What to Know About a Market Sell-Off

Often, the word sell-off is used in conjunction with market volatility, but you may wonder what, exactly it means, especially when it comes to your money. A market sell-off occurs when a large pool of investors decide to sell stocks. When they do this, stock prices fall as a result.

A market sell-off may be due to external events, such as when regional lockdowns were announced following the escalation of the COVID-19 crisis. But sometimes sell-offs can be triggered by earnings reports that failed expectations, technological disruption, or internal shifts within an industry.

During a market sell-off, stock prices tumble. That stock volatility might lead other investors to wonder whether they should sell as well, whether they should hold their current investments, or whether they should buy while stock prices are low.

There is no “right” answer for whether to buy, hold, or sell a stock during a market sell-off, but understanding the nature of a sell-off—as well as the purpose of your investments—can help investors decide on the right strategy for them.

Understanding Bull Market vs. Bear Market

Understanding the overall market environment (as well as common stock market terms) can help investors understand how sell-offs exist within the market.

It’s not uncommon to see references to a bull market and a bear market. A bull market is when the stock market is showing gains. There are no specific levels of increase that indicates a bull market, but the phrase is commonly used when stocks are “charging ahead”—and is generally considered a good thing. A bear market, on the other hand, is typically used to describe situations when major indexes fall 20% or more of their recent peak, and remain there for at least two months.

There are also “corrections.” This is when the market falls 10% or more from a recent stock market high. Corrections are called such because historically, they “correct” prices to a longer-term trend, rather than hold them at a high that’s not sustainable. Sometimes, corrections turn into a bear market. Other times, corrections reach a low and then begin to climb back to a more level price, avoiding a bear market.

What To Do During a Market Sell-Off

A sell-off can make news, and can make investors edgy. After all, investors don’t want to lose money and some investors fear that a sell-off portends more bad news, like a bear market.

portfolio diversification strategy may be different between investors, but the underlying anchor of any diversification strategy is, “don’t put all your eggs in one basket.” Since it’s not unusual for a sell-off to affect only parts of the market, a diverse portfolio may be able to better ride out a market sell-off than a portfolio that is particularly weighted toward one sector, industry, or exchange.

online ETFs that can help you build a more diverse investment portfolio to hedge against ups and downs.

Protecting a Portfolio From Sell-Offs

In addition to building a portfolio that’s less vulnerable to market volatility, investors have several options to further protect their portfolio. These preventative investment measures can remove emotion during a market dip or sell-off, so that an investor knows that there are stopgaps and safeguards for their portfolio.

Stop Losses

This is an automatic trade order that investors can set up so that shares of a certain stock are automatically traded or sold when they hit a price predetermined by an investor. This can protect an investment for an individual stock or for an overall market drop. There are several stop loss order variants, including a hard stop (the trade will execute when the stock reaches a set price) and a trailing stop (the price to trade changes as the price of the stock increases).

Put Options

Put options are another type of order that allow investors to sell at a set price during a certain time frame; “holding” the price if the stock drops lower and allowing the investor to sell at the higher price even if the stock drops further.

Limit Orders

Investors can also set limit orders. These allow an investor to choose the price and number of shares they wish to buy of a certain stock. The trade will only execute if the stock hits the set price. This allows investors freedom from tracking numbers as price points shift.

The Takeaway

A market sell-off is triggered when a large group of investors sell their stocks at once, causing stock prices to drop. A sell-off can be caused by world events, industry changes, or even corporate news.

There is no one smart way to react to a sell-off. Different investors will gravitate toward different strategies. But by researching companies and setting up a portfolio based on risk tolerance, an investor can feel confident that their portfolio can withstand market volatility.

Digital investing tools can help investors keep track of stocks. One such online investing platform is SoFi Invest®. SoFi lets users buy and trade stocks in an easy-to-use app, as well as access professional research, daily business news, and actionable market insights. Investors can also build a portfolio through automated investing, buying pre-selected groups of stocks curated by investment professionals.

Find out how SoFi can help you build and reach for your financial goals.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Digital Assets—The Digital Assets platform is owned by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.

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

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Source: sofi.com

What Is a Jumbo Loan? Finance Your Property in a Competitive Market

After years of building a stellar credit history, you may have decided you’re finally ready to invest in that vacation home, but you don’t have quite enough in the bank for that eye-catching property just yet. Maybe you want to begin your investment journey early so you don’t have to spend years bulking up your life’s savings.

If an aspiring luxury homeowner can’t sufficiently invest in a property with a standard mortgage loan, there’s an alternative form of financing: a jumbo mortgage. This mortgage allows those with a strong financial history who may not necessarily be a billionaire to get in on the luxury property market. But what is a jumbo mortgage (commonly known as a jumbo loan), and how exactly does it work?

Jumbo Loan Definition

A jumbo loan is a mortgage loan whose value is greater than the maximum amount of a traditional conforming loan. This threshold is determined by government-sponsored enterprises (GSE), such as Fannie Mae (FHMA) and Freddie Mac (FHLMC). Jumbo loans are for high-valued properties, like mansions, luxury housing, and homes in high-income areas. Since jumbo loan limits fall above GSE standards, they aren’t guaranteed or secured by the government. As a result, jumbo loans are riskier for borrowers than conforming mortgage loans.

Jumbo loans are meant for those who may earn a high salary but aren’t necessarily “wealthy” yet. Lenders typically appreciate this specific group because they tend to have solid wealth management histories and make better use of financial services, ensuring less of a risk for the private investor.

Due to the uncertain nature of a jumbo loan, borrowers need to present an extensive, secure credit history, as well as undergo a more meticulous vetting process if they’re considering taking out a jumbo loan. Also, while jumbo loans can come in handy for those without millions in savings, potential borrowers must still present adequate income documentation and an up-front payment from their cash assets.

Like conforming loans, jumbo loans are available at fixed or adjustable rates. Interest rates on jumbo loans are traditionally much higher than those on conforming mortgage loans. This has slowly started shifting over the last few years, with some jumbo loan rates even leveling out with or falling below conforming loan rates. For example, Bank of America’s 2021 estimates for a 5/1 adjustable-rate jumbo loan were equivalent to the same rate for a 5/1 adjustable conforming loan.

The Federal Housing Finance Agency (FHFA) has set the new baseline limit for a conforming loan to $548,250 for 2021, which is an increase of nearly $40,000 since 2020. This new conforming loan limit provides the new minimum jumbo loan limits for 2021 for the majority of the United States. As the FHFA adjusts its estimates for median home values in the U.S., these limits adjust proportionally and apply to most counties in the U.S.

