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5 Things Every Novice Investor Needs to Know

Entering the market and becoming a first-time investor can be intimidating; so much so that many people simply avoid it all together, and that goes double for the younger generations.

According to a 2016 survey by Bankrate , just one in three millennials, a group comprising 18- to 35-year-olds, invests in the market.

Why are young people staying away from the market? Fear and a perceived lack of funds. According to Bankrate , when asked why they don’t invest, 46% of millennials said they feel they don’t have the money.

For example, 22-year-old Bethia Feldman, who works at an early childhood program in Oneonta, New York, shared with Bankrate that “seeing a cut in my paycheck, even though it was very small” was her reason for not participating in her workplace retirement plan.

But the lack of understanding of what the market can do for you, and how even small investments can make a difference, could be costing people some serious cash in the long run.

Luckily for millennials, and everyone else, we’re here to help. Here are five important things a first-time investor needs to know about entering the market.

1. Think About Your End Game

Before you start, it’s key to think about what you’re goals are and why now could be a good time to start investing. Do you want to save for retirement? Are you looking to save for a down payment on a home?

Perhaps you’re trying to pay down student loans, buy a car, or go on a big trip. Each of those motivations takes a different investment strategy. Think about what you want and tailor your financial education from there.

2. Learn Some Investment Lingo

Getting into the investment game means learning an entirely new language. It’s true that investing jargon can be overwhelming, so here are a few key investment glossary terms to get you started.

What Is a Stock?

Buying a stock means you are buying a portion of a company, otherwise known as a “share.” Among other factors, the stock’s price can rise and fall with each of the company’s successes and failures. Individual stock prices can vary greatly, from a few dollars per share for a smaller company to a few hundred dollars per share for larger companies, like Apple, Google, and Microsoft.

What Is a Bond?

Bonds act as loans for an organization. When you buy a bond, you’re loaning your money to said organization. Typically, bonds are bought and sold for a fixed term. At the end of the bond’s term, your money is returned plus interest. While not risk free, bonds are usually a safer option for your investments; however, they also typically offer lower returns than stocks.

What Is a Mutual Fund?

Mutual funds are a grouping of stocks, bonds, and other investments. When you invest in a fund you’re investing in pieces of each. Mutual funds are an excellent way for new investors to diversify their financial portfolios without having to do a ton of work.

What Is an ETF?

Exchange-traded funds, or ETFs, are similar to mutual funds as they allow you and other investors to purchase a collection of investments — stocks, bonds, and other investment vehicles. Though ETFs can be traded and sold in the stock exchange, they can only be purchased by a broker.

What Is Risk Tolerance?

Risk tolerance is just as the name implies. According to Investopedia , just one in three millennials, a group comprising 18- to 35-year-olds, invests in the market. explains it as “the degree of variability in investment returns that an investor is willing to withstand.” In other words, it describes how risky you’re willing to get with your money.

Are you willing to go through large swings in the market and hold out for long-haul potential gains, or would you rather bet on a surer thing that may not pay as high dividends in the end? Each person has their own approach and there is no wrong answer, but it will help you decide if you’d rather invest in stocks, bonds, or mutual funds.

Age may also play a role when it comes to risk tolerance. As Money Under 30 noted, a person investing in a retirement account in their 20s could invest more heavily in stocks as he or she will not need their retirement funds for many years to come. This means they can be a riskier investor and potentially reap more reward, or have more time to recoup any losses.

However, if you’re in your golden years, you no longer have decades before retirement for your money to grow, meaning it might make sense to make more conservative choices with your investments.

Money Under 30 suggests the following formula: 100 – age = percentage of stocks. So, if you’re 20 years old they recommend that your portfolio contain 80% stocks with the rest diversified into bonds, or other means. But, again, it all comes down to your personal feelings on the market and just how risky you want to get with your cash.

3. Understand You Can Never Predict the Market

Though all first-time investors wish they could predict the future, you simply can’t. Thinking you, or anyone, can time the market and predict exactly what kind of gains you’ll make is a fallacy. Why? Because despite what it may look like, the stock market isn’t all dollars and cents. It also comes down to human emotions.

Just look at what happened to Facebook’s stock in 2018. When consumers found out that their beloved social network was selling their private data, the company’s user numbers plummeted, causing their stock to drop more than 11% in a single month , shaving billions from its valuation. Moral of the story: You can’t predict stock behavior.

