hands on laptop with plants

Guide to Building an Investment Portfolio for Beginners

Investing can seem intimidating, especially for beginners who are just starting out. But building an investment portfolio is one of the best ways to grow your wealth over time.

Before you start pondering what you want to invest in and build an investment portfolio, think this through: Why am I investing? In the end, most of what matters is achieving your financial goals. And what are you saving for? By answering these questions, you can match your goals with your investment strategy — which is important if you want to give yourself a shot at your desired financial outcome.

The Basics: What Is an Investment Portfolio?

An investment portfolio is a collection of investments, such as stocks, bonds, mutual funds, exchange-traded funds (ETFs), real estate, and other assets. An investment portfolio aims to achieve specific investment goals, such as generating income, building wealth, or preserving capital, while managing market risk and volatility.

A well-diversified investment portfolio can help investors achieve their financial objectives over the long term.

Recommended: Investing for Beginners: Considerations and Ways to Get Started

Why Building a Balanced Portfolio Matters

Building a balanced investment portfolio matters for several reasons. As noted above, a balanced, diversified portfolio can help manage the risk and volatility of the financial markets. Many people avoid building an investment portfolio because they fear the swings of the market and the potential to lose money. But by diversifying investments across different asset classes and sectors, the impact of any one investment on the overall portfolio is reduced. This beginner investment strategy can help protect the portfolio from significant losses due to the poor performance of any one investment.

Additionally, a balanced portfolio can help investors achieve their long-term investment objectives. By including a mix of different types of investments, investors can benefit from the potential returns of different asset classes while minimizing risk. For example, building a portfolio made up of relatively risky, high-growth stocks and stable government bonds may allow you to benefit from long-term price growth from the stocks while also generating stable returns from the bonds.

What Is Your Risk Tolerance?

When it comes to braving risk, everyone is different. And in life, there are no guarantees. So where does that leave you? Take your risk temperature and see which type of investing you can live (and grow) with. Below are two general strategies many investors follow depending on their risk tolerance.

Aggressive Investing

An aggressive investment strategy is for investors who want to take risks to grow their money as much as possible. High risk sometimes means big losses (but not always). The idea here is to “go for it.” Find investments that feel like they have a lot of potential to generate significant gains.

Your stock picks can ride the rollercoaster, and if you opt for an aggressive investing strategy when you’re young and just starting out, you can watch them take the ride without you doing much hand-wringing.

If it doesn’t work out, you can own the loss and move on. Downturns happen. So do bull markets. And when you’re young, you can likely afford to take risks.

Conservative Investing

Conservative investing is for investors who are leery of losing a lot of their money. It may be better suited for older investors because the closer you get to your ultimate goal, the less room you will have for big drawdowns in your portfolio should the market sell off.

You can prioritize lower-risk investments as you inch closer to retirement. Research investments with more stable and conservative returns. Lower-risk investments can include fixed-income (bonds) and money-market accounts.

These investments may not have the same return-generating potential as high-risk stocks, but often the most important goal is to not lose money.

Choosing a Goal for Your Portfolio

Long- and short-term goals depend on where you are in life. Your relationship with money and investing may change as you get older and your circumstances evolve. As this happens, it’s best to understand your goals and figure out how to meet them ahead of time.

If you’re still a beginner investing in your 20s, you’re in luck. Time is on your side, and when building an investment portfolio, you have that time to make mistakes (and correct them).

You can also potentially afford to take more risks because you’ll have more time to work on reversing losses or at least shrugging them off and moving on.

If you’re older and closer to retirement age, you can reconfigure your investments so that your risks are lower and your investments become more conservative, predictable, and less prone to significant drops in value.

As you go through life, consider creating short and long-term goal timelines. If you keep them flexible, you can always change them as needed. But of course, you’d want to check on them regularly and the big financial picture they’re helping you create.

Short Term: Starting an Emergency Fund

Before you do any serious investing, making sure you have enough money stashed away for emergencies is a good idea. Loss of income, unplanned moves, health situations, auto repairs, and all of those other surprises can tap you on the shoulder at the worst possible time — and that’s when your emergency fund comes in.

It may make sense to keep your emergency money in liquid assets for short-term expenses. Liquidity helps ensure you can get your money if and when you need it. Try to take only a few risks with emergency money because you may not have time to recover if the market experiences a severe downturn.

Long Term: Starting a Retirement Fund

Think about what age you would want to retire and how much money you would need to live on yearly. You can use a retirement calculator to get a better idea.

One of the most frequently recommended strategies for long-term retirement savings is opening a 401(k), an IRA, or both. The benefit of this type of investment account is that they have tax advantages.

Another benefit of 401(k)s and IRAs is that they help you build an investment portfolio over decades: the long term.

Prioritizing Diversification

As mentioned above, portfolio diversification means keeping your money in more than one place: think stocks, bonds, and real estate. And once you diversify into those asset classes, you’ll need to drill down and diversify again within each sector.

Understanding Systematic Risk

Big things happen, like economic uncertainty, geopolitical conflicts, and pandemics. These incidents will affect almost all businesses, industries, and economies. There are not many places to hide during these events, so they’ll likely affect your investments too.

One smart way to fight this: diversify. Spread out. High-quality bonds, like U.S. Treasuries, tend to do well in these environments and have offset some of the negative performances that stocks usually suffer during these times.

It might also be helpful to calculate your portfolio’s beta, the systemic risk that can’t be diversified away. This can be done by measuring your portfolio’s sensitivity to broader market swings.

Understanding Idiosyncratic Risk

Smaller things happen. For instance, a scandal could rock a business, or a tech disruption could make a particular business suddenly obsolete. This risk is more micro than macro; it may occur in a specific company or industry.