Certain U.S. counties and territories maintain jumbo loan limits that are even higher than the FHFA baseline, due to median home values that are higher than the baseline conforming loan limits. In states like Alaska and Hawaii, territories like Guam and the U.S. Virgin Islands, and counties in select states, the minimum jumbo loan limit is $822,375, which is 150 percent of the rest of the country’s loan limit.

Jumbo Loan Rates for 2021

Ultimately, your jumbo loan limits and rates will depend on home values and how competitive the housing market is in the area where you’re looking to invest.

Jumbo Loan vs. Conforming Loan: Pros and Cons

The biggest question you might be asking yourself is “do the risks of a jumbo loan outweigh the benefits?” While jumbo loans can be a useful home financing resource, sometimes it makes more sense to aim for a property that a conforming loan would cover instead. Here are some pros and cons of jumbo loans that might make your decision easier.
Pros:

  • Solid investment strategy: Jumbo loans allow the investor to get a solid jump-start in the luxury real estate market, which can serve as a beneficial long-term asset.
  • Escape GSE restrictions: Jumbo loan limits are set to exceed those decided by Freddie Mac and Fannie Mae, so borrowers have more flexibility regarding constraints they would deal with under a conforming loan.
  • Variety in rates (fixed, adjustable, etc.): Though jumbo loan rates differ from conforming loan rates in many ways, they still offer similar options for what kinds of rates you want. Both offer 30-year fixed, 15-year fixed, 5/1 adjustable, and numerous other options for rates.

Cons:

  • Usually higher interest rates: Though jumbo loans are known for their higher interest rates, the discrepancies between those and conforming loan rates are starting to lessen each year.
  • More meticulous approval process: To secure a jumbo loan, you must have a near air-tight financial history, including a good credit score and debt-to-income ratio.
  • Higher initial deposit: Even though jumbo loans exist for those who are not able to finance a luxury property from savings alone, they still require a higher cash advance than a conforming loan.

Jumbo Loan vs. Conforming Loan- Pros and Cons

How To Qualify for a Jumbo Loan

As we mentioned before, jumbo loans require quite a bit more from you in the application process than a conforming loan would.

First and foremost, most jumbo lenders require a FICO credit score of somewhere around 700 or higher, depending on the lender. This ensures your lender that your financial track record is stable and trustworthy and that you don’t have any history of late or missed payments.

In addition to the amount of cash you have sitting in the bank, jumbo lenders will also look for ample documentation of your income source(s). This could include tax returns, pay stubs, bank statements, and any documentation of secondary income. By requiring extensive documentation, lenders can determine your ability to make a sufficient down payment on your mortgage, as well as the likelihood that you will be able to make your payments on time. Usually lenders require enough cash assets to make around a 20 percent down payment.

Finally, and perhaps most importantly, lenders will also require that you have maintained a low level of debt compared to your gross monthly income. A low debt-to-income ratio, combined with a high credit score and sufficient assets, will have you on your way to securing that jumbo loan in no time.

Furthermore, you will also likely need to get an appraisal to verify the value of the desired property, in order to ensure that the property is valued highly enough that you will actually qualify for a jumbo loan.

Key Takeaways:

  • Jumbo loans provide a solid alternative to those with a steady financial history who want to invest in luxury properties but don’t have enough in the bank yet.
  • A jumbo loan qualifies as any amount exceeding the FHFA’s baseline conforming loan limit: $548,250 in 2021.
  • Jumbo loan rates are typically higher than those of conforming loans, although the gap between the two has begun to close within the last decade.
  • To secure a jumbo loan, one must meet stringent financial criteria, including a high credit score, a low DTI, and the ability to make a sizable down payment.

For any financially responsible individual, it’s important to always maintain that responsibility in any investment. Each decision made should be carefully thought out, and you should keep in mind any future implications.

While jumbo loans can be a valuable stepping stone to success in competitive real estate, always make sure your income and budget are in a secure position before deciding to invest. You always want to stay realistic, and if you aren’t interested in spending a few more years saving or financing through a conforming loan, then a jumbo loan may be for you!

Sources: Investopedia | Bank of America | Federal Housing Finance Agency

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How to Transfer Your 401(k) When Changing to a New Job: 401(k) Rollover Guide

It’s easy to forget about old 401(k) plans when changing to a new job. Some people simply forget about it because the company that manages it never reminds them. Others didn’t forget about their old account, but they’ve been putting off the rollover because it sounds hard.

Many companies don’t make the process easy for customers to roll over their 401(k) accounts from previous jobs. But it can be worth the inconvenience.

By not rolling it over, you might be losing some serious cash. That’s right—losing money, so it’s easy to miss. Here are a few key reasons to prioritize a 401(k) rollover.

3 Reasons to Transfer Your 401(k) to a New Job

There are three main reasons to rollover a 401(k):

1. To reduce fees. If the fees are too high with your previous employer’s 401(k), rolling over a 401(k) can be advantageous.
2. To maximize your money. If you aren’t happy with the investment options in your old 401(k) and your new employer accepts rollover 401(k)s, you might be able to save money while investing in a broader range of investment vehicles.
3. To streamline your investments. If you leave your 401(k) where it is, you may not think about it very often. It’s important to keep tabs on all of your investments so you can make sure they are on track and appropriate for your time horizon and goals.

You May Be Paying Hidden Fees

There are all sorts of fees that go into effect when you open a 401(k), including recordkeeping fees, maintenance fees, and fund fees. Expressed in a percentage, these fees inform the expense ratio of a plan.

Employers may cover those fees until you leave the company. Once you’re gone, that cost might shift to you without you even realizing it.

Fees matter: When you pay a fee on your 401(k), you’re not just losing the cost of the fee; you’re also losing all the compound interest that would grow along with it over time. The sooner you roll your plan over, the more you could potentially save.

You Might Be Missing Out on Better Investments

401(k) accounts grow at different rates depending on which assets you invest in. If the retirement savings plan at your new company—or an individual retirement plan (IRA)—offers a selection of stocks and bonds that better aligns with your financial goals, it might be time to initiate a rollover.

The money that’s sitting in your old 401(k) could potentially grow at a faster rate if you roll it over into a new plan or into an IRA—it’s certainly worth investigating the growth rates of each. Keep in mind that investors can lose money when investing, too, so it always makes sense to consider your personal risk tolerance when deciding how to invest your retirement accounts.