4. Enter the Market Through a Retirement Account Like a Company-Sponsored 401(k)

If you’re fortunate enough to have a job that offers a matching 401(k) program, you absolutely should be taking part.

Why? Because it’s essentially free money. Here’s how it breaks down: If you make $50,000 a year and your company says it will match 100% of your contributions up to 5% of your income, that means they will put up to $2,500 into your 401(k) each year. But you must also put $2,500 a year into your 401(k) as well.

5. Consider an advisor or automated advisor

A traditional personal financial advisor is someone who advises you on your finances. They do just as the name implies and can advise you on how to manage your money, perhaps by providing information on which stocks to buy.

They might also provide investment management. If you choose to hire someone to do your investment management make sure they are a fee-only financial advisor who doesn’t earn commissions based on product sales. That way he or she won’t try to sell you on a good or service that he or she gets a kickback on.

Robo-advisors — otherwise known as automated investing or online advisors — take the guesswork out of investing, making them an ideal tool for first-time investors. Typically, these services use advanced algorithms to both build and manage a diversified portfolio for investors. And that’s exactly what a SoFi invest account can do for you.

With a Sofi Invest® account, investors can set goals for what they want their money to do — be it save for retirement, save for a home, pay down debt, or more — then they can allocate a specific amount of money to deposit into their account each month.

The algorithm takes it from there, investing your money for you and rebalancing as needed. And if you really want to talk to a human, you can, and it’s complimentary — personalized investment advice from real financial advisors comes as part of the package. So, what are you waiting for? Sign up and start dipping your toe in the investment game today.

Ready to open a SoFi Invest account? Get started by telling us a little bit about your goals today.


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SoFi can’t guarantee future financial performance.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
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.
Advisory services offered through SoFi Wealth, LLC, a registered investment advisor.
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Biggest Investing Mistakes Made by Millennials

Since we’ve heard—but don’t necessarily agree with—the common perception that Millennials have short attention spans, we’ll give you the answer right away: the biggest investing mistakes Millennials make is waiting too long to invest.

Since Millennials also apparently love irony, they’re going to love this: even though they may think cash is the best long-term investment, they are not experiencing good returns.

You can owe this common investing mistake to how we were nurtured (we’ll talk about the “nature” in just a bit). We’re all raised to believe that savings accounts are a smart idea for emergency funds and safety. That still remains true.

Jim Kramer of CNBC’s Mad Money recommends that you acquire at least $10,000 before you begin to take big risks, and that sounds like a plan. Fine, but then what?

Continue to dump money into your savings account? Sure, savings accounts pay, but you’ll need a magnifying glass to see your interest. The average interest rate among the top five banks in the U.S.: a whopping .06%. Do that math with the current inflation rate holding at 1.9%, and you’ll find that you’re not saving money; you’re losing money.

Once you have your emergency fund locked down, you’ll want to think about putting money in a place with potential to grow. And the time to do this: yesterday. Or at least soon.

Ways To Help Combat These Common Investing Mistakes

Now. Stick with us: we’re going to show you how to help reverse your investing mistakes.

Start Young, Aim High

When you’re in your early 20s, the idea of retiring at age 65 feels like forever. In fact, it almost doesn’t even feel like a thing. You may think you have plenty of time to get your act together, especially as you grow your career and climb the salary ladder. But ask any person over 30, 40, or especially 50 how fast that time flies, and how much regret comes from waiting too long to invest. Brace yourself; the investing mistakes stories will forever change you.

Look at it another way, with cold, hard numbers: at age 25, starting socking away $5,500 every year, and figure the average annual return to be 7% (we’re not just pulling that number out of the air; that was the average return on the S&P 500 from 1950 to 2009). When you’re ready to retire at age 65, you’ll be sitting on slightly over a million dollars.1 There could even be enough left over to buy that flying car and take a vacation on Mars.

Procrastination Nation

Then you have the procrastinators, the biggest investing mistakes creators of all. Plug that exact same formula into somebody starting this plan at age 30, and they don’t finish the race with a million dollars. The best they may do is about $760,000. Respectable, maybe, but not sweet. Age 40 gets even sadder: $348,000. (Where are you in this game? Find out with our retirement calculator).