As a result, a stock’s value could fall, along with the strength of your investment portfolio. The best way to fight this: diversify. Spread out. If you only invest in three companies and one goes under, that’s a big risk. If you invest in 20 companies and one goes under, not so much.

Owning many different assets that act differently in various environments can help smooth your investment journey, reduce your risk, and hopefully allow you to stick with your strategy and reach your goals.

4 Steps Towards Building an Investment Portfolio

Here are four steps toward building an investment portfolio:

1. Set Your Goals

The first step to building an investment portfolio is determining your investment goals. Are you investing to build wealth for retirement, to save for a down payment on a home, or another reason? Your investment goals will determine your investment strategy.

2. What Sort of Account Do You Want?

Investors can choose several kinds of investment accounts to build wealth. The type of investment accounts that investors should open depends on their investment goals and the investments they plan to make. Here are some common investment accounts that investors may consider:

•   Individual brokerage account: This is a standard brokerage account that allows investors to buy and sell stocks, bonds, mutual funds, ETFs, and other securities. This account is ideal for investors who want to manage their own investments and have the flexibility to buy and sell securities as they wish.

•   Retirement accounts: These different retirement plans, such as 401(k)s, IRAs, and Roth IRAs, offer tax advantages and are specifically designed for retirement savings. They have contribution limits and may restrict when and how withdrawals can be made.

•   Automated investing accounts: These accounts, also known as robo advisors, use algorithms to manage investments based on an investor’s goals and risk tolerance.

Recommended: What Is Automated Investing?

3. Choosing Investments Based on Risk Tolerance

Once you have set your investment goals, the next step is to determine your investments based on your risk tolerance. As discussed above, risk tolerance refers to the amount of risk you are willing to take with your investments. If you are comfortable with higher levels of risk, you may be able to invest in more aggressive assets, such as stocks or commodities. If you are risk-averse, you may prefer more conservative investments, such as bonds or certificates of deposit (CDs).

Recommended: How to Invest in Stocks: A Beginner’s Guide

4. Allocating Your Assets

The next step in building an investment portfolio is to choose your asset allocation. This involves deciding what percentage of your portfolio you want to allocate to different investments, such as stocks, bonds, and real estate.

Once you have built your investment portfolio, it is important to monitor it regularly and make necessary adjustments. This may include rebalancing your portfolio to ensure it remains diversified and aligned with your investment goals and risk tolerance.

Paying Off Debt First

Student loans and credit card debt may stand in the way of pumping money into your investment portfolio. Do what you can to pay off most or all of your debt, especially high-interest debt.

Get an aggressive repayment plan going. Also, remember it can be wise to pay yourself first (by that, we mean to keep a steady flow of cash flowing into your short and long-term investments before you pay anything else).

Investing in the Stock Market

Building an investment portfolio is a process that depends on where a person is in their life as well as their financial goals. Every individual should consider long-term and short-term investments and the importance of portfolio diversification when building an investment portfolio and investing in the stock market.

These are big decisions to make. And sometimes you may need help. That’s where SoFi comes in. With a SoFi Invest® online brokerage account, you can trade stocks, ETFs, fractional shares, and more with no commissions for as little as $5. And you can get access to educational resources to help learn more about the investing process.

Take a step toward reaching your financial goals with SoFi Invest.

FAQ

How much money do you need to start building an investment portfolio?

The amount of money needed to start building an investment portfolio can vary depending on the type of investments chosen, but it is possible to start with a small amount, such as a few hundred or thousand dollars. Some online brokers and investment platforms have no minimum requirement, making it possible for investors to start with very little money.

Can beginners create their own stock portfolios?

Beginners can create their own stock portfolios. Access to online brokers and trading platforms makes it easier for beginners to buy and sell stocks and build their own portfolios.

What should be included in investment portfolios?

Experts recommended that investment portfolios should be diversified with a mix of different types of investments, such as stocks, bonds, mutual funds, ETFs, and cash, depending on the investor’s goals, risk tolerance, and time horizon. Regular monitoring and rebalancing are important to keep the portfolio aligned with the investor’s objectives.


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

SOIN1222017

Read more
Businessman on cell phone

How to Roll Over Your 401(k)

It’s pretty easy to rollover your old 401(k) retirement savings to an IRA, a new 401(k), or another option — yet millions of workers either forget to rollover their hard-won retirement savings, or they lose track of the accounts.

According to a 2021 study by Capitalize, some 24 million 401(k) accounts seem to be forgotten or “lost”, with an average balance of about $55,000 in these dormant accounts.

Given that a 401(k) rollover just takes a couple of hours and, these days, minimal paperwork, it makes sense to know the basics so you can rescue your 401(k), roll it over to a new account, and add to your future financial security.

How Does Rolling Over Your 401(k) Work?

Many people wonder how to rollover a 401(k) when they leave their jobs. First, you need to know the difference between a transfer and a rollover.

A transfer is when you move funds between two identical types of retirement accounts. For example, if a person moves money from an old 401(k) to a new 401(k), a traditional IRA to another traditional IRA, or from an old Roth IRA to a new Roth IRA — that’s a transfer. It’s the most direct way to move funds from one tax-advantaged account to another.

A rollover is when you move money between two different types of retirement accounts. For example: You might rollover a 401(k) to an IRA.

💡 Recommended: What Is an IRA and How Does It Work?

Bear in mind, rollover accounts can be different, but must have the same tax treatment. You can’t rollover a tax-deferred traditional 401(k) to a Roth IRA without doing some kind of Roth conversion.

Steps to Roll Over Your 401(k)

Here are the basic steps, with more detail to follow:

1.    Decide whether you want to roll it over to an IRA (a common option); transfer the funds to another employer’s 401(k); or set up an account like a self-directed IRA.

