Will There Ever Be a Student Loan Bailout?

Will There Ever Be a Student Loan Bailout?

It’s been more than a decade since the Great Recession. Remember how it brought multibillion-dollar financial corporations to their knees and nearly chased the big American automakers right out of Detroit?

Instead, both industries got a bailout, to the tune of $634 billion, according to ProPublica’s Bailout Tracker.

So if the giants of capitalism got a pass, will the students paying loans to get a bailout as well? Will there be a student debt cancellation plan for you and your former classmates?

A Rising Tide of Student Loan Debt

When you earned your degree, you also most likely earned your way into a not-so-exclusive club. Forty-five million people owe $1.73 trillion in student loans in America. For comparison, that’s $740 billion higher than the outstanding credit card debt in the country.

Student loan borrowers owed about $845 billion in late 2010. This means that in the past decade, student debt has grown by over 100%.

How Many Would Benefit From a Bailout?

Forgiving just $10,000 per person would wipe away the federal student loan debt of 15.3 million borrowers, Insider reported.

Proponents of student loan cancellation say a bailout would:

•  Minimize the wealth gap

•  Inspire the creation of small businesses

•  Encourage homeownership

•  Help people feel more confident starting families

Here are two more things backers argue that student loan forgiveness would do.

Spark an Economic Upswing

Bharat Ramamurti, a member of the COVID-19 Congressional Oversight Commission, tweeted what he sees as benefits of student loan forgiveness: “Broad student loan debt cancellation via executive order is good economics and politics.”

He added, “One study has found that canceling all debt would have a big stimulative effect. Of course, the impact would be less if less debt were canceled, but debt cancellation is one of the relatively few ways to stimulate the economy without Congress.”

Benefit All Federal Student Loan Borrowers

Upper-income households owe almost 60% of the outstanding education debt and make almost three-quarters of the payments, the Brookings Institution noted. Lowell Ricketts, a lead analyst for the Center for Household Financial Stability at the St. Louis Fed, agreed that loan forgiveness would disproportionately benefit affluent graduates .

But he pointed out that forgiving $10,000 of student debt would help many low-balance borrowers as well and resolve the problem of overdue payments that 19% of that group has.

The Price of Student Loan Debt Cancellation

While it might sound like a good idea in the face of high debt balances and delayed dreams, one reason it might not come to fruition is the price tag.

Erasure of $10,000 for all 43 million borrowers would cost $377 billion . Canceling $50,000 for all 43 million would cost over $1 trillion, according to The Conversation, which publishes pieces by academics well-versed in these areas.

Additionally, the optics of a student loan cancellation aren’t necessarily good. For example, law and dental school grads may have high debt balances but also might start lucrative careers immediately.

The issue of wiping out student loan debt may have another fairness factor. Former students who successfully paid off their loans may not appreciate seeing millions of current borrowers let off the hook.

And while you can default on a mortgage or get rid of most credit card debt by filing for bankruptcy, most student loans are owned by the federal government, and are extremely difficult to get discharged except for all but the most extreme circumstances.

Student Loan Cancellation FAQ

Q: Did the Stimulus Bill Forgive Student Loans?

A: No. The $1.9 trillion coronavirus relief bill passed in March 2021 doesn’t forgive student loans, but the legislation does mention them: Any federal or private student loan balance that’s forgiven will be tax-free through 2025.

Before the bill, participants of the Public Service Loan Forgiveness (PSLF) Program and income-driven repayment plans were required to pay taxes on any remaining loan balance that was forgiven.

With this change, borrowers who receive any loan forgiveness before Jan. 1, 2026, won’t have to pay taxes on the forgiven loan amount.

It’s unclear if private student loan borrowers will see any gain. Since the only options for repayment aid are refinancing and deferment or forbearance (if offered by the lender), they may not benefit from this bill. However, there has been some buzz about the Biden administration helping private student loan borrowers more.

Q: Are Student Loans Being Forgiven?

A: President Joe Biden had vocalized his support of $10,000 in student loan forgiveness but has not acted on it. The future of student loan forgiveness is still up in the air, as of this writing.

Q: Will They Take Away Stimulus Money for Student Loan Borrowers?

A: Collection agencies can seize stimulus payments for defaulted student loans in some cases.

Paying Down Your Student Loans

Even without a student loan bailout plan, options exist for dealing with your debt.