You Could Lose Track of the Account

It’s not your fault, it’s just logistics. It’s harder and more time-consuming to juggle multiple retirement accounts than it is to juggle one. Until you retire, you’ll be managing two (or more) websites, two usernames and passwords, two investment portfolios, and two growth rates for decades.

And if you leave this next job to go to a third (or a fourth, or a fifth), the 401(k) plans could pile up, creating even more tracking work for you. Plus, when you’re no longer with an employer, you might miss alerts about changes that may occur with an old retirement plan.

What to do With Your 401(k) After Getting a New Job

While it’s generally allowed to leave your account in your former employer’s plan when you switch jobs, there are other options.

•  Cash out the account. If you take this route and you’re younger than 59½ years old, you will owe taxes and might also owe early withdrawal penalties depending on how you use the money.
•  Roll over the 401(k) account. You could roll the account into your new employer’s retirement plan (if allowed) or into an IRA.

Cashing Out Early

Should you choose to cash out your 401(k), you will have to pay taxes on the money, and perhaps an additional 10% early withdrawal fee.

That said, there are some circumstances when the 10% fee is waived (but not the income tax), such as when the funds will be used for eligible education expenses, certain medical expenses, or expenses related to a first-time home purchase, among other circumstances.

Rolling Over a 401(k) to Your New Employer’s Plan

The process of rolling over a 401(k) might seem intimidating or inconvenient at first, especially if you’re moving onto your second job and this is the first time you’ll be rolling over a 401(k). In actuality, the actual process of rolling over a 401(k) isn’t too complicated once you’ve decided where your existing funds are going to go.

Advantages of Rolling Over Your 401(k)

Rolling over your 401(k) to a new plan can be advantageous to your overall financial plan. Here are a few ways this transition might be beneficial to your financial well-being.

One Place for Tax-Deferred Money

Transferring your 401(k) to your new employer’s plan can help consolidate all of your tax-deferred dollars into one account. Keeping track of and managing one account may simplify your money management efforts.

A Streamlined Investment Strategy

Not only does consolidating your previous 401(k) with your new 401(k) make money management easier, it can also streamline your investment strategies.

Financial Service Offerings

Some 401(k) plans offer financial services, such as financial advisor consultations, to help employees achieve their retirement goals. If your previous employer didn’t offer this service and your new plan does, taking advantage of this offering may help you achieve an investment plan that meets your exact goals rather than a standardized option.

Access to a Roth Option

An increasing number of employers are offering a Roth 401(k) option in addition to the traditional 401(k) option. With a Roth 401(k), the money you contribute is after-tax—it doesn’t minimize your taxable income. But when you take distributions in retirement, you won’t have to pay taxes on the withdrawal amount. As long as the account has been open for five years and you’re over 59 ½, you can receive tax-free distributions.

A Roth 401(k) option can be appealing if you feel your income in retirement will be higher than your current income. If your new employer offers this benefit and you think it will be advantageous to your financial situation, then rolling over your 401(k) to a Roth 401(k) plan may make sense.

How to Roll Over Your 401(k)

So, how do you transfer your 401(k) to a new job? If you decide to roll your funds into your new employer’s 401(k), you’ll most likely need to:

1. Contact the plan administrator to arrange the rollover. You may need to choose the types of investment you would like before you initiate the rollover. If not, you can take a lump-sum transfer and allocate the funds gradually to different investments of your choosing.
2. Complete any forms required by your employer for the rollover.
3. Request that your former plan administrator send the fund via electronic transfer or a check so you can move the funds directly to the administrator of the new plan.

It’s possible that you might have to wait until your employer’s next open enrollment period to complete the rollover, but you might consider using that time to research the plan’s investment options so you’ll be ready when the time comes.

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Rolling Over a 401(k) Into an IRA

If you choose to roll your 401(k) funds into an IRA that’s not employer-sponsored, a direct rollover is the method that takes most of the guesswork out of the transfer. This means that the funds will be taken from your previous account and rolled directly into the new account.

Doing it this way should avoid your previous lender sending you a check and resulting in any unforeseen early withdrawal tax situations.

Opening a new retirement account online is fairly straightforward, but there are some steps to opening an IRA that might be worth reviewing before you start. Once your funds are rolled over, you’ll be able to choose the investments that work for your retirement goals.

401(k) Rollover Rules

When requesting a transfer, you may either select a direct and indirect rollover. With a direct rollover, the check is made out to the financial institution (for your benefit). Because the funds are directly deposited into the new account, no taxes are withheld.

With an indirect rollover, the check is payable to you, with 20% withheld for taxes. You’ll have 60 days to roll over the funds (80% of your previous plan) into an IRA or other retirement plan. If you want to contribute the full amount of your previous plan, you can add money to bring the lump contribution back up to the balance before rollover. At that point, you’d be able to count the 20% withheld as taxes paid.

The Takeaway

There are many benefits to rolling over a 401(k) after switching jobs, including streamlining your retirement accounts and directing your money so that it suits your individual financial needs and goals. While some may view it as inconvenient, it’s actually a straightforward process whether you want to roll over a 401(k) into your new employer’s plan, or into an IRA.

Not sure which rollover strategy is right for you? SoFi Invest® offers retirement savings plan options. With a SoFi Roth or Traditional IRA, investors have access to a broad range of investment options, member services, and our robust suite of planning and investment tools.

Find out how to take control of your retirement options with SoFi Invest.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Digital Assets—The Digital Assets platform is owned by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.

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.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Source: sofi.com

Retained Earnings vs. Net Income

Companies have several different types of earnings, each of which provide different information about their revenues and insight into their financial health. On a company’s balance sheet—which is a key piece of information in evaluating a company’s stock value—it will report details about its expenses and earnings, including retained earnings and net income.

Net income (NI), or net earnings, is the amount of money a company has left after subtracting operating expenses from revenue. Retained earnings goes a step further, subtracting dividend payouts to shareholders.

This article will cover how to calculate and interpret retained earnings and net income, the differences between them, and why they’re important for investors who are trading stocks online.

What is Net Income?

Net income (NI) is an indication of how profitable a company is. It is a basic calculation showing the difference between its earnings and expenses, which can include labor, marketing, depreciation, interest, taxes, operational expenses, and the cost of making products.

How to Calculate Net Income

Use the following formula to calculate the net income of a company:

Net Income = Revenue – Expenses

For example, if a company makes $50,000 in revenue during an accounting period and has $30,000 in expenses, their net income is $20,000.