2.    Set up the rollover account. Remember that rollovers have to be apples to apples in terms of tax treatment: a tax-deferred 401(k) to a traditional IRA; a Roth 401(k) to a Roth IRA.

3.    Contact your former employer or 401(k) plan sponsor to initiate the rollover. (Depending on which rollover option you choose, the process or paperwork may be slightly different.)

4.    Generally, the funds are sent to you in a check although they can be wired to a rollover IRA at a new institution, for example. Either way, you have 60 days to deposit the funds in another tax-deferred account, or you will owe taxes on the money and possibly a penalty.

Benefits of Rolling Over Your 401(k)

Once you understand how to roll over a 401(k), it’s easy to understand what the advantages are. First and foremost, by doing a rollover, you ensure that you are in charge of your retirement funds (which is important, after years of investing in your 401(k)).

Other pros include:

•   Your investment account costs will likely be lower once you do a rollover, because leaving your savings in your old 401(k) when you’re no longer an employee means you may pay higher account management fees. Fees matter, and can substantially reduce your savings over time.

•   You may have more investment choices. Typically, when you do a rollover from a 401(k) to an IRA at a new institution, your investment options increase which might improve portfolio returns and could further reduce fees.

•   If you don’t want a self-directed portfolio, where you choose the investments in your rollover, you may be able to choose a robo-advisor or automated portfolio so there’s less for you to manage.

•   If you have more than one 401(k) from various jobs, you can consolidate them as part of the rollover process.

Disadvantages of Rolling Over a 401(k)

Since you want to avoid retirement mistakes, it’s also important to consider some of the reasons why a rollover may not be the best idea.

•   First, if you have a lot of appreciated company stock, you may be able to pay a lower tax rate on the gains if you transfer the stock to a brokerage account.

•   While a rollover account at a different institution may provide more investment options, if you keep your 401(k) where it is, you may be able to buy investments at the cheaper institutional rate.

•   If you do a rollover, you may lose some of the federal legal protections that come with 401(k) plans. For example, the money in your 401(k) is typically protected from creditors or collections, whereas the money in an IRA is shielded by state laws, which can vary.

•   In some cases, your employer may allow you to withdraw funds from your 401(k) without paying the usual 10% penalty, if you are 55 or older when you leave your job.

Pros and Cons of Doing a 401(k) Rollover

Pros

Cons

Potentially lower investment fees, which can impact savings over time. If you have company stock in your 401(k), it might save on taxes if you transfer the stock to a brokerage rather than doing a rollover.
More investment choices; more control over your portfolio. Investment options may cost less in a 401(k) vs. an IRA.
The option to switch to a robo advisor if you prefer an automated approach. Keeping your 401(k) may offer legal protection from creditors or collections.
Ability to consolidate accounts. Keeping your money in your 401(k) could give you penalty-free access before age 59 ½ vs. an IRA.

When Is a Good Time to Roll Over a 401(k)?

Once you know how to roll over a 401(k), and you’ve decided that’s your next step, doing it as soon as you leave your job is likely the best time. But you can generally do a rollover any time. It’s your money. If you decide to do the rollover five years after leaving your job, that’s a better time than never.

That said, if you have a low balance in your 401(k) account — for example, less than $5,000 — your employer might require you to do a rollover. And if you have a balance lower than $1,000, your employer may have the right to cash it out. Be sure to check the exact terms with your employer.

In most instances, you have 60 days from the date you receive an IRA or 401(k) distribution to then roll it over into a new qualified plan. If you wait longer than 60 days to deposit the money, it will trigger tax consequences, and possibly a penalty. One rollover per year is allowed under the rules.

5 Things You Can Do With Your Old 401(k)

If you’re still asking yourself, But how do I rollover my 401(k)?, here are five possible choices that might make sense when deciding how to handle your old account.

Option 1: Leave Your 401(k) Where It Is

Is it ever a good idea to let sleeping 401(k)s lie? Sometimes, yes.

For instance, maybe your old job was with a super-hip, savvy startup that chose a stellar plan with multiple investment options and low administration fees that stayed in place even after you left your job. This is rare! But the point is: If you’re happy with your portfolio mix and you have a substantial amount of cash stashed in there already, it might behoove you to leave your 401(k) where it is.

Other than that, you probably want to make sure you’re in charge of your money — not your former employer.

Also, besides any additional fees you might end up paying, racking up multiple 401(k)s as you change jobs could lead to a more complicated withdrawal schedule at retirement.

Option 2: Roll Over Your 401(k) Into an IRA

If your new job doesn’t offer a 401(k) or other company-sponsored account like a 403(b), don’t worry: You still have options that’ll keep you from bearing a heavy tax burden. Namely, you can roll your 401(k) into an IRA, or Individual Retirement Account.

The entire procedure essentially boils down to three steps:

1.    Open a new IRA that will accept rollover funds.

2.    Contact the company that currently holds your 401(k) funds and fill out their transfer forms using the account information of your newly opened IRA. You should receive essential information about your benefits when you leave your current position. If you’ve lost track of that information, you can contact the plan sponsor or the company HR department.

3.    Once your money is transferred, you can reinvest the money as you see fit. Or you can hire an advisor to help you set up your new portfolio. It also may be possible to resume making deposits/contributions to your rollover IRA.

Option 3: Roll Over Your 401(k) to Your New Job

If your new job offers a 401(k) or similar plan, rolling your old 401(k) funds into your shiny, new 401(k) account may be both the simplest and best option — and the one least likely to lead to a tax headache.

That said, how you go about the rollover has a pretty major impact on how much effort and paperwork is involved, which is why it’s important to understand the difference between direct and indirect transfers.

How to Roll Over Your 401(k): Direct vs Indirect Transfers

Here are the two main options you’ll have if you’re moving your 401(k) funds from one company-sponsored retirement account to another.

