Oct
02
2024
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How to Roll Over Your 401(k): Knowing Your Options

By | Budgeting & Goals, Building Your Career, Growing Wealth, invest, Investing, Life & Career | No Comments

It’s pretty easy to rollover your old 401(k) retirement savings to an individual retirement account (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. Given that a 401(k) rollover typically takes minimal time 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.

Whether you’re starting a new job and need to roll over your 401(k), or are looking at what other options are available to you, here’s a rundown of what you need to know.

Key Points

•   Rolling over a 401(k) to an IRA or new 401(k) is typically straightforward and your retirement funds will continue to have the opportunity to grow.

•   Moving 401(k) funds to another 401(k) is often the simplest option and allows you to continue to have a higher contribution limit.

•   Moving 401(k) funds to an IRA may provide more investment choices and control over those investments.

•   Leaving a 401(k) with a former employer is an option but may involve additional fees and complications.

•   Direct transfers are simpler and generally preferred over indirect transfers, which run the risk of incurring tax liabilities and penalties.

401(k) Rollover Options

For workers who have a 401(k) and are considering next steps for those retirement funds — such as rolling them to an IRA or another 401(k), here are some potential avenues.

Roll Over Money to a New 401(k) Plan

If your new job offers a 401(k) or similar plan, rolling your old 401(k) funds into your 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 more complex, option, is to do an indirect transfer or rollover, in which you cash out the account with the expressed 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.

With all of that in mind, rolling over your money into a new 401(k) has some pros and cons:

Pros:

•   Often the simplest, easiest rollover option when available.

•   Should not typically result in any tax liabilities or withholdings.

•   Allows your investments to continue to grow (hopefully!), uninterrupted.

Cons:

•   New employer may change certain aspects of your 401(k) plan.

•   There may be higher associated fees or costs with your new plan.

•   Indirect transfers may tie up some of your funds for tax purposes.

Roll Over Your 401(k) to an IRA

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

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.

This option also has its pros and cons, however.

Pros

•   IRAs may have more investment options available.

•   You’ll have more control over how you allocate your investments.

•   You could potentially reduce related expenses, depending on your specifications.

Cons

•   May require you to liquidate your holdings and reinvest them.

•   Lower contribution limit compared to 401(k).

•   May involve different or higher fees and additional costs.

•   IRAs may provide less protection from creditor judgments.

•   You’ll be subject to new distribution rules – namely, you’ll need to be 59 1/2 before withdrawing funds to avoid incurring penalties.

Leave Your 401(k) With Your Former Employer

Leaving your 401(k) be – or, with your former employer – is also an option.

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.

You’ll also want to dig into the details and determine how much control you’ll have over the account, and how much your former employer might.

You might also consider any additional fees you might end up paying if you leave your 401(k) where it is. Plus, racking up multiple 401(k)s as you change jobs could lead to a more complicated withdrawal schedule at retirement.

Pros

•   It’s convenient – you don’t do anything at all, and your investments will remain where they are.

•   You’ll have the same protections and fees that you previously had, and won’t need to get up to speed on the ins and outs of a new 401(k) plan.

Cons

•   If you have a new 401(k) at a new employer, you could end up with multiple accounts to juggle.

•   You’ll no longer be able to contribute to the 401(k), and may not get regular updates about it.

Cash Out Your Old 401(k)

Cashing out, or liquidating your old 401(k) is another option. But there are some stipulations investors should be aware of.

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), depending on the specific type — 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.

Pros

•   You’ll have immediate access to your funds to use as you like.

Cons

•   Early withdrawal penalties may apply, and there will likely be income tax liabilities.

•   Liquidating your retirement account may hurt your chances of reaching your financial goals.

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

If there’s a good time to roll over your 401(k), it’s when you change jobs and have the chance to enroll in your new employer’s plan. But you can generally do a rollover any time.

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 without your approval. Be sure to check the exact terms with your employer.

