12 Ways Retirees Can Earn Passive Income

A senior black man uses a smartphone
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These days, “retired” doesn’t always mean “not working.”

According to a study of U.S. retirees from the nonprofit Transamerica Center for Retirement Studies (TCRS), “nine percent … are currently working for pay, including five percent who are employed part-time, two percent who are employed full-time, and two percent who are self-employed.”

More than half — 56% — of those surveyed said their top reason to keep working was “wanting the income.” The good news: You might be able to make some extra dollars via passive income — money that comes in without you doing much work, or any work at all.

Passive income is often synonymous with a large upfront investment, such as buying rental properties or dividend-producing stocks. But the following passive-income strategies can bring in extra bucks without investing a bunch of money or time.

1. Rent out a room in your home

Got an empty nest? Someone may be willing to pay to roost there.

You can advertise your spare space on your own or list it on a vacation rental website such as:

Yes, it takes some work: You might have to keep the room tidy and wash a load of sheets and towels once the guests depart. But in some parts of the country, you can earn enough money in just a few days to cover a mortgage payment, as we detail in “Do This a Few Days Each Month and Watch Your Mortgage Disappear.”

If you’re the gregarious type, you can have fun talking up your town or even showing visitors around. If not, advertise it as a “Here’s your key, we won’t bother you” arrangement. Some people simply want an inexpensive place to sleep and don’t care about sitting around chatting with the host.

2. Rent out your vehicle or gear

Your spare bedroom is just one of many things you could rent to others to bring in extra money.

Use your imagination. Maybe you have a ladder, stroller, surfboard, bicycle, boat, camera equipment or a great selection of power tools.

Peer-to-peer rental sites like the following will help you find folks who occasionally need such things but don’t want to own them:

Whatever you’re renting, keep in mind that ordinary insurance might not cover the commercial use of your property. An insurance rider may cover some items, but you may need a separate policy, so consult your insurance agent.

3. Become a peer-to-peer lender

What is peer-to-peer lending? In short, P2P lending sites such as Prosper accept loan applications from borrowers. Investors like you can put some of your money toward loans to those borrowers. When loans get paid back, so do you — with interest.

Overall, P2P investments “can provide solid returns that are really hard to beat,” according to Clark.com, the website of financial guru Clark Howard.

As with any loan, however, there’s the possibility of default. You may not earn anything or may even lose money.

Sound too complicated? Maybe this simpler form of P2P is for you: Worthy sells 36-month bonds for $10 each. The money that comes in is loaned to U.S. businesses, with lenders who have purchased these bonds getting a 5% annual rate of interest on their investment.

To learn more about Worthy bonds, check out “How to Earn 80 Times More on Your Savings.”

4. Get rewards for credit card spending

If you’re going to shop with plastic, make sure you’re rewarded.

The form that the reward takes is up to you. Some people covet airline miles. Others take their rewards as cash or a credit against their monthly statement.

The number of rewards credit cards — and their pros and cons — can be a little dizzying. For an easy way to compare your options, stop by our Solutions Center and check out travel rewards cards or cash-back cards in the Money Talks News credit card search tool.

5. Use cash-back apps

An app called Ibotta lets you earn cash rebates on purchases from retailers, restaurants or movie theaters.

Or you can do your online shopping through cash-back portals like:

These websites enable you to earn cash back on purchases from thousands of online retailers. To learn more about them, check out “3 Websites That Pay You for Shopping.”

6. Sell your photos

Smartphones have made decent photography possible for just about anyone. The next time you capture a killer sunset or an adorable kid-and-dog situation, don’t keep the image to yourself. Apps like Foap — which is available for Android and Apple devices — will help you sell it.

You can do even better if you have a good digital SLR camera, a tripod and other equipment. Stock photo companies like Shutterstock and iStockphoto, which favor high-definition, high-quality images, are venues for selling photos on just about any subject you can find.

7. Write an e-book

It’s possible to bring in cash without a high-powered book contract, thanks to self-publishing platforms.

Amazon’s Kindle Direct Publishing, for example, allows you to write, upload and sell your words fairly easily. My two personal finance books are for sale on Kindle, and they provide a steady stream of passive income.

I also sell PDFs of the books through my personal website. I use a payment platform called E-junkie to handle payments and deliver the book downloads — and this brings me more money per book than Amazon does, even when I offer readers a discount.

If you’re fond of a particular fiction genre, write the kind of stuff you’d like to read. Nonfiction sells, too: cookbooks, travel guides, history, memoirs and how-tos are a few examples. Or maybe you have a specific skill to teach — job-hunting or food preservation or raising chinchillas.