That common idea people have about waiting until they’re older to start saving and investing? Kill it.

Invest in the future–not fees.




Distributor, Foreside Fund Services, LLC

The Waiting Game

Are you thinking about “timing the market?” That means holding off on investing until the stock prices come down a bit and the shares are more affordable to buy. This is right up there with the most tragic common investing mistakes. This strategy sounds smart and logical on the surface, but what usually happens is that you wait, and then you wait some more, and then you continue to wait.

Prices go up and down, and you get more and more skittish and uncertain. Before long, you get a permanent case of cold feet; the time to jump in and invest never feels like the right time. Even most professional investors consider this one of the most common investment mistakes.

The Ups and Downs of the Market

So where does that leave you when it comes to getting on the horse and galloping today, in the here and now? You may be a bit skittish about the stock market, and that’s understandable. It makes no logical sense on the surface; no one can easily predict what the market is going to do, and each day, it gains and loses points in fluctuating frenzy (that’s called market volatility).

We’ve all heard (or know of) the devastating results of a financial crisis or stock-market crash. Investment mistakes in the midst of those dramas are enough to make anybody step back and walk in the other direction. You certainly want to be cautious, but you may not want to run away. Taking a pass on risk can opt you out of some serious wealth building.

Consider history first: when you add up all the major financial crises this world has experienced, they are actually few and far between. In the time period between 1929 (the stock market crash that lead to The Great Depression) and 2015 (a year of fast-swinging upturns and downturns), a diversified portfolio of 70 percent stocks and 30 percent bonds averaged a solid 9.1% per year .

Ask Yourself, “What Risk Can I Tolerate?

As many know, market volatility is normal and something you as an investor will need to accept. But, it is possible to make investment choices in light of that fact. It’s never a good idea to rush in and risk it all. That would be a big investment mistake. Instead, ask yourself, “what can I tolerate? What won’t make me lose sleep?” and then do the research.

If you know you are a risk averse investor, you’ll be delighted to know that there are some investments that are actually considered safer than others. Examples include diversified online retirement accounts, mutual funds, and ETFs (exchange-traded funds).

In fact, SoFi invests in ETFs. They’re actually a type of mutual fund, and an easy, low-cost way to invest in a diversified portfolio of stocks and bonds. SoFi builds portfolios from a broad mix of ETFs that follow over 20 indexes. These indexes represent the historic performance of groups of investments or asset classes. In the mix are U.S. stocks, international stocks, high-yield bonds, real estate, short-term treasury bonds, and the stock markets of various countries and regions.

What this means for you as an investor: well-rounded diversification, trades on an actual stock exchange, typically with lower fees and taxes than with a traditional mutual fund.

Explore Employer Benefits

If your employer offers a retirement fund, take advantage of it. Usually these come in the form of a 401(k) or an IRA. It’s usually a good idea to contribute the maximum amount allowed in either or both accounts ($18,000 per year and $5,500 per year, respectively). You can invest in stocks, bonds mutual funds and ETFs through both of these retirement funds.

More Options to Consider

Need help getting started and figuring out what’s what? That’s where a SoFi Invest® account comes in. It utilizes technology to help you reach your goals and assess the risk you feel most comfortable taking. SoFi Invest Advisors are on hand to help you calculate the time frame you’ll need to reach your goals, and can answer any questions you may (and you’ll probably have plenty) have. Their fee for this valuable service: zero. It’s complimentary.

Here’s how it works: a SoFi Invest advisor (who is an actual human being) works with you personally, helping you to map out a plan and showing you how to stick with it. We know that risk is stressful on you and your hard-earned money, so we figure out ways to reduce some of the risk of your portfolio by investing in a wider range of assets. All the while, SoFi actively manages passive assets, with no SoFi management fees. And because life and markets fluctuate and change, your investments are automatically rebalanced, as needed.

SoFi keeps the minimum investment amount low and affordable: just $100. There is no minimum holding period and you can withdraw your money at any time. Keep in mind that a retirement account may include tax consequences for withdrawing your money early, so be sure to talk to a tax advisor.

Additional benefits of becoming a SoFi Invest member include free access to over 200 SoFi events, personal career and salary guidance, and exclusive rate discounts on SoFi loans.

