Jan
09
2024

Understanding Value Investing: Principles, Strategies, and Risks

By | Growing Wealth, invest, Investing, Terminology | Comments Off on Understanding Value Investing: Principles, Strategies, and Risks

Value investing is an investment philosophy that takes an analytical approach to selecting stocks based on a company’s fundamentals — such as earnings growth, dividends, cash flow, book value, and intrinsic value. Value investors don’t follow the herd when it comes to buying and selling, which means they tend to ignore tips and rumors they hear from coworkers and talking heads on TV.

Instead, they look for stocks that seem to be trading for less than they should be, perhaps because of a negative quarterly report, management scandal, product recall, or simply because they didn’t meet some investors’ high expectations.

What Is Value Investing?

A value investor’s goal is to find stocks that the market may be undervaluing. And after conducting their own analysis, an investor then decides whether they think the targeted stocks have potential to accrue value over time, and to invest.

In effect, value investing is an investment strategy that involves looking for “deals” in the market, and taking portfolio positions accordingly.

Historical Background and Evolution

Value investing has been championed and used by some of the most storied investors in history. For example, Warren Buffett, the CEO of Berkshire Hathaway, also known as the “Oracle of Omaha,” is probably the most famous (and most quoted) value investor of all time.

From 1965 to 2017, Buffett’s shares in Berkshire Hathaway had annual returns of 20.9% compared to the S&P 500’s 9.9% return.

Buffett’s mentor was Benjamin Graham, his teacher at Columbia Business School and later his employer, who is known as “the father of value investing.” Columbia professor David Dodd, another Graham protegee and colleague, is recognized for helping him further develop several popular value investing theories.

Billionaire Charlie Munger, vice chairman of Berkshire Hathaway Corp., was another super-investor who followed Graham and Dodd’s approach. And billionaire investor Seth Klarman , chief executive and portfolio manager of the Baupost Group, is a longtime proponent.

Joel Greenblatt, who ran Gotham Capital for over two decades and is now a professor at Columbia Business School, is the co-founder of the Value Investors Club.

The Core Principles of Value Investing

The main goal of value investing is to buy a security at a price that is near or less than its intrinsic value. That is, the investor is not paying a premium or markup on the stock — they’re getting a “deal” when they invest in it. There can be many elements at play when determining a value stock, including intrinsic value, margin of safety, and market inefficiencies.

Intrinsic Value and Margin of Safety

Intrinsic value refers to a stock’s “true” value, which may differ from its “market” value. It can be a difficult concept to wrap your head around, but at its core, determining a stock’s intrinsic value can help an investor determine whether they’re actually finding a value stock, or if they’d potentially be overpaying for a stock. That’s why the concept of intrinsic value is critical to value investors.

Similarly, investors need to incorporate a “margin of safety,” which accounts for some wiggle room when they’re trying to determine a stock’s intrinsic value. In other words: Investors can be wrong or off in their calculations, and calculating a margin of safety can give them some margin of error when making determinations.

Belief in Market Inefficiencies

Value investors also tend to believe that the market is rife with inefficiencies. That means that the market isn’t perfect, and doesn’t automatically price all stocks at their intrinsic values — opening up room to make value investments. If you, conversely, believe that the market is perfectly efficient, then there wouldn’t be any stocks that are priced below their intrinsic value.


💡 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.

Strategies and Techniques in Value Investing

Value investing isn’t about finding a big discount on a stock and hoping for the best, or making a quick buck on a market trend.

Value investors seek companies that have strong underlying business models, and they aren’t distracted by daily price fluctuations. Their decisions are based on research, and their questions might include:

•   What is the potential for growth?

•   Is the company well managed?

•   Does the company pay consistent dividends?

•   What is the company doing about unprofitable products, projects, or divisions?

•   What are the company’s competitors doing differently?

•   How much do I know about this company or the business it’s in?

Investors who are familiar with an industry or the products it sells (either because they’ve worked in that business or they use those goods or services) can tap that knowledge and experience when they’re analyzing certain stocks.

The same line of thought can be applied to companies that sell products or services that are in high demand. That brand might be expected to remain in demand into the future because the company has a reputation for evolving as times (and challenges) change.

Identifying Undervalued Stocks

Identifying undervalued stocks requires time, patience, and some good, old-fashioned analysis. That mostly includes fundamental analysis, which is a method of evaluating securities by looking at its underlying financial health. That typically involves digging into financial statements and records.

Analyzing Financial Statements and Reports

Investors who are time-crunched or still learning the basics might find the homework daunting. Deep diving into earnings reports, balance sheets, and income statements, and pondering what the future might hold isn’t for everyone.