When you receive funds from a 401(k) or IRA account, such as with an indirect transfer, you’ll only have 60 days from the date you receive them to then roll them 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. In addition, only one rollover to or from the same IRA plan is allowed per year.

The Takeaway

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. 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 for that account, and you will likely lose the ability to keep contributing to your account.

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.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

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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, then contact your old plan’s administrator, or your former HR department. They typically send funds to the new institution directly via an ACH transfer or a check.

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.

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.

Claw Promotion: 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.

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Oct
01
2024
What Is a Golden Cross Pattern in Stocks? How Do They Form?

What Is a Golden Cross Pattern in Stocks? How Do They Form?

By | Growing Wealth, invest, Investing | Comments Off on What Is a Golden Cross Pattern in Stocks? How Do They Form?

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

The golden cross pattern is a technical indicator that appears when a security’s short-term moving average rises above its long-term moving average. A golden cross is generally interpreted as the sign of an upcoming market rally.

The golden cross pattern is a momentum indicator, and it tends to be popular because it is easy for chart watchers to spot and interpret. It doesn’t occur as often as other chart patterns, but when it does it sometimes even makes news headlines because it is a strong bullish indicator for a stock or an index.

How Do Golden Cross Patterns Form?

The golden cross candlestick chart pattern happens when the short-term moving average (e.g. the 50-day moving average) moves above and crosses a long-term moving average such as the 200-day moving average, or DMA.

It is an indicator that the market will probably head in a bullish direction, and can be used by stock investors, day traders, swing traders, options traders, or anyone interested in analyzing price movements.

A moving average is a graph of the average value of a stock price for some trailing period of time. Commonly used moving averages are the 50-day moving average (DMA) as a short-term measure and the 200 DMA as a long-term measure.

That said, traders can use moving averages of various lengths, from hours to months, to capture a desired time frame.

Recommmended: Important Candlestick Patterns to Know

3 Stages of a Golden Cross

There are three stages that form the Golden Cross pattern:

1.    Downtrend. The first stage of the golden cross happens before the moving average lines cross. A downtrend occurs, and the short-term average is lower than the long-term average, but then buyer volume starts exceeding seller volume.

2.    Breakout. Next, the cross happens. The short-term moving average crosses over and above the long-term moving average, reflecting a reversal of the downward trend and upward momentum.

3.    Upward momentum. The trend continues and the prices continue to rise, with both the short- and long-term DMAs creating support levels (the lower end of both average prices) and indicating movement toward a bullish market.

Understanding support and resistance levels is key to reading technical charts. Support indicates where the price tends to stop falling; resistance indicates where the price tends to stop rising.

What Does a Golden Cross Tell Traders?

When the short-term average is higher than the long-term average, this means that short-term prices are rising compared to previous prices, showing bullish momentum.

The candlestick pattern that’s opposite the golden cross is the Death Cross chart pattern, which is when the short-term average moves below the long-term average, indicating a bearish market trend.

You can think of the golden cross pattern as a logical example of how price momentum can work. Because it’s the short-term DMA that rises and crosses the long-term DMA in a stock chart, it makes sense that analysts would interpret this as a bullish indicator that could have some staying power, as the short-term DMA would eventually play into the long-term DMA.

How Does a Golden Cross Work?

A golden cross occurs in a technical chart when the short-term moving average dips down to its resistance level, and then moves upward, crossing the long-term moving average.

Traders can use different time periods when conducting technical analysis, but the use of the 50-day moving average and the 200-day moving average are common when it comes to identifying the golden cross pattern. The longer the time period, the more lasting the upward trend may be.

Different traders, for example day traders or options traders, can use shorter periods, depending on when they’re aiming to place trades and what their strategy is.

Pros and Cons of Using the Golden Cross

The golden cross can be a useful technical pattern for traders to use to spot changes in market trends. However, on its own it has some limitations.

Benefits of the Golden Cross

The golden cross is known as one of the strongest bullish technical indicators, and can reflect other positive underlying factors in a particular stock.

Furthermore, since the pattern is so widely known, it can attract buyers, thereby helping to fulfill its own prediction.

