InvestSLR Archives | Page 70 of 81

Jul

2022

10 Options Trading Strategies for Beginners

By Inyoung Hwang | Growing Wealth, invest, Investing | Comments Off

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.

While the options market is risky and not suitable for everyone, these contracts can be a tool to make a speculative bet or offset risk in another position.

Many option strategies can involve one “leg,” meaning there’s only one contract that’s traded. More sophisticated strategies involve buying or selling multiple options contracts at the same time in order to minimize risk.

Here’s a guide that covers 10 important options trading strategies–from the most basic to the more complex and advanced.

10 Important Options Trading Strategies for Beginners

When trading options, investors can either buy existing contracts, or they can “write” or sell contracts for securities they currently hold. The former is generally used as a means of speculation, while the latter is most often used as a way of generating income.

Here’s a closer look at important options strategies for beginner, intermediate and more advanced investors to know.

Long Calls
Long Puts
Covered Calls
Short Puts
Short Calls or Naked Calls
Straddles and Strangles
Cash-Secured Puts
Bull Put Spreads
Iron Condors
Butterfly Spreads

1. Long Calls

Level of Expertise: Beginner

Being long a call option means an investor has purchased a call option. “Going long” calls are a very traditional way of using options. This strategy is often used when an investor has expectations that the share price of a stock will rise but may not want to outright own the stock. It’s therefore a bullish trading strategy.

Let’s say an investor believes that Retail Stock will climb in one month. Retail Stock is currently trading at $10 a share and the investor believes it will rise above $12. The investor could buy an option with a $12 strike price and with an expiration date at least one month from now. If Retail Stock’s price rises to hit $12 within a month, the value or “premium” of the option would likely rise.

2. Long Puts

Level of Expertise: Beginner

Put options can be used to make a bearish speculative bet, similar to shorting a stock, or they can also function as a hedge. A hedge is something an investor uses to make up for potential losses somewhere else. Here are examples of both uses.

Let’s say Options Trader wants to wager shares of Finance Firm will fall. Options Trader doesn’t want to buy the shares outright so instead purchases puts tied to Finance Firm. If Finance Firm stock falls before the expiration date of the puts, the value of those options will likely rise. And Options Trader can sell them in the market for a profit.

An example of a hedge might be an investor who buys shares of Tech Stock C that are currently trading at $20. But the investor is also nervous about the stock falling, so they buy puts with a strike price of $18 and an expiration two months from now.

One month later, Tech Stock C stock tumbles to $15, and the investor needs to sell their shares for extra cash. But the investor capped their losses because they were able to sell the shares at $18 by exercising their puts.

3. Covered Calls

Level of Expertise: Beginner

The covered call strategy requires an investor to own shares of the underlying stock. They then write a call option on the stock and receive a premium payment.

The tradeoff is that if the stock rises above the strike price of the contract, the stock shares will be called away from them, and the shares (along with any future price rises) will be forfeit. So, this strategy works best when a stock is expected to stay flat or go down slightly.

If the stock price of Company Y stays below the strike price when the option expires, the call writer keeps the shares and the premium and can then write another covered call if desired. If Company Y rises above the strike price when the option expires, the call writer must sell the shares at that price.

4. Short Puts

Level of Expertise: Beginner

Being short a put is similar to being long a call in the sense that both strategies are bullish. However, when shorting a put, investors actually sell the put option, earning a premium through the trade. If the buyer of the put option exercises the contract however, the seller would be obligated to buy those shares.

Here’s an example of a short put: Shares of Transportation Stock are trading at $40 a share. An investor wants to buy the shares at $35. Instead of buying shares however, the investor sells put options with a strike price of $35. If the shares never hit $35, the investor gets to keep the premium they made from the sale of the puts.

Should the options buyer exercise those puts when it hits $35, the investor would have to buy those shares. But remember the investor wanted to buy at that level anyways. Plus by going short put options, they’ve also already collected a nice premium.

5. Short Calls or Naked Calls

Level of Expertise: Intermediate

When an investor is short call options, they are typically bearish or neutral on the underlying stock. The investor typically sells the call option to another person. Should the person who bought the call exercise the option, the original investor needs to deliver the stock.

Short calls are like covered calls, but the investor selling the options don’t already own the underlying shares, hence the phrase “naked calls”. Hence they’re riskier and not for beginner investors.

Here’s a hypothetical case: Investor A sells a call option with a strike price of $100 to Trader B, while the underlying stock of Energy Stock is trading at $90. This means that if Energy Stock never rises to $100 a share, Investor A pockets the premium they earned from selling the call option.

However, if shares of Energy Stock rise above $100 to $115, and Trader B exercises the call option, Investor A is obligated to sell the underlying shares to Trader B. That means Investor A has to buy the shares for $115 each and deliver them to Trader B, who only has to pay $100 per share.

6. Straddles and Strangles

Level of Expertise: Intermediate

With straddles in options trading, investors can profit regardless of the direction the underlying stock or asset makes. In a long straddle, an investor is anticipating higher volatility, so they buy both a call option and a put option at the same time. Short straddles are the opposite–investors sell a call and put at the same time.

Straddles and strangles are used when movement in the underlying asset is expected to be small or neutral.

Let’s look at a hypothetical long straddle. An investor pays $1 for a call contract and $1 for a put contract. Both have strikes of $10. In order for the investor to break even, the stock will have to rise above $12 or fall below $8. This is because we’re taking into account the $2 they spent on the premiums.

In a long strangle, the investor buys a call and put but with different strike prices. This is likely because they believe the stock is more likely to move up than down, or vice versa. In a short strangle, the investor sells a call and put with different strikes.