Set up an appointment with a SoFi Invest advisor about how you can make your cash work harder for you, and to help develop an investment approach that considers your past, present and future.


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1The projections or other information generated by the SoFi retirement calculator regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.
SoFi can’t guarantee future financial performance.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
SoFi doesn’t provide tax or legal advice. Individual circumstances are unique. Consult with a qualified tax advisor or attorney.
Diversification can help reduce some investment risk. It can’t guarantee profit or fully protect in a down market.
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.
Advisory services offered through SoFi Wealth, LLC, a registered investment advisor.
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Is Your Savings Account Interest Rate Low? Here’s What to Do.

To get the most value out of your money, it’s natural to want the lowest rates on the loans you take out and competitive savings account rates to grow your liquidity.

And which one of these two goals is easier to achieve depends upon current economic conditions—because savings and loan rates rise and fall in tandem. Right now, the bigger challenge may be to earn enough interest on a savings account—and we’re ready to tackle that challenge, sharing strategies to help you get the most for your money.

We’ll first share why savings account rates are so low, and how, in general, financial institutions set their savings and lending rates. We’ll also provide a four-part strategy to get the most from your money, ways to get savings rates, and how SoFi can be part of your strategy.

In fact, this post is one way we’re sharing a debuting product that will help you with your money in a new and highly practical way.

Why Are Savings Rates So Low?

Although, in theory, financial institutions have a significant amount of freedom to offer whatever rates they want on their savings products, it doesn’t really work that way. Here’s why: Financial institutions take in money as people deposit their funds in checking accounts, savings accounts, certificates of deposit, and so forth.

In return, the depositors often get interest on their money, while the financial institutions use funds from the deposits to lend out dollars to people who are approved for loans. The interest rates charged on the loans are higher than what is being paid out in interest for the various types of savings products.

Then, the difference in interest being charged and being paid out is used to help support the financial institution—paying salaries, building costs, equipment costs, and so forth. Financial institutions are also required to maintain a cushion of funds to ensure that people can have access to their money when needed.

This is a highly simplified overview of how money is managed at financial institutions, but it does illustrate the main point we’re making— that, while in theory, financial institutions can just increase savings rates, they actually some have pretty tight parameters to follow.

Federal Discount Rate and Federal Funds Rate

Rates, whether set for savings products or loans, aren’t randomly chosen. They depend significantly upon the rate that the Federal Reserve Bank charges when lending money to financial institutions. This rate is known as the Federal Discount Rate.

The Federal Reserve Bank also controls the rate at which banks can loan money to one another, and this is known as the Federal Funds Rate. This latter rate is usually a little bit lower than the Federal Discount Rate, which encourages banks to help one another out. When, however, some banks need more money, but other banks aren’t in a position to lend them the funds, the Federal Reserve then needs to make more funds available to the banks.

When the national economy is sluggish, the Federal Reserve usually lowers interest rates. That way, the lending of money among banks is further facilitated. If the economy is booming, the Federal Reserve typically raises the rates to control inflation.

Making the Most of Your Money

Armed with that knowledge, here is a high-level, four-part strategy that we recommend:

1. Reduce the interest rates you’re paying on your debts.
2. Pay off debts, both revolving (such as credit cards) and installment (such as personal loans, student loans and car loans, as three examples).
3. Build up an emergency savings account, about three to six months’ worth of living expenses, in an account with the best rate you can get. The goal is to keep this money in an account that offers easy liquidity, so you can access it when you need it.
4. Focus on growing your worth and wealth. Once you’ve got solid savings in place for emergencies and unanticipated expenses, then you can focus on boosting your wealth in investment vehicles that aren’t as liquid as a savings account. (That’s why we created SoFi Invest®.)

The rest of the post focuses on the first three parts of the strategy (since the goal is to help you build up your savings as a precursor to greater wealth building).

In the summer of 2018, the average credit card had an APR of 16.83% . So before trying to nudge your savings account interest rate up, create a plan to pay off these cards. To make that happen, including consolidating your credit card debt into a lower-interest personal loan. The third prong of this three-part foundation strategy, then, is to build up savings for emergencies. As you pay down debt, next increase the amount you’re saving.

But, now, how exactly do you get the best interest rate for your savings?

