Mar
14
2025
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Types of Budgeting Strategies and Methods

By | Budgeting & Goals, money | No Comments

Budgets come in all shapes and sizes, from the old-fashioned, “write down everything you spend” approach to using apps that automatically track and categorize your expenses. There is likely at least one method out there that can help you gain insight and manage your finances effectively. Once a budget is up and running, it can help you wrangle your spending and reach your savings goals, too.

Below, we break down seven popular budgeting strategies, including their benefits and potential drawbacks so you can choose the best fit for your needs and lifestyle.

Key Points

•   Budgets can provide insight into your spending habits and help you better manage your money.

•   Line-item budgets track detailed monthly expenses, aiding in precise financial control.

•   The 50/30/20 budget rule splits income into needs, wants, and goals, promoting balanced financial management.

•   The envelope system uses cash for categories, making it easier to manage and reduce spending, while the zero-sum budget assigns every dollar a purpose.

•   Tech tools, including those provided by financial institutions, can also play a role in effective budget management.

Line-Item Budget

A line-item budget is what you may first imagine when you think of a “typical” type of budgeting. They’re commonly used by small businesses, but individuals can also benefit from keeping close tabs on cash flowing in and out of their checking accounts.

You can set up a basic line-item budget using pen and paper, or you might find it easier to use a spreadsheet on your computer. Either way, you’ll want to list income and expenses vertically in the first column, then make columns for each month of the year. It’s also a good idea to set spending targets for each category. As you log actual spending numbers into your budget, you can see how they line up to your targets.

Benefits and Drawbacks of Line-Item Budgeting

Pros:

•   For new budgeters, this method is relatively easy to create and intuitive.

•   Due to its detail, a line-time budget can be a good starting place for tracking expenses.

•   This method is well-suited for someone who needs more control over their spending.

Cons:

•   It can be time-consuming to set up and requires a high level of commitment to stick with.

•   It may feel restrictive for those who prefer more flexible spending.

•   It does not easily accommodate unexpected expenses.

Recommended: How to Make a Budget in Excel

Proportional Budgets

A proportional budget divides your after-tax income into several broad spending categories (or buckets) and allocates a set percentage for each. This budgeting strategy helps ensure you cover all of your needs, wants, and savings goals without having to account for every penny you spend.

How to Divide Your Income Proportionally

•   50/30/20 Rule (50% needs, 30% wants, 20% savings)

•   60/40 Rule (60% expenses, 40% savings/extras)

•   Custom variations based on individual priorities and financial situations

Proportional budgeting offers a structured yet flexible financial plan. You might try one method of allocating funds for a month or two, then adjust the proportions to better fit your living expenses and goals. (Read on for more details on how to set up a 50/30/20 and 60/40 proportional budget.)

Paying Yourself First

The “pay yourself first” approach is a simple budgeting method that prioritizes savings before anything else. Rather than wait to see what’s left over after covering all of your expenses, you siphon off a predetermined amount for savings as soon as your paycheck hits your bank account. This keeps the money out of sight and (hopefully) out of mind, so you’re less likely to spend it on something else.

Prioritizing Savings With the Pay Yourself First Method

Some tips for using this method effectively:

•   Put savings on auto pilot: Consider setting up an automated transfer from checking to savings for a set amount on the same day each month, perhaps the day after you get paid.

•   Set up a split direct deposit. Another way to automate savings is to ask your employer to do a split direct deposit, where most of your paycheck goes into checking but a portion goes directly into your savings account.

•   Watch your spending. You may need to adjust nonessential (discretionary) spending to ensure you can cover all of your fixed expenses, like rent, utilities, and debt payments, once saving has been deducted.

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Envelope Budget

Also known as “cash stuffing,” the envelope budgeting method involves dividing your expenses into categories (such as rent, groceries, transportation) and assigns an envelope to each one. You then decide how much you can spend on each category and stuff your envelopes with the allotted amount.

You use your envelope money to spend throughout the month. Once an envelope is empty, no more spending is allowed in that category until the next month.

To update this approach for today’s digital world, many budgeting apps allow you to create digital “envelopes” and follow the same principals as the original envelope system.

How to Effectively Use the Envelope Budgeting System

Here’a how to get started with the envelope system:

•   Consider the types of expenses you have and sort them into categories. You can be highly specific (such as “eating out”) or more broad (like “discretionary spending”).

•   Decide how much you will spend on each category, or envelope, per month and portion out the money.

•   Once an envelope is empty, you’ll want to stop spending in that category.

•   If you have remaining funds in an envelope at the end of the month, you could roll over the funds into the same envelope for the next month, move them to a different envelope, or put them in a savings account.

This budgeting method can work well for those who need a tangible way to control their spending. However, it may not be practical unless you’re using a digital tool.

Zero-Sum Budgeting

The idea here is to spend every dollar that you have. That doesn’t mean going on a shopping spree, however. Instead, you assign a specific purpose to each dollar that you earn, whether it’s expenses, savings, debt repayment, or discretionary spending.

It’s called a zero-sum budget because the goal is to have income minus expenses equal zero, meaning there is no unaccounted-for money. This budgeting strategy not only ensures all of your needs are met, but that you also have room in your budget for future needs and fun.

Balancing Income and Expenses With Zero-Sum Budgeting

To create a zero-sum budget:

1.    Go through the past three to six months of financial statements to determine your average monthly take-home income and typical expenses.

2.    Assign dollars to each of your non-negotiable bills, such as rent, insurance, student loan payments, and groceries.

3.    Assess how much money you have left for saving, paying more than minimum on debts, and discretionary spending, then assign where your remaining money is going to go.

Though this approach requires meticulous tracking, it can be ideal for those who want complete control over their finances and ensure they are using their money efficiently.