Federal and Other Programs

If you work in a qualifying public service field or as a teacher and you have < ahref="https://www.sofi.com/learn/content/types-of-federal-student-loans/">federal student loans, you may be able to qualify for the Public Service Loan Forgiveness (PSLF) Program, which is supposed to forgive any remaining loan balance after 120 qualifying monthly payments. Unfortunately, the pool of people qualifying for loan forgiveness has been small.

Specific state and federal loan forgiveness options exist for health care professionals, veterinarians, lawyers, and teachers who work in underserved areas of the country.

In addition to the forgiveness options, qualified federal student loan borrowers may be able to take advantage of delayed payments .

Another way some borrowers seek to ease student loan debt is through income-driven repayment plans. The amount you pay is based on your family size and income, usually 10% of your discretionary income. It’s intended to make the monthly payments more affordable by stretching out the repayment term, which usually results in more interest accumulating over the now-longer life of the loan.

Refinancing

If you refinance your student loans with a private lender, you may qualify for a lower interest rate, which could shave off a significant sum over the life of your loans.

Some lenders refinance both private and federal student loans.

If you decide to refinance, you’ll typically have a choice between a fixed or variable rate, both of which carry their own risks and rewards. A fixed-rate stays the same for the life of the loan, so you always know what your monthly payment will be.

Variable-rate loans can fluctuate as the economy roars or slumps. They’re usually tied to a well-known index, so your payment amount may fluctuate over time. The potential benefit, however, is that initially, the variable rate is sometimes lower than the fixed rate.

You may also have term options if you refinance. You can shorten your loan term, which can help get you out of debt faster or extend your term, which could ideally lower your monthly payment but, again, means more interest accrues over the life of your loan.

Just know that if you’re refinancing your federal loans into private loans, you’ll be giving up federal benefits and protections such as federal deferral, forgiveness options, and income-driven repayment plans.

Recommended: Student Loan Refinancing Calculator

The Takeaway

Question marks swirl around student debt cancellation. Amid all the noise about the topic, it may be a good idea to take measures of your student loan rates and terms and plot a smart course.

Given up on the idea of a student loan bailout? Check your rate on refinancing your student loans with SoFi.



SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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What is the Average Medical School Debt?

According to the Association of American Medical Colleges (AAMC), the average medical school debt for students who graduated in 2020 was $200,000. (Among the class of 2020, 27% graduated with no debt.)

While many med school students eventually may earn six figures or more, they also can expect to graduate with student debt that averages close to a quarter of a million dollars.

That’s just what these graduates owe for their medical school education. Researchers at EducationData.org found that 43% of indebted medical school graduates also have premedical education debt to deal with (for an average of $241,600 in total debt).

Which makes it crucial that aspiring and current medical school students, and graduates, understand their debt repayment options.

Medical School Debt Statistics

Here’s a snapshot of what the average med student debt can look like for graduates, based on a roundup of recent statistics:

•  Based on the most recent numbers from the National Center for Education Statistics , medical doctorate completers in the class of 2015-2016 had, on average, $246,000 in total education debt (premed and medical school). Compare that with the average for the class of 1999-2000: $124,700.

•  When the AAMC looked at members of the class of 2020 who took out educational loans, it found that:
5.4% borrowed $1 to $49,999 for premed studies and medical school
6.1% borrowed $50,000 to $99,999
8.2% borrowed $100,000 to $149,999
13.7% borrowed $150,000 to $199,999
25.1% borrowed $200,000 to $299,999
11.2% borrowed $300,000 to $399,999
2.9% borrowed $400,000 to $499,999

•  While the cost of medical school is rising by about 2.4% annually, the annual growth rate of medical school debt is 11%, as calculated by EducationData.

What Does This Mean for Borrowers?

It’s important to note that, when it comes to borrowing for medical school, loan interest rates offered by the federal government, along with the terms and conditions, might be different from borrowing as an undergrad.

Some med students may benefit from scholarships and loan forgiveness programs that could cut their costs substantially. But many will end up making loan payments for years—or even decades.

According to the number crunchers at EducationData, the average doctor will ultimately pay from $365,000 to $440,000 for his or her educational loans, with interest factored in.

Medical School Loan Options

Types of federal student loans available to medical students include Direct Unsubsidized Loans, with a limit of $20,500 each year.

Rates for this type of loan are currently lower than for the other type of federal student loan available to those going to medical school, Direct PLUS loans. The current rate for Direct Unsubsidized Loans is 5.28%, while Direct PLUS loans have an interest rate of 6.28% through July 1, 2022.

