Jun
28
2025
Investing in Chinese Stocks

Investing in Chinese Stocks

By | Growing Wealth, invest, Investing | Comments Off on Investing in Chinese Stocks

China represents a part of the global investor marketplace known as the “emerging markets,” or countries that are headed toward first-world status and undergoing a period of rapid growth. China has the second-largest economy in the world and is rapidly growing. Economists estimate that the country will overtake the United States to become the largest economy in the years to come.

Some prominent macro investors have expressed positive sentiments about emerging market opportunities. In spite of the potential opportunities, investing in foreign stocks can be confusing, scary, and in some cases impossible.

Key Points

•   China is the world’s second-largest economy, and investing in Chinese stocks may attract the interests of certain investors

•   Delisting of certain Chinese companies from U.S. stock exchanges introduces investment risks.

•   China’s long-term economic outlook may make Chinese stocks appealing to some, depending on their objectives.

•   Investing in Chinese stocks may provide an option for international diversification, spreading risk and potentially enhancing portfolio protection.

•   U.S. investors can access Chinese stocks through ETFs, mutual funds, or direct purchases via brokerage firms.

Can You Invest in Chinese Stocks?

The short answer is yes, investors located in the U.S. and elsewhere do generally have the capability of trading international stocks, including investing in Chinese stocks. The details aren’t always so simple, though.

The majority of Chinese stocks can only be traded on Chinese exchanges, including the Hong Kong Stock Exchange, the Shanghai Stock Exchange, and the Shenzhen Stock Exchange.

There are ways for foreign investors to participate in these markets, either directly or through various types of investment vehicles or intermediaries. For the most part, buying Chinese stocks is technically not unlike buying U.S. stocks. Investors may only need to search for specific securities or utilize a special intermediary firm in addition to their standard brokerage. Investors in the U.S. should also be aware that delisted Chinese stocks may or may not return to exchanges.

What Are the Best Chinese Stocks to Buy?

For investors in the U.S., choices may be limited. If there are a limited number of Chinese stocks that can be purchased directly on a stock exchange, then it’s just a matter of evaluating stocks on the list choosing whichever ones seem most attractive.

How Can Foreigners Invest in the Chinese Stock Market?

To buy and sell stocks on foreign exchanges, investors often have to contact their brokerage firms and ask if they allow participation in foreign markets. If the answer is yes, the firm could then consult with a market maker, known as an affiliate firm. Affiliate firms, which are located in the country where foreign investors want to buy stocks, help facilitate these types of transactions.

The easiest way for many investors to gain exposure to the Chinese stock market might be to purchase shares in an emerging markets mutual fund or exchange-traded funds (ETFs) that includes some stocks from publicly-traded companies based in China.

To do this, investors can look for funds that track a Chinese index. Some examples include:

•   Shenzhen Composite Index, which tracks the Shenzhen Stock Exchange

•   Shanghai Shenzhen CSI 300 Index, which tracks parts of the Shanghai and Shenzhen exchanges

•   Shanghai Stock Exchange Composite Index, which tracks the Shanghai Stock Exchange

As far as the actual process of buying Chinese stocks is concerned, doing so will look like buying any other stock. This holds especially true for those buying an ETF or mutual fund. Buying individual Chinese securities may involve an extra step with an affiliate firm, as mentioned earlier.

In either case, investors have to first open a brokerage account, decide which securities they would like to own, then create appropriate buy orders.

Pros & Cons of Buying Chinese Stocks

While the decision ultimately lies with an individual investor, there are both pros and cons of global investments, including Chinese stocks. Here, we will explore both perspectives.

Pros of Buying Chinese Stocks

Factors like a long-term outlook, China’s response to the recent health crisis, and international diversification can make Chinese stocks appealing to some investors.

Long-term Time Horizon

Some investors believe that Chinese investments have a positive long-term outlook— regardless of any short-term political concerns (more on that in Cons of Buying Chinese Stocks, below).

China’s Response to the COVID-19 Pandemic

After the COVID-19 pandemic shut down most major economies in the world for an extended period of time, many areas saw contracting economic growth and continued to struggle. China, on the other hand, responded quickly and was able to reopen its economy sooner than many others, marking the country as a champion of growth throughout the pandemic and beyond.

International Diversification

Some investors choose to invest in the stocks of different countries as a way to further diversify their portfolios. The rationale: An investor could be diversified within and across different industries, but if something were to negatively affect the economy of the country those industries are in, it might not matter.

Cons of Buying Chinese Stocks

There are a few reasons why some investors might choose to avoid Chinese stocks.

Delisting of Some Chinese Companies

In recent times, executive orders have removed some Chinese stocks from American stock exchanges, including a Chinese oil firm named Cnooc (CEO) and China Mobile (CHL).

Growth Limits

Though there’s been economic growth in China, some believe the nature of the Chinese government could stifle innovation going forward. Which industries survive and which ones don’t can sometimes be determined by a simple forced government decision. One perspective is that China’s best growth days are behind it.

Are Chinese Stocks Undervalued?