Here’s an example of a short strangle. An investor sells a call and put on an exchange-traded fund (ETF) for $3 each. The maximum profit the investor can make is $6 — the total from the sales of the call and the put options. The maximum loss the investor can incur is unlimited since the underlying ETF can potentially climb higher forever. Meanwhile, losses would stop when the price hit $0 but still be significant.

7. Cash-Secured Puts

Level of Expertise: Intermediate

The cash-secured put strategy is one that can both provide income and let investors purchase a stock at a lower price than they might have been able to if using a simple market buy order.

Here’s how it works: an investor writes a put option for Miner CC they do not own with a strike price lower than shares are currently trading at. The investor needs to have enough cash in their account to cover the cost of buying 100 shares per contract written, in case the stock trades below the strike price upon expiration (in which case they would be obligated to buy).

This strategy is typically used when the investor has a bullish to neutral outlook on the underlying asset. The option writer receives cheap shares while also holding onto the premium. Alternatively, if the stock trades sideways, the writer will still receive the premium, but no shares.

8. Bull Put Spreads

Level of Expertise: Advanced

A bull put spread involves one long put with a lower strike price and one short put with a higher strike price. Both contracts have the same expiration date and underlying security. This strategy is intended to benefit from a rising stock price. But unlike a regular call option, a bull put spread limits losses and can also profit from time decay.

Let’s say a stock is trading at $150. Trader B buys one put option with a strike of $140 for $3, while selling another put option with a strike of $160 for $4. The maximum profit is $1, or the net earnings from the two options premiums. So $4 minus $3 = $1. The maximum profit can be achieved when the stock price goes above the higher strike, so $160 in this case.

Meanwhile, the maximum loss equals the difference between the two strikes minus the difference of the premiums. So ($160 minus $140 = $20) minus ($4 minus $3 = $1) so $20 minus $1, which equals $19. The maximum loss is achieved if the share price falls below the strike of the put option the investor bought, so $140 in this example.

Recommended: A Guide to Options Spreads

9. Iron Condors

Level of Expertise: Advanced

The iron condor consists of four option legs (two calls and two puts) and is designed to earn a small profit in a low-risk fashion when a stock is thought to have little volatility. Here are the four legs. All four contracts have the same expiration:

1. Buy an out-of-the-money put with a lower strike price

2. Write a put with a strike price closer to the asset’s current price

3. Write an call with a higher strike

4. Buy a call with an even higher out-of-the-money strike.

If an individual makes an iron condor on shares of Widget Maker Inc., the best case scenario for them would be if all the options expire worthless. In that case, the individual would collect the net premium from creating the trade.

Meanwhile, the maximum loss is the difference between the long call and short call strikes, or the long put and short put strikes, after taking into account the premiums from creating the trade.

10. Butterfly Spreads

Level of Expertise: Advanced

A butterfly spread is a combination of a bull spread and a bear spread and can be constructed with either calls or puts. Like the iron condor, the butterfly spread involves four different options legs. This strategy is used when a stock is expected to stay relatively flat until the options expire.

In this example, we’ll look at a long-call butterfly spread. To create a butterfly spread, an investor buys or writes four contracts:

1. Buys one in-the-money call with a lower strike price

2. Writes two at-the-money calls

3. Buys another higher striking out-of-the-money call.

The Takeaway

Options trading strategies offer a way to potentially profit in almost any market situation—whether prices are going up, down, or sideways. The market is complex and highly risky, making it not suitable for everyone, but the guide above lays out different trading strategies based on the level of expertise of the investor.

Investors who are ready to dip their toe into options trading might consider SoFi’s options trading platform, where they’ll have access to a library of educational content about options. Plus, the platform has a user-friendly design.

Pay low fees when you start options trading with SoFi.

Photo credit: iStock/Rockaa
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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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Jul

2022

How to Pay for College Without Federal Loans

By Jacqueline DeMarco | Going to College, relay, Student Loans | Comments Off

It’s not a secret that the cost of attending college is more expensive than most people can afford to pay for in cash. Many students turn to federal student loans to help pay for college. But what can someone do if they’ve already tapped out their federal student loan resources or don’t want to take on any federal loans?

Thankfully, there are a variety of resources available to help students pay for their education. From scholarships to savings — continue reading for 14 ways to make college tuition more affordable. It may even be possible to figure out how to pay for college without loans.

14 Ways to Make College Tuition More Affordable

The key to figuring out how to pay for college without loans or financial aid is to make the overall cost of college a lot less expensive. Here’s a few ways someone can make the cost of college more affordable.

1. Apply for FAFSA

It’s always a good idea to apply for federal financial aid — even if you don’t think you’ll qualify. That’s because the Free Application for Federal Student Aid (FAFSA®), is absolutely free to fill out. This form helps determine the type and amounts of aid a student qualifies for. While it’s not a guarantee that students will get financial aid granted to them, it’s worth applying to try to lower the overall cost of pursuing higher education.

Federal financial aid includes both need-based aid like Direct Subsidized Loans or Pell Grants and non-need based aid like Direct Unsubsidized Loans. After submitting the FAFSA, schools will use the information to determine your financial aid package — which will detail the aid you qualify to receive for the school year. The FAFSA must be completed annually.

Sometimes, federal financial aid isn’t enough to allow a student to pay for the full cost of college. The following tips can help students find other ways to lower the costs of attending college in the event they didn’t receive enough financial aid to make it easy to pay for school.