There isn’t a financial need requirement for either type of federal student loan, so many medical students qualify for both. With Direct Unsubsidized Loans, there is no credit check, but there is a credit check for PLUS loans.

Medical students also can apply for private student loans. Generally, borrowers need a solid credit history for private student loans, among other financial factors that will vary by lender. Private lenders offer different rates, terms, and overall loan programs.

Federal loans come with many student protections and benefits that private loans don’t, such as the Public Service Loan Forgiveness program and income-driven repayment.

Medical students also may choose to defer federal student loans during their residency, which isn’t typically an option with private student loans.

How to Deal With Debt

There are several strategies that medical school graduates with education bills to pay may consider.

Deferment

If you’ve ever borrowed money—for school or otherwise—you know that two critical factors can influence how much the loan will cost overall.

•  The interest rate you’re paying

•  How long you take to repay the loan or loans.

The repayment timeline is often extended when medical residents make partial monthly loan payments or no payments at all. Putting off payments may seem like a good idea during a stressful time, but delaying can be costly.

Most federal student loans, when deferred, continue to accrue interest. The problem those in medical fields can face, then, is debt accumulation during their residency, which can last anywhere from three to seven years.

Even while making a modest income—in 2021, the average resident earned $64,000, according to Medscape—the debt would grow considerably.

Part or all of your unpaid interest might be capitalized when you complete your residency. This means the accrued interest is added to the principal of the loan, and that new value is then used to calculate the amount of interest owed.

If you decide to put your loans in deferment or forbearance, making interest-only payments can reduce the amount of interest that could be added to the loan.

Recommended: Understanding Capitalized Interest on Student Loans

Income-Driven Repayment

An income-driven repayment plan is an option for medical residents who can’t afford full payments. The four plans limit payments to a percentage of borrowers’ income, extend the repayment period to 20 or 25 years, and promise forgiveness of any remaining balance.

In general, borrowers qualify for lower loan payments if their total student loan debt exceeds their annual income. Payments are based on discretionary income, family size, and state.

Refinancing Loans

Refinancing medical school loans is an option during residency, after residency, or both.

Refinancing with a private lender might help save you money if you can get a lower interest rate than the rates of your current student loans.

Refinancing means paying off one or more of your existing federal and private student loans with one new loan, which has one monthly payment.

If you refinance your student loans and get a better rate, you could choose a term that allows you to pay off the loan more quickly if you’re able to shoulder the payments, which should save you in interest.

Again, refinancing isn’t a good fit for those who wish to take advantage of federal programs.

Recommended: Student Loan Refinancing Calculator

Consolidating Loans

The federal government offers Direct Consolidation Loans, through which multiple eligible federal student loans are combined into one. The interest rate on the new loan is the average of the original loans’ interest rates, rounded up to the nearest one-eighth of a percentage point.

If your payment goes down, it’s likely because the term has been extended from the standard 10-year repayment to up to 30 years. Although you may pay less each month, you’ll also be paying more in interest over the life of your loan.

Schools With the Highest Student Debt

When it comes to student debt, all medical programs are not equal. According to U.S. News and World Report’s “Best Grad School” rankings, the range can be extensive. Out of 118 medical schools listed, the three that left grads with the most debt in 2020 were:

•  Midwestern University in Glendale, Arizona: $340,620

•  Midwestern University in Downers Grove, Illinois: $335,960

•  Nova Southeastern University Patel College of Osteopathic Medicine (Patel) in Fort Lauderdale, Florida: $308,321

On the other end of the spectrum, the schools that graduated students with the least amount of debt in 2020 were:

•  Stanford University in Stanford, California: $89,739

•  Columbia University in New York, New York: $97,891

•  University of North Texas Health Science Center in Fort Worth: $101,209

Public vs. Private Medical School

The cost of attending a private medical school is typically higher than a public school.

According to the AAMC, these were the median costs of tuition, fees, and health insurance for first-year medical students during the 2020-2021 school year.

•  Private school, in-state resident: $64,053

•  Private school, nonresident: $64,494

•  Public school, in-state resident: $39,150

•  Public school, nonresident: $63,546

According to EducationData, however, the average public medical school graduate leaves school owing a higher percentage of the cost of attendance (77.3%) than the average private school medical school graduate (65.3%).