It is impossible to say for certain. From a long-term perspective, if someone assumes that China will keep growing at a similar pace as it has in the past, then Chinese stocks in general could be viewed as undervalued. But there could also be some sectors that are currently overvalued, some stocks more undervalued than others, and so on.

The Takeaway

China is considered to be one of the strongest emerging market economies, leading some investors to see potential for returns there. Foreign investors have several options if they want to invest in Chinese stocks. Doing so may not be any different than buying stocks in one’s home country. And because of its large economy, there may be other stocks affected by China as well, even if they aren’t Chinese stocks.

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).

¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

FAQ

Can American investors invest in Chinese stocks?

Yes, investors located in the U.S. and elsewhere do generally have the capability of trading international stocks, including investing in Chinese stocks. The details aren’t always so simple, though, and there may be additional considerations to make.

What are the risks of investing in Chinese stocks?

There is the possibility that Chinese stocks could be delisted off of stock exchanges, and there may also be concerns related to Chinese firms’ growth potential that investors should take into account.

Why might investors find Chinese stocks attractive?

China is the world’s second-largest economy, and many investors believe that there is a lot of room for growth and the generation of potential returns from Chinese stocks. They can also offer the potential for portfolio diversification.


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

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

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

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

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

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

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

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

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Jun
23
2025
What Is the Difference Between Trading Halts and Trading Restrictions?

Trading Halts vs Other Trading Restrictions

By | Growing Wealth, invest, Investing | Comments Off on Trading Halts vs Other Trading Restrictions

Stock exchanges and financial regulators sometimes impose different types of trading restrictions on individual stocks, including short-term halts or delays, and occasionally longer-term suspensions.

In cases of unusual volatility, financial authorities may halt the trading of all securities, by using a fail-safe measure known as market-wide circuit breaker (MWCB).

Generally speaking, though, more common reasons for trading restrictions include mitigating the impact of company news that could impact a stock’s price, significant economic or global events that impact that security (or the market as a whole), or because there’s a technical problem impacting trades.

The Securities and Exchange Commission (SEC) can restrict the trading of a particular security for up to 10 days, often because the company hasn’t filed the requisite reporting documents.

These trading restrictions can impact listed stocks (those listed on U.S. stock exchanges), as well as over-the-counter (OTC) stocks, which are not traded on public exchanges.

Key Points

•   Stock exchanges and regulatory bodies may have reason to impose short- or long-term trading restrictions under various conditions.

•   A short-term trading halt usually lasts no more than an hour, and is resolved during the trading day. A delay is usually a brief pause before markets open.

•   The SEC can impose a trading suspension for up to 10 days.

•   A common reason for a trading suspension is that a company hasn’t maintained its regular reporting to the SEC.

•   A trading halt may be applied to a single security or market sector, but a full interruption of trading across markets is also possible.

What Is the Difference Between a Trading Halt and a Trading Restriction?

A trading halt is a short-term pause in which the trading of a particular security is temporarily suspended. These are known as regulatory halts. While a trading halt may occur at any point during the trading day, a trading delay is usually imposed at the market’s open.

A trading suspension is a longer-term restriction on trading a certain security, up to 10 days, enforced by the SEC.

For listed stocks, trading halts and delays are typically put in place by stock exchanges themselves, usually in response to company news that could impact trading outcomes.

OTC stocks, which are not listed on traditional exchanges like the NYSE or Nasdaq, are regulated by FINRA. So FINRA would institute a halt or delay if there were a material reason to pause trading.


💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

What Is a Trading Halt or Delay?

A trading halt pauses trading for a short period of time, usually less than an hour. Typically the halt occurs in response to company news or announcements affecting a product, company leadership, or other significant news that could change a stock’s price positively or negatively.

A stock exchange can also interrupt trading of a certain security if it deems that the stock does not meet, or no longer meets the criteria for being listed on the exchange.

A trading delay can be imposed by an exchange when a company has revealed significant news after the trading hours of 4 p.m. to 9:30 a.m. Eastern Time — which is often when companies make important announcements.

The idea is to give investors time to absorb the news, and ideally avoid volatile trading.

When an exchange imposes a halt on a certain security, other exchanges that list that stock also respect the halt or delay.

Trading halts are artificial, meaning they are not a natural part of markets — however, they have been in existence for some time. Stock market halts date back to 1987, when the SEC mandated the creation of market-wide circuit-breakers (MWCBs) to prevent a repeat of the Oct. 19, 1987 market crash, also known as “Black Monday,” which was one of the worst days in the history of the stock market.

Reasons for Trading Halts

Trading halts are a means of interrupting market action to prevent volatility from snowballing in response to unexpected stimuli. Halts are implemented for a variety of reasons, including the following.

1. Anticipation of a Major News Announcement

A trading halt might be called during the day to allow a company to make an announcement. As noted, if the announcement is pre-market, it might result in a trading delay rather than a halt, prior to the market’s open. A trading halt or delay allows investors time to absorb the news without reacting.

2. Severe Price Fluctuations

Exchanges may also impose trading halts based on stock volatility, applying to both upside and downside swings in short amounts of time. Whereas news-induced trading delays could be an hour in duration, trading of a certain stock can also be halted when price fluctuations trigger the Limit Up/Limit Down Plan (LULD).

