The Show Must Go On

We are quite literally witnessing history.

In 2025, the level of excitement around AI’s potential to transform businesses and drive productivity propelled nearly $400 billion in capital expenditures from the hyperscalers, helping boost the S&P 500’s market cap up by $9 trillion year-to-date.

With markets driven by the power of the AI theme since late 2022, it cannot be overstated how important this technology revolution has been (and is expected to continue to be) for economic activity, business productivity, and investor sentiment.

Investors have grappled with the growing risks of high valuations, whether or not the bubble is about to burst, and who the ultimate winners will be. But despite these worries, markets have continued to forge ahead, and seem to be taunting investors as if to say, “doubt me at your own peril.”

Looking ahead to 2026, market behavior is still expected to be highly reliant on the messages sent by the technology behemoths. But we do see potential for some new corners of the market to step into the limelight. Similarly, we expect to see the economy reaccelerate across a broader swath of sectors as AI begins to result in productivity gains. As such, the degree of AI spending as well as future earnings expectations have the power to make or break this market, and the show must go on in AI in order to support stocks.

The Music Kept Playing in 2025

Despite finishing the year with handsome returns on major stock indices, 2025 was fraught with fits and starts. Tariff news pummeled markets in late winter and early spring, contributing to the S&P 500’s first 20% drawdown since 2022. The resumption of rate cuts by the Federal Reserve gave markets something to cheer about, but a lack of certainty around how far and how fast rates would come down made for more bumps, albeit smaller, in the second half. Plus, the longest government shutdown in U.S. history delayed or cancelled some economic data.

Through it all, investors’ buying appetite remained relatively steady, and upside momentum carried markets. In fact, when we look at market performance through the lens of factors, high liquidity and strong momentum stocks were by far the best performers in 2025, while low volatility stocks were the worst, clearly illustrating a healthy appetite for risk that couldn’t be scared off easily.

Year-to-Date Factor Performance

Perhaps not surprisingly, Technology and Communications were the best performing sectors for the year, even with strong showings from other sectors such as Industrials, Utilities, and Health Care.

One of the most covered stories in 2025 was the interconnectedness of funding among AI companies, with most of the major players committing some level of investment to others in the game. This raised questions about fragility and an overdependence on just a few key players.

In the background of major market headlines, the U.S. economy slowed but certainly didn’t stop. Growth expectations remained strong, inflation remained contained (albeit still above the Fed’s target), and the labor market stayed out of real trouble.

As the end of 2025 approaches, there is a general sense of optimism about an economic reacceleration in 2026, particularly as a result of fiscal stimulus and loosening monetary policy, which has kept volatility at bay. A question that remains on investors’ minds is how much positivity has already been priced in? We hope to answer that and more as we walk through the specifics of our outlook for the year ahead.

Befriend the Bubble

As markets stand on the doorstep of what could be the fourth year of AI-driven optimism, it’s natural to be on the lookout for obvious signs of stress or fatigue in the rally. For what it’s worth, we toiled over the same thing at the end of 2024, only to watch 2025 produce strong earnings growth, improved guidance, and another year of healthy returns.

Inevitably, in any period that feels like it has the characteristics of a bubble, one wonders if and when it might burst, and which warnings should be heeded. There have certainly been indicators that give investors pause: extended valuations, signs of intense speculation, a weakening labor market, and inflation that remains stuck above the Fed’s 2% target. Yet companies continue to commit to spending eye-popping amounts on CapEx, and investor buying appetite seems unstoppable.

For our 2026 outlook, we tackle the major topics that are causing a lot of investor handwringing to determine if there is real reason to worry… yet. In other words, we acknowledge that there is a bear case building, but can it be staved off for another year?

The reality is at some point this uptrend is likely to end, and it could end in very dramatic fashion. Until it does, however, we’re better off befriending the bubble.

Markets: A Manageable Fever

One of the most overdiscussed elements of today’s market environment is valuations. The nice thing about valuations is they allow us to compare current prices to history and to other assets to arrive at a logical conclusion about whether something looks cheap, expensive, or just right. The not-so-nice thing about valuations is that they tell us very little about when to buy or sell.