Finding the Best Savings Interest Rates

The internet makes it very easy to compare rates, so shop around. Note that, many times, financial institutions that offer the best rates are online only. That’s because their lower overhead costs allow them to pass some savings onto their customers.

When you find a high-interest savings account (or checking account, for that matter), take a look at the fine print. What conditions are attached for you to get that rate? The financial institution may require you to have a certain amount of money deposited into that account each month, maintain a certain balance or have your bills automatically deducted from it. You may need to use your debit card a predetermined number of times, as yet another example—or be limited in the number of transactions that can take place each month.

What About Certificates of Deposits?

Some people put part of their savings dollars into a certificate of deposit, also called a CD. This is a type of investment and savings product that typically offers a higher interest rate than the average savings account, but it isn’t as liquid as an actual savings account. With a CD, you agree to leave your money in the account for a certain term, and the interest rate you’re given is tied to that term.

The longer the term, the better the rate; but in today’s economy, you’ll probably need to tie up the money for a long period of time to get much of an increase in the interest rate. Plus, you wouldn’t be able to access money in a CD for an emergency unless you pay a penalty.

Once you have three to six months’ worth of living expenses in your emergency savings account, it does make sense to look for other ways to grow your money. But, you may want to choose short-term investments like bond ETFs instead, funds that invest in bonds that are due in three years or less.

Finally, here’s another strategy to consider.

Open a SoFi Money™ Account

SoFi Money is tailored to simplify your money. It is a cash management account that doesn’t have any account fees. With SoFi Money, you can save, spend, and earn all in one place.

Here are more benefits of SoFi Money:

•  No account fees (subject to change). We believe your money should earn you money, not cost you money.

•  You can also benefit from complementary career coaching, SoFi community resources and more, including some cool swag.

•  You’ll also receive a debit card, have the ability to make mobile transfers and photo check deposits, along with customer service.

•  Plus, you can count on secure SSL encryption, fraud protection, and FDIC insurance up to $1.5 million.

Ready to open a SoFi Money account? Sign up today!



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.
SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
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Choosing the Right Target Date Funds for Retirement

Target Date Fund Basics

Target date funds are becoming increasingly common when it comes to saving for retirement. A target date fund is a mutual fund with a passive mix of investments curated based on when you’re likely to retire.

They are also sometimes referred to as “set it and forget it” funds, and are relatively popular investment options because they are fairly easy to understand and offer a decent return on investment. You simply put your money in a fund with the target date you plan to retire—and you don’t have to think about it on the daily.

Target date funds surpassed the $1 trillion mark in 2017 —meaning that over $1 trillion in our retirement savings are now invested in these funds—and about nine in 10 employer retirement plans now offer target date funds as an option. Target date funds are, simply, funds organized around a target date for retirement.

For example, a 2050 fund means you are hoping to use those retirement funds in 2050. The idea is that by picking a fund aimed at a specific date, the mix of investments can change as you near that date.

This means you might have riskier investments with the potential for greater return earlier in the fund’s life, when retirement is decades away. Your investments gradually become less risky as retirement nears.

However, it should be noted—as with all investments—target date funds are not without inherent risk. You can lose or gain money if the stocks, bonds, or mutual funds you’re invested in go up or down. The return on investment is never guaranteed.

Additionally, even if two funds have the same target date (or similar names), it doesn’t mean they’re the same. The underlying strategy, risk, and asset allocation varies among the best target date funds.

How Target Date Funds Work

Typically, target date funds are mutual funds with a passively managed mix of assets. A mutual fund is a portfolio of stocks, bonds, and securities. You buy into the fund, as do other investors, essentially pooling your money and allowing you to buy a mix of assets you might otherwise not be able to purchase as an individual. Passively managed means you’re not actively trading stocks and securities.

How a specific target date fund shifts its asset mix over time is called its “glide path.” You’ll probably want to research the glide path before committing to a fund. You’ll also want to consider how much risk you want to take. Even though target date funds generally become more conservative over time, the specific risk and asset allocation varies from fund to fund.

How to Pick the Best Target Date Fund for You

The best target date funds are the ones that match your needs, offer the right level of risk for your desired return, and have low management fees. The average target date fund asset-weighted expense ratio for 2017 was 66 basis points—which means 0.66%. And the typical investor pays 0.47% in fees because so many target date funds come from low-cost providers.