Understanding Market Dynamics and Herd Mentality

Doing what feels right on a personal level instead of going with the flow is a big part of value investing. And it isn’t always easy.

If everyone around you is talking about a particular stock, that enthusiasm can be contagious. Which is why a typical investor’s decision making is often heavily influenced by relatives, co-workers, friends, and acquaintances.

For an investor who believes the pursuit of market-beating performance is more about randomness than research, emotions (fear, greed, FOMO) can be their worst enemy. Behavioral biases can lead to knee-jerk reactions, which can result in investing mistakes. It takes patience and discipline to stick with a value investing strategy.

This is all to say that investors should do their best to get a handle on overarching market dynamics, rather than investing emotionally or going with the crowd.

Value investors don’t follow the herd. They eschew the efficient market hypothesis, which states that stock prices already reflect all known information about a security (market inefficiencies!).

Value investors take the opposite approach. If a well-known company’s stock price drops, they look for the reasons why the company might be undervalued. And if there are strong signs the company could recover and even grow in the future, they consider investing.

Value vs Growth Investing

Value investing is often discussed alongside growth investing. Value versus growth stocks represent different investment styles or approaches.

Differences and Performance Comparisons

In a general sense, value stocks are stocks that have fallen out of favor in the market, and that may be undervalued. Growth stocks, on the other hand, are shares of companies that demonstrate a strong potential to increase revenue or earnings thereby ramping up their stock price.

In terms of performance value stocks may not be seeing much price growth, whereas growth stocks may be experiencing rapid price appreciation.

Pros and Cons of Each Approach

Both value and growth investing have their pros and cons.

Value investing, for instance, may see investors experience lowering volatility when investing, and also getting more dividends from their investments. But their portfolio might accrue value more slowly — if at all. Conversely, growth investing may see investors accrue more gains more quickly, but also with higher levels of volatility and risk.

The Process of Value Investing

As noted, value investing is a type of investing strategy, but it’s similar to how a value shopper might operate when hoping to buy a certain brand of a smartwatch for the lowest price possible. If that shopper suddenly saw the watch advertised at half the price, it would make them happy, but it also might make them wonder: Is there a new version of the watch coming out that’s better than this one? Is there something wrong with the watch I want that I don’t know about? Is this just a really good deal, or am I missing something?

Also as discussed, their first step would likely be to go online and do some research. And if the watch was still worth what they thought, and the price was a good discount from a reliable seller, they’d probably go ahead and snap it up.

Investing in stocks can work in much the same way. The price of a share can fluctuate for various reasons, even if the company is still sound. And a value investor, who isn’t looking for explosive, immediate returns but consistency year after year, may see a drop in price as an opportunity.

Value investors are always on the lookout to buy stocks that trade below their intrinsic value (an asset’s worth based on tangible and intangible factors). Of course, that can be tricky. From day to day, stocks are worth only what investors are willing to pay for them. And there doesn’t have to be a good reason for the market to change its mind, for better or worse, about a stock’s value.

But over the long run, earnings, revenues, and other factors — including intangibles such as trademarks and branding, management stability, and research projects — do matter.

Finding and Evaluating Value Stocks

Value investors use several metrics to determine a stock’s intrinsic value. A few of the factors they might look at (and compare to other stocks or the S&P 500) include:

Price-to-earnings Ratio (P/E)

This ratio is calculated by dividing a stock’s price by the earnings per share. For value investors, the lower the P/E, the better; it tells you how much you’re paying for each dollar of earnings.

Price/earnings-to-earnings Ratio (PGE)

The PEG ratio can help determine if a stock is undervalued or overvalued in comparison to another company’s stock. If the PEG ratio is higher, the market has overvalued the stock. If the PEG ratio is lower, the market has undervalued the stock. The PEG ratio is calculated by taking the P/E ratio and dividing it by the earnings growth rate.

Price-to-book Ratio (P/B)

A company’s book value is equal to its assets minus its liabilities. The book value per share can be found by dividing the book value by the number of outstanding shares.

The price-to-book ratio is calculated by dividing the company’s stock price by the book value per share. A ratio of less than one is considered good from a value investor’s perspective.

Debt-to-equity Ratio (D/E)

The debt-to-equity ratio measures a company’s capital structure and can be used to determine the risk that a business will be unable to repay its financial obligations. This ratio can be found by dividing the company’s total liabilities by its equity. Value investors typically look for a ratio of less than one.

Free Cash Flow (FCF)

This is the cash remaining after expenses have been paid (cash flow from operations minus capital expenditures equals free cash flow).

If a company is in good shape, it should have enough money to pay off debts, pay dividends, and invest in future growth. It can be useful to watch the ups and downs of free cash flow over a period of a few years, rather than a single year or quarter.