This has been a frustrating topic for investors as the price-to-earnings ratio (P/E) on the S&P 500 has remained above its long-term average for nearly two years. Even if we isolate the 11 stocks that are most heavily tied to the current tech revolution (let’s call them the “Big 11”), because of their higher valuations, the rest of the index still looks elevated.

Valuation Premium for Big 11

Based solely on this, investors have reason to be concerned. Valuations are high on a relative basis, but are also approaching levels seen during the dotcom bubble. In 1998, the forward P/E on the S&P 500 hit 23.2x; Today it sits at 22.4x — just a whisker off.

History doesn’t repeat, though it often rhymes. Even if valuations on broad indices do reach the same levels they did in 1998, those don’t serve as limits. As investors, we are constantly weighing the tradeoffs between how much potential we think the market has with how much we’re willing to pay for that potential.

Not to mention that investor sentiment can’t be fully captured by financial ratios, and it’s a stronger force than people give it credit for. Over short-term periods investor sentiment tends to prevail even when the numbers send warnings. It has remained resilient through a variety of headwinds, scares, and rising valuations.

What’s more, when we consider the potential that remains, high valuations today may be more defensible and perhaps more palatable than some historical periods.

Cash Cows

One of the concerns into the end of 2025 was the increased amount of borrowing taken on by the hyperscalers (Alphabet, Amazon, Meta, Microsoft, Oracle). Rising debt levels can be important cautionary notes, but not all debt is bad. It’s worth noting that in a bull market or period of cyclical expansion, leverage generally increases as companies raise capital to focus on growth opportunities.

Despite recent borrowing activity by some of the Tech behemoths, and those companies’ massive influence on market-cap weighted indices such as the S&P 500, the debt-to-EBITDA ratio remains historically low, and perhaps more importantly, is a far cry from levels seen in the late 90s. Moreover, when we look at the debt-to-EBITDA ratio of the Big 11, the level is even lower.

Net Debt/EBITDA Ratio

This is thanks to the high amounts of cash these companies had before the debt was raised, and is further supported by the strong cash flow they’re generating. For context, although these 11 companies have seen their net debt levels rise by $142 billion in 2025 (compared to only $16 billion for 2023 and 2024 combined), their collective free cash flow amounts to $449 billion.

When debt is issued because a company is short on cash to cover operating expenses, that’s undoubtedly a concern. In the case of the recent debt raised by most of these big tech companies, the health of their balance sheets and the strength of their cash flow provides comfort. It can also be seen as an encouraging sign that companies see more future opportunities to invest.

Spending Bender

In keeping with future opportunities, another major theme and growing concern in this market is the vast amount of CapEx that has already been spent, and the amount that companies have committed to spending in years to come. The numbers are staggering and by most relative metrics, higher than what was seen during the dotcom bubble.

The chart below shows CapEx by the Big 11 vs. the major Telecom companies that were front-and-center during the late 90s and early 2000s. We looked at this as a percent of private investment, a component of GDP, in order to illustrate the increased influence AI CapEx spending has on GDP growth.

Dot-Com Era and Now: CapEx as a % of Private Investment

The risk here is obvious: If CapEx by these big companies slows down, it could act as a real drag on growth. That is a valid concern and very well may come to fruition.

What it doesn’t consider, however, are the benefits that may arise from this CapEx. Forces such as productivity gains across industries, lower costs (and therefore higher margins), as well as major innovation advancement for consumers and businesses alike could all boost the economy in the future.

To be fair, the transition from where we are now to where the potential of AI could take us will likely come with growing pains – a re-orienting of the labor force, a changing of the guard on who the “winners” are, and perhaps some boom-and-bust cycles in markets as businesses work toward profitability and revenue generation. But the ultimate path is forward, and the ultimate goal is productivity and innovation.

Thus far, markets have generally rewarded companies that are willing to keep investing in the AI opportunity set, and we’d expect this to continue in 2026 given consensus expectations for CapEx growth.