That same report found that Vanguard Group, Fidelity, and T. Rowe Price make up nearly 70% of target date fund assets. In addition to considering fees, here are some other issues to weigh when picking the best target date funds for you.

Pick the Right Target Date

You can choose the year you’re hoping to retire, but it’s not a requirement. If you want to be slightly more conservative, you could consider a target date that’s sooner than you plan to retire.

However, you should make these choices consciously (and plan accordingly—don’t pick a date sooner than your actual retirement and then be surprised when there’s not as much return as you want).

And check in regularly to update your target date as necessary—something most people don’t do. One research paper analyzed 34,000 participants in target date funds and found that investors were more likely to pick a target date ending in “0” rather than one ending in “5,” simply because it’s easier to round to zero.

Assess Your Risk Tolerance

A big question with any investment—and target date funds are no different—is how much risk you want and are willing to tolerate. Your risk tolerance can also change over time, and you may want to change the mix of your investments as that happens.

Do you want your target date fund to carry you to retirement or through retirement?

Some target date funds are “to” retirement, meaning they’ll hit their most conservative allocation at the target date and then won’t change much once you retire. But other target date funds are “through” retirement, meaning they continue to adjust and rebalance their mix of funds even after you retire.

Check in on the mix of investments and the fund’s glide path

It’s probably not a great idea to really “set it and forget it.” You’ll want to check in periodically to ensure your fund still meets your needs. Although many employers may automatically enroll you in a target date fund, it doesn’t mean you have to stay in the fund.

If you’re going to want to be more actively involved in investing for your retirement or more aggressive than a traditional asset allocation strategy, then a target date fund might not be right for you. Additionally, if you’re going to need or want more customization, then you might want a different investment product.

Before you decide on products and investment strategies, think about what your financial plans are and your goals for retirement. As a first step, use our retirement calculator to figure out how much you should be saving.

Investing with SoFi Invest®

It’s never too early—or too late—to take control of your retirement savings. If you’re ready to start actively preparing for retirement, consider investing with SoFi Invest. When you open a invest account at SoFi, you’ll gain access to a team of financial advisors who will work with you to create a long-term financial plan. You can get started with as little as $100, with no SoFi management fees.

Ready to invest for your future? Check out SoFi Invest today.


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do-it-yourself?

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Want to take a
hands-off role?

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SoFi can’t guarantee future financial performance.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
Advisory services offered through SoFi Wealth, LLC, a registered investment advisor.
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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The Growth of Socially Responsible Investing

What if there was a way you could invest, while also using your money to help enact positive change? Welcome to socially responsible investing. It’s the practice of investing in stocks and bonds from companies that fit into these general categories or something similar:

Engaging in activities seen as positive, such as clean/alternative energy or technology

•  Participating in environmental sustainability efforts

•  Focusing on social justice

•  Not selling alcohol or tobacco or other addictive substances

Plus, there are mutual funds and exchange traded funds (ETFs) that only include companies that are socially responsible in their investment portfolios.

So if you’re interested in investing this way, you can make selections from individual companies that meet your threshold, or you can strategically select socially conscious mutual funds.

And if social responsibility in companies matters to you, then your goal will be to choose investment vehicles that meet your standards, while also complementing your financial goals.

The Evolution of Responsible Investing

Although socially responsible investing has become mainstream in 2018, it isn’t a new idea. The concept is often credited to John Wesley, founder of the Methodist church, who asked his followers to not invest in or partner with companies that could harm the community. This inspired many of them to avoid investing with anyone who earned income through alcohol, tobacco, gambling, or weapon sales.

In the 1960s, socially responsible investing grew . During that decade, some people chose to invest specifically in companies that supported the civil rights movement. Others, in opposition of the Vietnam War, would not invest in companies that created weapons.

In the 1970s, how companies handled labor/management issues influenced the way that some people invested. And this is when corporate pollution management played a role in investment choices. Plus, it was in 1970 that the first social responsibility issues first appeared on a proxy ballot of the federal Securities Exchange Commission.

In the 1980s, many investors pulled funds from companies that operated in South Africa because of racial inequalities associated with apartheid, while some mutual fund companies began making portfolio selections during this decade with an eye on social concerns. Interestingly, this echoed concerns of the Methodists from hundreds of years ago, avoiding alcohol, tobacco, weapon production, and gambling.