Pro tip: Fiverr.com is a good marketplace through which to find freelancers to hire for help with formatting, design and cover art.

8. Create an online course

If you’ve got useful knowledge, why not monetize it? Sites like Teachable and Thinkific will help you build a course that could change someone’s life, either professionally or personally.

Note that online courses are not limited to computer-based topics. A quick search turns up classes on:

  • Cake-making
  • Watercolors
  • Digital scrapbooking
  • Drone cinematography
  • Free-diving
  • Blacksmithing
  • Yoga
  • Parenting
  • Novel writing
  • Job hunting
  • Building a pet-care business

And that’s just for starters. Like writing an e-book, creating a course will take some work. But again: Once it’s up, the work is done.

9. Join rewards programs

Rewards sites like Swagbucks reward you with points for activities such as searching the internet, watching short videos and taking surveys. You can cash in your points for gift cards or PayPal cash.

Maybe you didn’t retire to spend hours taking surveys. But if you’re going to search the internet anyway, why not use Swagbucks’ search engine and earn some points?

To learn more about Swagbucks, check out “6 Ways to Score Free Gift Cards and Cash in 1 Place.”

10. Wrap your car with advertising

Turn your vehicle into a rolling billboard with companies like Carvertise. They’ll pay you for the privilege of putting removable advertising decals for a business on your automobile.

Writer Kat Tretina describes the process at Student Loan Hero. You can expect to earn $100 to $400 a month, depending on how much and where you drive, she says. Requirements include having a good driving record and a vehicle that has its factory paint job.

Pro tip: Car-advertising scams make the rounds regularly. Tretina offers these tips to avoid being victimized:

  • Legitimate companies don’t charge an application fee, and they’ll have a customer service phone line that lets you talk with a real person.
  • The car-wrapping cost should be covered by the company.
  • Take a hard pass on any company that doesn’t ask questions about your driving record, auto insurance, driving routes and type of vehicle.

11. Create an app

Maybe yours is one of those minds that says, “There should be an easier way to do (whatever) — and I think I know what it is!” If so, creating an app could bring in extra income.

It could also bring in zero dollars. But nothing ventured, nothing gained, right?

For example, personal finance writer Jackie Beck — who cleared $147,000 of debt — used her expertise to create an app called “Pay Off Debt.”

Not a coder? App-builder services exist. The WikiHow.com article “How to Create a Mobile App” tells how to get started. It’s a time-consuming process. But that’s one of the beauties of retirement: You set your own hours.

12. Become a package ‘receiver’

OK, this idea is unproven — so far. But it’s a solution whose time has come. The boom in online shopping has been a boon for thieves who find it easy to swipe packages left outside front doors before the intended recipients get home from work.

You might be able to do your part to thwart those lowdown thieves by marketing yourself as a “professional package receiver.”

Try this: Put the word out — through friends, social media, places of worship — that you are available to accept deliveries. If a package is for someone in your neighborhood, you could watch the shipping company’s tracking info and be at the home to take the package in. Or you could specify that packages be shipped to Original Recipient, c/o Professional Package Receiver — that’s you.

Before asking a fee of, for example, $1 per package, ask the person who wants to hire you what it’s worth to them. You might be surprised by a response like, “I’ll give you $5.” Decide, too, whether you’ll be charging per package or per order, and whether you’ll set a weight limit, such as no packages over 30 pounds.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

What Is a Carry Trade in Currency Markets?

Carry trade is a strategy used by some traders who invest in currency markets to take advantage of differences in interest rates. In a carry trade, an investor buys or borrows a security or asset at a low interest rate, and then uses it to invest in another security or asset that provides a higher rate of return.

Here’s what you need to know about how a carry trade strategy works and the risks associated with it.

What Is a Carry Trade?

In a carry trade, forex traders borrow money at a low interest rate in order to invest it in an asset with a higher rate of return. In the forex markets, the currency carry trade is a bet that one foreign currency will hold or increase its value relative to another currency. Of course, this strategy hinges on whether or not interest rates and exchange rates are in the traders’ favor. The wider the exchange rate between two currencies, the better the potential returns for the investor.

Recommended: What Is Forex Trading?

Even so, a carry trade strategy can be a relatively simple way to increase an investor’s returns, assuming they understand the difference in interest rates. In that way, it’s similar to understanding “spread trading” as they relate to stocks.

How Do You Execute a Carry Trade?