As the AI theme matures, this spending will need to result in increased revenue and profit margin for the companies engaging in most of the spending. There is no way of knowing for sure if or when that will happen, nor if it will be enough to satisfy investors and support these valuations. For now, the anecdotal productivity gains have been promising and investors have given the theme more runway.

An important litmus test will be if sectors outside of technology and communications can begin to benefit from the innovation, which is something we expect to see glimmers of in 2026.

Concerning Concentration

Market concentration has also given investors something to worry about. The largest 10 stocks in the S&P 500 now account for 46.5% of the index, up from 28.5% at the end of 2022, when this rally began.

The increased influence of tech stocks is even more dramatic, with the technology sector plus the names in the Magnificent Seven that don’t fall in the tech sector (Alphabet, Amazon, Meta, Tesla) accounting for 49.5% of S&P 500 market cap.

But the concern isn’t just about the weight, it’s about how much of the index’s total return and earnings growth these companies represent, and as you can see in the chart below, it’s a lot.

Tech Returns & Earnings Since December 2022

There are a couple ways to look at this: The more pessimistic view would be that the economy is far too dependent on a small group of companies to carry the weight of the entire market. A more optimistic view would be that these are the companies producing the strongest earnings so they should be producing commensurate returns. In other words, may the best stocks win.

Both of those would be true statements, and it’s worth pointing out that in previous bubble-like periods, there was similarly a growing influence of the largest stocks in the index as the bubble inflated. Point being, this is a metric that’s in line with what we’d expect to see in a period with bubble-like characteristics.

But again, the real question is: Do we think it means we’re nearing the end? No, we do not. Among the Big 11 collectively, there was very little multiple expansion in 2025. Earnings expectations grew faster than price, keeping the P/E ratio contained and valuations from getting any more frothy than they already were.

Even before this rally began, technology plus the other Mag 7 stocks already made up 33.7% of the index. And since the economy is much more tech-dependent today than it was in the late 90s (technology made up less than 6% of the S&P 500 then), it’s natural that markets would be too.

When it comes down to the numbers, Tech and Communications were the top two producers of earnings growth in 2025, and they’ve been rewarded with the strongest returns. That’s how it should work. As a result, their weight and influence in the overall market grew, but for good reason.

In 2026, technology is still expected to be the top producer of earnings growth, which is why you’ll read later that we believe sticking with some of your winners is a solid strategy. But a couple other sectors quietly rise to the top of earnings expectations, with Materials in the #2 spot and Industrials #3. A lot could change before the end of 2026, but even the earnings picture suggests that perhaps this is a year of new leaders stepping onto the stage.

S&P 500 2026 Consensus Expectations

Steady Drumbeat of Support

Having tackled the big front-of-mind concerns, we’ll now turn to a few other elements that are shaping up to make 2026 a friendly environment for markets. Let’s be clear though, it’s been a good run. And although we believe there is a steady drumbeat of support to keep an uptrend moving forward, the longer stocks go without a mediocre or down year, the more muted forward expectations should be.

Average S&P 500 Performance in Different Scenarios

Tax Relief

Perhaps the most clear-cut support for the economy and markets is the fiscal and monetary stimulus that’s expected to arrive. As a result of the One Big Beautiful Bill Act (OBBBA) consumers are set to receive aid of $150 billion, with the majority of that coming between February and April in the form of tax refunds. These refunds will primarily benefit lower and middle-income consumers, and come at a time when some consumer sentiment readings have been showing notable weakness.

According to the University of Michigan Consumer Sentiment survey, consumers have become increasingly pessimistic about current economic conditions. However, sentiment hasn’t been the best barometer of future activity, and other surveys paint a more rosy picture. For example, the Conference Board’s Consumer Confidence Index and the San Francisco Fed’s Daily News Sentiment Index indicate more positivity.

Sentiment Measures Have Been Unreliable

The divergences we see above make it difficult to conclude that consumers are feeling pervasively bad, although there has been weakness and frustration over sticky inflation. Stimulus targeted toward consumers in the first half should help bolster these readings, as long as inflation doesn’t surprise to the upside.

Additionally, more than $230 bil of business tax cuts for investing in CapEx, property, and research & development are on their way, further incentivizing the spending bender we ran through earlier, and broadening it out to encourage more businesses to take part.