The Takeaway

There’s no doubt that studying medicine can lead to a lucrative career, but the route can be daunting, in every way. When the average medical school debt tops $240,000, some aspiring and newly minted doctors look for a remedy, stat.

If you’re leaning toward refinancing, SoFi has a program specifically for medical residents. Potential borrowers might benefit from a low rate or low monthly payments during residency.

Check your rate in a few clicks.


SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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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The Importance of Time Value of Money

Imagine a scenario where someone is gifting you $10,000. You can have the money now, or you can have the money in five years. Which would you choose?

Most people would take the money now, and not just because a tropical vacation now is a heck of a lot more enticing than a tropical vacation in five years. Money received now can be invested during those five years, earning a rate of return. That money could be used to pay off debt, saving in interest costs.

If you’ve ever heard the expression “a dollar today is worth more than a dollar tomorrow,” then you’ve had an introduction to the time value of money principle. It’s an important concept for investors to understand when making decisions about their investing strategy and whether to put money into a particular security.

What Is the Time Value of Money?

The time value of money is the relationship between a dollar at one point in time and the value of that same dollar at another point in time. For example, $50 today likely won’t have the same value as $50 a year from now, just as $1 million now is not the same as $1 million 20 years ago.

Several forces are at play here. First, there is the potential for both interest to be earned (on an investment) and income to be paid (on debt). Inflation, the rising of prices over time, is also a consideration. As goods get more expensive, each dollar can accomplish less.

The time value of money is a framework for comparing lump sums of money and/or periodic payments across different time frames. Dollars can be future, present, or past.

The time value of money may seem like a purely academic concept, but has plenty of real-world applications. (And not just in a hypothetical gift of $10,000 paid to you by some long-lost aunt.) The time value of money is used in personal finance, real estate, and investing decisions.

How Does Time Value Work?

The time value of money can look at both the present and future value of money and the value of cash flows. It allows both institutional and retail investors to compare payments or sums of money over different time frames.

To determine the value of money over time, investors use a formula that takes into account the present value and future value of a specific amount, and how it will change over time.

What is the Time Value of Money Formula?

There are two main ways to calculate the time value of money, but in any given situation there are ways an investor might calculate it differently. When compounding interest is involved the calculation can be more complex, but there are online calculators available to help with this.

If you’re determining the value of money to a current dollar amount, that is called a present value calculator. To calculate the present value (PV) of a future cash flow, the formula is:

PV = FV / (1 + i) n

If extrapolating the value of a dollar amount in the future, this is called a future -value calculation. To calculate the future value (FV) of cash flow from the present value:

FV = PV x (1 + i) n

Where:

• PV – Present Value

• FV – Future Value

• i – interest rate

• n – number of periods

If there are multiple times per year when interest compounds, the formula can be changed to:

FV = PV x (1 + i/n) ^(n x t)

Where:

• i – annual interest rate

• t – number of periods (years)

• n – number of compounding periods of interest per year

If interest compounds daily, monthly, quarterly or yearly can have a big effect on the TMV calculation.

There are always two sides to the value of money equation: a giver and receiver, payer and payee, or borrower and lender. The calculation can be used on either side, to figure out money flowing in or out.

The different variables involved when calculating compound returns are the rate of return, the duration, the frequency of compounding, inflation, and the principal amount invested. A compound returns calculator can help with figuring out how all these factors affect one another.

Time Value of Money and Compound Returns

For the individual investor, there is perhaps no way in which the time value of money is more important than with earning compound returns.

To earn compound returns is to earn a rate of return on both the initial principal invested and all previous profits. As profits grow, so does the potential to earn more and more—and all that this exponential growth requires is that you stay invested.

The key to harnessing the raw power of compound returns is to spend as much time invested as possible. Each year of positive returns is fuel for greater future returns. This can be hard for investors to wrap their heads around because the most powerful results can take decades to reveal themselves. To understand compound returns, it helps to start with a comparison to simple returns.

Comparing Simple Interest to Compound Interest

With simple returns, a rate of return is produced on the principal investment in each period. An example is a bond that pays a 5% rate of return on $1,000 each year for five years. Each year, the bondholder receives a $50 payment ($1,000 x 5%). The amount is not reinvested, and the $1,000 principal is returned at the end of the five years. The investor makes a total profit of $250 (5 x $50).