Over time, each value investor may develop their own formula for a successful stock search. That search might start with something as simple as an observation — a positive customer experience with a certain product or company, or noticing how brisk business is at a certain restaurant chain.

But research is an important next step. Investors also may wish to settle on a personal “margin of safety,” based on their individual risk tolerance. This can protect them from bad decisions, bad market conditions, or bad luck.

Long-Term Considerations and Patience

An important thing to remember when it comes to value investing is that investors are likely on the hook for the long term. Many value stocks are probably not going to see huge value increases over short periods of time. They’re fundamentally unsexy, in many respects. For that reason, investors may do well to remember to be patient.

Risks and Challenges in Value Investing

As with any investment strategy, value investing does have its risks. It tends to be a less-risky strategy than others, but it has its risks nonetheless.

For one, investors can mislead themselves by making faulty or erroneous judgments about certain stocks. That can happen if they misunderstand financial statements, or make inaccurate calculations when engaging in fundamental analysis. In other words, investors can make some mistakes and bad judgments.

Investors can also buy stocks that are overvalued – or, at least overvalued compared to what the investor was hoping to purchase it for. There are also concerns to be aware of as it relates to diversification in your overall portfolio (you don’t want a portfolio overloaded with value stocks, or any other specific type of security).


💡 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

Value investing is a type of investment strategy or philosophy that involves buying stocks or securities that are “undervalued.” In effect, an investor determines that a stock is worth more than the market has valued it, and purchases it hoping that it will accrue value over time. While it’s a strategy that has its risks, it’s been used by many high-profile investors in the past, such as Warren Buffett.

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).

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.

FAQ

What are the pros and cons of value investing?

Pros of value investing include that it tends to be a less risky investing strategy, and that value stocks may experience less volatility. Some of the cons are that value stocks may not see sizable value increases over short periods of time, and that it’s possible investors can make a mistake and purchase an overvalued stock, rather than an undervalued one.

Is value investing high risk?

Value investing is generally considered to be a lower-risk investment strategy, as investors tend to buy securities that they perceive to be undervalued, rather than overvalued.

Can you make money value investing?

Yes, investors can make money utilizing a value investing strategy. Many of the most successful investors in history, such as Warren Buffett, used a value investing strategy to great success.

How do you do value investing?

Value investing involves purchasing stocks or other securities that an investor has determined to be “undervalued” by the market. Investors purchase those securities, with the hope that they’ll accrue value over time.

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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.

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Jan
09
2024
Complete Guide to Investing in Foreign Currency

The Essential Guide to Investing in Foreign Currency

By | Growing Wealth, invest, Investing | Comments Off on The Essential Guide to Investing in Foreign Currency

Investing in foreign currency involves purchasing money, or currency, in another country. The market for foreign currency investing is the largest and most liquid in the world. There are some differences between investing in foreign currency and investing in stocks or bonds, though, that investors should be aware of.

Further, foreign currency investing can be somewhat confusing to new investors, and it also entails its own unique risks. For that reason, it can be beneficial to learn the basics before folding it into an investment strategy.

Understanding Foreign Currency Investment

As noted, investing in foreign currency means purchasing another country’s currency, or money, as a means of investment. You’re not planning on spending it, in other words, and are hoping that it accrues value to generate a return. It’s also different from exchanging foreign currency, though it may feel similar.

Foreign currency investment is often, or typically done via “forex” trading. Forex is short for “foreign exchange market,” and refers to trading fiat currencies, or those that are backed by the government that uses them. For example, an investor could trade their United States dollars (USD) for Euros. Or, they can trade their Japanese yen for New Zealand dollars.

Key Takeaways for New Investors

Forex trades can happen at any time throughout the day, since there’s always a foreign currency market open somewhere in the world. Foreign currency investors are typically institutional investors, although it is possible for individual investors to participate.

Investors should also know that currencies tend to trade in pairs — more on that below.

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Exploring the Benefits of Investing in Foreign Currencies

Like other types of investments, forex trading, or investing in foreign currencies, can offer up some benefits.

Diversification of Portfolio

For one, investing in foreign currencies can add a degree of diversification to an investor’s portfolio. That means that while an investor may have built a portfolio with a number of other investments, such as stocks, bonds, and ETFs, foreign currency can be another element in the mix. Note, though, that it’s likely foreign currency should only comprise a small portion of a portfolio’s overall holdings.

Convenience and Accessible Markets

The forex markets operate 24 hours per day, 365 days per year, unlike the standard stock exchanges. So, for investors who want to trade around the clock, the markets are almost always accessible.