It may seem odd to be receiving so much stimulus during a period of strong market gains and economic durability; The macro backdrop is an atypical one, no doubt. Some of the intention of the OBBBA was to offset at least a portion of the potential stress and uncertainty that tariff increases could put on businesses and consumers. So despite the seemingly delayed onset of stimulus, now that tariff news has been largely digested, this should act as a buffer in 2026.

Fed Firepower

The reasons to focus on the Fed have morphed over the past few years. First we needed the Fed to try to tame inflation, then we needed it to support the labor market as it weakened, then we needed it to reduce the size of its balance sheet and avoid juicing inflation back up. Now, markets are looking to the Fed for rate cuts to support market liquidity, stimulate more housing activity, and justify higher valuations.

The power of the Fed and almost obsessive focus on it in financial markets is a topic that would take me on an unnecessary tangent. To put it plainly: It’s too much, in our opinion, but it’s the world we’re living in.

In any event, liquidity became a concern toward the end of 2025 as quantitative tightening (QT) needed to be absorbed by markets, the reverse repo facility was drained and no longer able to sterilize QT, and bank reserves fell to “ample” territory (or possibly knocked on the door of “scarce.”)

Reserve Management Purchases Begin

The liquidity picture becomes slightly concerning when you add this to the fact that overnight funding markets started to show signs of stress (e.g. use of the standing repo facility, an increase in overnight rates such as SOFR, etc.).

As such, the Fed announced at its December meeting that it would start expanding its balance sheet again by $40 billion per month until April. The news was met with mixed reviews given that inflation is still running above target and they had just finished shrinking their balance sheet. Nevertheless, healthy liquidity during a stable economic period is generally a positive tailwind for risk assets.

Economic Reacceleration

Given the above supporting elements, there is a general sense of economic optimism heading into 2026. Survey data shows small business optimism has improved and, despite inflationary pressures, consumer spending patterns during the holiday season have remained resilient.

As we know, stimulus is positive for economic activity, but the boost tends to last for only a limited amount of time. A more durable boost for the economy would be an improvement in productivity, which is expected to be one of the main benefits of AI. Although it’s difficult to calculate the direct impacts from AI at this point, we are watching the productivity data closely in hopes that the trend of above-average productivity in late 2023 and 2024 can find renewed footing.

Productivity Running Mostly Above Trend

There are a number of other moving parts that can make or break economic durability in 2026, namely inflation, labor data, geopolitical forces, and consumer spending. But as of now, the environment looks to be one of further expansion and stability.

No Such Thing as Risk-Free

Although we believe the environment is friendly enough for markets to continue enjoying upside (albeit more muted upside), and for the economy to benefit from stimulus and see further productivity gains, there are some real risks out there to keep a close eye on.

First, the labor market drove a decent amount of anxiety throughout 2025 as fewer jobs were added, the unemployment rate rose slightly, and layoff announcements increased (as tracked by Challenger, Gray and Christmas) in the fall.

To be clear, the labor market is still stable, unemployment remains below historical norms at 4.6% (the non-recessionary average is 5.6% since 1948), and as of the most recent data available, the economy is still adding jobs each month. However, there have been notable reductions in the strength of the data, and October’s data was never collected because of the government shutdown.

Slower Job Growth, Higher Unemployment

In Fed Chair Jerome Powell’s words, the labor market is in a “curious kind of balance,” which loosely translates to, “it’s weakened but we’re still OK.” Perhaps the most concerning data has been from the Challenger survey, which showed a 175% y/y increase in job cuts in October, and a 23% y/y increase in November.

More concerning though were the reasons behind the increase in cuts. For October and November, the number of companies citing cost-cutting as the reason for job cuts increased considerably compared to the first nine months of the year. It’s impossible to know the exact reasons behind the cost-cutting, but we are of the belief that companies avoid cutting jobs as long as possible. In other words, if they’ve resorted to that measure, it’s because they had to.