Drawbacks of the Golden Cross

Like any chart pattern, there is no guarantee that prices will rise following the golden chart pattern.

Chiefly, the golden cross is a lagging indicator. It shows historical prices, which are not necessarily an indicator of future price trends.

Even if prices do rise, they might not rise for long after the golden cross forms.

Due to these uncertainties, it is best to use the golden cross in conjunction with other indicators.

How to Trade a Golden Cross

Both long-term and short-term traders can use the golden cross to help them decide when to enter or exit trades. It can be used both for individual stocks and for trading market indexes.

Most traders use the golden cross and Death Cross along with other indicators and fundamental analysis, such as the relative strength index (RSI) and moving average convergence divergence (MACD).

RSI and MACD are popular indicators because they are leading indicators, potentially providing more real-time information than the golden cross pattern.

What Time Frame Is Best for a Golden Cross?

The most popular moving averages to use to spot the golden cross are the 50-DMA and the 200-DMA. However, day traders may also spot the golden cross using moving averages of just a few hours or even one hour.

Whatever the chosen time period, traders enter into the trade when the short-term average crosses over the long-term, and they exit when the price reverses again.

Because the golden cross is a lagging indicator, investors enter a trade when the stock price itself rises above the 200-DMA rather than waiting for the 50-DMA to cross over the 200-DMA. The logic being: If traders wait for the pattern to form they may have missed the best opportunity to enter into the market.

Short sellers may also use the golden cross to determine when the market is turning bullish, which is a good time for them to exit their short positions.

The Takeaway

Chart patterns are useful tools for both beginning investors and experienced traders to spot market trends and find entry and exit points for trades. The golden cross is one indicator that technical analysts might use to determine whether a stock or market is bullish.

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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.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
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.

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Oct
01
2024
Investing for Retirement: Guide to Emerging Markets

Guide to Investing in Emerging Markets

By | invest, Investing, Preparing for Retirement | Comments Off on Guide to Investing in Emerging Markets

Emerging market investments include owning shares in companies from countries like China, India, Brazil, and South Africa, among others. There are pros and cons to owning emerging market investments, but these stocks are a significant part of the global market.

Investing in emerging markets can help diversify your portfolio, which is one of the reasons that some investors do it. There are, however, risks associated with investing in emerging markets that investors should be aware of.

Understanding Emerging Markets

Investing in emerging markets, or even if you plan to open an IRA and use it to add foreign stocks to your portfolio, may prove to be a part of a successful investment strategy. If, that is, you understand what you’re investing in.

Emerging markets are economies that are in the middle between the developing and developed stages. Emerging markets risk can be high since these areas often see rapid growth and high volatility with booms and busts. Some of the most well-known and biggest countries that investors may look to invest in include China, India, Brazil, and South Korea.

Emerging market investments are generally seen as a higher-risk area of the global stock market. Volatility can spike during periods of political upheaval and when emerging market recessions strike.

As investors get older, risk must be managed through diversified investment plans. You might consider reducing emerging market exposure in your portfolio as your time horizon shortens and retirement nears.

Why Invest in Emerging Markets?

Emerging market investments have been popular for decades. It became easy to own a broad emerging market index fund within an investment portfolio in the early, when exchange-traded funds (ETFs) gained popularity.

The decade of the 2000s featured strong outperformance from the high-risk, high-reward profile of emerging market investments. But volatility in these markets has also been a factor.

People like to invest in areas of the stock market that exhibit rapid growth potential along with having the potential for diversification. High economic growth rates, such as those in China and India, often attract investors seeking to benefit from stocks of those nations. Indeed, there can be periods like the 2000s when strong bull markets take place.

Moreover, owning high-growth areas within a tax-advantaged account can be a savvy retirement savings strategy. This can be helpful when choosing a retirement plan.

Can You Build a Retirement Portfolio With Emerging Markets?

It’s possible to build a segment of a retirement portfolio by investing in emerging markets. Also consider that emerging market bonds are a growing piece of the global fixed-income market.