A direct transfer, or direct rollover, is exactly what it sounds like: The money moves directly from your old account to the new one. In other words, you never have access to the money, which means you don’t have to worry about any tax withholdings or other liabilities.

Depending on your account custodian(s), this transfer may all be done digitally via ACH transfer, or you may receive a paper check made payable to the new account. Either way, this is considered the simplest option, and one that keeps your retirement fund intact and growing with the least possible interruption.

Another viable, but slightly more complex, option, is to do an indirect transfer or rollover, in which you cash out the account with the express intent of immediately reinvesting it into another retirement fund, whether that’s your new company’s 401(k) or an IRA (see above).

But here’s the tricky part: Since you’ll actually have the cash in hand, the government requires your account custodian to withhold a mandatory 20% tax. And although you’ll get that 20% back in the form of a tax exemption later, you do have to make up the 20% out of pocket and deposit the full amount into your new retirement account within 60 days.

For example, say you have $50,000 in your old 401(k). If you elected to do an indirect transfer, your custodian would cut you a check for only $40,000, thanks to the mandatory 20% tax withholding.

But in order to avoid fees and penalties, you’d still need to deposit the full $50,000 into your new retirement account, including $10,000 out of your own pocket. In addition, if you retain any funds from the rollover, they may be subject to an additional 10% penalty for early withdrawal.

Option 4: Cashing Out Your 401(k)

One recent review of 401(k) accounts found that 21% of Americans who left their jobs during the pandemic also cashed out their 401(k) accounts. Generally speaking, withdrawing these retirement funds is not a good idea, and here’s why.

Because a 401(k) is an investment account designed specifically for retirement, and comes with certain tax benefits — e.g. you don’t pay any tax on the money you contribute to your 401(k) — the account is also subject to strict rules regarding when you can actually access the money, and the tax you’d owe when you did.

Specifically, if you take out or borrow money from your 401(k) before age 59 ½, you’ll likely be subject to an additional 10% tax penalty on the full amount of your withdrawal — and that’s on top of the regular income taxes you’ll also be obligated to pay on the money.

Depending on your income tax bracket, that means an early withdrawal from your 401(k) could really cost you, not to mention possibly leaving you without a nest egg to help secure your future.

This is why most financial professionals generally recommend one of the next two options: rolling your account over into a new 401(k), or an IRA if your new job doesn’t offer a 401(k) plan.

Option 5: Rolling Your 401(k) Over to a Self-Directed IRA

A self-directed IRA, sometimes called a SDIRA, is an unusual type of retirement account — and it’s not widely available. That’s because these types of accounts aren’t just for traditional securities, but for alternative investments normally not permitted in traditional IRAs: i.e. real estate, collectibles (like art and jewelry), commodities, precious metals, and more.

These accounts are considered self-directed because, first, they are only available through certain financial firms that will custody SDIRA accounts, not manage them. Second, SDIRA custodians can’t give financial advice, so all the due diligence and asset management falls to the investor.

While you can consider doing a rollover to a SDIRA, be sure that setting up such an account makes sense for your current holdings, or whether a traditional IRA or Roth might do just as well.

The Takeaway

It’s not difficult to rollover your 401(k), and doing so can offer you a number of advantages. First of all, when you leave a job you may lose certain benefits and terms that applied to your 401(k) while you were an employee. Once you move on, you may pay more in account fees, and you will likely lose the ability to keep contributing to your account.

Rolling over your 401(k) — to a new employer’s plan, or to an IRA — gives you more control over your retirement funds, and could also give you more investment choices.

There are some instances where you may not want to do a rollover, for instance when you own a lot of your old company’s stock, so be sure to think through your options.

If you know that moving your 401(k) money over to an IRA is the right thing, SoFi makes it super easy. Once you open an investment account with SoFi Invest and set up a traditional or Roth IRA account, you can transfer the funds from your old 401(k) and either keep the same (or similar investments), or choose new ones.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

How can you roll over a 401(k)?

It’s fairly easy to roll over a 401(k). First decide where you want to open your rollover account (usually an IRA), then contact your old plan’s administrator, or your former HR department. They typically issue a check that can be sent directly to you or to the rollover account at a new institution.

What options are available for rolling over a 401(k)?

There are several options for rolling over a 401(k), including transferring your savings to a traditional IRA, or to the 401(k) at your new job. You can also leave the account where it is, although this may incur additional fees. It’s generally not advisable to cash out a 401(k), as replacing that retirement money could be challenging.

Does SoFi allow you to roll over your 401(k)?

Yes, you can rollover funds from a 401(k) to a rollover IRA with SoFi.

To initiate the rollover, set up an account with SoFi Invest, and contact your 401(k) plan administrator or the HR department of your previous employer.


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

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

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

SOIN0822021

Read more
bitcoin on blue and pink background

How to Invest in Bitcoin

In just over a dozen years, bitcoin (BTC) has gone from being a digital currency pioneer to being the granddaddy of all cryptocurrencies, with the longest track record and the highest valuation. The result: Investing in bitcoin has never been easier.

Investors today can buy and sell bitcoin, trading at about $57,600 per coin, as of Nov. 23, 2021, on numerous crypto exchanges and thousands of crypto ATMs.

But if bitcoin is the oldest and largest crypto, with a total market capitalization of nearly $1.1 trillion, that doesn’t mean investing in bitcoin, or any crypto, is risk free. Bitcoin is volatile and largely unregulated — as are many of the bitcoin-related products and services (like crypto exchanges) investors must use to trade bitcoin. If you’re interested in trading bitcoin, or buying and holding it as a long-term investment, here’s what you need to know.