The LULD parameters are designed to halt trading when a stock’s price moves too quickly outside certain price bands. These bands are calculated on a rolling basis, to capture higher- or lower-than-average price movements over five-minute intervals. If a stock enters the so-called limit state (i.e., it hits either the upper or lower end of its range), and doesn’t move within 15 seconds, trading is paused for five minutes.

3. Market-Wide Circuit Breakers

There are also three tiers of market-wide circuit breakers that pause trading across all U.S. markets when the benchmark indices the S&P 500, the Dow Jones 30, and the Nasdaq exceed pre-set percentages in terms of price from the prior day’s closing price:

•   Level 1: 15-minute halt when the S&P 500 falls 7% below the previous day’s closing price between 9:30 am ET and 3:24 pm ET.

•   Level 2: 15-minute halt when the S&P 500 falls 13% below the previous day’s close between 9:30 am ET to 3:24 pm ET. Level 1 and 2 circuit breakers do not halt trading between 3:25 pm ET and 4:00 pm ET.

•   Level 3: Trading is closed for the remainder of the day until 4 pm ET when the S&P 500 falls 20% below the previous day’s close.

4. Correct an Order Imbalance

Non-regulatory halts or delays occur on exchanges such as the NYSE when company news — particularly when released after hours — has a disproportionate impact on the pending buy and sell orders.

When this occurs, trading is halted or delayed, market participants are alerted to the situation, and exchange specialists communicate to investors a reasonable price range where the security may begin trading again on the exchange.

However, a non-regulatory trading halt or delay on exchange does not mean other markets must follow suit with this particular security.

Recommended: Understanding the Different Stock Order Types

5. Technical Glitch

Trading is halted when it’s determined that unusual market activity such as the misuse or malfunction of an electronic quotation, communication, reporting, or execution system is likely to have a significant impact.

6. Regulatory Concerns

A trading halt may be placed on a security when there is uncertainty over whether the security meets the market’s listing standards. When this halt is placed by a security’s primary markets, other markets that offer trading of that security must also respect this halt. These include:

•   SEC Trading Suspension: A five-minute trading halt for a stock priced above $3.00 that moves more than 10% in a five-minute period. These are commonly imposed by the SEC onto penny stocks and other over-the-counter stocks suspected of stock promotion or fraud.

•   Additional Information Requested: A trading halt that occurs when a stock has rallied significantly without any clear impetus. This can be common among orchestrated pump-and-dumps or short squeezes. In many cases when the halt is lifted, the stock reverts back down because there are no underlying fundamentals supporting the dramatic rise in price.



💡 Quick Tip: It’s smart to invest in a range of assets so that you’re not overly reliant on any one company or market to do well. For example, by investing in different sectors you can add diversification to your portfolio, which may help mitigate some risk factors over time.

How Long Do Trading Halts Last?

Trading halts are typically no longer than an hour, the remainder of the trading day, or on rare occasions up to 10 days. However, if the SEC deems appropriate, the regulatory body may revoke a security’s registration altogether.

Example of Trading Halts

While most trading halts don’t make headlines, there are a few that investors may remember.

Pending News

In February of 2025, medical device company Know Labs, Inc. (KNW) announced that its trading suspension had been lifted by NYSE American. The trading suspension had been imposed on the company’s common stock, owing to the company’s need to meet compliance standards for listing on the NYSE American exchange (in this case the stock price was found to be above the low-selling threshold for listing on the exchange).

Stock Volatility

Amid the well-known Gamestop vs Wall Street meme stock spectacle in 2021, Gamestop’s stock (GME) saw huge capital inflows over the course of a couple of weeks, leading the NYSE in terms of daily volume. The stock’s intraday volume was so high that it triggered the volatility circuit breaker dozens of times over the last week of January and again on February 2, 2021, when it dropped 42%.

Technical Issues

In early June of 2024, the trading of some 40 ticker symbols on the NYSE, including Berkshire Hathaway Class A shares, were temporarily halted owing to pricing data issues that stemmed from a technical glitch attributed to a new software release. Trading resumed after a couple of hours.

Market-wide Circuit Breakers (MWCBs)

MWCBs were triggered four times in March 2020 in response to the global COVID-19 pandemic lockdowns that caused two of the six largest single-day drops in market history. This was the first occurrence of market-wide circuit breakers since 1997.

The Takeaway

Trading halts, delays, and suspensions are similar, but halts and delays are generally shorter — and are the result of intervention by a stock exchange or FINAR. Trading suspensions are generally put in place by the SEC.

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).

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

FAQ

Is a trading halt a good thing?

Generally speaking, the intention of a trading halt is to protect investors, as well as companies, from the impact of significant news events on a stock’s price — or if there’s evidence of non-compliance, fraud, or technical issues. In rare cases, an exchange may halt trading when there’s a major event, such as a natural disaster.

What happens when trading is halted?

A typical trading halt occurs during the course of the trading day (usually 9:30 a.m. to 4 p.m. Eastern Time). This is a temporary interruption of the trading of a single security, and usually it lasts no more than an hour. It may follow a company news announcement, or it may occur after news is released.