Understanding Net Income

Net income is often referred to as the bottom line, since it appears on the bottom line of a company’s balance sheet and is the basic calculation of a company’s profit.

NI is used to calculate earnings per share, and is one of the key figures investors use when evaluating companies. When people talk about a company being in the red or in the black, they are referring to whether the company has a positive or negative net income.

It’s important to note that net income can be manipulated through the hiding of expenses and other means. It can be hard to figure out if this is happening, but investors might want to be wary of this and look into what numbers are being used in the net income calculation.

What Are Retained Earnings?

Retained earnings (RE) may also be referred to as unappropriated profit, uncovered loss, member capital, earnings surplus, or accumulated earnings.

paying out dividends to please shareholders. After a company completes dividend payouts, they retain the amount of earnings that are left, and may decide to reinvest them into the business to continue to grow, pay off loans, or pay additional dividends.

It’s useful to understand RE when looking into companies to invest in, because they show whether a company is profitable or if all of their earnings are going towards dividends. If a company’s retained earnings are positive, this means they have money available to invest and put towards growth.

On the other hand, if a company has negative retained earnings, it means they are in debt, which is generally not a good sign.

How to Calculate Retained Earnings

Use the following formula to calculate the retained earnings of a company:

Retained earnings = Beginning retained earnings + Net income or loss – Dividends paid (cash and stock)

All of this information is available on a company’s balance sheet. In order to find beginning retained earnings one will need to look at the previous period’s balance sheet.

For example, if a company starts with $8,000 in retained earnings from the previous accounting period, these are the beginning retained earnings for the calculation. If the company makes $5,000 in net income and pays out $2,000 in dividends to shareholders, the calculation would be:

$8,000 + $5,000 – $2,000 = $11,000 in retained earnings for this accounting period
Since retained earnings carry over into each new accounting period, profitable companies generally have increasing retained earnings over time, unless they decide to spend them.

Understanding Retained Earnings

The calculated retained earnings show a company’s profit after they have paid out dividends to shareholders. If the calculation shows positive retained earnings, this means the company was profitable during the specified period of time. If the retained earnings are negative, this means the company has more debt than earnings.

Companies can use this figure to help decide how much to pay out in dividends and how much they have available to reinvest.

Although negative RI isn’t ideal, investors should consider the company’s individual circumstances when evaluating the results of the calculation. There are some instances in which negative retained earnings are fairly normal and not necessarily a reason to avoid investing.

How to Assess Retained Earnings

When assessing the retained earnings of a company, the following factors should be taken into account:

•  The company’s age. If a company is only a few years old, it may be normal for it to have low or even negative retained earnings, since it must make capital investments in order to build the business before it has made many sales. Older companies tend to have higher retained earnings. If a company has been around for many years and has low or negative retained earnings, this may indicate that the company is in financial trouble.
•  The company’s dividend policy. Some companies don’t pay out any dividends, while others regularly pay out high dividends. This will affect their retained earnings. In general, publicly-held companies tend to pay out more dividends than privately-held companies.
•  The period of time used in the calculation. Some companies are more profitable at certain times of year, such as retail businesses. If one looks at retained earnings during the holiday season or other popular times for retail, the company may save up their profits from those times in order to get through slower times. For this reason, the same company might show different retained earnings depending on what time period is used in the calculation.
•  The company’s profitability. More profitable companies tend to have higher retained earnings.

What’s the Difference Between Retained Earnings and Net Income?

Although retained earnings and net income are related, they are not the same. While net income helps with understanding profit, retained earnings help with understanding both profit and growth over time.

At times, a company may have negative retained earnings but positive net income. This is what is known as an accumulated deficit. Or the opposite may occur. For example, if a company earned $60,000 in revenue and they have $40,000 in expenses, their net income is $20,000. If they then pay out $10,000 in dividends to shareholders, the retained earnings calculation would be:

$0 + $20,000 – $10,000 = $10,000 in retained earnings

If a company has a healthy net income and retained earnings, this may be a good time for them to reinvest some of their money into growing the business. In some cases, retained earnings and net income may be the same—as when a company doesn’t pay out dividends and has no retained earnings carried over from the previous period.

Why do Retained Earnings and Net Income Matter?

Investors are often interested in retained earnings and net income because they help show the long-term financial health of a company. Figures such as revenue and expenses vary with each accounting period, and they don’t give as accurate a picture of debt and opportunity for growth.

debt-to-equity ratio, which is a measure of how much debt it takes for a company to run its business.)

Retained earnings are also useful for companies to help determine how to spend their money. If retained earnings and/or net income are low, it might be best for the company to save their money rather than reinvesting it or paying out dividends. If the numbers are high, they can consider spending it.

The Takeaway

Net income and retained earnings are two useful calculations that can help investors assess a company’s health, and that can help a company decide what to do with their earnings. They’re a key part of a company’s overall financial picture.

The big difference between the two figures is that while net income looks at revenue minus operating expenses, retained earnings further deducts dividend payouts from NI. Both can help form an overall view of the profitability and risk of a company.

Investors ready to start buying and selling stocks might want to consider a SoFi Invest® account, which offers complimentary advice and other benefits that can help individuals set and work toward their personal financial goals.

Find out how to open a SoFi Invest account today.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Digital Assets—The Digital Assets platform is owned by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.

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

Should You Invest With Friends?

Investing with friends might seem like an intriguing concept. Instead of being the sole decision maker, you can share financial and knowledge-based resources to come up with a compelling investment strategy that serves your collective goals.

Investing with friends may also be a way to make a substantial impact in a cause you believe in, such as raising funds to invest in a friend’s startup or business venture. And investing is something you’re likely already using as a way to connect—according to SoFi’s research, 70% of SoFi Invest members talk about investing with friends, family, or colleagues at least once a week. So it might make sense to some people to pool that passion and capital and begin investing together.

Of course, investing with friends also comes with some particular concerns you’ll want to consider in advance:

•  Who controls the investment account and how are investment decisions made?
•  What is the process if one person wants to remove their portion of the investment?
•  How will any returns be distributed?
•  Does the investment have a set length of time or will it continue in perpetuity, or until all parties have decided to withdraw or buy out their investment?

Talking through scenarios like this can be helpful. It can also be helpful to come up with some sort of contract that outlines contingencies, so you know everyone is on the same page.

What To Talk About Before You Invest With Friends

Before pooling resources, it may be a good time to talk a little about how you each approach the market.

Warren Buffett aficionado, while another is eager to invest in crypto. Maybe one friend is eager to hit a specific financial goal while another is looking at the investment as a way to diversify their portfolio.