2. Qualify for Merit Scholarships

Because scholarship funds don’t need to be paid back, they can be a valuable tool to help pay for school. While there are need-based scholarship opportunities there are also merit-based scholarships that focus on giving money to students that meet or exceed certain standards set by the person or organization issuing the scholarship — such as academic excellence or athletic ability.

Merit scholarships may be available from your college or university, from local companies or nonprofit organizations, and other institutions. Contact your school’s financial aid office for information on scholarships available at your academic institution.

3. Apply for Private Scholarships

While colleges often offer scholarship opportunities, so do private companies, nonprofits, and other organizations such as religious groups. Both school-based and private scholarship opportunities are worth looking into. You can find information on private scholarships from both your school’s financial aid office and by searching online databases, like Scholarships.com, that aggregate information on available scholarships.

4. Apply for ROTC Scholarships

If someone is considering joining the military they may be able to receive up to 100% in tuition assistance if they do so. College’s may have ROTC programs that make it possible to qualify for scholarships before joining the military — unlike the GI Bill which gives education money to those already enrolled in the military.

5. Attend a Community College

Attending a community college before transferring to a four-year university is another option to cut tuition costs. Some community colleges even offer tuition-free programs. Not to mention, when attending a local community college it may be easier to remain living at home with mom and dad which can cut down living expenses massively.

6. Earn College Credit in High School for Free

Some community colleges partner with local school districts to give high school students the opportunity to take college classes for free which allows them to earn college credits in high school. Taking advantage of free college classes while in high school can make the cost of attending college later cheaper — especially if the student can graduate early as a result.

7. Ask for Family Donations

While there’s no guarantee family will be able to or willing to help pay for someone to go to college, it can be worth asking parents, grandparents, and other close family members for assistance. Together, their contributions may help lighten the overall load of attending college.

8. Consider Private Student Loans

If someone wants to take out loans but didn’t receive enough federal student loans to fully cover their education and living expenses while in college, they can apply for private student loans to help make up the difference. Unlike federal student loans which are awarded based on the FAFSA, private student loans are awarded from individual lenders and require their own application. Because private student loans tend to be more expensive than federal loans, it’s a good idea to exhaust any potential federal options before applying for private student loans.

9. Choose an Affordable School

Usually, attending an in-state public school is more affordable than attending an out-of-state public school. Additionally, private universities tend to cost more to attend than public universities. If a student can go to an in-state public university, that is likely the most affordable route they can pursue. Especially if they attend community college first to get some general education classes out of the way.

While public schools are generally more affordable than private institutions, financial aid packages can potentially even the playing field. When evaluating colleges, be sure to factor in the actual costs after any scholarships or grants and other aid.

10. Work During School

It can be challenging, but if a student can work part time while enrolled in college, they can pay some if not all of their way as they go. If they took out loans, they may be able to use their earnings to start paying them down early so they can avoid paying interest after they graduate.

11. Budget for College With Parent’s 529 Plan

If a student’s parents set up a 529 plan (which is a tax-advantaged investment account that can be used to pay for qualifying educational costs) they can budget out those savings to see how much of their education they can pay for — a budgeting app could help.

Though some students may not have the benefit of supportive parents. Students figuring out how to pay for college without their parents’ help may want to focus on finding an affordable school, filling out the FAFSA, applying for private scholarships, working while in college, and wisely using student loans.

12. Complete College Earlier Than Four Years

If a student hustles, even shaving off one semester of college can save them a decent chunk of change in tuition, fees, and room and board. If they can take an extra class each semester, they may be able to graduate early and save a lot of money.

13. Live Off Campus and Commute

As convenient as living on a college campus is, it can also be expensive. The cheapest living option is to live at home with parents if that’s possible and commute to school. If a student does need to live on their own, renting an apartment or a room in a house off campus may still be more affordable than living on campus. Cost out the different options to see which is most affordable and in-line with your budget.

Recommended: Does Net Worth Include Home Equity

14. Negotiate With College Campus

Some colleges offer tuition payment plans that don’t necessarily reduce expenses but can make it easier to pay for tuition by spreading payments out over several months instead of expecting one lump sum payment up front. This can be an especially good option for students working to pay for school.

The Takeaways

Paying for college is a big endeavor, but one that can be made easier if a student takes certain steps to reduce the overall costs of college. Figuring out how to pay for college without loans is challenging, but starting by applying for scholarships and financial aid can help.

To make it easier to reach major financial goals like paying for college, SoFi can help. With SoFi’s money tracker app, it’s possible to connect all accounts on one mobile dashboard to get a bird’s-eye view of all account balances, to track spending and set monthly spending targets, and to work with a financial planner to set goals.

Learn more about how SoFi makes meeting financial goals easier.

FAQ

What can I do if my parents won’t pay for college?

Students can apply for financial aid by filling out the Free Application for Federal Student Aid (FAFSA), can take out federal or private student loans, or can work their way through school. It may be challenging, but students do have options outside of their parents for financing higher education.

How can I pay for college by myself?

If someone needs to pay for college on their own, they’ll want to fill out the FAFSA each year to see how much financial aid they qualify for and how much federal student loan coverage they can get. If they need more money to pay for school, they may consider applying for private student loans.

Is Sallie Mae a federal loan?

Sallie Mae student loans are not federal student loans. They offer private student loans.

Photo credit: iStock/AntonioSolano

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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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Jul

2022

What Happens When Bitcoin Forks?

By AJ Smith | Growing Wealth, invest, Investing | Comments Off

There have been a number of Bitcoin forks since the world’s oldest crypto launched in 2009. Some are hard forks, which are radical changes that effectively establish a new blockchain. Others are more like modifications to the Bitcoin protocol, called soft forks.