50/30/20 Budget

The 50/30/20 budget is type of proportional budget that divides your monthly income into three buckets:

•   50% for “needs:” This includes essential expenses like housing, food, transportation to work, as well as minimum payments due on debt.

•   30% for “wants:” This is anything that you buy for personal enjoyment, such as eating out, traveling, and shopping for clothes (beyond basic needs). You may also hear these called discretionary expenses.

•   20% for goals: This category includes saving for short-term goals like building an emergency fund, saving for long-term goals like retirement, as well as paying more than minimum on debts.

This budgeting method can be a great fit for someone who likes a simple framework or just beginning to budget. However, others may crave more structure, such as pre-assigned spending limits for individual categories.

60/40 Budget

Another type of proportional budget, the 60/40 budget divides your monthly income into only two buckets:

•   60% for expenses: This includes fixed costs like rent, utilities, and nonessential bills (like streaming services or a gym membership). The idea is that 60% of your budget goes to regular spending, rather than out-of-the-ordinary expenses like concert tickets or a vacation.

•   40% for everything else: This represents the rest of your income and it goes towards savings goals and spending that is outside your usual lifestyle.

Adjusting for Savings and Spending Needs

You can take the 40% bucket and allocate it however you wish. One allocation you might consider is:

•   20% for retirement/other long-term goals

•   10% for short-term savings goals, such as building an emergency fund, saving for a vacation, or making a major purchase.

•   10% for “fun” spending, like going out to dinner, seeing a show, or other occasional splurges.

The simplicity of the plan can be a positive for people who don’t like complicated, time-consuming budgets, but it may not provide enough guidance for those who really need to take control of their finances.

Sticking to a Budget

Whatever approach you pick, a budgeting method only works if you stick with it. Here’s a look at some ways to make it sustainable.

Overcoming Mental Barriers

Having financial discipline and sticking to a budget can be difficult. If you are struggling with discipline, you might try these tactics:

•   Acknowledge the issue that is holding you back. Out loud. You can only fix a problem if it’s been identified.

•   Create space for yourself to succeed. For example, you might put a 20-minute block on your calendar to look over your budget every week.

•   Anchor the task of budgeting to another activity that you do regularly and enjoy (such as making coffee on Sunday morning). This way, you’ll start to associate the two tasks and think about them in tandem.

Setting Realistic Expectations

A common pitfall when setting a budget is to be too restrictive in your spending targets right out of the gate. While it’s great to be ambitious, it’s unlikely that you’ll make sweeping changes in your spending just because you set lofty targets. And in fact, missing big targets could be disheartening.

Instead, try to set yourself up for success by choosing realistic goals for the upcoming months. You can gradually decrease spending and increase saving as you get used to budgeting.

Considering Irregular Expenses

No matter what type of budget you choose, there will always be the issue of irregular expenses. Irregular expenses may be expected (like annual membership fees or holiday gifts) or unexpected (like car repairs). Some solutions:

•   Turn irregular expenses into monthly expenses. To account for occasional or seasonal expenses, add up the total expected cost for the year, divide that number by 12, then factor it into your monthly budget.

•   Set up an emergency fund for unexpected expenses. It’s a good idea to have three to six months’ worth of living expenses set aside in a separate savings account to cover any unexpected costs or financial bumps in the road.

Staying Out of the Weeds

To avoid getting overwhelmed by the details when budgeting, consider these tips:

•   Steer clear of strategies that feel complicated or require hours of effort. You need a budget you will stick with, and that is likely one that suits your style and feels manageable.

•   Test-drive a couple of budgets to see which works best.

•   Recognize that a budget is never going to be perfect. And that’s okay! If you forget a category or overspend here and there, it may feel like a failure when it’s not.

Tips for Maintaining Motivation

These strategies can help ensure you stick with your budget long-term:

•   Set clear, meaningful goals: Budgeting can feel easier when you have a purpose behind it. Instead of just tracking expenses, consider setting specific goals like saving for a vacation or buying a car.

•   Make it fun: If budgeting feels like a chore, you’re less likely to stick with it. You might use an app that makes tracking finances fun or gamify the experience by setting challenges, such as a no-spend challenge or the 52-week savings challenge.

•   Celebrate your successes: Even small wins, like saving an extra $50 a month, deserve recognition. Reward yourself in non-financial ways, such as a relaxing day off or a favorite activity.

Leveraging Technology

Budgeting apps and tools can simplify financial management and automate tracking, making it easier to stick with a budget.

Apps to Simplify Budgeting

Your bank may offer a free spending tracker as part of their mobile app. If not, consider downloading a separate budgeting app. Some popular options include:

•   Goodbudget: A digital version of the envelope system, this app helps you divide up your salary into spending categories, then tracks your spending and helps you stick to the plan.

•   YNAB (You Need A Budget): YNAB helps you create a budget then monitors your spending and charts your progress as you work towards your goals.

•   PocketGuard: This tool connects to all of your financial accounts and syncs transactions in real-time, helping you stick to your budget.

The Takeaway

Budgeting is a system that can help you track and manage your money better, which in turn can optimize your spending and saving. There are many different budgeting methods. Popular ones include the 50/30/20 budget rule, the zero-sum system, and the envelope technique. Take some time experimenting to find the system that works best for you. A good budget and the right banking partner can help you along the path to financial wellness.

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FAQ

What’s the best budget plan?

The best budget plan is one that works for you. To find the best fit, consider your goals and personal preferences. Some people want to control their spending and like a really detailed budget, such as a line-item budget. Other people are more focused on making sure they allocate funds towards savings, in which case a 50/30/20 rule could be a good option.

What are the simplest ways to budget?