Quick Recap Before You Buy Bitcoin

Bitcoin, which turns 13 in January 2022, is truly the OG crypto. It was the first cryptocurrency to be created in 2009, and it remains the most popular and widely traded crypto by far. There are more than 18.86 million bitcoin tokens in circulation as of November 2021, against a capped limit of 21 million.

Also important for new bitcoin investors to know: Many of the features that established bitcoin as a pioneering form of crypto became the foundation for the thousands of different cryptocurrencies that have launched since then.

It’s Decentralized

Unlike fiat currencies like the dollar, bitcoin is not issued or monitored by a central authority like a government or central bank. Instead it relies on a distributed network of nodes, or computers, that validate transactions using a type of peer-to-peer review or consensus. This process of network-based checks and balances, so to say, helps to maintain bitcoin’s basic protocol (i.e. the rules that govern the bitcoin platform) and keep it secure.

It’s Digital

Like most forms of crypto, bitcoin is a digital-only currency. It’s traded on digital exchanges and stored in digital wallets (more on those below.)

That said, there are some physical bitcoins that have been produced — although whether these are legal forms of tender or just a type of collectible remains an open question (and a reflection of evolving crypto rules and regulations).

It’s Based on Blockchain Technology

Blockchain technology is central to the functioning of bitcoin and most cryptocurrencies, and you can’t invest in bitcoin without understanding how the two work together. Blockchain is a transparent ledger that enables blocks of transactions to be confirmed through a system of cryptography and peer-to-peer verification. All transactions, including investment trades, are logged permanently on the blockchain. Miners who verify the transactions are rewarded with more bitcoin. In the case of other types of crypto, blockchain technology may also support other innovations, like smart contracts, dApps, and more.

What Kind of Investment Is Bitcoin?

Is bitcoin a currency, a security, a commodity? These are good questions for would-be investors to ask. While many people consider bitcoin an investment, generally speaking, the Securities and Exchange Commission (SEC), which regulates the financial markets, ruled in 2019 that bitcoin does not meet the criteria for a security.

Although most people consider bitcoin a form of cryptocurrency, there is still a debate about whether bitcoin is truly a form of money that can be exchanged for goods and services. While the commercial use of bitcoin has been growing — and in June 2021, El Salvador became the first country to officially accept bitcoin as legal tender — for the most part bitcoin still isn’t widely used as a form of payment.

So, for the moment, bitcoin is considered a commodity, under the Commodity Exchange Act, because it acts as a store of value — similar to gold.

Other forms of crypto, particularly tokens that may generate returns for investors, may be labeled securities by SEC Chair Gary Gensler. This could have serious implications for how different types of crypto assets are traded, because they would be closely regulated by the SEC.

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, auto investing, IRAs, and more. Get started in just a few minutes.


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

How to Buy Bitcoin: 5 Things to Know

While you may feel comfortable investing in stocks or ETFs, buying and selling a cryptocurrency like bitcoin requires a different process. Before you begin trading bitcoin, here are five key things to know.

1. You Need a Crypto Wallet

You can put dollars-and-cents money in a physical wallet. But bitcoin is digital and only lives on the blockchain and requires a crypto wallet if you want to buy and sell it. A crypto wallet isn’t a place to store your crypto, per se, but a type of software or hardware that protects the public and private keys that enable you to trade your bitcoin.

•  Software wallets. You can choose a mobile wallet or app, or a desktop wallet. These types of wallets, sometimes called hot wallets, are software based and you need a secure internet connection to access them. They’re convenient, and can make trading on exchanges simpler, but any kind of third-party software might be vulnerable to cyber attacks.

Some crypto exchanges (see below) typically provide a hot wallet as part of your account. For security reasons, you may want to keep a separate wallet.

•  Hardware wallets. A cold wallet uses hardware, like a thumb drive, to download and secure the keys to your crypto. This type of wallet can be more complicated to use; you have to plug it into a device in order to make a transaction. But it can be more secure, and less vulnerable to hackers.

The biggest drawback is that you could lose a cold wallet, and with it the keys that give you access to your crypto.

2. Understand Public and Private Keys

Like most forms of crypto, bitcoin lives on the blockchain, the permanent digital ledger that records all bitcoin transactions. Bitcoin transactions are validated and added to the blockchain through a complex cryptographic process known as Proof of Work or PoW.

So when you buy, sell, send, or receive bitcoin, you need a public key (basically the digital address of your wallet). But you also need a private key, which gives you access to the bitcoin you own. If you lose, misplace, or forget that private key, you cannot access your bitcoin. And if the private key falls into the wrong hands, your bitcoin can be stolen.

3. Decide Where to Trade

With the exception of some new bitcoin-based investments, you generally can’t trade crypto on a traditional exchange like the NYSE. You need to buy and sell bitcoin on a crypto-based trading platform like an online exchange or app, or by using a traditional brokerage that offers crypto trading.

There are three main types of crypto exchanges: centralized, decentralized, and hybrid. Most crypto exchanges enable crypto-to-crypto trades, or fiat-to-crypto (meaning, you can use a traditional currency like dollars to buy and sell bitcoin and other cryptocurrencies).

•  A centralized cryptocurrency exchange is a platform where cryptos are bought and sold, with the help of a third party to conduct these transactions.

•  Decentralized exchanges (DEX) allow crypto investors to trade directly with each other, without the need for a middleman.

•  Hybrid exchanges aim to combine features of both: e.g., the liquidity of a centralized exchange and the security and anonymity of a DEX.

You can also use P2P, or peer-to-peer, exchanges, which are more like open markets that allow people to trade crypto directly with each other. When choosing a P2P exchange, consider ease of use, whether your funds might be insured, and the types of crypto offered.

4. Personal Identification

To establish an account with an exchange or brokerage, you’ll have to provide your social security number and bank information to fund the account. If the platform adheres to standard KYC (Know Your Customer) rules, you’ll have to provide a government-issued picture ID.