A Bitcoin hard fork happens when miners or developers vote for a significant change to a blockchain protocol, which typically results in a new form of cryptocurrency. A soft fork is similar, but is usually a more subtle shift in the blockchain software that miners and developers can adapt.

Keep reading to learn more about the top Bitcoin forks, how different forks work, and what the forking process may mean for investors.

What Is a Bitcoin Fork?

What is a fork in crypto? A fork is a natural extension of blockchain technology, which uses open-source code that’s designed to be updated and improved upon. Thus Bitcoin forks aren’t bad news, but rather a naturally occurring aspect of the blockchain, which is decentralized and doesn’t adhere to a central authority.

Bitcoin forks generally happen when there is a strong disagreement among miners and developers about how to handle a platform’s protocol or growth. This can happen with any established blockchain, although the number of forks and how they occur can vary considerably from network to network.

While there have been many Bitcoin forks, there have been only a handful of forks on Ethereum, for example.

• A Bitcoin hard fork is a split of the original blockchain, which enables a new platform to be established, often with its own crypto.

• A soft fork is a modification of the existing blockchain.

• There are also instances when a coin forks its code from Bitcoin’s code while creating a new blockchain entirely from scratch.

Hard Forks, Soft Forks, and Other Innovations

A Bitcoin hard fork is a radical change to the Bitcoin protocol, whereas soft forks are subtle software modifications. Also, some different types of cryptocurrency have cloned their source code from Bitcoin to get started, but these aren’t technically considered forks. (See the Bitcoin forks list below.)

The creation of altcoins like Litecoin (LTC) or Bitcoin Cash (BCH), for example, established new blockchains with completely different rule sets. These platforms even use different mining algorithms, meaning the computers that mine them run a different kind of software.

In these cases, the altcoins spawned their own networks from day one, without cloning the existing Bitcoin blockchain and picking up where it left off, as Bitcoin Cash (BCH) did. “Forks” like these are really new projects that just took the core code of bitcoin as a starting point.

The other common kind of fork is known as a user-activated soft fork (UASF). This process is much different than a hard fork because it gets initiated by users of the cryptocurrency rather than the computers maintaining the network (miners).

A UASF works by users adopting a certain action with regard to how they interact with the network of a given cryptocurrency. Then, miners can choose to follow suit afterward if enough users hop on board.

10 Famous Bitcoin Forks

Envision the original Bitcoin blockchain as the center of a large family tree. Emerging from the original trunk of that tree are the many offshoots of Bitcoin, including hard forks, soft forks, and other innovations.

To understand the whys and hows of Bitcoin forks, it helps to review a Bitcoin forks list of some of the most notable forks in Bitcoin’s history.

1. Litecoin

Litecoin (LTC) is a cryptocurrency created in 2011 by former Google engineer Charlie Lee. It was one of the first “altcoins.” Though it’s built on Bitcoin’s original source code, Litecoin was designed to improve upon Bitcoin, especially in terms of transaction speed.

Like Bitcoin, Litecoin uses a proof-of-work system (PoW) to verify transactions on the blockchain, but owing to certain modifications it’s considered a “lighter,” faster version of Bitcoin. The main difference between Litecoin and Bitcoin is that LTC uses a mining algorithm called scrypt, to enable faster transaction times.

Years later, Litecoin also underwent a hard fork of its own, with Litecoin Cash.

💡 Want to learn more about Litecoin? Check out our guide on Litecoin.

2. Bitcoin XT

Bitcoin XT was launched in 2014 by Mike Hearn, one of Bitcoin’s original developers. While the original version of Bitcoin allowed up to seven transactions per second, Bitcoin XT aimed for 24 transactions per second. In order to accomplish this, it proposed increasing the block size from one megabyte to eight megabytes.

While Bitcoin XT gained some traction initially, it eventually lost its momentum and is no longer available.

3. Bitcoin Classic

Bitcoin Classic was a similar story to Bitcoin XT. But instead of increasing the block size dramatically from one megabyte to eight, they created a two-megabyte block. This project has become less popular but still has some active nodes.

4. Segregated Witness

The Bitcoin SegWit update took place on August 23, 2017 and changed the way information was transferred on the blockchain.

Bitcoin developer Pieter Wuille originally proposed the update in 2015. He and others believed that transactions took too long to process and that they had some security issues.

SegWit stands for “segregated witness,” and it’s a key turning point in the history of Bitcoin and cryptocurrency. The SegWit innovation allowed for larger blocks by removing signature (or witness) data from Bitcoin transactions.

This frees up more space for the transaction itself.

5. SegWit2x

SegWit2x was set up to be a Phase Two of SegWit: a hard fork that would also transform the block size allowed on Bitcoin. Unfortunately, SegWit2x didn’t gain the same widespread support as the first SegWit phase, and the hard fork did not occur.

But the failure of SegWit2x helped pave the way for the Bitcoin Cash hard fork.

6. Bitcoin Cash (BCH)

The next time Bitcoin went through a hard fork was in August 2017. The new coin was called Bitcoin Cash (BCH). BCH is similar to Bitcoin (BTC) but with a few key differences.

The biggest difference, and the one that spawned the split, is that BCH has a larger block size. This means that one block in the blockchain can hold a larger number of transactions, resulting in greater throughput. Basically, more money can be processed in less time.

7. Bitcoin Satoshi’s Vision (BSV)

Bitcoin SV is a second-generation fork of Bitcoin; BSV was derived from a fork of the Bitcoin Cash (BCH) protocol which was a fork of the original Bitcoin (BTC) protocol.