Reasons for Job Cuts by Percent Share

The second real risk that we see is in leverage, as measured by margin debt. Margin debt as a percent of M2 Money Supply has risen quite dramatically in recent months, which is emblematic of investors’ healthy risk appetite and optimism for future stock prices. The concern is that it is approaching levels not seen since the financial crisis of 2008/2009 or the dotcom bubble of the early 2000s.

Margin Debt as a % of M2

The main takeaway here is that investors have levered their balance sheets in order to take on more risk. This can be a sign of a strong outlook, but it can also be an early warning sign of excessive risk-taking that tends to inflate a speculative bubble.

Perhaps that makes sense right now given where we are in the technology supercycle. And given that it has not yet hit prior crisis levels, we still have more room to go before this is a true warning sign. Not to mention that margin debt may peak in this cycle at levels higher than ever before, which would also suggest we have more room to run.

Not Over Yet

There are reasons to worry and indicators to keep a close eye on, but given the aforementioned technology themes, supportive elements, and lack of major alarm bells, we believe the show can go on in 2026. We are not the authority on declaring whether we’re in the midst of a bubble inflating, but it does seem like there is enough speculation and risk appetite in markets to suggest something of that variety. If it is in fact a bubble, we believe it can get much more bubblicious before its ultimate end.

The next phase of this cycle is likely to result in some new leadership in markets, and a renewed interest in high quality fundamentals. Here is a summary of what we find interesting for the year to come.

What Else To Do?

Given the theme of befriending the bubble, it’s hopefully obvious by now that we think there’s more room to run in large-cap technology and communications stocks. To diversify the growth exposure, however, we believe a value investing orientation is not only prudent but offers attractive potential. And as this rally ages, it may allow for new corners of the market to shine. Here is a list of investment ideas besides technology stocks in 2026.

Winners we believe can keep winning:

•  Gold

◦  Institutional and international central bank appetite for gold remains strong, and retail investors add further support.

◦  Economic nationalism is a theme of this global political regime. As countries continue to protect their assets against political volatility, gold can be a lasting beneficiary.

◦  Investment ideas: IAU, GLD, GDX

•  China

◦  Despite ongoing political tension between the U.S. and China, much of the tariff volatility has been digested by markets. China remains a powerful economy and continues to advance its own technology at a rapid pace.

◦  The Chinese economy is still rather anemic, but the government appears committed to supporting the sectors feeling the most pain. Consumers can benefit from this support and see increased spending in 2026.

◦  Investment Ideas: KWEB, FXI

Potential new entrants to the winner’s circle:

•  Cash-Rich Companies

◦  Cash-flow generation is a metric that could get more attention as investors hone in on companies with strong fundamentals and valuations worth the price tag.

◦  Indexes that track strong cash flow-generating companies tend to result in more of a value characteristic, with P/E ratios that are lower than the broad technology-heavy indices. Value stocks can produce strong results in 2026.

◦  Investment idea: COWZ

•  Health Care

◦  Signs of life toward the end of 2025 can continue into 2026 as health care productivity benefits from AI innovation.

◦  The growthy groups of pharma and biotech have been recent beneficiaries of investors who are diversifying their growth exposure, and we believe they have more room to run.

◦  Mid-term election years tend to be bumpy for markets, but health care has historically been a strong performer.

◦  Investment ideas: XLV, XBI

•  Materials

◦  This is a cyclically sensitive sector that is expected to produce the second-best earnings growth in the S&P 500.

◦  Economic nationalism has contributed to volatility in the Materials sector as countries realign trade agreements, but it can also push prices of materials stocks higher.

◦  If inflation picks up again, this sector is likely to follow suit.

◦  Investment idea: XLB

•  Consumer Staples

◦  One of the poorest performing sectors of 2025 could be the beneficiary of the consumer stimulus expected in 2026.

◦  The sector is a likely candidate for potential rotations to lower risk, higher-yielding assets during mid-term election volatility or other geopolitical strife.

◦  Investment ideas: XLP, PBJ

Conclusion

We are generally optimistic about 2026, but recognize that investors are starting to cover their eyes as stocks continue to rise. After three solid years of a strong technology cycle in markets, it’s natural to seek opportunities that offer more attractive valuations than the recent winners. Rotation into other asset classes has the potential to strengthen markets and give the economy a sense of confirmation that there is life outside of the Big 11.

