pocket.

A REIT ETF might track the performance of the MSCI US Investable Market Real Estate 25/50 Index, which offers investors access to multiple REIT property sectors, including:

•   Data centers

•   Health care

•   Hotels and resorts

•   Office space

•   Industrial

•   Real estate

•   Retail

•   Telecom

💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

What’s the Difference between REITs and REIT ETFs?

REITs and REIT ETFs both offer opportunities to invest in real estate, without requiring investors to be hands-on in managing property. There are, however, some key differences to know when considering whether to invest in a REIT vs. REIT ETF.

Structure

REITs are most often structured as corporations, though they can also be established as partnerships or limited liability companies (LLCs). The Internal Revenue Service (IRS) requires REITs to have a board of directors or trustees who oversee the company’s management. As mentioned, REITs must pay out 90% of dividends to shareholders to deduct those payments from their corporate taxable income.

A REIT may be categorized in one of three ways, depending on what it invests in.

•   Equity REITs own properties that generate rental income.

•   Mortgage REITs focus on mortgages and mortgage-backed securities.

•   Hybrid REITs hold both properties and mortgage investments.

REIT ETFs are structured similarly to mutual funds, in that they hold multiple securities and allow investors to pool funds together to invest in them. The fund manager decides which investments to include and how many securities to invest in overall.

Both REITs and REIT ETFs are structured to pay out dividends to shareholders. And both can generate those dividends through rental income, mortgage interest, or a combination of the two. The difference is that structurally, a REIT ETF is a step removed since it doesn’t own property directly.

Investment Style

REITs and REIT ETFs can take different approaches concerning their investment style. When comparing a REIT vs. REIT ETF, it’s helpful to consider the underlying investments, fund objectives, and management style.

An actively managed REIT, for example, may generate a very different return profile than a passively managed REIT ETF. Active management can potentially result in better returns if the REIT or REIT ETF can beat the market. However, they can also present more risk to investors.

Passive management, on the other hand, typically entails less risk to investors as the goal is to match the performance of an index or market benchmark rather than exceed it. Fees may be lower as well if there are fewer costs incurred to buy and sell securities within the fund.

How They’re Traded

Individual REITs can be publicly traded, public but non-traded, or private. Publicly traded REITs are bought and sold on stock market exchanges and are regulated by the Securities and Exchange Commission. Public non-traded REITs are also subject to SEC regulation but they don’t trade on exchanges.

Private REITs, meanwhile, are not required to register with the SEC, nor are they traded on exchanges. These types of REITs are most often traded by institutional or accredited investors and may require higher buy-ins.

REIT ETFs trade on an exchange like a stock. You can buy shares of a REIT or REIT ETF through your brokerage account. If you decide you’re no longer interested in owning those shares you can sell them on an exchange. Unlike traditional mutual funds, share prices for REIT ETFs can fluctuate continuously throughout the day.

The Takeaway

Real estate can be an addition to a portfolio for investors who are interested in alternative investments. Whether it makes sense to choose a real estate ETF vs. REIT, or vice versa, can depend on your short and long-term financial goals, as well as your preferred investment style.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.


Invest in alts to take your portfolio beyond stocks and bonds.

FAQ

Do REIT ETFs pay dividends?

REIT ETFs pay dividends to investors. When considering a REIT ETF for dividends, it’s important to assess whether they’re qualified or non-qualified, as that can have implications for the tax treatment of that income.

What are the risks of investing in REITs?

REITs are not risk-free investments, and their performance can be affected by a variety of factors, including interest rates, shifts in property values, and limited liquidity. In some cases, the dividend payout from a REIT can provide steady returns, but this is not always the case, as real estate conditions can fluctuate.

Do REITs have fees?

REITs can charge a variety of fees, which may include upfront commissions, sales loads, and annual management fees. REIT ETFs, meanwhile, charge expense ratios and you may pay a commission to buy or sell them, depending on which brokerage you choose. Evaluating the fees for a REIT or REIT ETF can help you better understand how much of your returns you’ll get to keep in exchange for owning the investment.


Photo credit: iStock/Maks_Lab

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.


An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

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

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.


Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.


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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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