As noted above, BCH’s goal was to increase transaction speed to improve Bitcoin’s scalability. Bitcoin SV broke off to become its own cryptocurrency with its aim to maintain the original Bitcoin protocol and become more technologically advanced.

8. Bitcoin Gold

Bitcoin Gold (BTG) is a Bitcoin fork that utilizes an ASIC-resistant proof-of-work mining algorithm. That means it’s meant to be a coin that anyone can mine at home without the need for expensive specialized computer hardware. According to the Bitcoin Gold website:

“BTG is a cryptocurrency with Bitcoin fundamentals, mined on common GPUs instead of specialty ASICs. ASICs tend to monopolize mining to a few big players, but GPU mining means anyone can mine again — restoring decentralization and independence.

“GPU mining rewards go to individuals worldwide, instead of mostly to ASIC warehouse owners, recreating network effects that Bitcoin used to have.”

9. Bitcoin Diamond (BCD)

Bitcoin Diamond, launched in 2017, is yet another Bitcoin fork that aimed to make transactions faster and cheaper.

10. Bitcoin Private

Instead of being a standard blockchain fork, the aim of Bitcoin Private (BTCP) was to create a fork-merger that would create a merge with the ZClassic (ZCL) blockchain via a fork of the Bitcoin blockchain.

This project was driven by Rhett Creighton, who also founded ZClassic, with the idea of combining the privacy of ZClassic with the popularity and security of Bitcoin.

Bitcoin Private launched in March of 2018 and was designed for both transparent and shielded or private transactions.

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Pros and Cons of Bitcoin Forks

Given the range of alterations to the original Bitcoin protocol, there are a number of advantages and disadvantages for investors to consider when Bitcoin forks.

Benefits of Bitcoin Forks

Some forks can create greater efficiencies by speeding transaction times, which increases the number of transactions per second.

Forks can also help to solve security issues.

Downsides of Bitcoin Forks

Bitcoin forks can also create some instability, however. This may impact the price of the crypto in question.

A fork may also make the crypto platform more vulnerable to hacks (like replay attacks), at least temporarily.

How to Claim Bitcoin Forks

Most cryptocurrency exchanges and hardware wallets make it easy for users to access their new coins not too long after a hard fork happens, whether in a few weeks or a few months. There will typically be a new wallet created with the name of the new coin. The balance in the new wallet should be identical to that of the old one.

For more technical users who had their coins on a paper wallet or desktop wallet, however, the process gets tricky.

Basically, a user would have to move their entire balance to a new wallet and then use the private keys from the old one to claim their new coins. This process can be risky and is typically only considered by tech-savvy users.

When done incorrectly, it could result in total loss of all funds for both coins.

In cases like these, less tech-savvy users might end up not claiming the forks at all, as the risk of total loss could be high.

How Has Forking Affected Crypto Prices?

Typically, hard forks can be seen as a money grab by the programmers who create them, because prices tend to rise initially (although they often decline afterward).

Depending on the type of fork, circumstances involved, reason for the fork, user anticipation, and a host of other factors, the resulting impact on price can be unpredictable.

One significant historical example to look at would be the BTC/BCH hard fork of August 2017.

In the period leading up to this fork, there was a great deal of speculation about different possible outcomes:

1. The new coin (Bitcoin Cash) would overtake the old, and most users would migrate to the new network.

2. The original Bitcoin would reign supreme while the new Bitcoin Cash faded into obscurity.

3. The fork would break the entire cryptocurrency and result in the value of both coins going to zero.

Several years later, it appears that those in camp number two were the closest to being correct. Although BCH is still among the 30 largest cryptocurrencies by market cap, as of July 1, 2022, it’s valued at about $108 USD, while BTC is valued at about $19,400.

But at the time, it wasn’t clear at all what would happen. The price of both BTC and BCH surged after the fork.

One BCH rose to as high as $3,000 in late 2017 and early 2018, but has since fallen by over 95%.

As far as the price of BTC goes, there have now been so many hard forks that most people pay no attention, and the impact on price appears to be negligible.

Investing in Bitcoin

In its 13-year history, Bitcoin has seen dozens of forks, both hard and soft. Developers have also used the Bitcoin blockchain to copy and create basic source code for new projects. Some of these forks have resulted in well-known new crypto — like Litecoin and Bitcoin Cash. Some have led to innovations like SegWit, which restructured transaction blocks to make them easier to process.

Interestingly, none of the Bitcoin forks have had a significant long-term impact on BTC’s price over time.

FAQ

How many Bitcoin forks have there been?

There have been dozens of Bitcoin hard and soft forks over the last 13 years. It’s hard to say exactly how many, owing to the complexity of some forks (some of which were successful and others that were not).

Do Bitcoin forks double your money?

It’s impossible to predict. A fork can sometimes drum up investor interest, and the price of BTC could rise, but there is also the risk that a fork that’s viewed unfavorably could cause the price to drop. Similarly, having access to the newly forked coins may or may not give investors a windfall — there’s no way to know in advance.

Is Litecoin considered a fork of Bitcoin?

Yes, Litecoin was created in 2011 as a fork of Bitcoin to create a lighter blockchain that would increase transaction speeds.

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First Trade Amount		Bonus Payout
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$50	$99.99	$10
$100	$499.99	$15
$500	$4,999.99	$50
$5,000+		$100

SOIN20197

Jul

2022

Tips for Paying Off Outstanding Debt

By Janet Schaaf | Debt Payoff, personal_loan | Comments Off

A car loan, a mortgage, student loans, credit cards. It might feel like a dark debt cloud is looming over you sometimes. If you carry some debt on your personal balance sheet, you’re not alone.