What’s the difference between a halt and a suspension?

A trading halt is a temporary pause relating to company news (or factors that could lead to market volatility), and it’s imposed by a stock exchange or by FINRA (in the case of over-the-counter stocks). A suspension is longer-term — up to 10 days — where a stock is removed from trading owing to non-compliance with SEC rules or other regulatory issues.

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

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

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

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

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

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

SOIN-Q225-044

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Jun
23
2025
laptop financial graphics

What Are Dividend ETFs?

By | Growing Wealth, Investing | No Comments

Dividend ETFs, or exchange-traded funds, provide a portfolio of stocks that offer investors the potential for growth as well as income in the form of regular dividend payouts.

Some investors may find dividend ETFs appealing because, like mutual funds, ETFs are invested in a range of stocks. As such they can add diversification to an investor’s portfolio by providing broad market exposure.

Because dividend ETFs are invested in dividend-paying stocks, there is the potential for income as well as growth. Dividends can also be reinvested in more ETF shares.

Unlike bond coupons, however, dividend payments are not guaranteed. Most dividend ETFs are passive in that they track an index of dividend stocks.

Key Points

•   Dividend ETFs have a portfolio of stocks that pay dividends.

•   Dividend stocks offer investors the potential for growth as well as income in the form of regular dividend payments, but companies are not required to pay dividends.

•   An investor may be able to choose whether to take the dividend payouts or reinvest them in shares of the ETF.

•   Most dividend ETFs are passively managed in that they track an index of domestic or international stocks.

•   Dividend ETFs can follow different strategies, focusing on domestic, international, higher-yield or other securities.

ETFs Basics

An ETF is a fund that allows individuals to invest in a diversified basket of investments, such as stocks, bonds, and other assets.

Most ETFs are passively managed, meaning they track an index such as the S&P 500, which reflects the performance of the 500 largest U.S. stocks. But some ETFs are designed to capture the performance of a certain market sector, or rely on another strategy.

As the name suggests, exchange-traded funds are traded in real time on different stock exchanges, such as the New York Stock Exchange or Nasdaq. Investors buy shares of an ETF, and the price of the ETF fluctuates throughout the day. These funds can be bought and sold throughout the day.

ETFs vs. Mutual Funds

This is an important distinction from how mutual funds work, which also allow individuals to invest in a basket of investments. Mutual fund trading is settled once per day, at the end of the trading day.

Another important difference between ETFs and mutual funds is that ETFs typically have lower fees than mutual funds. Because ETFs that track an index are usually passively managed, they don’t require a lot of oversight from fund managers. Less time and energy from fund managers translates into lower fees that end up being passed on to investors.

How Dividend ETFs Work

A dividend ETF works much the same as a regular ETF, but the ETF’s portfolio is invested in dividend-paying equities, and they usually track part or all of a dividend stock index. For example, a dividend ETF might track the Dow Jones U.S. Select Dividend Index, which consists of 100 dividend-paying stocks.

Dividend stocks are securities that pay a portion of company profits out to shareholders. Those dividends are usually paid on a fixed schedule. The process involves four important dates: the declaration date, the date of record, and the payment date.

•   The declaration date is the day the board of directors announces that it will pay a dividend.

•   The date of record is when the company assesses which shareholders are entitled to a dividend.

•   The ex-dividend date is the deadline for getting paid the dividend for that quarter (or period). If you purchase shares before the ex-dividend date, or ex-date, you qualify for the upcoming dividend payout.

If you purchase shares on or after the ex-dividend date, you’ll get dividends on the next payout schedule.

•   The payment date is the day the dividends are paid to you directly, or through your brokerage. Sometimes there is a special payment date if the company has extra profits it wishes to distribute to shareholders. This is another reason to be aware of these important dates.

Dividends are usually distributed to shareholders in the form of cash, on a per-share basis (although, as noted, dividends can be reinvested in the company or ETF). For example, if a company pays a monthly dividend of 20 cents per share, an investor with 100 shares of stock would receive $20 per month.

Do ETFs Pay Dividends?

Dividend ETFs collect the dividend payments from their underlying stocks and make distributions to the ETF shareholders. The process of payment from a dividend ETFs mirrors that of single dividend stocks. There is a record date, ex-dividend date, and a payment date.

That said, the ETF’s schedule may be different from the schedules followed by its underlying stocks. Dividend ETFs usually make payments according to a regular schedule, which is described in the fund’s prospectus and is publicly available.

Recommended: What are Dividends and How Do They Work?

Types of Dividends

Qualified dividends are those that can be taxed at the capital gains rate. The capital gains rate then depends on the investor’s modified adjusted gross income (MAGI). This is also known as the preferential rate.

In contrast, ordinary or nonqualified dividends are taxed at income tax rates, which are generally higher than capital gains tax rates.

To get qualified dividends, the company must meet certain criteria, and the investor must hold the shares for a specified period. The Internal Revenue Service (IRS) requires that investors hold shares for more than 60 days during a 121-day period. The period starts 60 days before the ex-dividend date.


💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

How Dividend ETFs Are Taxed

ETFs may also be more tax efficient than other similar investments. That’s because they’re passive investments with little turnover in the holdings. The process of creating and redeeming ETF shares are also not subject to capital gains taxes on any individual security within the fund.

Dividend ETFs are a little bit more complicated when it comes to taxes due to the way dividends are taxed by the IRS. There’s no escaping tax on dividends. Shareholder dividends are taxable in the year that they are received whether they are paid in cash or whether they are reinvested. The first thing to pay attention to is whether you are receiving qualified dividends or ordinary dividends.

•   Most dividends, whether from stocks or ETFs, are considered ordinary, or nonqualified dividends. Ordinary dividends are taxed as income, based on your tax rate.

•   Qualified dividends must meet certain IRS criteria: i.e., they must be paid by a U.S. company (or a qualifying foreign company), and a certain required holding period must be met to qualify for the capital gains rate.

To qualify for any dividend payout, from a stock or ETF, you must buy shares before the ex-dividend date.

Then, to qualify for the lower capital gains rate, the basic rule of thumb is that you have to hold the security for at least 60 days within a specific 121-day period. Many dividend ETFs offer qualified dividends, but it’s important to check the prospectus to understand the holding period.

Recommended: Active vs Passive Investing: Differences Explained

Types of Dividend ETFs

There are hundreds of dividend ETFs that can track all sorts of indexes. Some may track global indexes, while some may target specific indexes by country or market sector, or companies of a certain size. Some track bond indexes of varying risk. And others target real estate or currency or alternatives.

Investors can take a look at what’s available by looking at the ETF Database directory, an online resource.

Here’s a closer look at just a few categories of dividend ETFs that investors may encounter:

Dividend Growth ETFs

A company that’s steadily growing its profits should theoretically be able to offer higher dividends in the future. That’s the reasoning behind dividend growth ETFs, which target companies that show increasing profits and sales.

Dividend Value ETFs

Value stocks vs. growth are those that operate in relatively stable industries, but are priced cheaply compared to the potential value of the company.

They typically have a low price-to-earnings ratio. The idea is that the company may experience a future jump in share price as investors catch on to the company’s true value. Shares inside the ETFs could provide a boost in price in addition to the dividends they provide.

High Dividend Yield ETFs

This category of ETFs goes after stocks that produce high dividend yields. But here’s the rub: While the payout for these stocks may be higher than others, it doesn’t necessarily mean that the stock will grow particularly fast. In other words, you may be trading swift share price growth for high dividend yields.

Also, as the stock price goes down, yield goes up. It’s counterintuitive, but the way this math works out may actually be masking the fact that you’re losing money on the price of the stock. Investors could potentially combat this by looking for ETFs that invest in stocks that at least keep pace with the market long-term.

Some dividend ETFs target the so-called “Dogs of the Dow.” The Dow is an index that comprises the 30 largest U.S. industrial stocks. The “dogs” are the 10 highest-paying dividend stocks within this index, yet they also tend to be the lowest performers when it comes to price gain.

Reinvesting Dividends

Reinvesting dividends is the process of using the income collected from shares of a dividend stock or dividend ETF and immediately buying more shares of the same stock or ETF. The practice is commonly known as a dividend-reinvestment plan (DRIP). It’s important to remember, however, that companies are not required to pay dividends, and those that are paying dividends now may choose to stop.

Some of the advantages and disadvantages of DRIP plans include:

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Pros:

•   Many DRIPs offer a discount on share price between 1% to 10%.

•   Many company DRIPs allow commission-free trades when you reinvest your dividends.

•   Using a DRIP may allow you to take advantage of fractional shares.

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Cons:

•   Using a DRIP means your cash is tied up.

•   Reinvesting in one stock can increase your risk exposure.

•   Putting your capital into more shares can mean less liquidity.

The Takeaway

ETFs provide a built-in way to add diversification through the basket of stocks they invest in. Even so, you may still want to consider how the ETF will fit into your overall plan.

While owning a dividend ETF may offer income and potential growth, it’s important to consider your overall portfolio allocation and diversification.

You can also find out quite a bit of information about a fund from its prospectus, which is filed with the Securities and Exchange Commission (SEC) and is available to every member of the public. The prospectus can give you information such as past returns, as well as what kinds of fees you can expect to pay when you invest in the fund. You should also be able to learn more about the fund’s investment strategy.

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).

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

FAQ

How much do dividend ETFs pay?

Payouts from a dividend ETF depend on the holdings in the fund. Some high-yield stocks might pay 10% or more, some are in the 3% to 4% range.

What is dividend yield?

Dividends can be expressed as a cash amount (e.g., 50 cents per share), or as the dividend yield, which is expressed as a percentage of the share price. So a 50-cent dividend on a $10 per share is a yield of 2%.

How long do you have to own shares of an ETF to get the dividend?

Generally, you have to buy shares on or before the ex-dividend date for the ETF (the same applies to owning a dividend-paying stock). If you purchase shares after “the ex-date,” you won’t get the next dividend payment. To get ordinary, i.e., non-qualified dividends, there’s no required holding period.