Compare that to a 5% compounding rate of return. Envision a $1,000 investment in a stock. Each year, the investment grows by 5%. After the first year, the stock is worth $1,050. In year two, that 5% rate of growth applies to both the initial $1,000 investment and the $50 profit from the first year, resulting in a profit of $52.50. The investor is earning a rate of return on a bigger sum of money with each passing year (assuming only positive growth)—without adding money.

At the end of the five years, the investor’s initial $1,000 investment has grown to approximately $1,276. This is a total profit of $276, compared to simple interest’s $250. While this might not seem like much, this gap will continue to grow as compound return growth increases.

Factors Affecting Compound Returns

There are four variables at play when calculating compound returns: the rate of return, the principal invested, the duration, and the frequency of compounding. (Does compounding happen monthly? Annually?)

Check out a compound returns calculator for a better understanding of how these variables interplay. What you’ll find is that all factors can have a powerful impact on the outcome.

Investors should also consider inflation. Inflation, or rising prices over time, also has a compounding effect. There is certainly a time value of money formula for inflation, though in this context it might be easier to simply subtract the expected rate of inflation from the expected rate of investing returns.

You do not have to invest in an individual stock to harness the power of compound returns. The effect works with any investment where the profits are reinvested, whether automatically or manually.

How Does Inflation Impact the Time Value of Money?

Another reason that money is worth more in the present than in the future is because of inflation. As time goes on, inflation pushes down the purchasing power of money. So the same amount of money can’t buy as many goods in the future as it can today. However, invested money that gains more than the rate of inflation won’t lose value.

Recommended: Is Inflation a Good or Bad Thing for Consumers?

Real Life Applications for TVM

Investors use the time value of money to understand the worth of money in relation to time, which helps them understand the value of their funds in the present and the future and how to invest them. Factors such as interest rates, inflation, and risk all affect investments over time, so having formulas to help make decisions is a useful tool.

For example, say an investor has a choice between two different projects to put money into. The two projects are identical except the first project offers a $1 million cash payout in one year, and the second project offers the same payout in five years. At first glance, it might seem like the two projects are the same, but the first project is a better investment because it pays out sooner, giving it a higher present value.

Discount Rate

It’s important to choose a rate of return, or discount rate, that makes sense for the situation when calculating the time value of money. The Weighted Average Cost of Capital (WACC) is a popular choice of rate. If the rate used is incorrect, the calculation will not be accurate or useful to an investor.

Sinking Funds

There is also the option to use the TVM calculation for “sinking funds.” If you’re saving up for something in the future and know how much you need to save, you can figure out how much you need to save each month or year to reach that goal if you are earning interest on those savings.

Real Estate Investments

An investor might look at a property in a high-growth neighborhood and predict that it will be worth a certain amount in five years, but they want to calculate whether it is actually a good investment. They can use the TVM calculation to discount that estimated future value to find out the current value and see how the two compare.

The Takeaway

The Time Value of Money is an important calculation for investors to use when building a portfolio. It can help you evaluate a potential investment to determine whether it might make sense for you.

One great way to get started investing is by opening an account on the SoFi Invest® brokerage platform. The platform allows you to research, track, and buy and sell stocks right from your phone. You can add all your banking and investment accounts to easily see your financial information in one simple dashboard, and even set goals for your finances.

The app offers both Active and Automated investing. With Active Investing, you can pick and choose each stock you want to invest in. Using Automated Investing, you can choose from groups of pre-selected stocks and ETFs. If you have any questions, SoFi has a team of professional financial advisors available to help you get started.


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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
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.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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How to Invest in Gold: Tips for 1st Time Gold Investors

At some point or another, you’re bound to ask yourself: Is gold a good investment? Investing in gold is something many investors seem to consider, whether as a hedge against inflation or market downturns, or just to further diversify their portfolios.

But investing in gold, especially for first-time investors, isn’t as simple as it seems. One reason is that there are so many ways to invest in gold, each with their own pros and cons. Nevertheless, that hasn’t stopped investors from turning to this commodity again and again.

In this article we’ll explore the enduring appeal of this precious metal, the different ways to invest in gold, and the future of gold’s value.

Why Investors Like Gold

Historically, investors have turned to gold as a way to hedge against the possibility of inflation, or against the possibility of events that could negatively impact the equity markets. And while it can be just as volatile as stocks in the short term, gold has historically held its value very well over the long term. Even investors who are not particularly concerned about inflation or about calamities affecting the broader market, may turn to gold as a way to diversify a portfolio.