It can also be a good time to talk through all the what-ifs you can think of, including:

•  What if this investment loses money?
•  What if one of us needs the money for an emergency?
•  What if more people want to invest in the future?

And finally, make sure your goals are aligned. Are you looking for specific investment opportunities? Some friend groups get together for what is called impact investing, or socially conscious investing —investing in companies that have positive social, environmental, and environmental impact on the world. Other friends may pool their money to gain access to investment opportunities that may have a minimum investment threshold, such as private investments and alternative investments like venture capital.

Once you’re all on the same page, you can then assess different methods of investing as a group of friends.

How Do You Invest With Friends

There are a few different ways to invest with friends.

Set Up a Brokerage Account

The low-touch way to invest with friends is to designate someone as account holder and have them open a brokerage account with the pooled resources. But that method may not allow for safeguards to protect your capital or empower each individual investor with decision-making power.

Start an Investment Club

Another option is to start what’s called an investment club. Depending on the circumstances, the club may have registration requirements so the SEC can regulate the club. Circumstances can vary by state. Some circumstances include having passive members who do not decide how the money is invested (ie, if partners or spouses input money but are not involved in investment decisions) or if there is a member providing investment advice or making investment decisions on behalf of the group. Because securities laws operate on both the state and federal level, it may be a good idea to make sure everyone fully understands state and federal regulations.

In some cases, an investment club may have to register with the SEC as an investment company. And someone who takes the lead on investment decisions without input from all members may also need to register with the SEC as an investment advisor. Your club also may need to write bylaws, create a legal partnership, and set up any necessary software.

Better Investing , a national nonprofit, has resources and sample club materials you can peruse to see if an investment club may be right for your friends.

Start a Casual Investing Club With Friends

Some people find investing with friends easier when they’re not actually poolings funds. There are investment clubs where members share experiences, invite financial advisors to speak, and otherwise talk portfolios—without sharing money and making joint investment decisions. This can be a way to dip your toe into the world of investing with friends, or help expand your knowledge on popular investment trends, like cryptocurrency or impact investing, that you’ve been curious about but have not yet had a chance to explore.

limited liability company (LLC) for the purpose of raising and investing cash, as well as to make sure there is an agreement laid out as to potential returns on the investment and whether investors will have any power in the direction and decisions the company makes.

In creating an LLC, it may be helpful to seek legal advice to help create a contract so that everyone is on the same page and there is no confusion as to how money is used and what the return on investment will look like for investors.

The Takeaway

Some people see the benefits in investing with friends: the shared wisdom and experience, the mutual financial goals, and in some cases the pooled funds that may result in profitable returns.

There are many things to consider before investing with friends, and many different ways to go about it. In some cases, you might want to create an LLC with friends, to safeguard your own interests and make sure everyone is in agreement on the details of the arrangement.

If you’re not quite ready to invest your money directly with other people, there are other ways to enjoy that group dynamic while retaining full control of your money and your financial decisions.

SoFi’s investing platform has a feature available for Active Investing members that allows them to opt-in to share their investment portfolios, so you can see how your friends are doing and the market moves they’re making.

Dollar amounts are hidden, but you can follow the holdings of friends who also have opted-into this feature, look at watchlists, and comment on trades. You can also see you and your friends on a dynamic leaderboard with other members. This is a seamless way to see your friends investing behaviors, ask questions, and connect on investment decisions—while still keeping your finances separate.

Find out how you can follow your friends’ investments with SoFi Invest®.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Digital Assets—The Digital Assets platform is owned by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.

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.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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Source: sofi.com

Is a Reverse Stock Split Good or Bad?

A stock split allows companies to increase the number of shares offered to investors, without changing shareholder equity. Rather than issuing new shares, companies may split stock to reduce prices.

stock exchange.

Reverse stock splits don’t affect a company’s market capitalization, which represents the total number of a company’s outstanding shares multiplied by its current market price per share. But by consolidating existing shares into fewer shares, those shares can become more valuable.

Do You Lose Money on a Stock Split?

Avoiding losses is part of investing strategically, and it makes sense if investors wonder how a forward stock split or a reverse stock split could impact them financially.

A stock split itself doesn’t cause an investor to lose money, because the total value of their investment doesn’t change. What changes is the number of shares they own and what each one of those shares is priced at.

For example, if you have $1,000 invested before a forward stock split or a reverse stock split, you would still have $1,000 afterward. But depending on which way the stock split moves, you may own more or fewer shares and the price of those shares would change correspondingly.

If you own a stock that pays stock dividends, those dividend payments would also adjust accordingly. For instance, in a forward two-for-one split of a stock that’s currently paying $2 per share in dividends, the new payout would be $1 per share. If you own a stock that pays $1 per share in dividends, then undergoes a reverse stock split that combines five shares into one, your new dividend payout would be $5 per share.

Is a Reverse Stock Split Good or Bad?

Whether a reverse stock split is good or bad can depend on why the company chose to initiate it and the impacts it has on the company’s overall financial situation.

At first glance, a reverse stock split can seem like a red flag. If a company is trying to boost its share price to try and attract new investors, that could be a sign that it’s desperate for cash. But there are other indicators that a company is struggling financially. Poor earnings reports or a diminishing dividend could also be clues that a company is underperforming.

In terms of outcomes, there are two broad paths that can open up following a reverse stock split.

A Reverse Stock Split Could Create Opportunities

Path A creates new opportunities for the company to grow and strengthen financially, but this is usually dependent on taking other measures. For example, if a company is also taking steps to reduce its debt load or improve earnings, then a reverse stock split could yield long-term benefits with regard to pricing.

A Reverse Stock Split Could Result in Losses

On the other hand, Path B could result in losses to investors if the new price doesn’t stick. If stock prices fall after a reverse stock split, that means an investor’s new combined shares become less valuable. A Path B scenario may be likely if the company isn’t making other efforts to improve its financial situation, or if the efforts they are making fail.

Should I Sell Before a Stock Split?

There are many factors that go into deciding when to sell a stock. Whether it makes sense to sell before a stock split or after can depend on what other signs the company is giving off with regard to its financial health and how an investor expects it to perform after the split.

Investors who have shares in a company that has a strong track record overall may choose to remain invested. Even though a split may result in a lower share price in the near term, their investments could grow in value if the price continues to climb after the split.

price to earnings (P/E) ratio, earnings per share (EPS) and other key ratios that may be gleaned by reading the company’s earnings report, can give you a better idea of which direction things may be headed.