A simple way to start budgeting is to look at the past several months of financial statements, then determine the average amount of money you have coming and going out of your bank account each month. If you see that monthly outflows are close to (or, worse, exceed) monthly inflows, you’ll want to comb through your nonessential expenses and find places to cut back. Any funds you free up can be funnelled into saving and, if you have debt, paying it down.

What is the 50/30/20 rule budget?

The 50/30/20 rule is a simple budgeting framework that recommends putting 50% of your money toward needs (like housing, food, and utilities); 30% toward wants (including entertainment and dining out); and 20% towards goals (savings, investments, and debt repayment beyond the minimum).

This budgeting method can work well for beginners and those who are looking for a simple approach to personal finance. However, you may need to adjust percentages based on your needs and goals.

What tools can help with sticking to a budget?

All you really need to start budgeting is a pen and a notebook, where you keep track of income and expenses. But tech tools can simplify and streamline the process. Spreadsheets, like Microsoft Excel or Google Sheets, are easy to update and offer built-in formulas for automatic calculations. Budgeting apps, on the other hand, can link to outside accounts, track spending in real time, and categorize expenses automatically, which can save time.

How can budgeting methods be adapted for families?

You can adapt any budgeting method for a family by coming up with your total monthly household income and expenses. Plan for essential costs like housing, food, and childcare first, then set aside savings for emergencies and future expenses. You can involve children by teaching financial literacy through allowances and savings goals.

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Mar
14
2025
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Participating Preferred Stock, Explained

By | Growing Wealth, invest, Investing | Comments Off on Participating Preferred Stock, Explained

You may have heard mention of preferred shareholders or preferred stocks in investment circles. And you may have wondered: How do I get preferred stocks? Preferred stocks are available to individual investors. That being said, there is a type of preferred stocks that may be out of reach to most, and that’s participating preferred stocks.

Here’s a look at what participating preferred stock is, as well as when one might have the option to own participating preferred stock and what the benefits of participating preferred stock are.

Key Points

•   Participating preferred stock combines features of common stock and bonds.

•   Provides fixed dividends and priority in liquidation, plus potential extra dividends.

•   Attracts private equity investors and venture capitalists.

•   Average investors usually cannot access participating preferred stock.

•   Offers additional financial benefits in liquidity events, enhancing investor appeal.

What Is Preferred Stock?

Preferred stock shares characteristics of both common stocks and bonds. Preferred stocks allow investors to own shares in a given company and also receive a set schedule of dividends (much like bond interest payments).

Because the payout is predictable and expected, there isn’t the same potential for price fluctuations as with common stocks – and thus there’s less potential for volatility. But, the shares may rise in value over time.

Recommended: Preferred Stock vs. Common Stock

How Preferred Stocks Work

Shares of preferred stock tend to pay a fixed rate of dividend. Preferred stocks have dividend preference; they’re paid to shareholders before dividends are paid out to common shareholders.

These dividends may or may not be cumulative. If they are, all unpaid preferred stock dividends must be paid out prior to common stock shareholders receiving a dividend.

For example, if a company has not made dividend payments to cumulative preferred stock shareholders for the previous two years, they must make two years’ worth of back payments and the current year’s dividend payments to preferred shareholders before common stock shareholders are paid any dividend at all.

Because of the fixed nature of the dividend, the investments themselves tend to behave more like how a bond works. When an investment pays a fixed and predictable rate of interest, they tend to trade in a smaller and more predictable bandwidth. Compare that to stocks, whose future income stream and total return on investment are less predictable, which lends itself to plenty of price disagreement in the short-term.

Preferred stockholders do not typically enjoy voting rights at shareholder meetings. But, preferred stock shareholders are paid out before common shareholders in a liquidity event.

Key Features of Participating Preferred Stocks

Participating preferred stocks tend to have some key features that may make them more attractive to some investors than other stocks. Here are some examples:

•   Priority in dividend rights: Holders may receive dividends before common stockholders.

•   Liquidation priority and preferrence: If a company goes out of business or is otherwise liquidated, preferred stockholders will get their initial investment back first.

•   Conversion rights: Holders may also have the ability or option to convert their shares into common stock, adding a bit of versatility to the mix.

However, it’s important to keep in mind that each individual company can and does change or define the specifics related to its stock. Nothing is necessarily guaranteed.

Participating Preferred Stocks

Participating preferred stock takes on all of the above features, but they may receive some bonus benefits, such as an additional dividend payment. This additional payment may be triggered when certain conditions are met, often involving the common stock. For example, an additional dividend may be paid out in the event that the dividend paid to common shareholders exceeds a certain level.

Upon liquidation, participating preferred shareholders may receive additional benefits, usually in excess of what was initially stated. For example, they may have the right to get back the value of the stock’s purchasing price. Or, participating preferred shareholders may have access to some pro-rata cut of the liquidation proceeds that would otherwise go to common stock shareholders.

Non-participating preferred stocks do not get additional consideration for dividends or benefits during a liquidation event.

For those with access, participating preferred stock is an enticing investment. That said, the average individual investor may not have the chance to invest in participating preferred stock. This type of stock is typically offered as an incentive for private equity investors or venture capital firms to invest in private companies.

The Takeaway

Preferred stock offers some benefits that common stock does not — such as a regular dividend schedule and the potential to increase in value without threat of volatility. Participating preferred stock offers investors even more potential benefits, including additional dividends and the opportunity to participate in liquidity events.

However, participating preferred stocks are generally an option only for private equity investors or venture capitalists.

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Mar
13
2025
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Investing in the Pharmaceutical Industry

By | Growing Wealth, invest, Investing | Comments Off on Investing in the Pharmaceutical Industry

With some $1.6 trillion in global sales, the pharmaceutical industry is a steadily growing sector, thanks to the rise of personalized medicine, increases in chronic diseases, and an aging population worldwide. As such, investing in the pharmaceutical industry offers investors a range of potential opportunities.