The reality of today’s environment, however, is that it does rely on AI to continue pushing forward, and it does rely on continued AI spending and future revenue generation. Our base case is that this will carry on in 2026, bringing some other sectors and parts of the market with it. Of course we are always watching, and remain agile if or when the environment shifts.

It’s bound to be another exciting year around the globe, and we are ready and eager to invest with you through it.

Want more insights from Liz? The Important Part: Investing With Liz Thomas, a podcast from SoFi, takes listeners through today’s top-of-mind themes in investing and breaks them down into digestible and actionable pieces.

photo credit: iStock/MicroStockHub

SoFi can’t guarantee future financial performance, and past performance is no indication of future success. This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.

Communication of SoFi Wealth LLC an SEC Registered Investment Adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at www.adviserinfo.sec.gov. Liz Thomas is a Registered Representative of SoFi Securities and Investment Advisor Representative of SoFi Wealth. Form ADV 2A is available at www.sofi.com/legal/adv.

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How do you do the holidays justice when money is tight?

You want to make the holiday season special for your family and friends, and you may feel you need to outdo last year — or at least keep up with everyone else.

Two-thirds of shoppers in a Beyond Finance survey said they feel an unhealthy cultural pressure to buy holiday gifts when they can’t afford them. And 19% admitted they’d bought gifts or trips so they could post about them on social media.

In other words, guilt, FOMO, and Instagram can make it hard not to overspend, even when prices are high and the economy feels increasingly precarious. And yet a monthly Gallup poll showed Americans downsized their holiday gift budgets more than they ever have in the middle of the shopping season: By November they were expecting to spend $778, on average, down from $1,007 in October.

So what can you do to stay true to your budget without going full Grinch? Here are some ground rules that could help:

•  Have a holiday heart-to-heart. If you’re facing a cash crunch this season, chances are that some of the people you exchange gifts with are, too. They’ll be relieved when they see your simple group text request: “Santa’s pursestrings are a little tighter this year, so why don’t we try something a little different?”

  Be ready with suggestions like a white elephant exchange in which everyone has to buy (and receive) one meaningful price-capped gift rather than presents for everyone. Or set a spending limit for everyone at your celebration to help reduce anxiety and decision fatigue. You could also make it a kids-only gift year.

•  Cap it at four gifts. If you have kids and the Santa haul in your house has gotten out of control, adopt the viral “four gift rule.” The idea is simple: Each child gets something they want, something they need, something to wear, and something to read. (You may need it for the adults in your life, too.)

•  Set an example. Speaking of kids, it’s easy to think we’re not doing enough for them, and it’s natural to want to take them to a magical theater performance or decorate the house and yard to the nines. But what better way to model living within your means than making your reality a teachable moment.

“Let them know when they’re an adult, some years are going to be better than others,” Mary Clements Evans, a certified financial planner, told Scary Mommy. “Some years, you’re going to have more money than others. If they’re old enough, try to teach them a little bit about inflation. What happens if somebody loses a job? I don’t think you can teach kids those lessons too young.”

•  Scale the love. If you have a bunch of relatives or one big friend group on your gift list, consider putting effort into one gift that will make everyone smile — like a digital family greeting, photo collage, or special bread. (According to a recent Deloitte survey, Gen Zs and Millennials are the most likely to make their own gifts this season, including food gifts like baked goods, sauces, and charcuterie.)

•  Let tradition trump tickets. Stage shows and fancy New Year’s Eve dinners can get pricey fast. But there are other fun traditions that cost far less (or nothing), and they may end up being more memorable for you and your loved ones. Pile the family in the car with some to-go hot chocolate and look for the coolest light displays. Take everyone ice skating or sledding. Or have a holiday-themed potluck party with karaoke.

•  Stock emergency gifts to avoid last-minute expenses. When you need gifts right away, you’re at the mercy of expedited shipping costs or the prices at the only place that’s still open. If you spot a good go-to gift, grab an extra (or two) so you’ll always have something on hand for that person you accidentally left off your list.