There are four major forex trading sessions in a 24-hour period, split up by international region:

•   Sydney (Australia)

•   Tokyo (Asia)

•   London (Europe)

•   New York (The Americas)

There are minor sessions, too, but these are the four major sessions, and markets can be busy (when the Americas’ session overlaps with Europe’s), or less busy, depending on the time of day, and how many people are actively trading.

Hedge Against Domestic Currency Inflation

It’s possible that while a domestic currency is losing value due to inflation, foreign currencies could retain their value at the same time. That would, theoretically, provide investors with a hedge against inflation — but there’s no guarantee prevailing market forces would work to an investor’s advantage in such a scenario.

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

Ways to Invest in Foreign Currencies

Foreign currency investment doesn’t typically involve using physical money, so you’ll have to find something else to do with the foreign currency left over from your last international vacation. There are several ways to get started in currency exchange investment.

1. Standard Forex Trading Account

First, you can work with a foreign exchange brokerage to trade the currency you’re holding (such as U.S. dollars) for another currency (Euros, Yen, etc.). The goal is that the currency you’re trading for, or buying, will increase in value relative to the currency you’re trading away, or selling.

So, if you buy, or trade U.S. dollars for Euros, you’re hoping that in the future, you’d be able to trade the Euros back for more U.S. dollars than you originally used to make the purchase. You’re looking to make a profit, in other words.

While the goal is straightforward, the process can get more complicated. For instance, there are a few ways traders can execute trades, such as spot trading, forward trading, and future trading. Spot trading is an instant trade, whereas forward and future trading may involve settling on terms at a time in the future (similar to trading options).

Further, investors should understand the concept of the spread, which represents the difference between a trader’s cost and the dealer’s profits.

Beyond that, investors should also have a working knowledge of currency pairs, which is how much of the forex market trades. More on that below.

2. Currency CDs and Savings Accounts

Investors can also look into foreign currency CDs (certificates of deposit), which work more or less like traditional CDs but might offer higher yields. Foreign savings accounts are another potential option, and can serve as investment vehicles by accruing interest and currency appreciation, though nothing is guaranteed.

3. Foreign Bond Funds

Investors can look at the possibility of purchasing foreign bonds, which are issued in other countries by foreign governments or foreign companies. There are many types of foreign bond investment types, so investors would do well to do a bit of research to figure out if it’d be a good addition to their portfolio.

4. Currency ETFs

As mentioned, investors may want to look at currency ETFs. These ETFs are similar to foreign bond funds, there are also foreign currency ETFs on the market, which offer many of the same advantages of domestic or traditional ETFs, but can give investors exposure to the forex market. Likewise, exchange-traded notes, or ETNs, which are similar to bonds, are another potential investment investors can check out.

💡 Looking for other alternatives to invest in? Check out: 10 Types of Alternative Investments

The Risks Associated with Foreign Currency Investment

Foreign currency investment isn’t without risk, and in fact, can introduce some types of risk that investors may not otherwise encounter — such as political and interest rate risks.

Market Volatility and Political Risks

Since forex markets are so active, prices can change quickly, which means it’s a fairly volatile asset class. The news cycle (including economic, political, or social news) can cause sudden and drastic changes to prices. That means it may be a better fit for investors with a relatively high risk tolerance than those who are more risk averse.

Political risk is something to consider, too, as currencies are backed by governments. If a foreign government is unstable or otherwise involved in some sort of political drama, it can affect the price of a currency. That can pose a risk to investors.

Interest Rate Risk

Some investments incur interest rate risk, which is when an investment loses value due to a fluctuation in interest rates. Foreign currencies may be subject to such risk, though interest rate risk is more commonly associated with bonds.

Currency Conversion and Transfer Costs

There may also be additional costs associated with currency trading and investing, including currency conversion and transfer costs. These may not always be applicable, but are something that investors should at least be aware of in the event that they do encounter them.

💡 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.

How to Approach Foreign Currency Safely

In order to invest in foreign currency investing as safely as possible — remember, no investment is completely safe or risk-free — investors should brush up on the mechanics of the forex market, and know what they’re getting into.

Education is Key: Understanding the Mechanics of Currency Investment

A couple of things investors should also know about are “pips,” and the use of leverage in forex trading.

A “pip” is a unit of measure that represents the smallest unit of value in a currency quote. Using the above quote as an example, the difference between the “bid” (1.2100) and the “ask” (1.2104) is four pips.

Why does this matter? Because currency values fluctuate very slightly during the trading day, perhaps only several pips. That means that to make a significant return, traders deal with large quantities of currencies.