In addition, owning emerging market investments in retirement accounts is possible via ETFs and both active and passive mutual funds. Moreover, many 401(k) plans offer an emerging markets fund, too.

When thinking about investing in emerging markets, keep in mind that emerging market stocks comprise a fraction of the overall market. Emerging markets stocks represent 27% of the global stock market.

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Pros of Investing in Emerging Markets

There are many pros and cons of investing in emerging markets. When you start saving for retirement, it may be a good time to think about investing in emerging market stocks, since you’d likely have a relatively long time horizon to weather volatility.

Here are some of the pros of investing in emerging markets.

Opportunity to Generate Returns

Investing in emerging markets may present the opportunity to generate returns in your portfolio, although it does assume risks, too.

Also consider that more than 80% of the world’s population lives in emerging market countries, while just 27% of the global stock market is weighted to them. Investing for retirement could have at least some exposure to this area for risk-tolerant individuals.

Diversification Benefits

International investments can help offset the ebbs and flows of U.S. stocks through diversification. Consider that the domestic equity market is more than 60% of the global market. So if the U.S. goes into a bear market, foreign shares might outperform. Retirement investing should have a diversified approach.

Cons of Investing in Emerging Markets

Emerging markets can be volatile, and they expose investors to a host of risk factors. Political, economic, and currency risks can all hamper emerging market investments’ growth.

Due to the many risks, it’s common for retirement investors to tone down their stock allocation as they approach retirement. Here are some potential downsides to investing in emerging markets.

Potential Underperformance

Emerging market stocks have underperformed in recent years for a host of factors – such as the global pandemic, and military conflicts in Europe and the Middle East. So, it’s important to consider that these stocks could underperform domestic stocks in the future as well.

Correlations Might Be Changing

Some argue that emerging markets today have more correlation to other markets, so having exposure might simply expose someone to the risks and not the benefits.

High Volatility

Investors of all experience levels might want to steer away from the boom-and-bust nature of emerging markets. The process of evolving from an emerging market to a developed market is usually fraught with risk. In some areas, political turmoil might cascade into a full-blown economic recession.

Emerging market fixed-income investors can also suffer when high-risk currency values fall during such periods of volatility. Back in 1998, the “Asian Contagion” was an emerging markets-led debacle that caused a big decline in markets across the globe.

Uncertainty in China

China is now the biggest weighting in many emerging market indexes, up to one-third in some funds. That can be a lot in just one country, particularly in one as uncertain as China, given its one-party controlled economy.

Start Investing for Retirement With SoFi

Building a retirement portfolio often includes owning many areas of the global stock market. Emerging market investments can play a pivotal role to ensure your allocation has higher growth potential, but you must be mindful of the risks.

It’s possible to invest in emerging markets through a variety of means, including through a retirement account, such as an IRA. But keep the risks in mind, along with your overall investment goals and time horizon.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

Is it worth investing in emerging markets?

Strong growth potential and diversification benefits are reasons to own emerging markets for your retirement portfolio. That said, emerging markets are a small part of the global stock market. A diversified retirement portfolio should include this slice of the market, but investors also must recognize the risks. There are periods during which emerging market investments can underperform the U.S. stock market.

What is the best emerging market to invest in?

When figuring out emerging markets, you might be curious which one is the best. It is hard to say there is one in particular. Emerging market risk can be high, so to help mitigate that, owning the entire basket can help ensure the benefits of diversification.

Should my entire retirement portfolio be in emerging markets?

Building a retirement portfolio with emerging markets is common but putting all your eggs in the emerging market basket might not be the wisest move. Young investors can perhaps own a larger weight in this volatile equity area, but older investors should think about winding down their emerging markets stock exposure as they near retirement.

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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.

Claw Promotion: 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.

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Sep
28
2024
How Does a Block Trade Deal Work?

