What Are Mega Cap Stocks?

Guide to Mega Cap Stocks

Mega cap, or “megacap,” is a term that describes the largest publicly-traded companies, based on their market capitalization, which is typically $200 billion or more. Mega cap stocks typically include industry-leading companies with highly recognizable brands.

Investing in mega cap stocks, along with companies that have a smaller market capitalization, can help build a diversified investment portfolio. Spreading investment dollars across different market caps may allow investors to minimize potential risks. But like any security, mega cap stocks have both pros and cons that investors should consider. Learning more about how they work and what sets them apart from other types of stocks can help you decide whether there’s a place for them in your portfolio.

Key Points

•   Mega cap stocks represent the largest public companies by market capitalization.

•   These stocks typically have market caps exceeding $200 billion.

•   Examples include NVIDIA, Apple, Microsoft, Alphabet, and Amazon.

•   Investing in mega cap stocks may offer stability and potential dividends.

•   Mega cap stocks offer limited upside and risks related to perception versus reality are potential drawbacks.

Market Capitalization, Explained

Mega cap stocks sit at one end of the market capitalization spectrum, representing the very largest companies in the public markets. Market capitalization is a commonly used method for categorizing publicly-traded companies. In simple terms, market capitalization or market cap measures a company’s value, as determined by multiplying the current market price of a single share by the total number of shares outstanding.

For example, say a company’s stock is priced at $50 per share and it has 10 million shares outstanding. Following the formula of $50 x 10,000,000, the company would have a total market capitalization of $500 million.

Most often, companies are assigned to one of three categories, based on their market capitalization as follows:

•   Micro-cap: Market value of less than $250 million

•   Small cap: Market value of $250 million to $2 billion

•   Mid-cap: Market value of $2 billion to $10 billion

•   Large-cap: Market value above $10 billion to $200 billion

•   Mega-cap: Market value of $200 billion or more

While most companies fit into one of these three groups, some outliers exist on either end of the spectrum. The smallest of the small cap stocks are microcap stocks, while the largest companies are the mega caps.


💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

Mega Cap Stock Definition

Mega cap stocks have a market capitalization that’s $200 billion or more. There are a handful of companies with market caps of more than $1 trillion (some with more than $3 trillion), and those companies only passed the trillion-dollar mark in recent years. That said, it’s likely more companies will become mega cap stocks in the years ahead.

10 Companies With the Largest Market Cap

As of June 2025, these are the ten companies with the largest market caps. Note, too, that there isn’t always a direct correlation between market cap and stock price!

1. NVIDIA

NVIDIA makes computer chips, and has a market cap of $3.51 trillion, with share prices of around $143. NVIDIA trades under the NVDA ticker.

2. Microsoft

Microsoft trades under the MSFT ticker, and has a market cap of more than $3.48 trillion. Microsoft is a large tech company that creates software and hardware for businesses and consumers. Microsoft shares trade for nearly $470.

3. Apple

Apple, which trades under the market ticker AAPL, has a market cap of $3.05 trillion, and shares trade at more than $204. Apple is a tech company that produces consumer tech goods and software, including the iPhone.

4. Amazon

Amazon is an ecommerce company that sells just about everything under the sun on its digital platform, as well as offering cloud services to businesses. Amazon trades under the AMZN ticker, and has a market cap of $2.25 trillion, and shares trade for more than $210.

5. Alphabet

Yet another large tech company, specializing in software and ad sales, Alphabet (the parent company of Google) has a market cap of more than $2.07 trillion. Alphabet trades under the GOOG ticker (it has numerous share classes), and shares trade for around $170.

6. Meta

Meta is the parent company of Facebook, and trades under the ticker META. Its market cap is $1.4 trillion, and shares trade for more than $690.

7. Broadcom Inc.

Broadcom is an American company that designs, develops, and manufactures software and semiconductors. Its market cap is $1.24 trillion, with share prices of more than $263.

8. Berkshire Hathaway

Berkshire Hathaway is a conglomerate holding company, meaning that it is involved in many industries, including real estate and insurance. It has many stock classes, but trades under the ticker BRK.A, and its market cap is valued at more than $1.06 trillion.

9. Tesla

Tesla is an electric car company, and has a market cap of roughly $1 trillion. It trades under the ticker TSLA, and its stock price is around $310.

10. Taiwan Semiconductor Manufacturing Company

Taiwan Semiconductor Manufacturing Company, or TSMC, is yet another semiconductor manufacturer, located in Taiwan. It trades under the TSMC symbol, and its share price is around $205 with a market cap of around $1 trillion.