By the 1990s, interest in socially responsible investing was so strong that the Domini Social Index was created to measure social and environment performance by corporations. Four hundred companies in the United States were chosen and their financial performance was monitored, then compared to companies not included in the index.

This was the first formalized attempt to determine if investing in socially responsible companies meant lower returns—and the findings were that it did not. Today, as more people are becoming increasingly concerned about the climate, protecting the environment and so forth, these are some concerns currently influencing investment decisions.

Socially Responsible Investments: A Deeper Dive

In its earliest days, socially responsible investing was based on avoiding “sin stocks,” like tobacco or alcohol, based solely on moral and ethical principles, not financial wisdom. For a time, people thought that socially responsible investing meant that you’d need to accept reduced profits to maintain ethical principles.

But today, that isn’t true. Overall, ethical investing has become more about embracing the positive—a company’s track record with the environment, with their governance and more—than avoiding the negative.

Knowing how a company approaches its social practices, environmental considerations and treatment of employees allows investors to align their dollars with their values, something that is expected to become even more important as millennials become an increasingly bigger part of the investment pool.

In fact, a Nuveen study from December 2017 shows that 92% of Millennials surveyed said they would likely put their entire investing holdings into a responsible investing portfolio.

Here’s another factor: Women now possess 50% of the wealth in the United States, according to Investment News , and 80% of them favor socially responsible investing.

More about Ethical Investing

The US SIF Foundation is a non-profit organization that provides carefully-researched information about ethical investing, which is another term for socially responsible investing. Other names for this type of investment strategy include:

•  Community investing (this term typically refers more specifically to investing that will support underserved communities)

•  Green investing (this term usually refers to investing in environmentally-friendly options)

•  Impact investing

•  Mission-related investing

•  Responsible investing

•  Sustainable investing

•  Values-based investing

According to their 2016 Report on US Sustainable, Responsible and Impact Investing Trends, more than one out of every five investment dollars in the United States under professional management are now invested under the umbrella of sustainable, responsible and impact (SRI) investing. That is more than $8.72 trillion.

Additional information from the report indicates that sustainable investing has increased by 33% since 2014, and lists the leading environment and social issues of interest from 2014 to 2016. Here is that list in descending order:

•  Political spending/lobbying

•  Climate change

•  Human rights

•  Environmental issues (non-climate)

•  Sustainability reporting

•  Equal Employment Opportunity

Choosing Socially Responsible Investment Funds

If you’re committed to investing in these types of funds, the next question becomes how to choose the right socially responsible investment funds for your financial situation, values, and goals. And in the past, you’ve either needed to research funds and strategies yourself or have the funds managed, likely with high management fees involved.

Now, you have another option: Use SoFi Invest® and its combination of automated investing and professional guidance from experienced advisors.

SoFi as Your Ethical Investing Company

If you’re new to automated advising, it’s a software application that provides automated investment data. This data is gleaned through the use of an algorithm and provides in-depth investment intelligence, and the mathematical probabilities calculated are used to allow investors to make strategic decisions based upon current market conditions.

At SoFi, investors can benefit from this cutting-edge technology while also benefiting from human guidance. Note that, although many companies that use automated advising technology don’t allow investors to adjust risk tolerance when their financial goals change, SoFi does.

We believe that everyone should have access to quality investment management. You can start investing with as little as $1. And SoFi’s financial advisors aren’t paid on commission. This means they don’t benefit by selling you something you don’t need in a portfolio that doesn’t dovetail with your unique financial situation.

Plus, there are no SoFi management fees for automated investing and no trading fees.

SoFi will make investment recommendations based upon your age, income, and assets. And we will manage your portfolio for you, continually monitoring market conditions. As economic changes occur, we adjust for that to help minimize risk.

For convenience, you can access your investment accounts online or use the SoFi Invest app. Our platform is user-friendly and intuitive. As an investor, you also have access to our member benefits, including career services and community events, and can receive discounts on other SoFi products.

See how SoFi Invest can help you pursue socially responsible investing.


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SoFi can’t guarantee future financial performance, and past performance is no guarantee.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
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.
Advisory services offered through SoFi Wealth LLC, a registered investment advisor.
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