But, as with any sector, pharmaceutical stocks come with specific risks — intense competition, lengthy drug approval processes, potential drug failures, and more. Investors would be wise to research each company before they buy stock.

Key Points

•   The pharmaceutical industry, both in the U.S. and globally, is large and varied.

•   The pharmaceutical market in the U.S. alone is predicted to grow at a CAGR of 5.72% between 2025 and 2030.

•   Despite opportunities for investors, there are numerous risks in this sector, including intense competition and long approvals for drug treatments.

•   Owing to the highly scientific and technical nature of pharmaceuticals, investors must do their due diligence when investing in any stock.

An Intro to the Pharmaceutical Industry

Pharmaceutical companies research, develop, make, and sell medications, including preventive medicines, treatments, and vaccines. Two segments of therapeutics make up the industry: pharmaceuticals and biologics.

It’s also important to know the difference between pharmaceutical stocks and biotech stocks, whether you’re investing online or through a traditional brokerage.

Pharmaceutical drugs are typically made from synthetic or plant-based chemicals.

Patents and Exclusivity

When drugs are first approved, they generally have a patent or market exclusivity, meaning that only the pharma company that developed them can manufacture and sell the drugs.

Once the patent or exclusivity ends, other companies can create generic forms of the drug and begin to compete with the pharma company. The generic drugs are chemical copies of the original drug but sell at lower prices, making it hard for the original pharma company to compete. This can lead to its stock losing value.

Understanding Biologics

Biologics are products such as vaccines, gene therapies, and medications for blood disorders, that are large, protein-based molecules made out of living cells. Biologics are more complex to manufacture, which is one reason they’re more expensive.

They also have tighter restrictions on distribution than pharmaceuticals do. These factors make it more challenging for companies to enter this space and for competitors to succeed. If competitors do create a similar product, it is called a biosimilar.

Unlike generics, biosimilars aren’t interchangeable, so biologics don’t have the same stock drop-off that pharmaceuticals do.

It takes about 10 years and an average of $1.3 billion to $2.8 billion to bring a new drug to market, but in special circumstances, the FDA can expedite approval.

Recommended: Stock Market Basics

Why Invest in Pharmaceuticals?

With pharmaceuticals, whether investors are looking for high growth potential, long-term value, or stable dividends, they can find a pharma stock that will fit the bill.

Factors Impacting Industry Growth

The population of older adults is growing. About 10,000 Americans turn 65 every day, according to the AARP. And by 2030, the country will have more residents 65 and older than children, the Census Bureau has projected. This means more people are likely to need health care and pharmaceutical treatments, which in turn is expected to help pharma stocks grow.

U.S. health spending is projected to reach nearly $6.8 trillion by 2030, according to the Centers for Medicare & Medicaid Services.

Pharmaceutical stocks don’t always follow the same trends as other stocks because demand is inelastic: i.e., people need medication no matter what is going on in the market. This doesn’t mean that pharma stocks always perform better than the broader market, simply that this sector doesn’t move in sync with other stocks. Thus, investing in pharmaceutical stocks may provide some diversification.

This means that some pharmaceutical companies may see steady revenue, even when the rest of the stock market is down. Larger companies have fairly consistent income streams, while smaller companies that show promise get funding from investors and sometimes get acquired by larger companies.

A few other reasons pharmaceutical stocks look promising as a long-term investment:

•   The health care sector is expanding in countries outside the United States.

•   The government has been spending more on health care research.

•   New types of therapies, such as gene therapy, are getting more sophisticated. Some of these are very expensive.

How to Choose Pharmaceutical Stocks

Billions of dollars are invested in medical research and drugs each year. But not every company becomes a success. As with any stocks, investors will want to research pharma stocks before buying. Here are a few key factors to look at when evaluating stocks.

Growth Prospects

By looking at a company’s earnings and revenue, one can see how much it’s been growing and whether growth is slowing down. Investors can also analyze each company’s pipeline to learn which drugs are close to being approved.

Pharma companies have to go through certain steps to develop, test, and get drugs approved. They often make pipelines available to the public, so investors can see which drugs are in the early stages of development, preclinical testing, going through clinical trials in humans, or getting FDA approval or other necessary regulatory approvals.

Drugs may get approval for treatment of certain diseases or for specific demographics, but the makers can then apply for approval for additional uses. If they get the expanded approval, this can lead to growth for the company.

Investors can follow different pharmaceutical companies to see when they have the potential to grow and become successful. If a pharma company has patents that are close to expiring, for instance, this may slow down growth, as competitors can create generic forms of the same drugs.

The process companies go through to develop and bring drugs to market is generally as follows:

•   Drug discovery: During this phase, drugs and the diseases they can potentially treat are discovered and developed.

•   Preclinical trials: Potential drugs get tested in test tubes or on live animals at this early phase.

•   Clinical trials: Small human trials help determine a safe dosage and how humans react to it. Then, groups of 100 or more people test the drug to discover short-term side effects and optimal dosage. Finally, groups of hundreds or thousands of people test the drug to determine efficacy and safety.

   When drugs reach the clinical trial stage, this could be a good time for investors to keep an eye on them. If a drug makes it through trials, the company has potential for significant growth. But if the drug fails during testing, the stock is unlikely to do well.

•   Regulatory approval: In the United States, the Food and Drug Administration’s Center for Drug Evaluation and Research assesses and approves new drugs. In the E.U., approval is completed by the European Medicines Agency.

Types of FDA Application

There are different types of pharmaceutical FDA applications, some of which give companies more potential for stock growth than others. The application types are:

•   Investigational new drug application: This is the first application step that companies must go through.