3 Pros of Investing in Mega Cap Stocks

There are several good reasons to consider making mega cap stocks part of your asset allocation strategy.

1. Diversification

Investing across different sectors and market capitalizations spreads out risk, since economic ups and downs may affect smaller, mid-sized and larger companies differently.

2. Stability

Established mega cap companies are among the most stable in the economy and may be better able to withstand a market downturn compared to smaller or newer companies without cash reserves or a solid brand reputation.

3. Dividends

Some mega cap stocks pay dividends to investors since they don’t need to reinvest profits into growth. That can provide an additional stream of income or allow for faster portfolio growth if they’re reinvested.

Cons of Investing in Mega Cap Stocks

While there are some things that make mega cap companies attractive to investors, it’s important to consider the potential downsides:

Limited Upside

Since many mega caps have already done most of their growing, there may be limited space for their share prices to increase.

Perception vs Reality

Market capitalization measures the stock market’s perceived value of a stock, not its intrinsic value. So mega cap status alone shouldn’t be considered a reliable indicator of a company’s fundamentals or financial health.


💡 Quick Tip: How to manage potential risk factors in a self directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

How to Invest in Mega Caps

If you understand the investment risk and potential rewards that come with mega cap stocks and you’re interested in adding them to your portfolio, there are two ways to do it. You can choose to invest in individual mega cap stocks, or you can put money into an investment fund, such as a mutual fund or an exchange-traded fund (ETF) that holds mega caps.

You can also look at investing in a market index that can give your portfolio exposure to mega cap stocks.

Buying individual stocks allows you to pick and choose which mega caps you want to purchase. But this may require more of a hands-on approach as you’ll need to research individual companies. There are similarities and differences, in that regard, between investing in mega cap and investing in small cap stocks.

Investing in a thematic ETF focused on mega cap stocks may be a simpler way to diversify with larger companies. This allows you to have exposure to more mega cap stocks in your portfolio.

ETFs can be traded on an exchange, just like a stock, allowing for greater liquidity and flexibility than traditional mutual funds. Lower turnover ratios can make ETFs more tax-efficient than regular mutual funds. Depending on which mega cap ETF you choose, you may pay a much lower expense ratio than you would with traditional mutual funds.

The Takeaway

Mega cap stocks refers to stocks that have a market capitalization of more than $200 billion, and in some cases, more than $1 trillion. As of June 2025, there are a few dozen mega cap stocks out there, but several companies may become mega cap stocks in the subsequent years.

Mega cap stocks offer stability and the potential for dividend income, though they may have lower upside than smaller stocks that have more room to grow. The right role for mega cap stocks in your portfolio will depend on your investment goals, risk tolerance, and time horizon.

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).

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

FAQ

What are examples of mega caps?

Some examples of mega cap stocks include Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), and Amazon (AMZN), which have market caps of more than $2 trillion.

How many mega cap stocks are there in the U.S.?

Mega cap stocks are stocks with market caps of vastly more than $200 billion, and as such, there are many on the market – dozens, in fact. But there are only a relative handful with market caps of more than $1 trillion.

What is the difference between a large-cap and mega cap?

While mega cap stocks are typically defined as having market caps of more than $10 billion (often more than $200 billion), large-cap stocks have market caps ranging from $2 billion to $10 billion.


About the author

Rebecca Lake

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.



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.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.



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

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


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®


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.

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ETFs vs Mutual Funds: Learning the Difference

Exchange-traded funds (ETFs) and mutual funds are both SEC-registered investment vehicles that offer investors a convenient way to build a diversified portfolio. Both are professionally managed and offer investors slices of the portfolio. Both can hold hundreds or thousands of securities. Both are not FDIC insured, which means an investor can lose their money.

For decades, ETFs and mutual funds have provided retail and institutional investors an efficient way to invest in stocks, bonds and other asset classes. Yet there are key differences.

Key Points

•   ETFs trade on exchanges throughout the day, while mutual funds transact once daily at the closing price.

•   ETFs disclose holdings daily, whereas mutual funds report total value daily.

•   ETFs usually have lower fees compared to mutual funds, which may have higher fees.

•   ETFs typically require a lower initial investment, mutual funds often need a higher initial investment.

•   ETFs are generally more tax-efficient due to the unique structure of these funds.

Differences Between ETFs and Mutual Funds

While there are plenty of similarities between ETFs and mutual funds, let’s start with some key differences.