The Federal Reserve’s most recent report shows that total household debt in the U.S. has reached more than $15.84 trillion. That includes everything from mortgages to credit cards to student loans. We’re a heavily indebted nation, and for some, it may take a psychological toll. If that’s you, here’s the comforting news: There are some tried-and-true strategies for paying back outstanding debt.

What Is Considered Outstanding Debt?

What is outstanding debt? Outstanding debt refers to any balance on a debt that has yet to be paid in full. It is money that is owed to a bank or other creditor.

When calculating debt that’s outstanding, add all debt balances together. This could include credit cards, student loans, mortgage loans, payday loans, personal loans, home equity lines of credit, auto loans, and others. You should be able to find outstanding balance information on your statements.

How to Find Outstanding Debt

When paying off outstanding debt, you first might need to track it all down.

As you move throughout the debt payoff journey, you may find it helpful to start a file for your statements and correspondence. Also, you could create a list or input information into a spreadsheet. Organizing your information is necessary for building a debt payoff strategy.

Build a list of all debts with the most useful information, such as the outstanding balance, the interest rate, the monthly payment, the type of debt, and the creditor. If you have an installment loan, such as a personal loan, the principal amount of the loan is another helpful piece of information.

What if I Can’t Find All My Outstanding Debts?

If you feel as though you’ve lost track of some debts, you may want to start by requesting a credit report from at least one of the three major reporting agencies, Experian®, TransUnion®, or Equifax®. You are legally entitled to one free copy of your credit report from each of the three agencies per year. It’s easy to request a credit report from AnnualCreditReport.com .

A credit report includes information about each account that has been reported to that particular agency, including the name of the creditor and the outstanding debt balance.

It is possible that some outstanding debts may have been sold to a collection agency. The name of the original creditor may be included on the credit report. If that is not the case, you may need to investigate further.

Some outstanding debts may not appear on a credit report. Creditors are not required to report to the agencies, but most major creditors do. That said, a creditor could choose to report to none, one, two, or all three of the agencies. If you’re in information-collecting mode, you may want to consider requesting reports from more than one agency, or all three.

Outstanding Debt Amounts

Aside from how a debt is structured — revolving or installment debt — it can also be thought of as good debt or bad debt.

Generally, if borrowing money, and thus incurring debt, enhances your net worth, it’s considered good debt. A mortgage is one example of this. Even though you might incur debt to purchase a home, the value of the home will likely increase. As it does, and as you pay down the mortgage balance, your net worth has the potential to increase.

Bad debt, on the other hand, is debt taken on to purchase something that will depreciate, or lose value, over time. Going into debt to purchase consumer goods, such as cars or clothing, will not enhance your net worth.

Each person has a unique financial situation, level of comfort with debt, and ability to repay debt. What one person may be able to justify may be completely unacceptable to another.

How Does an Outstanding Debt Impact Your Credit

One thing lenders may consider during loan processing is the applicant’s debt-to-income ratio (DTI). Lenders will look at this number to determine their potential risk of lending. Different lenders have different stipulations about this ratio, so asking a potential lender about theirs is a good idea.

Calculating DTI is done by dividing monthly debt payments by gross monthly income.

• Monthly debt payments can include rent or mortgage payment, homeowners association fee, car payment, student loan payment, and other monthly payments. (Typically, monthly expenses such as utilities, food, or auto expenses other than a car loan payment are not included in this calculation.)

• Gross income is the amount of money you earn before taxes and other deductions are taken out of your paycheck.

Someone with monthly debt payments of $1,000 and a gross monthly income of $4,000 would have a DTI of 25% ($1,000 divided by $4,000 is 25%).

Generally, a DTI of 35% or less is considered a healthy balance of debt to income.

Should I Pay Down Outstanding Debt?

Barring extenuating circumstances, it’s a good idea to make regular, consistent payments on your debt. Whether or not you decide to pay the debt back on an expedited schedule is up to you.

Some may not feel the need to aggressively tackle their outstanding debt. They may be just fine to continue paying off a balance until the loan’s maturity date. This may apply to people with manageable debt payments, those who have debts with lower interest rates, or those focusing on other financial goals.

For example, someone with a low-interest-rate mortgage loan may not feel the need to pay it down faster than the agreed-upon schedule. So they continue to make regular, scheduled payments that make up a manageable percentage of their monthly budget. Therefore, they are able to work on other financial goals in tandem, such as saving for retirement or starting a fund for a child’s college.

Other scenarios may call for a more aggressive strategy to pay down debt. Some reasons to consider an expedited plan:

• Debt levels, and therefore monthly payments, feel unmanageable.

• Carrying debts with higher interest rates, like credit cards.

• Missed payments and added fees.

• It could also be as simple as wanting to have zero debt.

Carrying a large debt load could negatively affect your credit score. One factor in a credit score calculation is the ratio between outstanding debt balances and available credit on revolving debt, like a credit card — the credit utilization rate.

Using no more than 30% of your available credit is recommended. So, if a person has a $5,000 credit limit on a card, that would mean using no more than $1,500 at any given time throughout the month. Using more could result in a ding on their credit score.

Carrying debt also means paying interest. While some interest may not be avoidable, it’s generally a sound financial strategy to pay as little in interest as possible.

Credit cards tend to have some of the highest interest rates on unsecured debt. The average interest rate on a credit card is nearly 17%, as of June 22, 2022. Penalty rates can reach nearly 30%. With high rates, it’s worth seriously considering paring back debt balances.