Guide to Block Trades

By | Growing Wealth, invest, Investing | Comments Off on Guide to Block Trades

Block trades are big under-the-radar trades, generally carried out in private. Because of their size, block trades have the potential to move the markets. For that reason they’re conducted by special groups known as block houses. And while they’re considered legal, block trades are not regulated by the SEC.

As a retail investor, you likely won’t have anything to do with block trades, but it’s a good idea to know what they are, how they work, and how they can affect the overall market.

Key Points

•   Block trades are large-volume purchases or sales of financial assets, often conducted by institutional investors.

•   Block trades can move the market for a security and are executed through block trade facilities, dark pools, or block houses.

•   Block trades are used to avoid market disruption and can be broken down into smaller trades to conceal their size.

•   Retail investors may find it difficult to detect block trades, but they can provide insights into short-term market movements and sentiment.

•   Block trades are legal and not regulated by the SEC, but they can be perceived as unfair by retail investors.

What Are Block Trades?

A block trade is a single purchase or sale of a large volume of financial assets. A block, as defined by the New York Stock Exchange’s Rule 127.10, is a minimum of 10,000 shares of stock. For bonds, a block trade usually involves at least $200,000 worth of a given fixed-income security.

Though 10,000 shares is the operative figure, the number of shares involved in most block trades is far higher. Individuals typically don’t execute block trades. Rather, they most often come from institutional investors, such as mutual funds, hedge funds, or other large-scale investors.

Why Do Block Trades Exist?

Block trades are often so large that they can move the market for a given security. If a pension fund manager, for example, plans to sell one million shares of a particular stock without sparking a broader market selloff, selling all those shares on a public market will take some time.

During that process, the value of the shares the manager is selling will likely go down — the market sees a drop in demand, and values decrease accordingly. Sometimes, the manager will sell even more slowly. But that creates the risk that other traders will identify the institution or the fund behind the sale. Then, those investors might short the stock to take advantage.

Those same risks exist for a fund manager who is buying large blocks of a given security on a public market. The purchase itself can drive up the price, again, as the market sees an increase in demand. And if the trade attracts attention, other traders may front-run the manager’s purchases.

How Block Trades Are Executed

Many large institutions conduct their block trades through block trade facilities, dark pools, or block houses, in an effort to avoid influencing the market. Most of those institutions typically have expertise in both initiating and executing very large trades, without having a major — and costly — effect on the price of a given security.

Every one of these non-public exchange services operates according to its own rules when it comes to block trades, but what they have in common is relationships with hedge funds and others that can buy and sell large blocks of securities. By connecting these large buyers and sellers, blockhouses and dark pools offer the ability to make often enormous trades without roiling the markets.

Investment banks and large brokerages often have a division known as a block house. These block houses run dark pools, which are called such because the public can’t see the trades they’re making until at least a day after they’ve been executed.

Dark pools have been growing in popularity. In 2020, there were more than 50 dark pools registered with the Securities and Exchange Commission (SEC) in the United States. At the end of 2023, dark pools executed about 15% of all U.S. equity trades.

Smaller Trades Are Used to Hide Block Trades

To help institutional traders conceal their block trades and keep the market from shifting, blockhouses may use a series of maneuvers to conceal the size of the trade being executed. At their most basic, these strategies involve breaking up the block into smaller trades. But they can be quite sophisticated, such as “iceberg orders,” in which the block house will break block orders into a large number of limit orders.

By using an automated program to make the smaller limit orders, they can hide the actual number of orders at any given time. That’s where the “iceberg” in the name comes from — the limit orders that other traders can see are just the tip of the iceberg.

Taken together, these networks of traders who make block trades are often referred to as the Upstairs Market, because their trades occur off the trading floor.

Pros and Cons of Block Trades

As with most things in the investment field and markets, block trades have their pros and cons. Read on to see a rundown of each.

Pros of Block Trades

The most obvious advantage of block trades is that they allow for large trades to commence without warping the market. Again, since large trades can have an effect on market values, block trades, done under the radar, can avoid causing undue volatility.