How to Buy Mutual Funds and ETFs

The biggest difference between mutual funds and ETFs is how they’re purchased and sold. Mutual funds transact once per day, with all investors selling or buying shares at the same closing price. ETFs trade throughout the day on public exchanges, with many shares exchanging hands at various prices as buyers and sellers react to changes in the market.

Data on Holdings

Mutual funds are required to report the total value of their portfolio once per day after the stock markets close. The fund then figures out how many shares they have and what each share is worth based on the total value. This is what is referred to in the industry as the Net Asset Value, or NAV. When investors buy or sell a share of the mutual fund, they transact at that NAV at the end of the day.

Meanwhile, ETFs have to report their holdings on a daily basis. The price of the ETF fluctuates throughout the day based on market conditions and the value of the ETF’s underlying holdings.

Passive vs Active

ETFs tend to be considered “passive investments.” That’s because investors are not necessarily making active trades but rather tracking an underlying index. However, actively managed ETFs have also cropped up, since the first ETF was launched in 1993.

Meanwhile, with mutual funds, it’s common to find an active fund manager who makes decisions on which holdings to buy and sell.

Fee Differences Between ETFs vs Mutual Funds

Mutual funds tend to charge different types of fees to cover their business costs. ETFs generally charge lower fees. Compared to active investing, passive investing usually incurs lower fees since they track a particular index, like the S&P 500 Index.

Tax Implications of ETFs vs Mutual Funds

You may get better tax efficiency with ETFs, because you are not buying or selling as much with them. There are fewer transactions to tax and ETFs are generally tax efficient given their unique creation and redemption mechanism that they employ.

You’ll have to pay capital gains taxes and dividend income taxes, but ETFs have a lower tax requirement than mutual funds. Due to the unique structure of ETFs, they’re often able to reduce the amount of capital gains they distribute each year relative to a comparable mutual fund.

Lower Initial Investment

As a general rule, mutual funds tend to require a higher initial investment. ETFs, on the other hand, allow investors to invest in as little as a single share. In some cases, brokerage firms allow investors to even buy ETF fractional shares, slices of a whole stock in an ETF.

Alternative investments,
now for the rest of us.

Start trading funds that include commodities, private credit, real estate, venture capital, and more.


Types of Mutual Funds

The first mutual fund was launched in the 1970s by the late Jack Bogle of Vanguard. Since then the investment type has steadily increased in popularity. They account for tens of trillions of dollars.

Here are some of the different types of mutual funds:

Load Mutual Funds

Load mutual funds charge a sales commission that’s paid to a financial professional or broker who helped the investor decide on which mutual fund to purchase.

There are typically two types of load mutual funds: Front-end load funds, which means the fee is paid when the mutual fund is purchased, and back-end load funds, which means the fee is paid when the mutual fund purchase is redeemed. Generally, back-end load funds charge higher fees.

No-Load Mutual Funds

Investors could look for a “no-load” mutual fund, which means the shares are bought and sold without charging commissions.

This plan may be best for investors who plan to do a lot of trading. If investors have to pay a commission charge every time they buy or sell a security, frequent trading will reduce returns. However, the expense ratios for no-load mutual funds are often higher.

Active vs Passive Mutual Funds

Most mutual funds are actively navigated by experienced money managers who steer the fund and invest in companies they believe will lead to outperformance. However, there are also passive mutual funds that track indices, similar to the way ETFs do.

Open-Ended Funds

Purchases and sales of fund shares typically happen directly between an investor and the fund company. As more investors buy into the fund, more shares are added, which means that the number of eventual fund shares can be nearly unlimited.

However, the fund must undergo a daily valuation by law, which is called marking to market (see a deeper dive on this below). The result of this process is a new per-share price, which has been adjusted to sync with any changes in the value of the fund’s holdings. An investor’s share value is not affected by the quantity of outstanding shares.

Closed-End Funds

Unlike open-ended funds, closed-ended funds (CEFs) are finite and limited. Only a specific number of shares are issued and no further shares are expected to be added.

The prices of close-ended funds are influenced by the NAV of the fund, but are ultimately determined by the demand investors have for the fund. Since the amount of shares is fixed, the shares often trade above or below the NAV. If the fund is trading above the NAV (what it’s really worth), it’s said to be trading at a premium; if trading below the NAV, it’s said to be trading at a discount.


💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

Different Types of ETFs

ETFs are just one class of funds within the broader exchange-traded product (ETP) universe. Here’s a closer look at the different types of ETPs and ETFs.

Exchange-Traded Notes (ETNs)

Exchange-traded notes (ETNs) are usually debt instruments issued by banks that seek to track an index.