If maintaining some degree of privacy is important to you when trading bitcoin, you may want to consider whether you use a brokerage, crypto exchange, P2P exchange or other method.

5. Fund Your Account

You can fund your trading account using a bank account, debit card, credit card, wire transfer or by using other forms of crypto. It depends where you plan to trade, and what types of currency the platform accepts for trading.

Although trading bitcoin in the U.S. is legal, some banks may flag or even bar deposits to crypto-related sites or exchanges, so be sure to check with your bank in advance.

Also be sure to research any fees associated with different payment options and on different exchanges. Credit cards, for example, charge a processing fee in addition to transaction costs, and may treat bitcoin purchases as cash advances. Crypto exchanges typically charge transaction fees as well, which might come in the form of a flat fee or a percentage of the trade.

Alternate Ways to Invest in Bitcoin

Those are some of the standard ways to buy bitcoin, but nothing stands still in the cryptoverse, and every day it seems there are new options for investors to consider.

•  Crypto ATMs. There are now thousands of physical ATMs where you can purchase bitcoin around the country. Unlike a traditional ATM, though, you can’t withdraw cash from these machines; they make digital-only transactions via the blockchain.

•  Payment processors. Depending on your state, you may be able to buy bitcoin directly from your PayPal or Venmo account. One drawback is that the crypto you buy on these platforms can’t be moved to your personal wallet or to another exchange.

•  P2P exchanges. Unlike decentralized exchanges, which match buyers and sellers anonymously, peer-to-peer (P2P) services may provide a more direct connection between users, allowing users to post requests and shop around for the best trading terms.

•  Bitcoin rewards cards. A relatively new option, the bitcoin rewards card operates similar to a credit card that allows you to build up points based on purchases, or get cash back. Here, though, you earn fractions of bitcoin.

Start Trading Bitcoin

Once you have your funding source connected to the platform where you plan to trade bitcoin, and you understand the transaction fees involved, you can place an order.

This part may feel similar to the trading options you might see on a traditional exchange, or when making stock trades. Now most crypto exchanges give investors the option to place market orders, limit orders, stop-loss orders, and more.

In addition, you can buy bitcoin in fractional amounts by dollar-cost-averaging, i.e., investing small amounts on a recurring schedule over time.


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

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

SOIN19179

Read more
Financial Planning

Should I Invest if I Still Have Debt?

As you start to establish yourself financially, you may come to a crossroads: should you pay off debt or invest in your future? It can be confusing to know what to do in this situation, especially if you have multiple financial goals you’re saving toward.

The first step is to look at the numbers, then to consider your preferences. There is no one “right” answer to this question. Let’s start by taking a look at the numbers around major financial milestones like your student loan, buying a home, and saving for retirement.

Let’s say your student loan is $75,000. Buying a new home might cost $350,000, and you might plan to need $2,000,000 for a comfortable retirement. Everyone’s numbers will look a bit different, so feel free to take some time to calculate yours.

Once you’ve put your estimated numbers on a page, what jumps out at you? It’s hard not to notice that retirement is quite a bit more expensive than the others. This isn’t too much of a surprise if you consider what retirement is: living for decades with no salary.

While you might be tempted to put all your extra income immediately into your retirement fund, it’s not necessarily the winning decision when it comes to whether to pay off loans or invest. Let’s look deeper.

How Important is Paying Off Your Student Loans?

If you’re like the average student, you’ve borrowed $30,000 or more to pursue a bachelor’s degree . If you went on to graduate school, your student loan debt may be even higher.

Most federal student loans have a repayment period of 10 to 30 years. You may opt to make the minimum payment each month for the duration of your loan repayment plan, or you might decide to pay yours off early.

One benefit to paying off a student loan early is that you reduce your debt to income ratio (that’s how much debt you have compared to how much income you have). This might raise your credit score and help you qualify for other financial solutions.

Or, you might decide to continue paying your student loan while investing in other areas of your life, like retirement or buying a home.

Know Your Student Loan Interest Rates

Before you can decide whether to pay off student loans or save for other things, look at what you’re paying in interest for your student loans. If the rate you locked in when you took out your loan is higher than current rates, you might consider student loan refinancing. If you have multiple student loans, you could potentially consolidate and refinance them for a lower interest rate.

Of course, it’s important to keep in mind that refinancing federal student loans means you’re no longer eligible for federal benefits and protections, like income-driven repayment or loan forgiveness programs, so it makes sense to weigh the potential benefits and risks of refinancing before taking the plunge.

Comparing interest rates is an exercise in opportunity cost. Any decision to pursue one goal means you’re missing out on something else, but ideally, we look to minimize opportunity costs when assessing financial trade-offs. In this instance, the opportunity cost is leaving potential investment earnings on the table.

Let’s say you recently refinanced your student loan from 5% to 3.5%. Given the competitive rate on your newly refinanced student loan, you could consider continuing to make the monthly payment on your loan and allocating the extra cash flow elsewhere — like investing for retirement or buying a home.

Remember, we want to think about interest rates in terms of opportunity cost. What would it look like if you paid off your loan early? Your student loan costs you 3.5% annually, and that’s what you’ll “save” if you accelerate your payoff by $500 per month.

Once you paid off the loan early, you could invest your money in an asset class — such as the stock market — with the potential to earn a rate of return that’s higher than 3.5%. Historically, the stock market has returned an average of 10%. This investing can be done within a retirement account, whether a 401(k) or an IRA.

That said, stock market returns are erratic, and the annualized return figures you often hear quoted are just that — an average. Investing is risky, and there is always a chance that returns over the next five, 10, or 20 years will not outpace the interest that you are currently making on your student loan payment.