And as for leverage? To get to those large quantities, traders often use leverage. For example, you may give your broker $100 to trade with $10,000 on the markets (using, or borrowing the broker’s $9,900 to make trades is called “margin”). Most forex trading is done this way, using leverage and margin in order to generate returns.

That, of course, has its risks, since traders may incur losses, and end up owing money to their brokers. For beginners, it may be best to use lower margins for that very reason.

The Importance of a Bid-Ask Spread

Also noted previously, the bid-ask spread is another important concept to know and incorporate if you’re trading or investing in foreign currency. Effectively, the spread refers to the difference between a trader’s cost and the dealer’s profits. There’s a slight difference in what you’re willing to pay, and what a seller is willing to sell for. In forex trading, the spread can be important to calculating overall potential returns.

Evaluating Risks Versus Rewards

Above all, it’s critical that investors keep their own personal risk tolerances in mind, and weigh that against the potential gains they could see from foreign currency investing. It may not be a good fit for everyone’s investment strategy.

Currency Investment Strategies for Beginners

Forex trading is different from other types of investing or trading. Generally, investing in or trading foreign currency involves pairs of currencies. That’s because two different currencies are quoted based on their relative value to each other. On an exchange, that may appear as “USD/EUR,” or something similar, while a pairing of Japanese yen and Euros, it may be represented as such: “JPY/EUR.”

Some currencies are more widely traded than others and are “paired” with one another or grouped as “major” currencies:

•   U.S. dollars

•   Euros

•   Japanese yen

•   British pounds

•   Swiss francs

•   Australian dollars

•   Canadian dollars

•   New Zealand dollars

There are also “minor” and “exotic” currency pairs. These are not traded as widely as the majors, but are still often swapped on exchanges. They may include pairings with the Hong Kong dollar, the Mexican peso, the Singapore dollar, or the Norwegian krone, among others.

Additionally, investors should know about foreign currency quotes. These quotes are similar to stock quotes, which list the current value, or price of a stock. Forex quotes display the bid and ask prices for a currency pair, since one currency’s value is relative to another currency. Here’s an example of a quote for a common pairing, Euros and U.S. dollars:

EUR/USD = 1.2100

In this example, Euros are the “base” currency, and U.S. dollars are the “quote” currency. What does the quote say, exactly? That a single Euro is equal to 1.21 U.S. dollars. Or, €1 = $1.21.

So, in terms of a basic trading strategy for a beginner? It may be best to choose a pair and stick to it — at least for a while, until you get the gist of it. After that, you can look at other, more in-depth trading strategies.

Broadening Your Investment Horizon With Currency ETFs

As mentioned, investors may want to look at currency ETFs. These ETFs are similar to foreign bond funds, there are also foreign currency ETFs on the market, which offer many of the same advantages of domestic or traditional ETFs, but can give investors exposure to the forex market. Likewise, exchange-traded notes, or ETNs, which are similar to bonds, are another potential investment investors can check out.

Advanced Currency Investment Options

While investors can trade currency itself, they can also look at more advanced ways of investing in the forex markets. That can include trading futures and options, or other types of relevant derivatives.

Foreign Currency Futures and Options — An Introduction

First and foremost, investors should be aware of the unique risks that financial derivatives can introduce into their portfolios. Trading options contracts is a whole different beast from choosing stocks, so before you dive headfirst into forex options, it may be worth it to speak to a financial professional.

But at their core, currency options are derivatives, with currency itself as their underlying asset. There are calls, puts, and futures — if you’re not familiar with traditional options, it may be a good idea to review the basics before looking at forex options.

In effect, though, these options allow investors to hedge against unfavorable fluctuations of foreign currencies, or to speculate on volatility in the forex market. Again, it’s fairly high-level stuff, so if you feel like it’s over your head, it may be best to bone up on your investment knowledge before including options trading in your overall strategy.

The Takeaway

Trading or investing in foreign currency is yet another avenue that investors can explore in an attempt to generate returns. As discussed, it involves actually purchasing money with money — foreign currencies — with the hopes that the price differences will work in the investors’ favor, and they’ll generate returns. Foreign currency markets are also extremely liquid, which is another potential upside for some traders.

As always, though, there are risks to consider, and learning the ropes of the foreign currency markets may be tricky. If investors feel like they want to get their feet wet in the market, though, without diving straight in, it may be worthwhile to discuss their plans with a financial professional.

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

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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.

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.

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.
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Jan
08
2024
A Guide to Reverse Mortgage Pros and Cons

A Guide to Reverse Mortgage Pros and Cons

By | Family Finances, Home Ownership, mortgage | Comments Off on A Guide to Reverse Mortgage Pros and Cons

For those who are at or getting close to retirement age and are looking for ways to rev up their cash flow, a reverse mortgage may seem like a wise move. After all, the TV ads make them look like a simple solution to pump up the money in one’s checking account.