Leveraged ETFs

Leveraged ETFs use derivatives to amplify returns from a fund. For instance, if an underlying index moves 1% on a trading day, a regular ETF tracking the index would also move 1%. However, a leveraged ETF could move 2% or 3% depending on whether it’s double levered or triple levered.

Inverse ETFs

Inverse ETFs are similar to shorting a stock. Investors can use inverse ETFs to bet that the price of a market or stock sector will go down. So if the underlying goes down 1% on a given day, the inverse ETF will go up 1%.

Thematic ETFs

Thematic ETFs tend to focus on a slice of the stock market and follow a specific trend. Thematic ETFs that have cropped in recent years include those that cover renewable energy, the gig economy, or even pet care.

The major pros and cons of thematic ETFs include capturing a specific trend that appeals to an investor, as well as being too narrowly focused.

The Takeaway

Both ETFs and mutual funds allow investors to pool funds with other investors’ funds to ultimately buy and sell baskets of securities in the market. The aim is portfolio diversification and reducing risk compared to investing in a single company. If a person were to put all of their money into one company instead, their investment isn’t diversified because their fortunes are tied to that single company.

Investing in both ETFs and mutual funds, or a combination of both (or either) will depend on an individual investor’s preferences. Not all investments are right for each portfolio, and some research is necessary to see what’s right for you.

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).

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 are mutual funds and ETFs bought and sold?

One of the biggest differences between mutual funds and ETFS is how they are traded. Mutual funds transact once per day, with all investors trading at the same closing price, while ETFs trade constantly throughout the day on public exchanges.

What are some common types of mutual funds?

There are numerous types of mutual funds, including (but not limited to) load mutual funds, no-load mutual funds, active or passive funds, open-ended funds, and more.

What are some common types of ETFs?

Some common types of ETFs include thematic ETFs, inverse ETFs, leveraged ETFs, and the similar-but-different exchange-traded notes, or ETNs.


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.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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


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.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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.
S&P 500 IndexThe S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

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 https://sofi.app.link/investchat. 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.


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

Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.


Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

Claw Promotion: Customer must fund their Active Invest account with at least $50 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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Guide to Junk Bonds and Their Pros and Cons

A high-yield bond, often called a junk bond, is debt issued by a corporation that has failed to achieve the credit rating of more stable companies. Though they tend to be high-yield, they’re also relatively high-risk, in most cases.

All investments fall somewhere along the spectrum of risk and reward. In order to increase the chance at a higher reward, an investor must generally increase risk. High-yield bonds are no exception and have a higher likelihood of default than investment-grade bonds. That’s why they are also often called “junk bonds.”

Key Points

•   High-yield bonds, or junk bonds, offer higher interest rates and potential for price appreciation.

•   Credit ratings for high-yield bonds are below BBB by S&P and Baa by Moody’s, indicating higher risk.

•   Advantages include higher and consistent yields, with bondholders having priority in company liquidation.

•   Disadvantages include higher default rates, difficulty in reselling, and potential depreciation from credit rating changes.

•   Investors can access high-yield bonds directly or through mutual funds and ETFs, offering diversification and management.

Overview of the Bond Market

Bonds are popular with investors for being mostly lower risk than stocks. The bond market works in such a way that it’s made up of a wide asset class that are essentially investments in the debt of a government — federal or local — or a corporation.

They are packaged as a contract between the issuer (the borrower) and the lender (the investor). With bonds, you are acting as both the lender and the investor. That’s why bonds are also referred to as debt instruments, and a key component in how bonds work.

The rate of return that an investor makes on a bond is the rate of interest the issuer pays on their debt plus the increase in value when the bond is sold from when it was purchased. You may hear the interest rate on a bond referred to as the coupon rate. Most bonds make interest payments — coupon payments — twice annually.

You’ll also hear bonds commonly referred to as fixed-income investments. That’s because the interest on a bond is predetermined and will not change, even as markets fluctuate. For example, if a 20-year bond is issued with a 3% interest rate, that interest rate is set and will not change throughout the life of that bond.

Although the interest rate on the bond does not change, the underlying price of the bond can change. Therefore, it is possible to experience negative returns with a bond investment. Bond prices may also retreat in an environment of rising interest rates — this is called interest rate risk.


💡 Quick Tip: When people talk about investment risk, they mean the risk of losing money. Some investments are higher risk, some are lower. Be sure to bear this in mind when investing online.

What Is a High-yield Bond?

As you might expect, high-yield bonds are bonds that pay a high relative rate of interest. Why might a bond pay a higher rate of interest? Most commonly, because there is a higher degree of risk associated with the bond. Hence, the “junk bond” moniker.