The Takeaway

A reverse stock split itself shouldn’t impact an investor—their overall investment value remains the same, even as stocks are consolidated at a higher price. But the reasons behind the reverse stock split are worth investigating, and the split itself has the potential to drive stock prices down.

Stock splits are something investors may encounter from time to time. Understanding what the implications of a forward or reverse stock split are and what they can tell you about a company can help an investor develop a strategy for managing them.

Investing in stocks alongside other securities can help an investor create a diversified portfolio over time, and make it easier to balance risk. With SoFi Invest®, members can build a portfolio that includes individual stocks, exchange-traded funds (ETFs) and cryptocurrency.

Find out how easy it is to start investing with SoFi.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Digital Assets—The Digital Assets platform is owned by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.

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

Understanding Cash in Lieu of Fractional Shares

It’s not uncommon for publicly-traded companies to restructure based on changing market conditions or share prices. When companies merge, split their stock, or acquire competitors, it can raise the question of how to consolidate or restructure the company’s stock.

If such a corporate action generates fractional shares, the company’s leadership has a few options for how to proceed: They could distribute the fractional shares, round up to the nearest whole share, or pay cash in lieu of fractional shares.

What is Cash In Lieu?

stock price, or both.

There are several company events that can lead to investors receiving cash in lieu of fractional shares.

Stock Split

A stock split occurs when a company’s board of directors determines that their company’s strongly performing stock price may be too high for new investors. To make the stock price look more attractive to more investors and gain more liquidity and marketability, a stock split is executed to artificially lower the stock’s price by issuing more shares at a fixed ratio while maintaining the company’s unchanged value.

Depending on the predetermined ratio, a stock split could cause fractional shares to be generated. For example, a three-for-two stock split of a stock worth $111 would create three shares for every two shares each investor holds. Thus, a stock split would cause any investor with an odd number of shares to receive a fractional share.

However, if the company’s board isn’t keen to hold or deal with fractional shares, they will distribute investors’ whole shares and liquidate the uneven remainders, thus paying investors cash in lieu of fractional shares. The ratio or cash rate as set by the company performing the stock split can be located on the company’s corresponding SEC 8-K document.

reverse stock split because a stock’s prices are too low and they want to artificially raise them. If stock prices get too low, investors may become fearful to buy and the stock risks being delisted from exchanges.

When a stock undergoes a reverse stock split, each share is converted into a fraction of a share but higher-priced shares are issued to investors according to the reverse split ratio . For example, a stock valued at $3.50 may undergo a reverse one-for-10 stock split. Every 10 shares is converted into one new share valued at $35.00. Investors who own 33 shares or any number indivisible by 10 would receive fractional shares unless the company decides to issue cash in lieu of fractional shares.

Companies may notify their shareholders of an impending reverse stock split on Forms 8-K, 10-Q, or 10-K as well as any settlement details if necessary.

Merger or Acquisition

Company mergers and acquisitions (M&As) can also create fractional shares. When companies combine or are absorbed, they combine new common stock using a predetermined ratio, which often results in fractional shares for investors in all involved companies.

In these cases, it’s rare for the ratio of new shares received to be a whole number. Companies may opt to return whole shares to investors, sell fractional shares, and disburse cash in lieu to investors.

Spinoff

If an investor owns shares of a company that spins off part of the business as a new entity with a separately-traded stock, shareholders of the original company may receive a fixed amount of shares of the new company for every share of the existing company held.

How Is Cash in Lieu of Fractional Shares Taxed?

Just like many other forms of investment profits, cash in lieu of fractional shares is taxable , even though it was acquired without the investor’s endorsement or action. The stock’s company may send investors a check followed by an IRS Form 1099-B at year-end with a “cash in lieu” or “CIL” notation.

Some investors may simply report the payment on the IRS Form 1040’s Schedule D as sales proceeds with zero cost and pay capital gains tax on the entire cash settlement. However, the more accurate and tax-advantageous method would apply the adjusted cost basis to the fractional shares and pay capital gains tax only on the net gain.

Looking to Trade Fractional Shares?
SoFi Invest Can Help with That.

How to Report Cash in Lieu of Fractional Shares

Calculating the cost basis for cash in lieu of fractional shares is a little tricky due to the change of share price and quantity. The new stock issued is not taxable nor does the cost basis change, but the per-share basis does.
Consider the following example:

•  An investor owns 15 shares of Company X worth $10.00 per share ($150 value).
•  Investor’s 15 shares have a $7.00 per share cost basis ($105 total cost basis).
•  Company X declares a 1.5 stock split.

The investor is entitled to 22.5 shares valued at $6.67 each but the company states they will only issue whole shares. Therefore, the investor receives 22 shares plus a $2.73 cash in lieu payment for the half share.

The investor’s total cost basis remains the same, less the cash in lieu of the fractional shares. However, the adjusted cost basis now factors in 22 shares instead of 15, equaling a $4.66 per share cost basis and a $2.33 fractional share cost basis. Finally, the taxable “net gain” for the cash payment received in lieu of fractional shares equates to $2.725 – $2.33 = $0.39.

The Takeaway

It’s not always possible to anticipate a company being restructured and how it will affect shareholders’ stock. In the event the company doesn’t wish to deal with fractional shares, it’s important for shareholders to understand the alternatives such as cash in lieu of fractional shares, and how it affects them. While cash in lieu can be burdensome, investors can be made whole and can then proceed on their own accord.

There are many reasons investors consider fractional shares worth buying to add to their investment portfolio. For individuals looking to invest in fractional shares with the help of a simple account setup and no fees, SoFi Invest® can help.

Find out how SoFi Invest can help you reach your financial goals.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Digital Assets—The Digital Assets platform is owned by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.
Stock Bits
Stock Bits is a brand name of the fractional trading program offered by SoFi Securities LLC. When making a fractional trade, you are granting SoFi Securities discretion to determine the time and price of the trade. Fractional trades will be executed in our next trading window, which may be several hours or days after placing an order. The execution price may be higher or lower than it was at the time the order was placed.

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Source: sofi.com

Here are Safer Alternatives if You’re Too Obsessed with the Stock Market

We’re big on investing. It’s an important way to grow your money and set yourself up for retirement someday.

But is it dangerous to be too obsessed with the stock market?

You bet it is. Our financial advice columnist, Dear Penny, recently heard from a reader whose husband stopped funding his 401(k) so he can bet on the stock market, instead.