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

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

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

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.

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.

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New England summer home

How Do Home Improvement Loans Work?

By | Budgeting & Goals, Home Ownership, personal_loan | Comments Off on How Do Home Improvement Loans Work?

Whether you’re planning to renovate your kitchen, add a room to your home, or upgrade your backyard, home improvement projects typically require a sizable financial investment. While you might be able to pay cash for small-scale repairs and upgrades, a more substantial project could require funding. That’s where home improvement loans come in. These are personal loans used to pay for home repairs and renovation projects. These loans aren’t backed by the equity you have in your home, and they are generally one of the quickest ways to get funding for a home improvement project. However, they may have higher interest rates and offer lower amounts than other options, such as a home equity loan.

Read on to learn how home improvement loans work, their pros and cons, and how they compare to other home remodel financing options.

Key Points

•   A home improvement loan is a personal, unsecured loan for home upgrades.

•   Funds are received quickly, often within days.

•   Compared with HELOC, home equity, and construction loans, home improvement loans are suitable for small to midsize projects, not large ones.

•   Compare lenders for the best rates and terms.

•   Paying off the loan can build credit.

What Is a Home Improvement Loan?

Typically, a home improvement loan refers to a personal loan that is designed to be used to pay for home upgrades and renovations.

These are unsecured loans — meaning your home isn’t used as collateral to secure the loan. In fact, lenders typically don’t ask for any information about your home with this type of financing. Instead, a lender decides how much to lend to you and at what rate based on your financial credentials for a personal loan, such as your credit score, income, and how much other debt you have.

With a home improvement personal loan, you receive a lump sum of cash up front you can then use to cover the costs of your project. You repay the loan (plus interest) in regular installments over the term of the loan, which is often one or seven years.

One of the advantages of a home improvement loan is that it allows you to access a significant amount of money upfront quickly, often within a day or two. You also don’t need to have built up any equity in your home, or risk losing your home should you default on the loan.

However, personal loans for home improvement tend to be shorter-term and offer smaller loan amounts than other home loan options, making them best suited for small to midsize projects, say renovating a bathroom or repainting the exterior of your home.

Recommended: Can I Pay off a Personal Loan Early?

Alternatives to a Personal Loan

While personal loans can be a quick and convenient way to fund home improvement projects, they aren’t your own option. Here are some alternatives you may also want to consider.

Home Equity Loan

Home equity is the portion of your home that you actually own. More specifically, it is the difference between what your home is currently worth and what you owe your lender. So, for example, if you took out a mortgage for $200,000 and have paid down $50,000 of that loan, you owe the lender $150,000. If your home gets appraised for $250,000, you have $100,000 in equity.

A home equity loan is a loan that utilizes the equity you have built in your home as collateral. Home equity loans often have fixed interest rates and terms that typically range from five to 30 years. These loans provide homeowners with a lump sum of money that can be used for various purposes, including home improvements. As you repay a home equity loan, your payments get added back to your principal, allowing you to build your equity back up.

With a home equity loan, you can often borrow up to 85% of the equity you have in your home.

Home Equity Line of Credit (HELOC)

A home equity line of credit, or HELOC, is similar to a home equity loan, except that the funds are not distributed in a lump sum. The amount of money you can borrow is still tied to the amount of equity you have in your home, but you are given access to a line of credit that you can borrow from as needed.

HELOCs have a draw period, usually 10 years, when you can use some or all of the funds you’re approved to borrow. During that time you typically make interest-only payments on the amount you draw. You then repay the principal later, during the repayment period.

Like a home equity loan, a HELOC is essentially a second mortgage, so you’re using your house as collateral. Unlike a home equity loan, HELOCs have variable rates, which means your annual percentage rate (APR) could go up or down in the future.

One key advantage to a HELOC is its flexibility. This type of financing can be particularly useful for projects you’re doing in stages, or when you don’t know exactly how much the renovation will cost.

Cash-out Refinance

A cash-out refinance involves refinancing your existing mortgage for a higher amount than what you currently owe. The difference between the new loan amount and your current mortgage balance is paid out to you in cash, which you can use for home improvements.

Because cash-out refinancing involves revising your mortgage, it can be a good move if rates have dropped since you financed your home, or you’re in a better financial situation than when you originally took out your mortgage. Lenders typically look at an applicant’s financial history, as well as the appraised value of the home and how long the existing mortgage has been in place.

You’ll want to keep in mind, however, that closing costs can be 2% to 6% of the new mortgage amount, which could potentially be more than you plan to spend on the improvement project.

Construction Loan

If you’re planning significant renovations or an extensive home improvement project, a construction loan may be worth exploring. Construction loans are specifically designed for large-scale projects, such as significant structural changes or additions to a property. These loans usually have variable interest rates and short terms, often just one year.

Unlike mortgages and personal loans that make a lump-sum payment, the lender pays out the money for a construction loan in stages as work on the home progresses. Generally, you make interest-only payments during the construction stage. Once construction finishes, the construction loan needs to be repaid or converted into a mortgage.