The trade-off is that less-risky bond investments typically tend to have a lower yield. Therefore, bonds with lower credit ratings generally must offer higher coupon rates.

In addition to classifications by type (corporate, Treasury, and municipal bonds), bonds are graded on their riskiness, which is also known as their creditworthiness.

A default can occur when the issuer is unable to make timely payments or stops making payments for whatever reason. In some cases of default, the principal, or the amount initially invested, cannot be repaid to the lender (i.e., the investor).

Credit Rating Agencies and Junk Bonds

There are two main credit-rating agencies: S&P Global Ratings, and Moody’s.

Each has its own grading system. The S&P rating system, for example, begins at AAA, which is the best rating, and then AA, A, BBB, and so on, down to D. Bonds that are ranked as a D are currently in default and C grades are at a high risk of default.

Using S&P’s system, high-yield bonds are generally classified as below a BBB rating. These bonds are considered to be highly speculative. Bonds at a BBB rating and above are less speculative and sometimes referred to as “investment grade.” With Moody’s rating, high-yield bonds are classified at a Baa rating and below.

This means that bonds with better credit ratings are generally the ones that are least likely to default. Treasuries and corporate bonds issued by large, stable companies are considered relatively low-risk, and highly unlikely to default. These bonds come with a AAA rating.

Fallen Angels in the Bond Market

Fallen angels are companies that have been downgraded from a higher investment-grade credit rating to junk-bond status. Diminished finances, as well as a tough economic environment, could send a company from the coveted investment-graded status to junk.

Rising Stars in the Bond Market

A rising star is a junk bond that has potential to become investment grade due to an improved financial position by the company. A rising star could also be a company that’s relatively new to the corporate debt market and therefore has no history of debt. However, analysts at credit-rating firms may judge that the company has high creditworthiness due to its finances or competitive edge.

Junk Bonds: Pros & Cons

It’s up to each investor to decide if high-yield bonds have a place in their portfolio. Here are the pros and cons of high-yield bonds so you can make a decision about whether to integrate them into your overall investment strategy.

5 Pros of High-yield Bonds

Here’s a rundown of some of the pros of high-yield bonds.

1. Higher Yield

High-yield bond rates tend to be higher than the rates for investment-grade bonds. The interest rate spread may vary over time, but high-yield bonds having higher rates will generally be true or else no investor would choose a higher-risk bond over a lower-risk bond with the same rate.

2. Consistent Yield

Even most high-yield or junk bonds agree to a yield that is fixed and therefore, predictable. Yes, the risk of default is higher than with an investment-grade bond, but a high-yield bond is not necessarily destined to default. A high-yield bond may provide a more consistent yield than a stock, which is a key thing to know when researching bonds vs. stocks.

3. Bondholders Get Priority When Company Fails

If a company collapses, both stockholders and bondholders are at risk of losing their investments. In the event that assets are liquidated, bondholders are first in line to be paid out and stockholders come next. In this way, a high-yield bond could be considered less risky than a stock for the same company.

4. Bond Prices May Appreciate Due to Credit Rating

When a bond has a less than perfect rating, it has the opportunity to improve. This is not the case for AAA bonds. If a company gets an improved rating from one of the agencies, it’s possible that the price of the bond may appreciate.

5. Less Interest-Rate Sensitivity

Some analysts believe that high-yield bonds may actually be less sensitive to changes in interest rates because they often have shorter durations. Many high-yield bonds have 10-year, or shorter, terms, which make them less prone to interest rate risk than bonds with maturities of 20 or 30 years.

4 Cons of High-Yield Bonds

Here are some of the cons of high-yield bonds.

1. Higher Default Rates

High-yield bonds offer a higher rate of return because they have a higher risk of default than investment-grade bonds. During a default, it is possible for an investor to lose all money, including the principal amount invested. Unstable companies are particularly vulnerable to collapse, especially during a recession. The rating agencies seek to identify these companies.

2. May Be Difficult to Sell

If an investor invests directly in high-yield bonds, they may be more difficult to resell. In general, bond trading is not as fluid as stock trading, and high-yield bonds may attract less demand or have smaller markets, and therefore, may be harder to sell at the desired price, or at all.

3. Bond Price May Depreciate Due to Credit Rating

Just as a bond price could increase with an improved rating, a bond price could fall with a decreased rating. Investors may want to investigate which companies are at risk of a lowered credit rating by one of the major agencies.

4. Sensitive to Interest Rate Changes

All bonds are subject to interest rate risk. Bond prices move in an inverse direction to interest rates; they can decrease in value during periods of increasing interest rates.