Is it OK that he’s stopped contributing to his 401(k) so he can trade stocks? the reader asked. How do I ask him what he’s actually investing in? I’m worried that he’s gambling money that we need for our retirement.

That’s not the way to go. Here are five safer ways to invest and grow your money.

1. Just Steadily Invest Like a Normal Person

Instead of betting all your money on the stock market, just steadily invest in it. Take the long view. The stock market is unpredictable, which means that sometimes stock prices go up, and sometimes they go down — but over time, they tend to go up.

If you haven’t started investing and have some money to spare, you can start small. Investing doesn’t require you throwing thousands of dollars at full shares of stocks. In fact, you can get started with as little as $1.*

We like Stash, because it lets you choose from hundreds of stocks and funds to build your own investment portfolio. But it makes it simple by breaking them down into categories based on your personal goals. Want to invest conservatively right now? Totally get it! Want to dip in with moderate or aggressive risk? Do what you feel.

Plus, with Stash, you’re able to invest in fractions of shares, which means you can invest in funds you wouldn’t normally be able to afford.

If you sign up now (it takes two minutes), Stash will give you $5 after you add $5 to your invest account. Subscription plans start at $1 a month.**

2. Grow Your Money 16x Faster — Without Risking Any of It

Save some of your money in a safer place than the stock market — but where you’ll still earn money on it.

Under your mattress or in a safe will get you nothing. And a typical savings account won’t do you much better. (Ahem, 0.06% is nothing these days.)

But a debit card called Aspiration lets you earn up to 5% cash back and up to 16 times the average interest on the money in your account.

Not too shabby!

Enter your email address here to get a free Aspiration Spend and Save account. After you confirm your email, securely link your bank account so they can start helping you get extra cash. Your money is FDIC insured and they use a military-grade encryption which is nerd talk for “this is totally safe.”

3. Stop Paying Your Credit Card Company

One way to make sure you have more money is to stop wasting money on credit card interest. Your credit card company is getting rich by ripping you off with high interest rates. But a website called AmOne wants to help.

If you owe your credit card companies $50,000 or less, AmOne will match you with a low-interest loan you can use to pay off every single one of your balances.

The benefit? You’ll be left with one bill to pay each month. And because personal loans have lower interest rates (AmOne rates start at 3.49% APR), you’ll get out of debt that much faster. Plus: No credit card payment this month.

AmOne keeps your information confidential and secure, which is probably why after 20 years in business, it still has an A+ rating with the Better Business Bureau.

It takes two minutes to see if you qualify for up to $50,000 online. You do need to give AmOne a real phone number in order to qualify, but don’t worry — they won’t spam you with phone calls.

4. Cut Your Bills by $540/Year

Another way to grow your money: Stop overpaying on your bills.

For example, when’s the last time you checked car insurance prices? You should shop your options every six months or so — it could save you some serious money. Let’s be real, though. It’s probably not the first thing you think about when you wake up. But it doesn’t have to be.

A website called Insure makes it super easy to compare car insurance prices. All you have to do is enter your ZIP code and your age, and it’ll show you your options — and even discounts in your area.

Using Insure, people have saved an average of $540 a year.

Yup. That could be $500 back in your pocket just for taking a few minutes to look at your options.

5. Add $225 to Your Wallet Just for Watching the News

Here’s a safe way to earn a little cash on the side.

We’re living in historic times, and we’re all constantly refreshing for the latest news updates. You probably know more than one news-junkie who fancies themselves an expert in respiratory illness or a political mastermind.

And research companies want to pay you to keep watching. You could add up to $225 a month to your pocket by signing up for a free account with InboxDollars. They’ll present you with short news clips to choose from every day, then ask you a few questions about them.

You just have to answer honestly, and InboxDollars will continue to pay you every month. This might sound too good to be true, but it’s already paid its users more than $56 million.

It takes about one minute to sign up, and start getting paid to watch the news.

Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. He tries not to be obsessed with the stock market.

*For Securities priced over $1,000, purchase of fractional shares starts at $0.05.

**You’ll also bear the standard fees and expenses reflected in the pricing of the ETFs in your account, plus fees for various ancillary services charged by Stash and the custodian.

Source: thepennyhoarder.com

What Happens to a Stock During a Merger?

For investors, the announcement of a corporate merger can cause excitement or trepidation. Public company tie-ups involve negotiations, regulatory hurdles, integration–all of which hopefully leads to value creation for stockholders.

When a merger is taking place, the classic stock market reaction is for the acquiring company’s shares to decline, while the target company’s stock experiences a lift. Here’s a deeper dive into what investors can expect if one of their companies enters into an M&A deal.

What is M&A?

Mergers and acquisitions (M&A) are corporate transactions that involve two companies combining, or one buying a majority stake in another.

M&A had a slowdown as the repercussions of COVID-19 took hold of the global economy. Dealmaking during the pandemic eventually came back as share prices soared and executives sought opportunities or looked to adjust to the new business environment.

Meanwhile, in an all-cash merger, the buyer either has to spend the cash they have on hand or raise new capital to fund the purchase of the target.

What is a Merger of Equals?

A true merger of equals (MOEs) is rare. Most mergers are really acquisitions. But MOEs could signal to investors that two similar, roughly equal-sized companies are uniting because there are significant tax or cost savings to be had. Investors may find that with MOEs, the premiums paid aren’t as significant.

What Is Private Equity?

Private equity (PE) firms, alternative investment funds that buy and restructure companies, also participate in M&A. They seek deals when there’s “dry powder”–funds that have been committed by investors but aren’t yet spent.

How Do Stocks Move During Mergers?

After an M&A announcement, the most common reaction on Wall Street is for the shares of the acquiring company to fall and those of the target company to rally. That’s because the buyer typically offers a premium for the takeover in order to win over shareholders.

The rally in the target’s stock can be an eye-popping move, often leaving investors with the dilemma of selling then or after the deal is complete. The target’s shares usually trade for less than the acquisition price until the transaction closes. This is because the market is pricing in the risk of the deal falling apart.

Deals can get scrapped because of a key regulatory disapproval, stock volatility, or CEOs changing their minds. That would mean money spent on investment bankers, lawyers and consultants to put together the M&A terms would have all been for nought. Not to mention the specter of a costly break-up fee.

Hence the investor skepticism towards M&A. However, research has shown that some 98% of the deals in the last five years have gone through.