No one, not even a financial planner, has a crystal ball and can see into the future. This is why we also need to take into account your personal preferences.

If you feel like you are truly missing out on investing in an IRA or saving for a home, then investing in those things might be the right path for you. If your student debt makes you feel burdened and miserable, you could focus on that instead.

Paying Off Student Loans vs. Investing

“So, should I pay off student loans or invest,” you ask.

The answer is…it’s complicated.

Student loans often come with low interest rates, which means you’re not paying a huge amount of extra money over the years (like you would with a credit card, for example). So it’s low-cost debt. That means that if you want to invest in other areas of your life, such as saving for retirement or to buy a house, you may be able to do both.

Contributing to a Retirement Account

Many Americans are vastly under-saving for retirement, and with so many employers offering a 401(k) matching program, not contributing is like throwing money down the drain.

There is no standard for match programs — they can range from meager to generous. Between your contributions and your employer’s, it is often recommended that you save between 15% and 20% of your salary for retirement. You can do this by contributing the full allowable amount to your 401(k), which is $19,500 in 2021.

If you don’t have access to a 401(k) — perhaps you’re self-employed — you can save for retirement with other investment accounts like an online IRA or a brokerage account. No matter which account you use, you might want to consider putting that money to work with a long-term investment strategy. For example, you might choose to deploy a strategy of low-cost mutual funds that invests in stocks and bonds.

Buying a Home

Financial planners don’t all agree on whether a home is a good investment. That is not to say that a home is not a good financial goal; if it’s a priority to you, then it’s great. This is simply a commentary on whether a home produces a good return on investment.

Although a house may not have as high an investment return as other asset classes, such as the stock market, a house provides something that a stock or bond cannot — immediate utility. You cannot sleep and eat inside a stock or a bond.

While home values do typically grow over time, you must also take into consideration the costs of buying and owning a home, such as the interest paid on the mortgage, property taxes, and repairs and maintenance. That said, homeownership can be rewarding, and can pay major dividends down the line. One big benefit is having no monthly housing expenses (like rent or a mortgage) in retirement.

The Takeaway

There is no hard and fast rule when it comes to investing while juggling debt. Undoubtedly, the biggest ticket item you’ll need to invest for is retirement — but whether you invest in retirement before or after paying down debt depends on your personal preferences and situation.

One thing to remember: Financial tradeoff decisions don’t always have to be all-or-nothing. You might choose to split the difference by putting a little here and a little there. For example, you might contribute $300 per month to your 401(k) and $200 to a high-yield savings account for your down payment for a house, all while paying off student loans.

With SoFi Invest®, you can invest in traditional and Roth IRAs, crypto, or ETFs, with hands-on active investing or automated investing. The choice is yours — based on your personal situation, goals, and preferences.

Find out how to invest for your future with SoFi Invest.


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

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 Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


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.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.


WM17116B

Read more

What Is Index Investing?

As you begin to build your portfolio of investments, you will find that there are many ways to approach investing. Some require a significant amount of time and involvement, while others are more passive.

Before putting a significant amount of money into a portfolio, it’s important to figure out what your investment goals are and to learn about the many possible investment options.

One popular type of investment is called index investing, and as with any investing, there can be benefits, but there also may be risks. In this article we will go over what index investing is and how best to use this investing strategy.

An index fund is a mutual fund or exchange-traded fund which aims to mimic the overall performance of a particular market. The fund includes multiple stocks or bonds from the market and can be bought and sold like it’s a single investment.

There are index funds for the U.S. bond market, the U.S. stock market, international markets, and others. Index investing is the process of investing in these index funds.

Active investing typically involves in-depth research into each stock purchase, as well as regularly watching the market in order to time buys and sells. Passive investing strategies either aim to bring in passive income or to grow a portfolio over time without as much day-to-day involvement. Index investing is a passive strategy which looks to match the returns of the market it seeks to track.

Index investing started in the 1970s, when economist Paul Samuelson claimed that stockpilers should go out of business. Samuelson claimed that even the best money managers could not usually outperform the market average.

Instead of working with money managers, Samuelson suggested that someone should create a fund that simply tracked the stocks in the S&P 500.

Two years later, struggling firm Vanguard did just that. The fund was not widely accepted, and neither was the concept of index funds. Index investing has only become widely popular in the past two decades as data continues to reaffirm its merits.

Index investing has been gaining in popularity in recent years. Out of investments in mutual fund assets, the percentage allocated to index funds grew from 11 percent to 25 percent between 2006 and 2016. In 2017 investors withdrew $191 billion from U.S. stock funds and invested $198 billion into U.S. stock fund indexes.

Popular Indexes Include:

•  S&P 500 Index

•  Dow Jones Industrial Average

•  Russell 2000 Index

•  Wilshire 5000 Total Market Index

•  Bloomberg Barclays Aggregate Bond Index

Popular Index Funds Include:

•  Vanguard S&P 500

•  T. Rowe Price Equity Index 500

•  Fidelity ZERO Large Cap Index

•  SPDR S&P 500 ETF Trust

•  iShares Core S&P 500 ETF

•  Schwab S&P 500 Index Fund

The Pros of Index Investing

Can Be Easier to Manage

Although it may seem as though active investors have a better chance at seeing significant portfolio growth than index investors, this isn’t necessarily the case. Day trading and timing the market can be extremely difficult, and may result in huge losses or underperformance.

The average investor typically underperforms the stock market by 4-5%. Active investors may have one very successful year, but the same strategy may not work for them over time. A 2013 study showed that index investing outperformed other strategies up to 80-90% of the time. SoFi users can take advantage of index investing by setting up an auto investing strategy that will automatically rebalance and diversify portfolios.

Lower Cost of Entry for Multiple Stocks

If you only have a small amount of money to start investing and you choose to invest in individual stocks, you may only be able to invest in a few companies. With index investing, you gain access to a wide portfolio of stocks with the same amount of money.