5 Ways to Invest in Gold

For anyone considering investing in this precious metal, it can be helpful to familiarize yourself with the different ways one can invest in gold.

Buy Physical Gold

When thinking of ways to invest in gold, the first image that may come up is piles of gold bars in a place like Fort Knox. Those bars are also known as bullion, and it comes in bars that can be as small as a few grams, or as large as 400 ounces. The most common denominations of gold bullion are in one- and 10-ounce bars.

For many investors, even the one-ounce bars can be too expensive — roughly $1,700 per ounce in mid 2021. And because the bullion is a physical item, there’s no easy way to own a fraction of a bar. But if you do want to own bullion directly, the first order of business is to find a reputable dealer to buy from, and then look into the costs of delivery and insurance for the asset. Another option if you buy bullion is to pay for storage, either in a large vault or in a safe deposit box at a bank.

Buy Gold Coins

Gold coins offer another way to directly own the shiny yellow metal, in a variety of denominations including half-ounce and quarter-ounce. Well-known gold coins include South African Krugerrands, Canadian Maple Leafs, and American Gold Eagles, which have been known to sell at a premium to their actual gold content among collectors.

While you may be able to buy gold coins at a discount from local collectors or pawn shops, most investors will likely opt for a reputable dealer. As with bullion, it is important to protect this hard asset, either through insurance, or with a vault or safe deposit box.

Buy Gold Jewelry

If you don’t want your gold investment to just sit in a vault, then gold jewelry may be appealing. But it comes with its own considerations. The first is that gold jewelry may not have as much actual gold content as the jeweler claims. Verifying the authenticity of a piece not only protects you, but it will also help when it comes time to sell the piece. One way to do this is to only buy jewelry from reputable dealers, who can also deliver documentation about the piece.

Another point to remember is that a piece of jewelry will also come with a markup from the company that made it, which can make the piece cost as much as three times the value of its metal. And jewelry typically isn’t 100% pure gold — or 24 karats — so it’s important to know the purity and melt value of the jewelry before you buy.

Buy the Stocks of Gold Mining Companies

One way to take advantage of growth in the value of gold with just your existing brokerage account is to buy the stocks of companies in the gold business, including miners and refiners.

Recommended: How to Open a Brokerage Account

While gold stocks tend to go up and down with the price of gold, they may also experience price changes based on the company’s own prospects.

Buy Gold ETFs and Mutual Funds

If the risks or individual mining and refining companies are too much, you may want to consider a gold exchange-traded fund (ETF) or mutual fund. These vehicles — which are available through one’s brokerage account — invest in gold in different ways.

Buy Gold Futures and Options

Investors with some familiarity trading derivatives may consider finding exposure to the gold market through futures and options. These contracts allow the investor to buy or sell gold for an agreed-upon price by a fixed date. To trade these contracts, an investor needs a brokerage account that offers the ability to trade them.

An investment in gold options or futures contracts, however, requires active monitoring. These contracts expire on a regular basis, so investors have to be ready to sell, roll over, or exercise them as gold prices change, and as the contracts reach their expiration dates.

What Will Gold Be Worth in 2030?

Predicting the future price of an idiosyncratic and volatile commodity like gold is all but impossible. In 2020, gold increased in value by 24.6% in U.S. dollars, and reached all-time highs in a number of currencies, in anticipation of a coming wave of inflation.

In its annual In Gold We Trust report , asset manager Incrementum stated that “should inflation rise significantly in the coming years, we believe that five-digit gold prices are conceivable at the end of the decade,” and put its conservative estimates at $4,800 per ounce by 2030.

One reason why gold investors believe the precious metal has such strong prospects is the widespread sense that the broader economy is entering an inflationary period. The latest consumer price index (CPI), the most popular measuring stick for the prices that Americans pay for goods and services, revealed that inflation is becoming a bigger factor for consumers, and for investors.

The prices tracked by the CPI increased by a staggering 5.4% in July of 2021, versus their levels a year before. Those increases were led by sharp rises in food and fuel costs. The CPI increase tied with the previous month as the highest jump in consumer prices in 13 years.

The Takeaway

Investors interested in gold typically gravitate toward it as a hedge against inflation or as a means of diversifying their portfolios. Those who want access to this precious metal have some choices: They can buy bullion, coins, jewelry, mining stocks, ETFs, mutual funds, futures, and options.