How to Invest in High-yield Bonds

There are two primary ways to invest in junk bonds: by owning the bonds directly and by owning a pool of bonds through the use of mutual funds or exchange-traded funds (ETFs).

By owning high-yield bonds directly, you have more control over how your portfolio is invested, but it can be difficult for retail investors to do this. Brokerage firms typically allow sophisticated investors to directly own junk bonds, but even then it could be labor-intensive and a hassle.

Investing in high-yield bond mutual funds or ETFs, on the other hand, may allow you to diversify your holdings quickly and easily.

Junk-bond funds may also allow you to make swift changes to your overall portfolio when needed; they might be more economical for smaller investors; and they allow you to invest in multiple bond funds if desired. It’s important to check both the transaction costs and the internal management fee, called an expense ratio, on your funds.

Do Junk Bonds Fit Into Your Investment Strategy?

The only way to truly determine whether junk bonds are a good or suitable fit for your portfolio and investment strategy is to sit down and take stock of your full financial picture. It may also be worthwhile to consult with a financial professional for guidance.

But generally speaking, junk bonds are likely going to be a suitable addition to your portfolio if you’ve already covered all, or most, of your other bases. That is, that you’ve built a diversified portfolio, and are taking your risk tolerance and time horizon into account. In that case, having some room to “play” with junk bonds may be suitable — but again, a financial professional would likely be able to provide some guidance.

If you’re a beginner investor, or someone who’s trying to build a portfolio from scratch, junk bonds are probably not a good fit. If you’ve been investing for years and have a large, diversified portfolio? Then adding some junk bonds or other high-risk investments to the mix probably wouldn’t be nearly as big of an issue.

Other Higher-Risk Investments

Junk bonds are high-risk investments, but they’re far from the only ones. Here are some other types of relatively high-risk investments to be aware of.

Penny Stocks

Penny stocks are stocks with very low share prices — typically less than $5 per share, and often, under $1 per share. While these stocks have the potential for huge gains, they’re also very risky and speculative. As such, they may be considered the “junk bonds” of the stock market.

IPO stocks

Another type of high-risk stock is IPO stocks, or shares of companies that have recently gone public. While an IPO stock may see its value soar immediately after hitting the market, there’s also a good chance that its value could fall significantly, which makes IPO stocks a risky investment.

REITs

REITs, or real estate investment trusts, allow investors to invest in real estate assets without actually buying property. But the real estate market has significant risks, which filter down to REITs and REIT shareholders. That, like the aforementioned investments, makes them risky and speculative.

The Takeaway

High-yield bonds, or junk bonds, are debt instruments issued by a corporation that has failed to achieve the credit rating of more stable companies. Though they tend to be high-yield, they’re also very risky in most cases. That doesn’t mean that they don’t necessarily have a place in an investor’s portfolio, however.

While companies that issue high-yield bonds tend to be lower on a scale of creditworthiness than their investment-grade counterparts, junk bonds still tend to have more reliable returns than stocks or nascent markets like cryptocurrencies.

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).

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

FAQ

What is considered a junk bond?

A junk bond describes a type of corporate bond that has a credit rating below most other bonds from stable companies. The low credit rating tends to mean they’re riskier, and accordingly, pay higher yields.

Are high yield bonds good investments?

Generally, no, high-yield bonds or junk bonds are not good investments, mostly because they’re risky and speculative. Again, that doesn’t mean that there isn’t necessarily a place for them in a portfolio, but investors would do well to research them thoroughly before buying.

Which bonds give the highest yield?

High-yield bonds, or junk bonds, tend to give investors the highest yield. These are risky bonds issued by corporations, and have low credit ratings. As such, they’re speculative investments.


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.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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

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 https://sofi.app.link/investchat. 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.

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

S&P 500 IndexThe S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. This should not be considered a recommendation to participate in IPOs and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation. New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For more information on the allocation process please visit IPO Allocation Procedures.


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

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

Claw Promotion: Customer must fund their Active Invest account with at least $50 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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What Is the Spot Market & How Does It Work?

A spot market is a market where buyers meet sellers and make an immediate exchange. In other words, delivery takes place at the same time payment is made. That can include stock exchanges, currency markets, or commodity markets.

But often when discussing spot markets, we’re talking about commodities. Commodity markets are somewhat different from the markets for stocks, bonds, mutual funds, and ETFs, all of which trade exclusively through brokerages. Because they represent a physical good, commodities have an additional market — the spot market. This market represents a place where the actual commodity gets bought and sold right away.