•   New drug application: This is an application to market and sell a new drug. Companies filing this application have the most potential for stock growth because they are introducing a new product to market.

•   Abbreviated new drug application: Companies developing a generic form of an existing drug go through this application.

•   Therapeutic biologics application: This is required under the PHS Act for biologics.

•   Over-the-counter drug application: This is for companies looking to sell over-the-counter drugs, which are categorized as being safe to distribute without a prescription.

Dividends

Not all pharmaceutical companies pay dividends, but some of them do provide consistent payouts to investors. Dividends provide a stream of income, or can be reinvested.

Qualitative and Quantitative Metrics

The same rules apply to pharmaceutical stocks as to any other stock when it comes to evaluation. Investors should look at a company’s valuation, revenues, growth, leadership team, product pipeline, and other key metrics to decide whether to invest. Stock valuation ratios, such as price-to-earnings ratio and price-to-earnings-growth ratio, are very useful when comparing different stocks within the same industry.

However, some pharmaceutical companies are not yet profitable if they are in the drug development and trial phases. In this case, investors can look at the rate of cash burn: how much money the company is spending each quarter to develop a drug. It’s very expensive to develop a drug, so if a company is burning through cash and doesn’t have much left to work with, this might not bode well for the stock.

Another useful metric to look at is the price-to-sales ratio. This compares a company’s sales to the price of its stock. If the company doesn’t have sales yet, investors can make predictions about what those sales figures might look like.

Trends and Developments

Over time, trends in the types of diseases being targeted and the types of therapies being developed change. Investors can look into stocks in popular areas of treatment to find stocks with growth potential.

For instance, many drugs are in development to treat breast cancer and non-small-cell lung cancer. Treatments that are bringing in significant revenue globally include oncologics, antidiabetics, respiratory therapies, and autoimmune disease drugs.

Additional lucrative treatment areas include antibiotics, anticoagulants, pain, and mental health drugs.

Risks of Investing in Pharmaceutical Stocks

As with any type of investment, pharma stocks come with some risks. Some of the main risks to be aware of are:

•   Clinical failure: Many drugs don’t make it through the phases of clinical trials. If a drug has made it to the final stage, it’s more likely to succeed, but even at this phase, drugs can fail.

•   Inability to obtain approval: Just because a drug does well in trials doesn’t mean it will be approved by regulatory agencies.

•   Difficulties getting reimbursement and pricing drugs: Health insurance companies, government programs, or individuals must cover the cost of drugs, and companies aren’t always able to secure the money they need. Sometimes, companies are pressured to lower the price of drugs to make them more accessible, and this can result in financial struggles for the company.

•   Industry competition: As mentioned, when patents run out, pharma companies may struggle to keep up with competitors that develop cheaper generic versions of drugs. In addition, during the drug development phase, it’s not uncommon for multiple companies to be working on medications to treat the same illness. If one company can make it to trials or get approval first, this can put them way ahead of the competition, especially if it results in patent exclusivity.

•   Litigation and liability: In the pharmaceutical industry, lawsuits are common. Drugs can also be recalled from the market if they’re found to be unsafe.

The Takeaway

If you’re looking to start investing in the pharmaceutical industry, you might consider buying pharmaceutical ETFs. Or, you could do your due diligence and choose individual stocks, aiming for stable dividends or growth potential. Before investing, it helps to familiarize yourself with the pharmaceutical industry to better understand how to choose pharma investments, and also ensure you understand the potential risks of investing in pharmaceutical stocks.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.


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

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Mutual Funds (MFs): 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 clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

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.

SOIN-Q125-046

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Mar
12
2025
Presentation Of Chart With Pieces Of Doughnut

How to Buy Stocks: Step-by-Step Guide

By | Growing Wealth, invest, Investing, Terminology | Comments Off on How to Buy Stocks: Step-by-Step Guide

A stock is a share of ownership in a company, and theoretically anyone can buy stock in a publicly traded company assuming they have access to an investment account and can afford the share price. (Shares of private companies are not available on public stock exchanges.)

In addition to buying shares of stock directly, it’s also possible to own stock via pooled investments, such as mutual funds or exchange-traded funds (ETFs). Investors who can’t afford a full share of stock in some of the higher-priced companies can invest in a product known as fractional shares.

Because stocks represent a class of assets unto themselves, they are also referred to as equities.

Key Points

•   Generally speaking, any investor can buy or sell a stock via a public exchange.

•   Private companies may also issue shares of stock, but these are not available on public stock exchanges.

•   To buy a stock, an investor needs a brokerage account or a retirement account.

•   It’s possible to buy stocks via pooled investments like mutual funds and ETFs, or to invest in a fraction of a share of stock.

•   Stocks are also known as equities.

How to Buy Stocks in 5 Steps

Here are step-by-step instructions for becoming a stock investor, including what to know about how to buy shares in a company.

Step One: Think About What You Want to Buy

To begin, investors may want to decide whether they’re interested in buying shares of individual stocks or shares of a fund, such as an exchange-traded fund (ETF).

Individual Stocks

As noted, a stock represents a share of ownership in a publicly traded company. These days, most investors buy stocks online. Many companies offer both common and preferred stock.

•   Preferred stock does not come with voting rights, but these shares typically pay dividends, a form of profit sharing that can provide steady income to investors.

•   Common stock comes with voting rights. These shares can be more volatile, but may provide higher returns — and common stock only pays dividends after preferred stock dividends are paid.

Stocks can provide a return on investment in two ways. The first is through price appreciation, which is the value of a stock increasing over time. The second is through dividend payments to shareholders, if applicable.