Interested in building your own portfolio? Try opening an online brokerage account. SoFi Invest® offers an active investing solution that allows you to choose your stocks and ETFs without paying SoFi commissions. SoFi Invest also offers an automated investing solution that invests your money for you based on your goals and risk, without charging a SoFi management fee.

Find out how to get started with SoFi Invest.


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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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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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Morningstar Ratings: What Are They & Are They Accurate?

Morningstar is a highly regarded financial services firm whose mission revolves around providing investors with the research and tools they need to make informed decisions in their portfolios.

Those tools, used by individual investors as well as institutional investors and financial advisors, include Morningstar fund ratings, which can help investors gauge how well various mutual funds and exchange-traded funds (ETFs) have performed over time.

But if you’re a new investor, you may have questions like:

• What is Morningstar rating and how is it determined?

• How much do Morningstar ratings matter for selecting mutual funds or ETFs?

• What does Morningstar rating mean when comparing one fund to another?

Taking a deeper look at Morningstar’s fund ratings system and how it works can help investors to decide how reliable it is and how to use the ratings when making investment decisions.

Recommended: Building an Investment Portfolio

What Is the Morningstar Rating?

This is a common question among beginner investors. In simple terms, the Morningstar ratings system is a tool investors can use to compare mutual funds and ETFs. And if you’re wondering whether Morningstar ratings are legitimate, the answer is yes. Even FINRA, the Financial Industry Regulatory Authority, using Morningstar ratings in its Market Data Center .

Morningstar reviews of mutual funds and ETFs reflect different metrics, depending on which ratings system is being applied. The main Morningstar ratings investors may turn to learn more about a particular investment are the Star Ratings and Analyst Ratings. (Morningstar also has a separate ratings system for individual stocks.)

The most recent Star Ratings are free to access, but the Analyst Ratings require a subscription that ranges from $29.95 per month to $449 for a three-year term. In addition to the analyst ratings and reports, a subscription will give you access to a dashboard to track your investments. You may also be able to access similar tools for free from other providers.

You can use these ratings to select from the funds available in your 401(k), or to decide which funds to add to an IRA or a taxable brokerage account.

Recommended: How to Open Your First IRA

The “Star Rating” Explained

The Morningstar Star Rating system, more simply referred to as star rating, is a quantitative ranking of mutual funds and ETFs. Introduced in 1985, the star rating looks backward at a fund’s past performance, then assigns a rating from one to five stars based on that performance. The firm recalculates and updates its star ratings at the end of each month.

Morningstar reviews ETFs and mutual funds with a record of more than three years, so newer funds do not receive a star rating until they’re reached this milestone. The rating methodology utilizes an enhanced Morningstar risk-adjusted return measure. Specifically, the star ratings system looks at each fund’s three-, five- and 10-year risk-adjusted returns.

Star ratings can serve as a report card of sorts for comparing different funds, based on how they’ve performed historically. The Morningstar ratings are not forward-looking, as past performance is not a foolproof indicator of future behavior. But investors can use the ratings system as a starting off point for conducting fund research when deciding where to invest.

If you’re looking for a tool to help you compare mutual funds or exchange-traded funds at a glance based on past performance, the star rating system can help.

Recommended: ETFs vs. Mutual Funds: What is the Difference?

The “Analyst Rating” Explained

The Morningstar Analyst Rating takes a different approach to ranking funds and ETFs. Instead of looking backward, the qualitative analyst rating looks forward to assess a fund’s ability to outperform similar funds or a market benchmark. Rather than using stars, funds receive a rating of Gold, Silver, Bronze, Neutral or Negative, based on the analyst’s outlook for performance.

The firm does not update analyst ratings as frequently as star ratings. Morningstar reviews for analyst ratings are reevaluated at least every 14 months. The firm typically assigns analyst ratings to funds with the most interest from investors or the most assets.

When ranking funds, analysts look at three specific metrics:

• People

• Process

• Parent

Performance is also taken into account within the People and Process pillars. In order to earn a Gold, Silver or Bronze rating, an analyst must determine that an active fund can beat its underlying benchmark when adjusted for risk.

Generally speaking, these Morningstar reviews go into more detail, in terms of the analysis, ranking, and comparison of funds. If you’re an active trader or a buy-and-hold investor you might use the Morningstar analyst ratings to get a feel for what a particular mutual fund or ETF might do next.

Example of a Morningstar Rating

Morningstar star ratings are free to access for investors on Morningstar.com. To find a star rating for a particular fund or ETF you’d simply search for it using its name or ticker symbol. You can also view Morningstar ratings and picks for funds by category, such as small-cap funds or U.S. index funds.