Key Points

•   Spot markets involve instant trades and immediate delivery.

•   Spot prices reflect real-time supply and demand.

•   Spot markets are less susceptible to manipulation.

•   OTC and centralized exchanges facilitate spot trades.

•   Futures markets are speculative, while spot markets are organic.

Spot Markets Definition

If you’re trying to define the spot markets, it may be helpful to think of it as a public financial market, and one on which assets or commodities are bought and sold. They’re also bought and sold for immediate, or quick, delivery. That is, the asset being traded changes hands on the spot.

Prices quoted on spot markets are called the spot price, accordingly.

One example of a spot market is a coin shop where an individual investor goes to buy a gold or silver coin. The prices would be determined by supply and demand. The goods would be delivered upon receipt of payment.

Understanding Spot Markets

Spot markets aren’t all that difficult to understand from a theoretical standpoint. There can be a spot market for just about anything, though they’re often discussed in relation to commodities (perhaps coffee, corn, or construction materials), and specific things like precious metals.

But again, an important part of spot market transactions is that trades take place on the spot — immediately.

Which Types of Assets Can Be Found on Spot Markets?

As noted, all sorts of assets can be found on spot markets. That ranges from food items or other consumables, construction materials, precious metals, and more. If you were, for instance, interested in investing in agriculture from the sense you wanted to trade contracts for oranges or bananas, you could likely do so on the spot market.

Some financial instruments may also be traded on spot markets, such as Treasuries or bonds.

How Spot Market Trades Are Made

In a broad sense, spot market trades occur like trades in any other market. Buyers and sellers come together, a price is determined by supply and demand, and trades are executed — usually digitally, like most things these days. In fact, a spot market may and often does operate like the stock market.

As noted, stock markets are also, in fact, spot markets, with financial securities trading hands instantly (in most cases).


💡 Quick Tip: The best stock trading app? That’s a personal preference, of course. Generally speaking, though, a great app is one with an intuitive interface and powerful features to help make trades quickly and easily.

What Does the Spot Price Mean?

As mentioned, the spot price simply refers to the price at which a commodity can be bought or sold in real time, or “on the spot.” This is the price an individual investor will pay for something if they want it right now without having to wait until some future date.

Because of this dynamic, spot markets are thought to reflect genuine supply and demand to a high degree.

The interplay of real supply and demand leads to constantly fluctuating spot prices. When supply tightens or demand rises, prices tend to go up, and when supply increases or demand falls, prices tend to go down.

The Significance of a Spot Market

The spot market of any asset holds special significance in terms of price discovery. It’s thought to be a more honest assessment of economic reality.

The reason is that spot markets tend to be more reliant on real buyers and sellers, and therefore should more accurately reflect current supply and demand than futures markets (which are based on speculation and can be manipulated, as recent legal cases have shown. More on this later.)

Types of Spot Markets

There’s only one type of spot market — the type where delivery of an asset takes place right away. There are two ways this can happen, however. The delivery can take place through a centralized exchange, or the trade can happen over the counter.

Over-the-counter

Over-the counter, or OTC trades, are negotiated between two parties, like the example of buying coins at a coin shop.

Market Exchanges

There are different spot markets for different commodities, and some of them work slightly differently than others.

The spot market for oil, for example, also has buyers and sellers, but a barrel of oil can’t be bought at a local shop. The same goes for some industrial metals like steel and aluminum, which are bought and sold in much higher quantities than silver and gold.

Agricultural commodities like soy, wheat, and corn also have spot markets as well as futures markets.

Spot Market vs Futures Market

One instance that makes clear the difference between a spot market and a futures market is the price of precious metals.

Gold, silver, platinum, and palladium all have their own spot markets and futures markets. When investors check the price of gold on a mainstream financial news network, they are likely going to see the COMEX futures price.

COMEX is short for the Commodity Exchange Inc., a division of the New York Mercantile Exchange. As the largest metals futures market in the world, COMEX handles most related futures contracts.

These contracts are speculatory in nature — traders are making bets on what the price of a commodity will be at some point. Contracts can be bought and sold for specific prices on specific dates.

Most of the contracts are never delivered upon, meaning they don’t involve delivery of the actual underlying commodity, such as gold or silver. Instead, what gets exchanged is a contract or agreement allowing for the potential delivery of a certain amount of metal for a certain price on a certain date.

For the most part, futures trading only has two purposes: hedging bets and speculating for profits. Sophisticated traders sometimes use futures to hedge their bets, meaning they purchase futures that will wind up minimizing their losses in another bet if it doesn’t go their way. And investors of all experience levels can use futures to try to profit from future price action of an asset. Predicting the exact price of something in the future can be difficult and carries high risk.