Ideally, shareholders are able to reap the benefit of a company’s wealth building over time. However, it’s very difficult to predict which stocks will be successful (because it’s hard to predict which businesses will be profitable in the future).

For this reason, individual stock returns can be volatile — although individual stocks also provide the potential for higher rewards. That’s why it’s often said that individual stocks are “high risk, high reward.”

Recommended: Stock Market Basics for Beginners

Fractional Shares

As the name suggests, fractional shares of stock offer investors the chance to buy a percentage of a share of stock, rather than owning a full share. Previously, fractional shares were available only to institutional investors, but now retail investors can enjoy partial stock ownership assuming their brokerage offers these shares.

Like owning a full share, owning a fractional share allows investors to realize the same gains, losses, and even dividend payments (proportional to the fractional ownership amount).

One reason to buy fractional shares is to manage cost. Some shares of certain companies can be expensive. A share of Company A worth $1,000 might be available as a fractional share for $250 (a 0.25% share).

Funds

A fund, whether an ETF or a type of mutual fund, can be thought of as a bundle of investments. Often, these funds invest in equities, but they can also hold bonds, real estate holdings, or some combination of all. For example, it’s possible to buy a mutual fund or ETF that holds the stocks of the top 500 companies in the U.S. (or even thousands of stocks across the globe).

An important thing to understand here is that investing in a fund allows you to invest in a fund’s underlying holdings. If a fund is invested in 500 stocks, for example, the fund is absolutely an investment in the stock market.

An investment in an ETF or mutual fund that invests in a wide range of stocks is generally considered less risky than owning an individual stock. That’s because it’s more likely that a few companies might underperform — not hundreds (although there are no guarantees).

Owning an equity ETF or mutual fund is still considered to be risky, as investors are still very much involved in the stock market.

That said, broad, diversified mutual funds and ETFs can provide an easy way to gain exposure to the stock market (and other markets, as well). In investing, diversification means buying different investments.

With the purchase of just one share of some funds, it’s possible to invest across the entire U.S. or even the world in a diversified way. Depending on where investors choose to open their accounts, they may have access to ETFs or mutual funds or both.

Step Two: Determine What Type of Account to Open

One big decision is whether to open an account that is specific for retirement, or a general investing account, i.e., a brokerage account.

•   A brokerage account allows investors to buy and sell various securities. But again, this term may be used as a catchall for general investment accounts, which are usually taxable accounts. Investment and brokerage accounts can be used for any (legal) purpose, and there are no limitations for use (unlike with retirement accounts).

There are several differences between a brokerage account and a retirement account, with one fundamental difference being the tax treatment of assets in these accounts.

•   Retirement accounts receive special tax treatment, and are often called tax-advantaged accounts. Tax-deferred accounts typically defer taxes on investment gains until retirement. After-tax accounts allow contributions funds where the tax has been paid; then qualified withdrawals are tax free in retirement.

This unique tax treatment is why so many IRS rules surround the use of retirement accounts, including contribution limits and income limits.

To keep it simple, investors may want to open a non-retirement brokerage or investment account, especially if they’re already covered by a retirement plan through work. For a retirement account, investors could open a Roth IRA, Traditional IRA, or a SEP IRA, or Solo 401(k), if they’re self-employed.

If investors opt to go the retirement route, they may want to check with a certified tax professional to ensure they qualify.

Step Three: Decide Where to Open an Account

When it comes to deciding where to open an account, new investors have plenty of options.

Before diving into them all, it’s helpful to remember that minimizing fees is the name of the game. Why? When calculating potential returns on investment, account holders must subtract any investing-related fees from potential investment earnings. Even small fees can mean that investments have to work that much harder just to break even.

Here are some options an investor might consider:

•   A low-cost brokerage: One option is to open an account at a low-cost or discount brokerage. Depending on the firm, there may be account and trading fees (although the lowest-cost brokerages have largely eliminated these in order to be competitive with the new financial tech companies).

•   An online trading platform: Another popular option is to use an online trading platform, where investors can buy shares of stocks and ETFs right from an app. It’s also possible to buy fractional shares, which are partial shares of a stock.

•   Robo advisor platforms. These newer services offer automated investment portfolios that typically consist of low-cost equity and fixed-income ETFs. Robo advisor platforms don’t offer advice, but can help investors manage a portfolio over time.

•   A full-service brokerage firm: The third option for buying shares is to use a full-service brokerage firm. These firms tend to offer expanded services, such as a designated advisor, broker, or wealth management advisor. Naturally, these services tend to come with associated costs, which means it might not be right for an investor who wants to buy just their first few shares.

Once an investor has made a decision, the share-buying process can be relatively seamless. Most accounts can be opened entirely online.

During the application process, investors will need to provide information like their Social Security number, dates of birth, and address. Additionally, it may be required for investors to answer some questions about their current financial situation.

Step Four: Fund Your Account With Cash

The next step in buying shares is to fund the account with cash. Depending on the institution, investors may be able to set up a link to an existing checking or savings account.

Setting up an electronic funds transfer (EFT) with a current bank account will likely be the fastest way to fund the account. If an investor is unable to set up an EFT or other automatic link to their checking account, it may be possible to mail a physical check directly to the investment institution.

Another funding option is to sign up for an automated monthly transfer. In this way, money is invested regularly (without the need to remember to do so).

It may take a few days for any cash transfer to be complete.

Step Five: Place a Trade

Assuming an investor is logged into their new account (and it’s already funded with cash), it’s possible to navigate to the area of the dashboard that says either buy, sell, or trade.

Here, investors can indicate what they would like to buy and specify how many shares, using the ticker symbol (a short abbreviation for each stock or fund name).