Outstanding Debt Management Strategies

The next step is to pick a debt reduction plan.

Two popular strategies for paying off debt are called the debt snowball and the debt avalanche. Both ask that you isolate one source of debt to focus on first.

Simply put, you’ll make extra payments or payments larger than the minimum monthly payment on that debt until the outstanding balance is eliminated. You’ll continue making the minimum monthly payment on all your other debts.

Debt Snowball

A debt snowball payoff plan involves working on the source of debt with the smallest balance. For example, a person with three credit cards would pick the one with the lowest outstanding balance and work on paying it down.

The idea here is that there’s a psychological boost when a card is paid off, so it makes sense to go after the smallest first. That way, when a person works up to the card with the next highest balance, they can focus singularly on it, without a bunch of annoying, smaller payments getting in the way of the ultimate goal.

It’s called a snowball because the strategy starts small, gaining momentum as it goes.

Debt Avalanche

Alternatively, the debt avalanche method starts with the debt with the highest interest rate. Because this source of debt costs the most to maintain, it is a natural place to focus.

The debt avalanche is the debt payoff strategy of choice for those who prefer to look at things from a purely mathematical standpoint. For example, if a person has one credit card with an 18% annual percentage rate and another with 12%, they’d focus on that 18% card with any extra payments, no matter the balance.

Of course, it is also possible to modify these strategies to suit personal preferences and needs. For example, if one source of debt has a prepayment penalty, maybe it drops to the bottom of the list. If there’s a particular credit card you tend to overspend with, perhaps that’s a good one to focus on.

Outstanding Debt Payoff Methods

Once you decide on a strategy, whether it’s one discussed above or something that works better for your financial situation, you’ll need to figure out where the money will come from to pay down outstanding debt.

Starting by simply listing your monthly income and expenses is a good first step. If you find that you have enough money to begin making extra payments toward your outstanding debt balances, then you might choose to start right away.

Some people choose to keep a 30-day spending diary to get a clear picture of what they spend their money on. This can be a good way to pinpoint areas you might be able to cut back on to have more money to apply to outstanding debt.

If your existing budget is already tight and won’t accommodate extra payments, you might consider looking for some other financial strategies.

Increasing Income

Sometimes the answer is just to make more money. That could mean getting a part-time job or selling things you no longer need or want. You might also think about asking for a pay raise at your regular job.

Using Personal Savings

Tapping into money you’ve saved can be another way to pay down outstanding debt. Savings account interest rates, even high-yield savings accounts, pay much less interest than you might be incurring in interest on your outstanding debts. Keeping enough money in a savings account as an emergency fund is recommended, but if you have a surplus in your personal savings, putting that money toward your debt balances is a good way to make headway on outstanding debt.

Consolidating With a Credit Card

Using a credit card to pay off debt may seem an unlikely choice, but it can make sense in some situations. If your credit score is healthy enough to qualify for a credit card with a zero- or low-interest promotional rate, you might consider transferring a higher-rate balance to a card like this.

The benefit of this strategy is having a lower interest rate during the promotional period, potentially resulting in savings on the overall debt.

There are some drawbacks to transferring a balance in this way, though. One is that promotional periods are limited, and if you don’t pay the balance in full during this period, the remaining debt will revert to the card’s regular rate. Also, it’s typical for a promotional-rate card to charge a balance transfer fee, which can range from 3% to 5%, or more, of the balance transferred. This fee will increase the amount you will have to repay.

Consolidating With a Personal Loan

Using one new loan to pay off multiple outstanding debt balances is another debt payoff method. A personal loan with a lower overall rate of interest and a straightforward repayment plan can be a good way to do this.

In addition to one fixed monthly payment, a personal loan provides another benefit — the balance cannot easily be increased, as with a credit card. It’s easy to swipe a credit card for an additional purchase, potentially undoing the progress you’ve made on your debt repayment plan.

To consolidate with a personal loan, you might want to look around at different lenders to get a sense of what interest rates they might offer for you. Typically, lenders will provide a few options, including loans of different lengths.

The Takeaway

Outstanding debt can be a heavy burden. Many people owe large amounts of debt, but don’t know how to start making a dent in their balances. A good place to start is by identifying income and expenses to see your overall financial picture. From there, you may decide to focus on paying down certain debts over others. Choosing one method to pay down your debts and finding the money to do so are the next steps.

If you decide to pursue a debt payoff strategy, an unsecured SoFi Personal Loan may be an option for you. SoFi offers unsecured, no-fee option, low fixed-rate personal loans to help guide your financial journey.

Ready to kick-start your debt payoff strategy? A personal loan from SoFi could help you consolidate your debt into one easy-to-manage monthly payment.

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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.

SOPL0322010

Jun

2022

The Best Investment Strategies for Each Generation

By Michael Flannelly | Growing Wealth, invest, Investing, Life & Career | No Comments

The global economy and financial markets have changed dramatically during the past decades. Each generation has faced unique financial circumstances, including a Wall Street boom in the 80s, robust economic growth in the 90s, the Great Recession, and the Covid-19 fallout. So it’s not surprising that different generations could have widely different money habits and views on investing.

That doesn’t even include the differing needs for someone in their 70s and enjoying retirement compared to someone who has just graduated from high school. Given these vastly different experiences and ages, there are various investment strategies best suited for each generation that may help them meet financial goals.

Strategies for Baby Boomers

Baby boomers – those born between 1946 and 1964 – are likely finished or almost done paying off their homes and in the middle of or looking toward retirement. That means their financial goals are changing. Baby boomers must learn how to budget their expenses without regular labor income while still planning to spend for travel, health care, and other things.