Applying for a Home Improvement Loan

Before choosing any type of home improvement loan, it’s a good idea to shop around and compare interest rates, terms, and fees from different lenders to ensure you’re getting the best possible deal.

When applying for a home improvement loan, you’ll need to gather all the necessary documentation to support your application. Lenders typically require proof of income, proof of residence, and information about the project you plan to undertake. Some lenders may also ask for estimates or contractor bids to assess the cost of the project.

Your current debts, housing payment, credit history, and total income will all play a role in what rates and terms you qualify for. If possible, take advantage of lenders that offer a prequalification process. This gives you a sense of your approval odds, predicted interest rate, and the total cost of your home improvement loan. Plus, prequalifying doesn’t require a hard credit check, so you won’t have to worry about it impacting your credit score.

The Takeaway

Home improvement loans allow you to finance a repair or remodeling project for your home. You may be able to get an unsecured personal loan designed to be used for home improvement or, if you’ve built up equity in your home, use a home equity loan, HELOC, or a cash-out refinance, to fund an upgrade. For a substantial structural change, you might consider a construction loan.

If you think a personal loan might work well for your home improvement project, SoFi can help. SoFi’s home improvement loans range from $5K-$100K and offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score.

See if a home improvement loan from SoFi is right for you.

FAQ

Why are home improvement loans so expensive?

Home improvement loans may have higher interest rates compared to traditional mortgages for a few reasons. One is that these loans are often unsecured, meaning you don’t have to use your home as collateral to get the loan, which poses more risk to the lender. Another is that these loans typically have shorter repayment terms compared to mortgages, resulting in higher monthly payments. Also keep in mind that interest rates can vary based on the borrower’s creditworthiness and prevailing market conditions.

Is a home improvement loan the same as a mortgage?

No. A mortgage is a loan used to purchase a property, while a home improvement loan is specifically used to fund renovations or improvements on an existing property. Home improvement loans are typically smaller in amount and have different terms and repayment options compared to mortgages.

How much debt to income do I need for a home improvement loan?

The specific debt-to-income (DTI) ratio required for a home improvement loan can vary depending on the lender and other factors. Generally, a DTI ratio below 43% is considered favorable for loan approval. This means that your total monthly debt payments, including the new loan, should not exceed 43% of your gross monthly income. However, different lenders may have different criteria, so it’s essential to check with the lender you’re considering for their specific DTI requirements.

What is the average length of a home improvement loan?

The average length or term of a home improvement loan will depend on the type of loan you choose. Personal loan terms can range from five or seven years. Loans based on the equity in your home (such as a home equity loan or line of credit) can have terms up to 30 years.

What is the downside to a home equity loan?

While home equity loans can be a useful option for funding home improvements, there are some potential downsides to consider. These loans use your home as collateral, which means you risk foreclosure if you’re unable to repay the loan. Also, should your property value decline, you may owe more on the loan than the home is worth, which is known as being “underwater.” Finally, home equity loans typically come with closing costs and fees, which will add to the cost of your remodel.


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*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.


Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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.

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

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How Do Valuations of Property Work?

By | Home Ownership, mortgage | Comments Off on How Do Valuations of Property Work?

Whether you’re a first-time homebuyer or you’re thinking about putting your home on the market, it’s critical to know the value of the property. Property valuation also comes into play in home financing, property taxes, real estate investing, and home insurance. But who does the valuation, and how do they determine the value of a home?

The answers to both questions will depend on the situation. Read on to learn more about property valuations, including what they are and why they matter.

Key Points

•   Types of property valuations include appraised, assessed, fair market, actual cash, and replacement cost values.

•   Appraised value serves mortgage purposes; assessed value is used for property taxes.

•   Fair market value indicates the open market selling price.

•   Actual cash value considers depreciation and may be helpful in insurance claims.

•   Replacement cost value estimates rebuilding expenses.

What Is a Property Valuation?

Broadly defined, a property valuation is a method of determining how much a property is worth for purposes of pricing it for sale, qualifying for a mortgage, or determining a property tax bill.

Someone selling their home, for example, may use a property valuation to determine how much their house is worth and how much they can charge on the open market.

If you are applying for a mortgage, the lender will typically have a home appraisal done to determine if the price you are paying for the house reflects its actual fair market value. Insurance companies and local tax authorities also do property valuations.

Typically, property valuations are done by an independent third party, such as a licensed appraiser. The lender, buyer, seller, tax authority, and insurer generally cannot have any relationship with the appraiser so that the valuation is unbiased.

The value of a property is determined by many factors, including its location, its size, the condition of the inside and outside of the building, and the current real estate market.

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Types of Property Valuations

There are several different types of property valuations. Here are some of the most common you may encounter.

Appraised Value

When you are looking to qualify for a mortgage to buy a home, your lender will usually need to know the appraised value of the house you want to buy. The appraised value of a home is determined by a licensed appraiser who thoroughly evaluates the property’s size and features, market conditions, and comparable sales data. Typically, a lender will offer a loan for no more than 80% of the home’s appraised value (though some lenders and loan programs will allow you to borrow more).