The spot market works in a different manner entirely. There are no contracts to buy or sell and no future prices to consider. The market is simply determined by what one party is willing to purchase something for.

Spot Market vs Futures Market

Spot Market

Futures Market

No contracts to buy or sell Contracts are bought and sold outlining future prices
Trades occur instantly Trades may never actually occur at all
Non-speculative Speculative by nature

Another important concept to understand is contango and backwardation, which are ways to characterize the state of futures markets based on the relationship between spot and future prices. Some background knowledge on those concepts can help guide your investing strategy.

Note, too, that some investors may be confused by the concepts of margin trading and futures contracts. Margin and futures are two different concepts, and don’t necessarily overlap.


💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.

Example of a Spot Market

Consider the spot and futures markets for precious metals.

Precious-metal prices that investors see on financial news networks will most often be the current futures price as determined by COMEX. This market price is easy to quote. It’s the sum of all futures trading happening on one central exchange or just a few central exchanges.

The spot market is more difficult to pin down. In this case, the spot market could be generally referred to as the average price that a person would be willing to pay for a single ounce of gold or silver, not including any premiums charged by sellers.

Sometimes there is a difference between prices in the futures market and spot market. The difference is referred to as the “spread.” Under ordinary circumstances, the difference will be modest. During times of uncertainty, though, the spread can become extreme.

Futures Market Manipulation

As for trying to define what spot price means, it’s important to include one final note on futures markets. This will illustrate a key difference between the two markets.

Recent high-profile cases brought by government enforcement agencies like the Securities and Exchange Commission and Commodities and Futures Trading Commission highlight the susceptibility of futures markets to manipulation.

Some large financial institutions have been convicted of engaging in practices that artificially influence the price of futures contracts. Again, we can turn to the precious-metals markets for an example.

During the third quarter of 2020, JP Morgan was fined $920 million for “spoofing” trades and market manipulation in the precious metals and U.S. Treasury futures markets. Spoofing involves creating large numbers of buy or sell orders with no intention of fulfilling the orders.

Because order book information is publicly available, traders can see these orders, and may act on the perception that big buying or selling pressure is coming down the pike. If many sell orders are on the books, traders may sell, hoping to get ahead of the trade before prices fall. If many buy orders are on the books, traders may buy, thinking the price is going to rise soon.

Cases like this show that futures markets can be heavily influenced by market participants with the means to do so.

Spot markets, on the other hand, are much more organic and more difficult to manipulate.

3 Tips for Spot Market Investing

For those interested in trying their hand in the spot market, here are a few things to keep in mind.

1. Know What’s Going On

Often, prices in the spot market can change or be volatile in relation to the news or other current events. For that reason, it’s important that investors know what’s happening in the world, and use that to assess what’s happening with prices for a given asset or commodity.

2. Keep Your Emotions in Check

Emotional investing or trading is a good way to get yourself into financial trouble, be it in the spot market, or any other type of trading or investing. You’d likely do well to keep your emotions in check when trading or investing on the spot market, as a result.

3. Understand the Market

It’s also a good idea to do some homework and make a solid attempt at trying to understand the market you’re trading in. There may be jargon to learn, terms to understand, price discovery mechanisms that could otherwise be foreign to even a seasoned investor — do your best to do your due diligence.

The Takeaway

Spot markets are where commodities are traded, instantly. There are numerous types of spot markets, and there are numerous types of commodities that might be traded on them. Investors would be wise to know the basics of how they work, and come armed with a bit of background knowledge about the given commodity they’re trading, in order to reach their goals.

Spot market trading can be a part of an overall trading strategy, but again, investors should know the ropes a bit before getting in over their heads. It may be a good idea to speak with a financial professional before investing.

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).

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

FAQ

What is spot market vs a futures market?

Trades on a spot market occur instantly, on the spot. Trades in the futures market involve contracts for commodities with prices outlined for some time in the future — if they occur at all.

What does spot market mean?

The term spot market refers to a financial market where assets or commodities are bought and sold by traders. The trades occur on the spot, or instantly, for immediate delivery.

What is the difference between spot market and forward market?

Forward markets involve trading of futures contracts, or transactions that take place at some point in the future, whereas spot market trades occur instantly, often for cash.


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.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.


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 https://sofi.app.link/investchat. 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.

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


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

*Borrow at 11%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

Claw Promotion: Customer must fund their Active Invest account with at least $50 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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