Block trades can be used to conceal information, too, which can also be a “pro” in the eyes of the involved parties. If Company A stock is moving in a block trade for a specific reason, traders outside of the block trade wouldn’t know about it.

Block trades are also not regulated by the SEC, meaning there are fewer hoops to jump through.

Cons of Block Trades

While masking a large, market-changing trade may be a good thing for those involved with the trade, it isn’t necessarily a positive thing for everyone else in the market. As such, block trades can veil market movements which may be perceived as unfair by retail investors, who are trading none the wiser.

Block trades can be hard to detect, too, as mentioned. Since they’re designed to be obscure to the greater market, it can be difficult to tell when a block trade is actually occuring.

Block trades are also not regulated by the SEC — it’s a pro, and a con. The SEC doesn’t regulate them, but rather the individual stock exchanges. That may not sit well with some investors.

Block Trade Example

An example of a block trade could be as follows: A large investment bank wants to sell one million shares of Company A stock. If they were to do so all at once, Company A’s stock would drop — if they do it somewhat slowly, the rest of the market may see what’s going on, and sell their shares in Company A, too. That would cause the value of Company A stock to fall before the investment bank is able to sell all of its shares.

To avoid that, the investment bank uses a block house, which breaks the large trade up into smaller trades, which are then traded through different brokerages. The single large trade now appears to be many smaller ones, masking its original origin.

Are Block Trades Legal?

Block trades are legal, but within stock market history they exist in something of a gray area. As mentioned, “blocks” are defined by rules from the New York Stock Exchange. But regulators like the SEC have not issued a legal definition of their own.

Further, while they can move markets, block trades are not considered market manipulation. They’re simply a method used by large investors to adjust their asset allocation with the least market disruption and stock volatility possible.

How Block Trades Impact Individual Investors

Institutional investors wouldn’t go to such lengths to conceal their block trades unless the information offered by a block trade was valuable. A block trade can offer clues about the short-term future movement and liquidity of a given security. Or it can indicate that market sentiment is shifting.

For retail (aka individual) investors, it can also be hard to know what a block trade indicates. A large trade that looks like the turning of the tide for a popular stock may just be a giant mutual fund making a minor adjustment.

But it is possible for retail investors to find information about block trades. There are a host of digital tools, some offered by mainstream online brokerages, that function like block trade indicators. This might be useful for trading stocks online.

Many of these tools use Nasdaq Quotation Dissemination Service (NQDS), Level 2 data. This subscription service offers investors access to the NASDAQ order book in real time. Its data feed includes price quotes from the market makers who are registered to trade every NASDAQ and OTC Bulletin Board security, and is popular among investors who trade using market depth and market momentum.

Even access to tools like that doesn’t mean it’ll be easy to find block trades, though. Some blockhouses design their strategies, such as the aforementioned “iceberg orders,” to make them hard to detect on Level 2. But when combined with software filters, investors have a better chance of glimpsing these major trades before they show up later on the consolidated tape, which records all trades through blockhouses and dark pools — though often well after those trades have been fully executed.

These software tools vary widely in both sophistication and cost, but may be worth considering, depending on how serious of a trader you are. At the very least, using software to scan for block trades is a way to keep track of what large institutional investors and fund managers are buying and selling. Active traders may use the information to spot new trends.

The Takeaway

Block trades are large movements of securities, typically done under-the-radar, involving 10,000 or so shares, and around $200,000 in value. It can be difficult for individual investors to detect block trades — which, again, are giant position shifts by institutional investors — on their own.

But these trades have some benefits for individual investors. The mutual funds and exchange-traded funds (ETFs) that most investors have in their brokerage accounts, IRAs, 401(k)s and 529 plans may take advantage of the lower trading costs and volatility-dampening benefits of block trades, and pass along those savings to their shareholders.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

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

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2024
9 Common Signs of Millionaires That Indicate You Are On Track to Becoming Wealthy

9 Common Signs of Millionaires That Indicate You Are On Track to Becoming Wealthy

By | Budgeting & Goals, Financial Independence, relay | Comments Off on 9 Common Signs of Millionaires That Indicate You Are On Track to Becoming Wealthy

If you are like many people, you may have asked yourself at some point in life, “Will I be rich one day?” No one knows for sure what the future holds, but there are a few things you can do to increase your chances of becoming a millionaire.