If buying a stock or an ETF, investors also need to indicate the order type. Both stocks and ETFs trade on an exchange, like the New York Stock Exchange or the Nasdaq. On these exchanges, prices fluctuate throughout the day. Mutual funds do not trade on an open exchange and their value is calculated once per day.

There are many different types of orders. During that first share purchase, new investors may want to stick to the basics: either a market order or a limit order.

•   A market order will go through as soon as possible. The order can fill quickly, but it may not be instantaneous. Therefore, the price could change slightly from the original quote. If an investor places a market order, they may want to have a slight cash cushion to protect from any erratic changes in price. If placing a market order while the market is closed, the order is typically filled at the market’s open, at whatever the prevailing price per share is at that time.

•   A limit order, however, focuses on pricing precision. With a buy limit order or a sell limit order, investors name the parameters for the order. For example, an investor could say that they only want to purchase a stock if it falls below $70 per share. Therefore, the order is placed if the stock falls below $70 per share. This means it’s possible a limit order won’t get filled (if it doesn’t reach the investor’s pre-selected price parameters).

A limit order may be more appealing to a trader, while a long-term investor may gravitate toward a market order. The benefit of a market order is that it allows an investor to get started right away.
Another step is to review during this process is the actual share order. Once the trade is then executed, voila — the investor now officially owns the share (or shares).

The Takeaway

These days, it’s relatively easy to get started as a stock investor. You can buy shares of company stock directly on a stock exchange. It’s also possible to invest in many shares of stock at once via a mutual fund or ETF (or a robo advisor platform, which provides a low-cost automated investment portfolio).

A more recent innovation is the emergence of fractional shares, which enable investors to buy a percentage of a single share of stock.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

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

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.
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 emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Mutual Funds (MFs): 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 clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
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.

SOIN-Q125-044

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Mar
12
2025
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How to Calculate Return on Equity

By | Growing Wealth, invest, Investing | Comments Off on How to Calculate Return on Equity

Deciding whether to invest in a company requires some due diligence. One key measure of company performance is its return on equity (ROE).

The return on equity formula is fairly simple: investors can divide a company’s net income by average shareholder equity. Shareholder equity is arrived at by subtracting a company’s debt from its assets.

Thus, ROE can be considered a measure of performance as well as a company’s return on its net assets. As such it can be viewed as a measure of profitability and how efficiently a company generates a profit (assuming it does).

Key Points

•   Knowing a company’s return on equity, or ROE, can give investors insight into company performance.

•   Return on equity can be determined by dividing a company’s net income by average shareholder equity for a certain time period, assuming both are positive.

•   ROE is a ratio expressed as a percentage.

•   To calculate shareholder equity, subtract a company’s debt, including dividends, from its assets.

•   ROE can help investors assess not only a company’s performance, but how efficiently it generates profits.

The Return on Equity Formula

The formula for return on equity is a fairly straightforward calculation that can provide a key comparative metric to investors. Here it is:

Return on Equity = Net Income/Average Shareholder Equity

The ROE ratio helps to determine how well a particular company is managing shareholder investment. The higher the number, the more efficiently the company’s management is likely generating growth from the money invested.

Investors can then compare the result for one company to the ratio of another company, and so forth.

How to Use the ROE Formula

Before you buy stocks online or through a traditional brokerage, using the ROE formula can be helpful. Calculating return on equity requires two pieces of information: net income and shareholder equity.

•   The difference between a company’s net revenue and its total expenses, including interest and taxes, is its net income.

•   Shareholder equity is typically found on a company’s balance sheet, and for the purposes of calculating the ROE it’s generally the average of the shareholder equity at the beginning and end of the period being analyzed.

Publicly traded companies are legally required to distribute income statements in their annual financial reports to shareholders where this information can be found. Net income, also called “net earnings” or the company’s “bottom line,” is a figure that’s included on a company’s income statement, also called a P&L statement or profit and loss statement.

Understanding Net Income

Net income is calculated by taking the amount of a company’s sales and then subtracting what’s called the “cost of goods sold” from the figure.

Cost of goods sold, in turn, is calculated by determining the direct costs of making products, which includes the cost of materials used and direct labor costs. It does not include indirect costs, such as marketing.

Subtract the costs of goods sold from the sales total — and then also subtract operating expenses, administrative expenses, taxes, depreciation, and so forth. What’s left is a company’s net income.

Understanding Shareholder Equity

This information can be found on a company’s balance sheet, and the formula for shareholders’ equity is as follows: total assets minus total liabilities = SE. In other words, it’s what a company owns minus what it owes.

As another way to look at this, if all of a company’s assets (buildings, equipment, investments, and so forth) were liquidated into cash and all debts were paid off, what remained would be shareholder equity.

How to Use Return on Equity Ratios to Invest

How can you make use of ROE ratios when investing? If a company has $5 million in net income, with shareholder equity of $25 million, then return on equity can be calculated in this way: $5,000,000/$25,000,000 = 20%.

An investor can then use this ratio to compare stock in one company versus those available from another company in the same industry or sector.

When calculating the ROE ratio, an investor gains visibility into a moment in time. Investors may choose to do that before buying or selling shares — or they may track the performance of a stock over a period of time.

Insights When Using Return on Equity

In general, when ROE rises, it means the company is generating profit without needing as much capital. It demonstrates that the company is efficiently using the capital invested in the business by shareholders. When the ratio goes down, it is generally a sign of a problem.

This, however, is not universally true. There are times when return on equity artificially goes up. This can happen if a company buys back shares of its own stock or if the company has a significant amount of debt. So, although ROE is a key metric for investors to use when deciding if a particular stock is a worthwhile investment for them, it’s not a stand-alone metric.

Here are a few additional factors to consider. Because some industries as a whole typically have higher ROE ratios than others, comparisons between companies are more meaningful when done between two companies of the same industry.