•  Catch yourself. How did matching family pajamas, elaborate advent calendars, “brrr baskets,” and stocking stuffers pricey enough to be the actual gift infiltrate our holiday gift list? If you’re committed to scaling back, these extras could be a good place to start.

•  Ditch the guilt. You don’t have to spend what you spent in the past. If you can get by with $15 gifts for your nieces and nephews, don’t go grabbing something for an additional $10 to make up the difference. This year, take the win.

Related Reading

Learn to Recognize Holiday Spending Triggers (Take Charge America)

30 Amazing Gift Ideas That Cost Next to Nothing (Real Simple)

Are the Discounts Worth Getting That Store Credit Card? (SoFi)

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.

SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

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Getting a bonus can feel like winning a small lottery. But if you’re tempted to splurge with it, don’t forget to consider your financial future, too. Maybe use 10% or 20% to treat yourself, and put the rest toward something that will have a lasting impact.

Need guidance? Here are five ways to make your bonus really matter.

1. Pay down credit cards. If you’re carrying a credit card balance, paying it off (or at least down) is arguably the best use of your bonus. Credit cards have some of the highest interest rates of any loan — especially in today’s economy — charging over 22%, on average. And the interest compounds daily, costing you more with each passing day.

For example, depending on how slowly you pay it off, a $5,000 credit card balance with a 22% APR could wind up costing you more than $5,000 just in interest. (It would cost $1,750 in interest if you’re paying $200 a month, $8,678 if you’re paying $100 a month.)

Why not use your bonus to break free of this burden and free up more of your hard-earned cash in the future? (This SoFi calculator can do the math for you.)

2. Supercharge your retirement savings or Health Savings Account (HSA). Even if you’re already contributing regularly to your 401(k) or IRA, adding a lump sum can leave you with a substantially larger nest egg when you retire, thanks to the power of compound growth.

Or, if you have one, add your bonus to your HSA, which could become even more valuable as healthcare costs rise. HSA funds not only never expire, but they can be invested and even become a stealth retirement savings vehicle.

Plus, maxing out these types of tax-advantaged accounts lowers your taxable income for the year.

Bonus tip: If you’ve already maxed out your 401(k) and don’t have a high-deductible plan, consider funding a Roth IRA with after-tax money. There’s no immediate tax benefit, but your investment earnings and all qualified withdrawals will be tax-free once you’re retired, when you could be in a higher tax bracket.

3. Build up your emergency savings. If you haven’t bulked up your savings, adding your bonus can give you peace of mind. Maybe you’re not sure if you’ll have enough to bridge the gap if you’re laid off, your car breaks down, or there’s a medical emergency.

Whatever happens, having enough in your emergency fund can help you avoid accruing debt (and unnecessary stress) to cover unexpected expenses. (Ideally, you’ll have enough saved to cover three to six months’ worth of living expenses.)

Pro tip: Use a high-yield savings account to earn interest while keeping your money accessible.

4. Save for other stuff. Beyond emergencies and retirement, your bonus can jumpstart savings for specific goals like home renovations or a special vacation. Or, wouldn’t it be nice to have money set aside for something unexpectedly good instead of bad? Consider starting an “opportunity fund.” Maybe you discover your new side hustle is going well enough to require more equipment or a website upgrade. Or you get a new job on the other side of the country and need money for your move.

Whatever you’re saving for, keeping the funds separated or in a dedicated account will make them less tempting to dip into. (We like the Vaults feature of SoFi high-yield accounts.)

5. Prepay to get the discount. There are many expenses that can cost less if you prepay — or pay for the entire year rather than month-by-month. These include:

•   Insurance premiums (auto, home, life)

•   Property (HOA fees, property taxes)

•   Education (tuition, daycare, music lessons)

•   Memberships (gym, Amazon Prime, streaming services)

•   Utilities (internet, security monitoring)

•   Healthcare (dental work, LASIK)

•   Professional (software subscriptions, licenses)

If the discount is sizable, consider paying ahead to get the best bang for your buck. (Just make sure these costs will continue to be part of your life — or that they’re refundable if things change.)

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