A reverse mortgage can be a way to translate your home equity into cash, but, you guessed it: There are downsides along with the benefits. Whether or not to take out a reverse mortgage requires careful thought and research.

Here, you’ll learn the pros and cons to these loans, so you can decide if it’s the right move for you and your financial situation.

Reverse Mortgages 101

There are many different types of mortgages out there. Here are the basics of how reverse mortgages work.

•   A reverse mortgage is a loan offered to people who are 62 or older and own their principal residence outright or have paid off a significant amount of their mortgage. You usually need to have at least 50% equity in your home, and typically can borrow up to 60% (or more, but not 100%) of the home’s appraised value.

•   The lender uses your home as collateral in order to offer you the loan, although you retain the title. The loan and interest do not have to be repaid until the last surviving borrower moves out permanently or dies. A nonborrowing spouse may be able to remain in the home after the borrower moves into a health care facility for more than 12 consecutive months or dies.

•   Here’s another aspect of how reverse mortgages work: Fees and interest on the loan mean that over time, the loan balance increases and home equity decreases.

•   You may see reverse mortgages referred to as HECMs, which stands for Home Equity Conversion Mortgage. This is a popular, federally insured option.



💡 Quick Tip: Buying a home shouldn’t be aggravating. SoFi’s online mortgage application is quick and simple, with dedicated Mortgage Loan Officers to guide you through the process.

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Pros of Reverse Mortgages

A reverse mortgage offers older Americans the opportunity to turn what may be their largest asset — their home — into spendable cash. There are a variety of ways in which this can be attractive.

Securing Retirement

Many seniors find themselves with a fair amount of their net worth rolled up in their home but without many income streams. A reverse mortgage is a relatively accessible way to cover living expenses in retirement.

Paying Off the Existing Home Loan

While you have to have some of your home loan paid down in order to qualify for a reverse mortgage, any remaining mortgage balance is paid off with reverse mortgage proceeds. This, in turn, can free up more cash for other expenses.

No Need to Move

Those who take out reverse mortgages are allowed to remain in their homes and keep the title to their home the entire time. For established seniors who aren’t eager to pick up and move somewhere new — or downsize — to lower expenses, this feature can be a major benefit.

No Tax Liability

While most forms of retirement funding, like money from a traditional 401(k) or IRA, are considered income by the IRS, and are thus taxable, money you receive from a reverse mortgage is considered a loan advance, which means it’s not.

Heirs Have Options

Heirs can sell the home, buy the home, or turn the home over to the lender. If they choose to keep the home, under HECM rules, they will have to either repay the full loan balance or 95% of the home’s appraised value, whichever is less.

Thanks to FHA backing, if the home ends up being worth less than the remaining balance, heirs are not required to pay back the difference, though they’d lose the house unless they chose to pay off the reverse mortgage or refinance the home.

Recommended: Guide to Cost of Living by State

Cons of Reverse Mortgages

As attractive as all of that may sound, reverse mortgages carry risks, some of which are pretty serious.

Heirs Could Inherit a Loss

While heirs may not be forced to pay the shortfall of an upside-down reverse mortgage, inheriting a home in that scenario could come as an unpleasant surprise. Keeping a home in the family is an accessible way to build generational wealth and ensure that heirs have a home base for the future. Therefore, the potential for them to lose — or have to refinance — the house can be painful.

Losing Your Home to Foreclosure

Unfortunately, losing your house with a reverse mortgage is a possibility. You’ll still be required to pay property taxes, any HOA fees, homeowners insurance, and for all repairs, along with your regular living expenses, and if you can’t, even with the reverse mortgage proceeds, the house can go into foreclosure.

Reverse Mortgages Are Complicated

As you probably realize this far into an article explaining the pros and cons of reverse mortgages, these loans aren’t exactly simple. Even if you understand the basics, there may be caveats or exceptions written into the documentation.

Before applying for an HECM, you must meet with a counselor from a HUD-approved housing counseling agency. The counselor is required to explain the loan’s costs and options to an HECM, such as nonprofit programs, or a single-purpose reverse mortgage (whose proceeds fund a single, lender-approved purpose) or proprietary reverse mortgages (private loans, whose proceeds can be used for any purpose).

Impacts on Other Retirement Benefits

Although your reverse mortgage “income” stream isn’t taxable, it may affect Medicaid or Supplemental Security Income benefits, because those are needs-based programs. (Proceeds do not affect Social Security or Medicare, which are non-means-tested programs.)