Different Stock Reactions to M&A

The stock market is a key way to gauge how shareholders feel about a deal. Here are some different scenarios of how the market could react:

Buyer rises alongside target: This is obviously the best case scenario for companies and investors. It occurs when the stock market believes the deal is a smart acquisition for the buyer and that the deal’s been made at a good price.
Buyer falls dramatically: The buyer’s shares may plummet if investors believe executives are overpaying for a target or if they think the target isn’t a good purchase.
Target moves little: The target’s shares may see little change if rumors of a potential deal already sent share prices higher, causing the premium to be baked in. Alternatively, the premium being paid may be low, causing a muted market reaction.
Buyer rises, target falls: In rarer cases, a deal gets called off and the buyer’s shares rise while the target falls. This could be because investors have soured on the merger and believe that the acquiring company is getting out of a bad deal.
Target falls: If a target company needs money, a private equity firm could buy a stake at a discount. In such cases, the target company’s shares could slump.

Do Mergers Create Value?

stakeholders and shareholders. Recent research has shown that frequent acquirers do tend to add value, while bigger deals are riskier.

The stock market is famously fickle and it can take time before the market gives credit to the combined company for any cost or revenue synergies. In general, cost-saving synergies are much easier to pledge, while revenue synergies could be tougher to deliver.

Investors should also pay attention to executive changes that result from the merger. Leadership turnover can make a difference when it comes to making sure a merger adds value and two companies integrating well.

What Is Merger Arbitrage?

Merger arbitrage–also known as merger arb or risk arbitrage–is a hedge-fund strategy that involves buying shares of the target company and shorting shares of the acquiring company. Returns are usually amplified through the use of leverage.

The so-called “spreads” between the takeover company and the offer value are a way to calculate the odds the market is placing on the deal successfully closing.

When it comes to retail vs. institutional investors, some of the former may want to try merger arbitrage. However, there are key points to keep in mind:

Typically most of the arbitrage opportunity has already been taken immediately after the deal gets announced.

As mentioned, mergers fall apart for all sorts of reasons. The biggest hurdle usually is getting regulatory approval. Regulators often reject a deal for being anticompetitive. A crash in the stock market could also make buyers back out.

Shorting a stock is a risky strategy that isn’t appropriate for all investors. The potential gains for a stock are unlimited, so betting against one can lead to unlimited losses.

The Takeaway

When a merger is announced, the typical reaction is for the acquiring company’s stock price to fall, while the target company’s stock price gains. But different scenarios in the market can give clues on how investors are feeling towards an M&A deal.

There’s also the risk that a deal gets derailed altogether. However, stock investors can take heart in knowing that some 98% of the deals in the last five years have gone through.

It’s important for those who own shares of companies with a pending merger to monitor the news flow on the deal carefully and pay attention to price fluctuations in the market. Separately, it’s also key to know that stock-for-stock mergers can often dilute some shareholders’ voting power.

If investors want to delve into stock picking, SoFi Active Investing may be a good option for them. For those looking for a more hands-off approach, SoFi Automated Investing builds and rebalances portfolios for its members.

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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Digital Assets—The Digital Assets platform is owned by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.

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.
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Source: sofi.com

Unpacking the Myths of Investing in the Stock Market

This article provides information and education for investors. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks or securities.

Why aren’t you investing?

Maybe you grew up thinking the stock market was a scam. Maybe you’re worried that you’ll lose all your money. Maybe you think you don’t have enough to start. Many Americans remain uninvested, even though it can hurt their long-term financial future. According to a 2019 Pew Research Center survey, only about 35% percent of U.S. adults said they personally owned stocks, bonds or mutual funds outside of retirement accounts.

While the system may have originally been built to benefit the few, it is growing to accommodate the needs of the many. No matter what your reason for avoiding investing is, you can begin with confidence after busting these stock market myths.

Myth #1: I need to know about the stock market to start investing

If you’re worried that you don’t know enough about investing to get started, consider this: The people who trade stocks frequently, confidently swapping Amazon for Apple when they see fit, rarely “beat the stock market.” Often, buying a simple index fund and letting it grow over time will make you more money, financial advisors say. So don’t worry that a limited investing knowledge will hold you back.

Having a cautious attitude when it comes to investing can be beneficial and keep you from making any rash decisions. Learning how to invest is easier than you might think, and definitely does not involve being an investing expert.

It’s getting started as soon as you can that is key, says Chloe Moore, a certified financial planner and founder of Financial Staples in Atlanta.

“Investing is an important tool for building wealth,” says Moore. “We all want our money to work for us, and investing plays a key role in this. The earlier you invest, the more time your money has to grow.”

Myth #2: The system isn’t meant for me

Different factors contribute to the belief that the stock market isn’t for everyone. Some people might feel this way because they can’t find a financial advisor who looks like them. Maybe it’s because of an inherited distrust or a lack of confidence in managing money, or maybe it’s a fear of discrimination. Maybe they just don’t think they have enough money to start.

These concerns are real, but there are more tools than ever to help people learn about personal finance and start investing. Groups such as the Association of African American Financial Advisors can help investors connect with advisors of color.

Robo-advisors are another option, and they’re a great way to get started investing, Moore says. They use computer algorithms to choose and manage your investments for you, no matter how much money you have (and often for a fraction of the cost of a traditional financial advisor). Ellevest is a robo-advisor that specializes in helping women invest. (Ellevest is a NerdWallet advertising partner).

“These automated online investment platforms can help you find the right mix of assets for your goals and risk tolerance,” Moore says. “They also rebalance your account on a regular basis, and some will optimize your portfolio for tax efficiency.”

Myth #3: If I open an investment account, I’m invested

Just like a checking or savings account, just because you’ve opened an account doesn’t mean you’ve put money in it.

Some investment accounts have a minimum initial deposit, but many do not, meaning you can open an account with $0.

Once you open the account, you’ll need to add money before you can start buying investments. If you’re not ready to commit your dollars to the stock market just yet, you can still dip your toes in the water by opening an account for free. There are even stock market simulators you can use to practice investing before you do it for real.

Myth #4: I’ll probably lose all my money

While this is technically true, it’s highly unlikely. Short term variations in the stock market may make your investment account’s balance go up or down. But if you have a diversified portfolio (which may include low-cost index funds) and hold on to those investments for the long-term, there is a greater possibility for growth over time.

Myth #5: I have to pay for a financial advisor

Just because someone is a professional doesn’t mean they can predict the stock market. A financial advisor may come in handy if your financial life is getting more complicated and you need some help with retirement or estate planning, but otherwise, using a robo-advisor or choosing investments yourself works just fine for most investors.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

Source: nerdwallet.com