One of the best ways to amass wealth is to invest in assets that will appreciate over time. But while that sounds good, finding a starting point can be challenging for some. For example, you can start your own business or work hard to climb the corporate ladder, but which is the better option? And you’ll want to invest the money you earn. But where?

Whatever you do, it’s smart to remember that it’s okay to take risks and make mistakes; learning from your experiences is a critical component of success. Above all, remember that wealth accumulation is a marathon, not a sprint. It takes patience, commitment, and perseverance to achieve financial security.

Key Points

•   Early financial success, such as earning money from a young age, can set the stage for future wealth.

•   Taking decisive action and managing finances proactively are common traits among those accumulating wealth.

•   Outspokenness and a unique personal style often distinguish wealthy individuals in social settings.

•   A strong sense of urgency and goal-oriented behavior are typical among successful wealth builders.

•   Distinguishing between needs and wants is crucial for effective financial management and wealth accumulation.

What Is a Sign of Wealth?

Often, specific aspects of one’s physical appearance such as luxury cars and designer clothes are taken as a sign of being rich or wealthy. Unfortunately, these signs aren’t always reliable. For example, some people may live in an extravagant home, giving off the appearance of wealth, but it may simply mean that they can access money — perhaps through credit, savings, or even family.

Real signs of wealth are often more attitudinal, and many can be cultivated through patience and practice. Here are a few people who were early millionaires due, in large part, to their drive and focus.

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Examples of Millionaires Under 30

With the advent of the tech industry, smart investments, business ventures, or inheritances — i.e., the great wealth transfer — millionaires under 30 are becoming increasingly common. Here are three examples of millionaires who earned their fortunes before turning 30.

Mark Zuckerberg: Zuckerberg created Facebook at age 19 while attending Harvard University. The idea was to match photos with the names of other students. And in just a few short years, Zuckerberg became a self-made millionaire at age 22.

Sergey Brin: Brin is a Russian American computer scientist who, at the age of 25, co-founded Google, Inc., and became a millionaire. Google is one of the world’s most valuable companies, and today, Brin’s net worth is estimated to be upwards of $120 billion.

Alexandr Wang: Wang founded Scale AI in 2016 as a way to analyze data far faster than any human could. Today, Scale AI’s technology has been used by the U.S. Airforce and U.S. Army, as well as 300+ companies. Today, Wang’s net worth is estimated to be over $2 billion, and at age 27, he’s among the youngest self-made billionaires.

Recommended: Does Net Worth Include Home Equity?

9 Signs of Wealth to Look Out For

In the U.S. 1% of earners take home nearly 30% of the country’s income, so it’s essential to know what signs to look for when trying to identify if someone is wealthy. While there’s no one-size-fits-all definition of wealth, some cues can give you a good idea of whether you or someone you know is doing well financially. (And a net worth calculator can help you tally up your own assets.)

Here are six signs of wealth to look out for that indicate you’re on track to becoming wealthy:

1. You’re an Overachiever

It’s hard to be modest when you’re an overachiever. You know you’re good at your work and are not afraid to let everyone know. Overachievers work hard and try harder. While this may make some people uncomfortable, it comes naturally to you.

2. You Started Making Money At a Young Age

It is not uncommon to see young adults with successful careers in today’s society. While some people played with toys as a child, others learned how to make money. For example, it could mean that you had a paper route or a babysitting business.

Making money at a young age, or any age for that matter, is not always easy. But an early start in earning, tracking your money, and investing can put you on an accelerated schedule when it comes to building your wealth and becoming a millionaire.

3. You Take Action

There will be times when things happen that are out of your control. You may feel stuck and as if you have no way to change your circumstances. However, these are the times when you must take action to create the life you want to live. For example, it might mean organizing your finances to get what you want. And, sometimes you’ll have to take some risks and go for it. It can be scary, but it’s worth it to achieve your goals.