Costs of Reverse Mortgages

Like just about every other loan product out there, reverse mortgages come at a cost. You’ll pay:

•   A lender origination fee

•   Closing costs

•   An initial and annual mortgage insurance premium charged by your lender and paid to the FHA, guaranteeing that you will receive your expected loan advances.

These can be rolled into the loan, but doing so will lower the amount of money you’ll get in the reverse mortgage.

Reverse Mortgage Requirements

Not everyone is eligible to take out a reverse mortgage. While specific requirements vary by lender, generally speaking, you must meet the following:

•   You must be 62 or older

•   You must own your home outright (or have paid down a considerable amount of your primary mortgage)

•   You must stay current on property expenses such as property taxes and homeowners insurance

•   You must pass eligibility screening, including a credit check and other financial qualifications

Recommended: How Homeownership Can Help Build Generational Wealth

Is a Reverse Mortgage Right for You?

While everyone interested in a reverse mortgage needs to weigh the pros and cons for themselves, there are some instances when this type of loan might work well for you:

•   The value of your home has increased significantly over time. If you’ve built a lot of equity in your home, you probably have more wiggle room than others to take out a reverse mortgage and still have some equity left over for heirs.

•   You don’t plan to move. With the costs associated with initiating a reverse mortgage, it probably doesn’t make sense to take one out if you plan to leave your home in the next few years.

•   You’re able to comfortably afford the rest of your required living expenses. As discussed, if you fall delinquent on your homeowners insurance, flood insurance, HOA fees, or property taxes, you could lose your home to foreclosure under a reverse mortgage.

There are options to consider. They include a cash-out refinance, home equity loan, home equity line of credit, and downsizing to pocket some cash.

The Takeaway

A reverse mortgage may be a way to turn your home equity into spendable cash if you’re a qualified older American, but there are important risks to consider before taking one out. While reverse mortgages can free up funds, they are complicated, can involve fees, and can wind up putting your home into foreclosure if you can’t keep up with payments.

Reverse mortgages are just one of many different mortgage types out there — all of which can be useful under the right circumstances. SoFi doesn’t offer reverse mortgages at this time but has an array of home loan products that may meet your needs.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

Photo credit: iStock/Prostock-Studio

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

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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Jan
08
2024

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

By | Budgeting & Goals, invest, Preparing for Retirement | Comments Off on Happiest Places to Retire in the US in 2024: A SoFi Study

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
06
2024
What Is a Single-Family Home? Should You Consider Owning One?

What Is a Single-Family Home? Should You Consider Owning One?

By | Home Ownership, mortgage | Comments Off on What Is a Single-Family Home? Should You Consider Owning One?

If you’re in the market for a home, you may have come across the term “single-family home” and wondered what it means and if that is what you are looking to buy.

Generally, a single-family home refers to a freestanding home set on its own piece of property. It can be occupied by a single individual or a large family, as long as it’s occupied by a single household.

Owning a single family home comes with a number of benefits, including more privacy and space than other types of residential properties. However, this type of home also tends to come with a higher price tag and more responsibility. Here’s a closer look at what single family homes are and the pros and cons of buying one.

What Is a Single-Family Home?

Generally speaking, the term single-family home refers to a home that is designed for, occupied by, and maintained by one person or household. When you buy a single-family home, you will own both the home and the property it sits on. This is in contrast to other types of properties, such as condominiums (condos), where you only own the interior of your unit and share ownership of common areas with other homeowners in the complex.

In most cases, a single-family home is defined as one that is freestanding and not attached to homes owned by other individuals. However, the government has a broader definition. According to the U.S. Census Bureau, a single-family home includes fully detached homes, as well as semi-detached row houses and townhouses. In the case of attached units, the units must be separated by a ground-to-roof wall in order to be classified as a single-family structure. Also, these units must not share heating/air-conditioning systems or utilities.

In some places, a single-family home is defined in part by how many kitchens it has. Depending on zoning laws, adding a second full kitchen to an in-law’s apartment, for example, can cause a house to be redefined as a multi-family building. If you’re planning on doing this type of renovation, be sure to check local zoning laws beforehand.

Whether a home is classified as a single-family or multi-family home can have an impact on the type of mortgages you qualify for. Both single-family homes and two- to four-unit properties fall under residential lending guidelines. (A property with five or more units is considered commercial property.) You can use a conventional mortgage to purchase a home with four or fewer units, whether it’s a single- or multi-family home. If you’re buying a multi-family home with five or more units, you must use a commercial mortgage. Commercial mortgages have different terms than residential mortgages do.


💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Pros and Cons of a Single-Family Home

As you shop for homes, it’s important to consider the various advantages and disadvantages of a single-family residence.