Plus, in general, the more risks taken in investment choices, the higher the potential for return, as well as for loss. So, some investors with a higher tolerance for risk may choose to buy shares of stock in companies that don’t look as desirable if they have reason to believe that there is enough potential for significant financial rewards.

What Else to Consider with ROE

When buying shares of stock, an investor is buying ownership shares of the company. So, when the company does well, the stockholders typically benefit. When all goes south, the stockholders usually lose out.

This means that, when an investor knows a reasonable amount of information about the company and the industry it’s in, as well as its financial structure, better investment choices can typically be made. Other factors that influence the investor during the decision-making process include the economy, customer profiles of a business, and more.

To glean these types of insights, investors often look at financial reports, in addition to return on equity, when choosing how and where to invest.

Experienced investors will often take their time reviewing documents of companies that interest them, such as the financial reports that the Securities and Exchange Commission (SEC) requires public companies to file. Many of these need to be filed quarterly, and they can provide insights into companies’ financial performance.

Here is an overview of important information that can be found in the different types of financial documents:

•   Income statement: This document provides an overview of a company’s revenue (cash coming in), expenses of significance (cash going out), and the bottom line (the difference between what’s coming in and what’s going out). Consider what trends exist.

•   Balance sheet: Look at the company’s debt (how much they owe). Is the amount going up or down? In what ways? Consider what can be learned about the company’s financial performance from this review.

•   Cash flow statement: What did the company actually get paid in a particular quarter? This is different from what’s owed (accounts receivable) and instead focuses on when the cash arrives to the company. Does the company have steady cash flow?

Investors typically look at a company’s after-tax income (its “earnings”), which can be found in quarterly and annual financial statements. In addition to looking at the company’s current earnings, it can make sense to review its history to see how much earnings have fluctuated and whether there’s a pattern to these fluctuations. Overall, good earnings indicate a company is profitable and may be a good investment to consider.

Another figure to consider reviewing is a company’s operating margins (also known as its “return on sales”). This indicates how much a company actually makes for each dollar of its sales. This calculation involves taking the company’s operating profit and dividing it by net sales. Higher margins are typically better and may indicate good financial management.

Now, here are other financial ratios to consider, besides the return on equity ratio:

•   Price-to-earnings ratio: This allows investors to compare stock prices between companies offering shares. To calculate this ratio, take the market price of a share of stock and divide that number by the amount of earnings that a company is paying per share. This ratio allows investors to see how many years a company may need to generate enough value for a stock buy-back.

•   Price-to-sales ratio: This can be a good metric to use when reviewing a company that hasn’t made much of a profit yet — or one that’s made no profit at all, so far. To calculate this, take the value of the company’s outstanding stock in dollars and divide that number by the company’s revenue. The resulting figure, ideally, should be as close to one as possible. If the number is even lower, this is an outstanding sign.

•   Earnings per share: This metric helps investors to know how much money they might receive if the company liquidates. So, if this number is consistently going up, this may entice more people to buy shares because this at least suggests they’d get more for their investment dollars if liquidation happened.

Earnings per share can be calculated by taking the company’s net income and subtracting a certain type of dividends (preferred stock), and then taking that figure and dividing it by the number of outstanding common stock shares. Preferred stocks don’t have voting rights attached to them like common stocks do, but they receive a preferential status when earnings are paid out.

•   Debt-to-equity: Investors use this metric to try to determine the degree that a company is using debt to pay for its operations. To calculate this figure, take the company’s total liabilities and then divide that number by the total shareholder equity. A high ratio indicates that the company is borrowing to a significant degree.

•   Debt-to-asset ratio: Investors may decide to compare debts to assets of a company — and then compare the resulting ratio with other similar companies to determine how significant a debt load a company has. It may be wise to calculate this within the context of a particular industry.

What Is a Good Rate of Return?

First, consider that, when cash is kept under the mattress at home, the rate of return is zero percent. And, when factoring in inflation, this means the person is actually losing money over time. Keeping money in a checking account can amount to virtually the same thing.

There is no guaranteed return on investment in stocks. That’s because of variations in the market, varying degrees of risk taken by investors, and so forth. There are, however, historical precedents that indicate how stock ownership over the long haul can often allow the investor to weather economic fluctuations for an ultimately positive result. And, when looking at the average annual return of the stock market since 1926, that number has been about 9%, although it’s closer to 6% or 7% when inflation is factored in.

Another relevant topic is risk tolerance. This is the amount of risk that a particular investor is comfortable taking when choosing securities — here’s a quiz to help investors determine their risk tolerance. By knowing your risk tolerance, you’ll have a better idea of the amount of risk you’re comfortable with, and the potential range of investing returns that you might expect from the investments you pick.

Things to consider when determining how much risk to take include:

•   Financial factors: How much could you afford to lose without it having a negative impact on your financial security? When people are young, they typically have much more time to recover from a big market loss, so they may decide it’s okay to be more aggressive.

   People closer to retirement age, though, may decide to be more protective of their assets. It’s important to review current financial obligations, from mortgage payments to college tuition, to make an informed decision, as well.

•   Emotional risk: Some people feel energized when taking risks while others feel stressed. A person’s emotional responses to risk taking can play a key role in their risk tolerance when investing.

The Takeaway

By knowing how to calculate return on equity, investors can have a comparative metric to turn to that can help them evaluate and compare different companies.

To use return on equity effectively, however, you’ll need to know where to find the relevant numbers and what to look out for. Also remember the ROE isn’t the only metric to consider — you’ll also want to take into consideration information found in financial documents, other financial ratios, your own risk tolerance, and more.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.


Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.


¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

SOIN-Q125-041

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Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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