When faced with a difficult situation, it’s essential to remember that you always have a choice. You can choose to give up, or you can choose to fight for what you want. Only by taking action can you make progress and take a step towards achieving financial wellness. So don’t be afraid to step up and take on whatever life throws your way — you can do it!

4. You Are Outspoken

In a society where people get judged by how much money they have, it is no surprise that many go out of their way to keep up appearances. And while some may try to blend in with the wealthy crowd, a wealthy person will often stand out with his unique style or outgoing sense of humor. Wealthy people tend to feel less inhibited and are more likely to speak their minds. They may also be less concerned with the rules and more likely to take risks.

5. You Possess a Sense of Urgency

When it comes to the wealthy, there are a few telltale signs that set them apart. One of these is their sense of urgency — they don’t like wasting time and are always moving forward. This urgency allows them to set financial goals, achieve them, and maintain their wealth. It’s also one of the reasons why they may seem constantly stressed out — they’re always trying to do more.

6. You’re Focused More on Saving Than Earning

It doesn’t matter if you earn $50,000 or $250,000 a year. Unless you consistently spend less than you make, you’ll never get ahead financially. People who focus on their budget and saving their disposable income understand how to live within their means and focus on what’s most important: saving money for the future.

7. You Know the Difference Between Needs and Wants

In our materialistic society, getting caught up in the “must-have” mentality is easy. Advertisements are everywhere, and social media posts tell us we need the next latest and greatest products. It can be challenging to discern between the things we need and want.

A sign of a wealthy person is their ability to distinguish between the two. They know which items are essential for their well-being and those which would be nice to have. Advertising or peer pressure doesn’t work on rich people, and their possessions don’t rule them.

Recommended: Should I Sell My House Now or Wait?

Spiritual Signs You Will Be Rich

Are there spiritual signs that you can be a wealthy person? Some people believe steadfastly in spiritual and other signs of wealth and luck. Here are a couple of examples:

Gravitating to the Lucky Number, 8

In Chinese culture, the number 8 is considered a lucky number. Individuals who gravitate toward this number may believe it will bring them good fortune. Some people might even go as far as to change their phone number or social media handle to include the digit 8.

A Psychic Confirms Wealth is Coming

Some people consult psychics to get guidance on anything from love to health and even money. While many psychics will say they can tune into your energy and give you specific information about your future, and many people believe their predictions, you may be better off putting the money you’d pay the psychic into savings.

Pros and Cons of Having Signs of Wealth

There are very few times when it can be helpful to show off your wealth to others. Indeed, showing off can make others feel intimidated. Additionally, it can attract unwanted attention from criminals or others who want to take what you have. And having too many signs of wealth can make you a target for scams or other fraudulent schemes.

The Takeaway

If you identify with any of these habits you’re likely well on your way to building a significant amount of wealth. However, it is essential to remember that wealth accumulation is not a one-time event; it’s a way of life. It’s something you’ll need to make a habit of, if you want to succeed. For many people who work hard, stay focused, and are disciplined, it is possible.

And as you’re building your wealth, tracking your income and expenses is one of the primary ways to manage your money. SoFi’s money tracker app can help you keep track of your funds so you can make the best spending decisions and start building your very own fortune today.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

At what point is someone considered wealthy?

There is no magic dollar amount that indicates someone is wealthy and one person’s definition may not be the same as another’s. But in 2022, the top 1% of earners took home an average of $785,968, according to the Economic Policy Institute. Of course the amount you earn is only part of the wealth story. How much of your income (or inherited wealth) you retain is affected by your spending habits.

What are invisible signs of wealth?

People who are stealthily wealthy still might have a “tell” that gives them away. Use of private banking or wealth management services would be one example. Another might be not working but being able to maintain an expensive hobby such as riding horses or boating. Buying bespoke products, whether tailor-made clothing or custom-designed furniture, is another subtle giveaway.

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