💡 Quick Tip: When house hunting, don’t forget to lock in your mortgage loan rate so there are no surprises if your offer is accepted.

Assessed Value

The assessed value of your home is used in determining your property taxes. Depending on where you live, a municipal or county tax assessor will perform a property value assessment based on a number of factors, which may include sales of similar homes, square footage, current market conditions, and findings from a home inspection.

Local tax officials will use your home’s assessed value to calculate your property taxes. The higher your home’s tax-assessed value, generally the higher your property taxes will be. It is important to note that assessed values may not always accurately reflect the property’s market value, as they can vary depending on the jurisdiction’s assessment practices.

Recommended: Are Property Taxes Included in Your Mortgage Payments?

Fair Market Value

Fair market value of a property refers to the price at which the property would change hands in the open market between a willing buyer and a willing seller, with neither party under any pressure to buy or sell. Put another way, it’s the amount for which you could expect to buy or sell a property based on the current real estate market. This value is considered the most objective and widely used in real estate transactions.

Recommended: The Top Home Improvements to Increase Your Home’s Value

Actual Cash Value and Replacement Cost Value

Actual cash value and replacement cost value are methods used by home insurance companies to determine how they will pay out when you file a claim. Actual cash value takes into account depreciation and wear and tear when determining a property’s value. Replacement cost value estimates the cost of rebuilding or replacing a property with a similar one, considering current construction costs.

What If You Get a Low Appraisal?

If you’re buying a home and the lender’s appraised value is as much as the agreed-upon price or more, the lender will likely move forward with the home loan, assuming that the other aspects of the property and your application are in order.

If the appraisal comes in under the agreed-upon price, the lender may reduce the amount of the loan it’s willing to offer.

At that point, you or the sellers can dispute the appraisal with the lender or ask for a second look. If the value is still too low, there are a few different routes:

•  You can try to get the seller to reduce the price.

•  You can agree to contribute the difference in cash.

•  You and the seller may agree to split the difference.

If the purchase agreement contains an appraisal contingency, you are protected in the case of a low appraisal. This means that If you can’t get the seller to adjust the price or come up with the difference in cash, you can walk away from the sale and get your earnest money deposit returned to you.

Property Valuation Methods

There are different ways to assess the value of a property. Which method will be used will depend on the situation.

Sales Comparison Approach

The sales comparison approach determines a property’s value by comparing it to recently sold properties with similar characteristics in the same area, also known as “comps.” Appraisers make adjustments for differences in size, condition, and amenities to arrive at an estimated value. The sales comparison approach is the one most often used by real estate agents in determining the value of a property for sale.

Income Approach

The income approach is primarily used for investment properties that result in a stream of income, such as rental apartments or commercial buildings. It estimates the property’s value based on its income potential, taking into consideration factors such as expense statements, rental rates, vacancy rates, and market conditions.

Cost Approach

The cost approach evaluates a property’s value by estimating the cost required to rebuild or replace it on its current plot of land. This appraiser determines the replacement cost by considering the cost of materials and labor, then subtracts depreciation and adds in the value of the land to determine the property’s worth. This method is often used by insurance companies.

Automated valuation models (AVMs) are software programs that use data about other properties and sales combined with mathematical or statistical modeling to arrive at an estimate of the value of a property. There are commercial AVM providers, including Equifax®, as well as free AVMs available online, such as Zillow’s “Zestimate.”

Because AVMs are based on existing data, the property valuations they produce are only as good as the information available. An AVM may be inaccurate if the data is outdated or incorrect. While they can be speedy and convenient, at least for the time being, AVMs have not eliminated the need for appraisals or inspections.

The Takeaway

Understanding property valuations is essential for navigating any kind of real estate transaction, whether you are on the buying, selling, investing, or financing side of the deal. There are many different types of home valuations, including appraised value, assessed value, fair market value, actual cash value, and replacement cost value. There are also different ways of doing property valuations, such as the sales comparison approach, income approach, and cost approach. For a quick valuation, you can even use an online computer-generated valuation tool or AVM.

Whatever approach you take, a property valuation can help you confidently make informed decisions and negotiate effectively in the real estate market.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.


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FAQs

How do you determine the value of a property?

The value of a property is typically determined by an independent licensed appraiser who considers factors such as the property’s location, size, condition, amenities, and recent comparable sales data in the area.

What are the 4 ways to value a property?

The four primary ways to value a property are: the market comparison approach, which compares the property to similar recently sold properties in the same area; the income approach, in which the value is estimated based on the property’s income potential; the cost approach, which involves evaluating the cost to replace or rebuild the property on the same land; and the appraised value, in which the value of the property is determined by a qualified appraiser through a comprehensive evaluation.

How does valuation work?

Valuation of a home typically involves having an appraiser inspect the property, analyze relevant data, and apply appropriate valuation methods (such as the market comparison approach or cost approach, for instance). Appraisers will generally assess factors such as location, condition, amenities, recent sales, and market trends to determine the property’s value. A comprehensive report is then prepared, detailing the value, data, and reasoning behind the valuation. Valuation serves as a crucial step in real estate transactions, providing objective estimates of property worth.


*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


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.

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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