Also, index investing doesn’t necessarily require a wealth manager or advisor—you can do it on your own. The taxes and fees tend to be lower for index investing since you make fewer trades, but this is not always the case. Always be sure to look into additional fees and costs before you make an investment.

Portfolio Diversification

One of the key facets of smart investing is diversifying your portfolio. This means that rather than putting all of your money into a single investment, you divide it up into different investments.

By diversifying, you may lower your risk because if one of your investments loses value, you still have others. At the same time, if an investment significantly goes up in value, you still typically benefit.

Index funds give you access to a large number of stocks all within a single investment. For example, one share of an index fund based on the S&P 500 can give you exposure to up to 500 different companies for a relatively small amount of money.

Index Investing is Fairly Passive

Once you decide which index fund you plan to invest in and how much you will invest, there isn’t much more you need to do. Most index funds are also fairly liquid, meaning you can more easily buy and sell them when you choose to.

The Cons of Index Investing

Although there can be upsides to investing in index funds, there can also be downsides and risks to be aware of.

Index Funds Follow the Market

Studies have shown that investors don’t always understand what they’re investing in when it comes to index funds. 66 percent of investors think that index funds are less risky than other investments, and 61 percent believe that index funds help to minimize portfolio losses. However, index funds track with the market they follow, whether that’s the U.S. stock market or another market. If the market drops, so does the index fund.

Index Funds Don’t Directly Follow Indexes

Although index funds generally follow the trends of the market they track, the way they’re structured means that they don’t always directly track with the index. Since index funds don’t always contain every company that’s in a particular index, this means that when an index goes up or down in value, the index fund doesn’t necessarily act in exactly the same way. This is why it’s important to understand how specific index funds seek to track their underlying index.

Index Investing Is Best as a Long-Term Strategy

Since index funds generally track the market, they do tend to grow in value over time, but they are certainly not get-rich-quick schemes. Returns can be inconsistent and typically go through upward and downward cycles.

Some investors make the mistake of trying to time the market, meaning they try to buy high and sell low. Investing in index funds tends to work the best when you hold your money in the funds for a longer period of time or dollar-cost-average (e.g. invest consistently over time to take advantage of both high and low points).

Choosing an Index to Invest in

The name of a particular index fund may catch your eye, but it’s important to look at what’s inside an index fund before investing in it. Determine what your short and long term goals are and what markets you are interested in being a part of before you begin investing.

There are both traditional funds and niche funds to choose from. Traditional funds follow a larger market such as the S&P 500 or Russell 3000. Niche markets are more focused and may contain fewer stocks.

They may focus on a particular industry. Typically, a good way to start investing in index funds is to add one or more of the traditional funds first, then add niche funds if you feel strongly about their growth potential.

Index Funds Are Weighted

Depending on which index fund you invest in, it may be weighted. For example, the S&P 500 index is weighted based on market capitalization, meaning larger companies like Amazon and Facebook hold more weight than smaller ones.

If Facebook’s stock suddenly goes down, it may be enough to affect the entire index. Other indexes are price weighted, which means companies with a higher price per share will be weighted more heavily in the index. Another form of index weighing could be equal-weight or weights determined by other factors, such as a company’s earnings growth.

Less Flexibility

If you actively invest in individual stocks, you can usually choose exactly how many shares you want to buy in each company. But when you invest in index funds, you have less flexibility. If you’re interested in investing in a particular industry, there may not be an index fund focused solely on that.

How to Get Started With Index Investing

In order to invest in an index, investors typically purchase exchange-traded funds (ETFs) which seek to track the index. Some funds include all the assets in an index, while others only include particular assets.

Prior to investing in any particular index fund, be sure to look into the details of how the fund works. You can find information about what is contained in the fund, how it is weighted, its fees and quarterly earnings, and other details on the fund’s website, through your financial advisor, or EDGAR , the Electronic Data Gathering, Analysis, and Retrieval system that is overseen by the U.S. Securities and Exchange Commission.

Alternatives to Index Investing

Despite the fact that index investing has grown in popularity over the past two decades, some analysts are now bringing up additional downsides and alternatives which investors may want to consider.

The stock market includes companies from many different industries, some of which investors are moving away from investing in. Oil and gas companies, pesticide companies, and others which some people may consider harmful to the environment or human populations may be included in an index fund.

As the economy moves away from these industries, these types of companies may not perform as well, and as an investor you may not want to financially support them.

Some new index funds are being formed around the principles of sustainability and positive impact. You may also be interested in impact investing and other types of ETFs and mutual funds which focus on specific, positive industries.

Active stock portfolio management has been showing stronger performance over the past two years. This shift is partly due to the fact that certain industries are performing much stronger than others, and stock pickers can account for that as they build portfolios.

Investors in index funds may also see a downturn in coming years if the U.S. experiences a bear market.

Building Your Portfolio

Whether you’re interested in investing in index funds or in hand-selecting each stock, it’s important to keep track of your portfolio and current market trends.

Once you know what your investment goals are, SoFi Invest® can be a great tool to build your portfolio and track your finances. With SoFi Automated investing, you can easily add index fund ETFs to your portfolio, all on your phone.

The automated investments are pre-selected for you, so you simply need to decide which funds to invest in, and how much you want to invest. Or, if you prefer to hand-select each stock in your portfolio, you can use the SoFi Active Investing platform.

SoFi has a team of credentialed financial advisors available to answer your questions and help you reach your goals. The SoFi platform has no transaction fees, and you only need a $1 to get started.

Find out more about how you can use SoFi Invest to meet your financial goals.


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.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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

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

SOIN19173

Read more
TLS 1.2 Encrypted
Equal Housing Lender