A 2020 survey by Charles Schwab found that baby boomers had saved $920,400 in retirement savings, and 82% believed their savings will get them “all the way” or “most of the way” to living out their dream retirement.

Still, a 2022 study by Fidelity found the average couple will need $315,000 in medical expenses in retirement, excluding long-term care, representing a potential gap in their savings plan.

Here are some investing strategies baby boomers can use to save for retirement:

Strategy 1: Keep Cash on Hand

It’s crucial to still stash away a few bucks for unexpected expenses, such as health care costs. Health care has continually been one of the largest expenses in retirement. So keep squirreling away a little bit of your remaining income into an emergency fund.

Strategy 2: Stay Invested Until Retirement

Like all age demographics, baby boomers should still live by the idea that they’re in it for the long haul. Get and stay invested in the market via a 401(k), IRA, or other investment account, and do not touch these accounts before retirement age — which is 64 in the U.S., on average.

💡 Recommended: When Can I Retire?

Strategy 3: Continue to Diversify

Baby boomers should continue to diversify their portfolios as they near retirement. However, experts generally recommend shifting your portfolio’s asset allocation at this stage in life, moving toward a conservative investment strategy focused on fixed-income securities and blue-chip stocks.

And once you retire, it doesn’t mean it’s time to pull all your money out of the markets and live with the cash on hand. There are several investment options for retirees, including a portfolio of income-producing assets like bonds and dividend-paying stocks.

💡 Recommended: 5 Investment Tips for Retirees

Strategies for Gen Xers

Meanwhile, Generation X – or those born between 1965 and 1980 – feel much less rosy about their financial future. A 2021 report by Bank of America found that 94% of Gen Xers said they feel stress when thinking about their financial situation

It could have to do with their place in life. Unlike boomers, Gen Xers may still face student debt and mortgage payments. Additionally, this generation faces more hurdles, like child caregiving and employment challenges. With all this financial stress, here are some investing tips for Gen Xers:

Strategy 1: Consider Your Financial Goals

To help build a savings nest egg, many Gen Xers use what is known as managed portfolios of investments, which are personalized and tailored investments made for the specific needs of the individual account holder.

And this targeted approach may be crucial for this middle-of-the-road age demographic as they are finally earning more. However, Gen Xers also need to save for retirement and college for their children and pay off mortgages on their recently purchased homes.

Strategy 2: Get Financial Advice

For Gen Xers, who haven’t done much in terms of investing, it’s never too late to start. Seeking help from financial advisors and other professionals can help you set short-term and long-term financial goals.

Strategy 3: Take on Some Risk

For professionals in their 40s, their money likely has another 20-plus years in the market before retirement. They still have time to make up for any potential losses, so it may not hurt to put a little on the line in exchange for a bigger win down the road. So, Gen Xers can still factor some risk into their portfolio’s asset allocations, including investing more heavily in stocks and other risky securities. However, it’s best never to risk more money than you can afford to lose.

Investment Strategies for Millennials and Gen Z

Millennials – those born between 1981 and 1996 – lived through the severe economic downturn of the Great Recession and faced some of the highest unemployment rates in history. So, it’s no wonder they have felt trepidation toward the market.

Additionally, millennials and Generation Z – those born after 1997 – had to endure the economic and financial turmoil caused by Covid-19. A 2022 study by Fidelity said that 55% of people between 18 and 35 (those belonging to Gen Z and a younger cohort of millennials) put their retirement planning on hold during the pandemic. As a result, 39% of this age group expect to retire later than originally planned.

Here are some investing tips to get millennials and Gen Zers on the path toward saving for the future:

Strategy 1: Start Investing Early

As the youngest set, millennials and Gen Zers have the most to gain by investing early and staying in the game. After all, they will likely have the most time in the market. Because millennials and Gen Zers will have more time to save, they can weather the ups and downs of the markets and take advantage of compound interest.

💡 Recommended: A Beginner’s Guide to Investing in Your 20s

If you are employed, the easiest way to dip your toe in the market is to get involved in your company’s 401(k) savings account as soon as possible. This way, you’ll automatically send a percentage of your paycheck directly into your savings. And if your company has a 401k matching program, you’ll be earning essentially free money.

Strategy 2: Explore Diversification

A great way young people can diversify their portfolios is by investing in the market via mutual funds or exchange-traded funds (ETFs). Mutual funds are portfolios that gather money from investors and then make investments, typically in stocks or bonds. ETFs are similar in that they’re baskets of securities, but ETFs are listed on public markets and can be traded all day.

These are low-cost and diversified ways to invest in a portfolio of stocks and bonds. It’s easy to do this via a robo-advisor that does all the heavy lifting for you.

Strategy 3: Pay Off Debt

Millennials have an average student loan debt of $38,877, while Gen Zers have an average debt of $17,338. The need to pay off this debt contributes to a delay in investing and saving for the future. But it’s still critical to keep on your payments to keep this burden from hanging over your head for too long.

However, just because people of these generations have student loan debt doesn’t mean they can start investing now. A little bit of investing goes a long way, so putting just a little bit in the markets now can pay off in the long run.

The Takeaway

Different generations face different investment challenges, but by and large, important rules to follow include paying off debt as quickly as possible and saving and investing early.

SoFi Invest® is an all-in-one platform for an individual’s investment needs. With SoFi online investing, you can trade company stocks, ETFs, or fractional shares with no commissions for as little as $5. Additionally, those who want help building a portfolio can use SoFi Automated Investing with no SoFi management fee.

Open a SoFi Invest account today.