Here’s an example of a Morningstar rating for the Calvert International Responsible Idx I fund (CDHIX) . This fund, which is in the foreign large-blend category and is an index fund, has a four-star rating from Morningstar. You can see at a glance that the fund has an expense ratio of 0.29%, a minimum investment of $100,000 and just over $602 million in assets.

If you want to view Morningstar analyst ratings for a fund or ETF, you’ll need to sign up for a Premium account. You can, however, try it free for 14 days first to decide if it’s worth paying for.

Are Morningstar Ratings Accurate?

Morningstar fund ratings are designed to be a guide to use as you invest, rather than the absolute word on how well a fund is likely to perform. So, how well do Morningstar ratings perform over time and are they an accurate guide for investing?

According to Morningstar’s own analysis of its ratings system, the star ratings can be a useful jumping-off point for investors. That analysis resulted in three key findings:

• Funds with higher star ratings tend to have lower expense ratios and be cheaper for investors to own

• Higher rated funds tend to be less volatile and experience less dramatic downward swings when the market is in flux

• Funds that received higher star ratings tended to produce higher returns for investors compared to funds with lower ratings

The analysis didn’t look specifically at how star ratings and fund performance aligned through different bull and bear markets. But the ultimate conclusion Morningstar drew is that the Star Ratings tend to steer investors toward cheaper funds that are easier to own and stand a better chance of outperforming the market.

Use Expense Ratios

According to Morningstar, fees are one of the best predictors of future performance, at least for Star Ratings. For funds and ETFs, that means it’s important to consider the expense ratio, which represents the cost of owning a fund annually, calculated as a percentage of fund assets.

Actively managed funds typically carry higher expense ratios, as they require a fund manager to play an important role in selecting fund assets. Passively managed funds and ETFs, on the other hand, often have lower expense ratios.

So which one is better? The answer is that it all comes down to performance and returns over time. A fund with a higher expense ratio is not guaranteed to produce a level of returns that justify higher fees. Likewise, a fund that has a lower expense ratio doesn’t necessarily mean that it’s a poor investment just because it’s cheaper to own. Morningstar’s research found that the average one-star fund cost significantly more than the average five-star fund.

As you do your own research in comparing funds and ETFs, consider both performance and cost. This can help you find the right balance when weighing returns against fees.

How Should Investors Use Morningstar Ratings?

How much do Morningstar ratings matter in the grand scheme of things? The answer is, it depends on what you need from investment research tools.

Morningstar reviews of mutual funds and ETFs can be helpful for comparing investments, especially if you’re just getting started with the markets. Morningstar is a respected and trusted institution and both the Star and Analyst Ratings are calculated using a systematic approach. The reviews aren’t just thrown together or based on a best guess.

They’re designed to be a guide and not a substitute for professional financial advice. So, for instance, you may use them to compare two index funds that track the same or a similar benchmark. Or you may use them to compare two ETFs that are representative of the same market sector.

Risks of Morningstar Ratings

Morningstar Ratings are not an absolute predictor of how a mutual fund or ETF will perform in the next five minutes, five days, or five years. After all, there’s no way to perfectly predict how any investment will perform as the market changes day to day or even minute-to-minute.

One risk to avoid with Morningstar ratings is relying on them solely as your only research tool and not doing your own independent research. Again, that means checking expense ratios as well as looking at the underlying assets of a particular fund and its investment strategy (i.e. active vs. passive) to determine how well it aligns with your goals and risk tolerance.

Looking only at Morningstar reviews without doing your own due diligence could cause you to invest in funds that aren’t the best fit for your portfolio. Or you may overestimate how well a fund will perform, only to be disappointed later. For those reasons, it’s important to look under the hood, so to speak, to ensure that you fully understand what you’re investing in before buying in.

The Takeaway

Having research tools can help you make educated decisions about where and how to invest. Morningstar Ratings are one tool you can use. When you’re ready to invest and apply the knowledge you’ve acquired, the next step is opening an online brokerage account.

With the SoFi Invest brokerage platform, you can trade individual stocks, exchange-traded funds, cryptocurrency and even get access to Initial Public Offerings (IPOs). It’s simple and convenient to start trading with SoFi or if you prefer, you can put your portfolio on autopilot with automated investing.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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 inves[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.
Third Party Brand Mentions: No brands or products 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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