Some of the advantages are:

•   More space Single-family homes tend to offer more space than other types of housing, and it belongs to you alone. They may have large yards where children and dogs can play or where you can plant a vegetable garden. They may also have storage in attics, garages, or basements, which aren’t shared between multiple units.

•   Privacy Single-family units that don’t share walls with neighbors offer more privacy. You are less likely to hear neighbors’ activities, and they are less likely to be bothered by yours.

•   More design features Single-family homes may be available in a broader range of designs and layouts, from Cape Cods or colonials to ranch homes and contemporary designs. You can also make changes to the building or landscape design without input from neighbors with a shared interest in the space.

•   Room to grow Single-family homes may offer you more options for additions if you have a growing family or if aging parents may come to live with you. For example, single family detached homes with larger plots of land may allow additions that wouldn’t be possible in condo units.

•   May offer higher appreciation Single-family homes tend to appreciate in value more than condos and townhouses.

•   Option to rent As the sole owner of a single-family home, you have the option to rent out the house if you decide to move and wish to hang on to the property.

While these factors are attractive, it’s important to weigh potential disadvantages of buying a single-family home as well. Here are some to keep in mind:

•   More expensive Single-family homes tend to be more expensive than other types of homes. That can mean a larger down payment and higher closing costs, and your mortgage payments may be higher.

•   More maintenance Unless your single-family home is part of a homeowner association (HOA) that provides basic services, you’ll be in charge of all home maintenance like lawn mowing and roof repairs. You’ll either have to take the time to do it yourself or hire help.

•   Possible HOA fees Planned developments usually require HOA fees to cover the upkeep of common areas and shared structures.

•   Less income potential With multi-family homes, you have the option to live in one unit while renting out the others. This allows you to bring in regular income to cover the cost of the mortgage and maintenance expenses.

Finding a Single-Family Home

Before you start looking for a single-family home, you’ll want to first determine how much home you can afford. You might start by calculating mortgage costs and getting prequalified for a home loan; prequalification often only takes a few minutes and provides an estimate of how much you might be able to borrow and at what rate (without impacting your credit).

You’re probably already searching real estate listings online and noting the property types. You might also want to do some research on housing market trends, especially if you live in one of the nation’s real estate hot spots.

You may also want to engage a real estate agent. They have expertise in local housing and zoning laws, know whether a list price is fair or above or below average, and can help you negotiate the price of a home you’re interested in buying.

If there’s any question about how a house is zoned, you can often look up zoning information through a particular city’s website.

Recommended: First-Time Home Buyer’s Guide

Who Should Get a Single-Family Home?

Single-family homes are a good fit for people who can cover the higher price tag, want privacy and flexibility, and are willing to take on a lot of responsibility.

If you qualify as a first-time homebuyer, there may be help available to buy a single-family home in the form of down payment assistance and low- or no-interest loans.

If you’re looking for a more affordable home and don’t mind giving up some privacy, you might want to consider a condo or townhouse.

A condo is like an apartment but is available for purchase. These units share walls with neighboring units, but you generally won’t have to worry about maintaining the property.

A townhouse, on the other hand, has multiple stories and will share one or two walls with other units. Like condos, townhouses are typically less expensive than single-family homes. Unlike a condo, you’ll own the property that the townhouse sits on.

If you’re looking to invest in real estate, you might consider buying a multi-family home. While this will likely cost more than a single-family home, you may be able to recoup the added cost (and, over time, earn even more) by collecting rent from tenants.


💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple.

If You’re Thinking of Purchasing a Single-Family Home, SoFi Home Loans Can Help

Single-family homes are one of the most popular real estate options and often what people envision when they think about achieving the dream of home ownership.

This type of property typically sits on a parcel of private property and doesn’t share walls with neighbors, affording you a high level of privacy. You generally have more control over making enhancements to your home than you have with other types of properties, and usually have access to extra storage, including exterior storage space like a shed or garage.

However, don’t forget to consider the added responsibilities and costs when deciding on the right type of home for you and your family.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How much does a single-family home cost?

The median price for an existing single-family home — one that’s already standing, not new construction — was $387,600 as of November 2023, according to the National Association of Realtors.

How much do I need to build a single-family home?

The cost of building a single-family home (not including land) can range anywhere from $42,000 to $900,000-plus depending on the home’s type and size and where you build. On average, the cost to build a house in the U.S. is about $329,000.

Can you get a loan to build a single-family home?

If you’re planning to build a single-family home from scratch, you can apply for a construction loan. With this type of loan, money is usually advanced incrementally during construction, as the home-building project progresses. Typically, you only pay interest during the construction period. Once the construction is over, the loan amount becomes due, and it is converted into a regular mortgage.

Photo credit: iStock/Dean Mitchell

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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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