Carry Trade Example

Imagine that the US dollar has a 1% interest rate, but the British pound has a 2% interest rate. A trader could take 100 US dollars, and then invest that 100 dollars into the equivalent number of pounds (according to the exchange rate), and earn a higher return in interest. The discrepancy in interest rates allows traders to take advantage and earn higher returns.

This is a rather simplistic carry trade example, professional traders and investors can engage in complex carry trade strategies, and even employ the use of a carry trade formula to help them figure out expected returns, and whether the strategy is worth pursuing in a given situation.

Rather than simply buying one currency with another, traders often execute a carry trade that involves borrowing money in one currency and using it to purchase assets in another currency. In this scenario, traders want to borrow the money at the lowest possible interest rate, and do so using a weak or declining currency.

That can create higher profits when they close the deal and pay back the borrowed money. In general, carry trade is a short-term strategy, rather than one focused on the long-term.

Recommended: Short-Term vs Long-Term Investments

Is a Carry Trade Risky?

The concept of a carry trade is simple, but in practice it can involve investment risk. Most notably, there’s the risk that the currency or asset a trader is investing in (the British pounds in our previous example) could lose value. That could put a damper on a trader’s expected returns, as it would eat away at the gains the difference in interest rates could provide. Currency prices tend to be very volatile, and something as mundane as a monthly jobs report released by a government can cause big price changes.

The greater the degree of leverage an investor uses to execute a carry trade, the higher the potential returns–and the larger the risk. In addition to currency risk, the carry trade is subject to interest rate risk. Given the risks, carry trades in the currency markets may not be the most appropriate strategy for investors with a low tolerance for risk.

The Takeaway

Carry trades are one way for investors or traders to generate returns, although the approach involves some risks that aren’t present in other types of investment strategies. While the carry trade concept is straightforward, it can quickly get complex when institutional investors put it in place.

If you’re ready to start investing in less complicated investments, a great way to start is by opening an account on the SoFi Invest® brokerage platform, which allows you to buy or sell stocks, ETFs, trade crypto and more.

Photo credit: iStock/akinbostanci


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 . 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) Cryptocurrency is offered 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, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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Source: sofi.com

How Does Non-Farm Payroll (NFP) Affect the Markets?

What Is Nonfarm Payroll?

A nonfarm payroll is an economic report used to describe the number of Americans employed in the United States, excluding farm workers and select other U.S. workers, including some government employees, private household employees, and non-profit organization workers.

Known as “the jobs report” the nonfarm payroll looks at the jobs gained and lost during the previous month.

The US Nonfarm Payroll Report Explained

The NFP report studies US employment via two main surveys by the US government of private employers and government entities.

•  The U.S. Household Survey. This report breaks down the employment numbers on a demographic basis, studying the jobs rate by race, gender, education, and age.

•  The Establishment Survey. The result of this survey tracks the amount of jobs by industry as well as the number of hours worked and average hourly earnings.

The US Bureau of Labor Statistics then combines the data from those reports and issues the updated figures via the nonfarm payroll report on the first Friday of every month, and some call the week leading up to the report “NFP week.” Economists view the report as a key economic indicator of the US economy.

How Does NFP Affect the Markets?

Many investors watch the nonfarm payroll numbers very closely as a measure of market risk. Surprise numbers can create potentially large market movements in key sectors like stocks, bonds, gold, and the US dollar, depending on the monthly release numbers.

Investors create a strategy based on how they think markets will behave in the future, so they attempt to factor their projections for jobs report numbers into the price of different types of investments. Changing or unexpected numbers, however, could prompt them to change their strategy.

If the nonfarm payroll number reflects a robust employment sector, for example, that could lead to a rise in US stock market values along with a hike in the US dollar relative to other global currencies. If the nonfarm payroll points to a downward-spiraling job sector, however, with declining wages and low employment growth, that could portend a stock market downturn and the US dollar could also decline in value, as investors lose confidence in the US economy and adjust their investment portfolios accordingly.

4 Figures From the NFP Report to Pay Attention To

Investors look specifically at several figures within the jobs report:

The Unemployment Rate

The unemployment rate is central to US economic health, and it’s a factor in the Federal Reserve’s assessment of the nation’s financial health and the potential for a future recession. A rising unemployment rate could result in economic policy adjustments (like higher or lower interest rates), which could impact the financial markets, domestically and globally.

Higher-than-expected unemployment could push investors away from stocks and toward assets that they consider more safe, such as gold, potentially triggering a stock market correction.

Employment Sector Activity

The nonfarm payroll report also examines employment activity in specific business sectors, like manufacturing or the healthcare industry. Any significant rise or fall in sector employment can impact financial market investment decisions on a sector-by-sector basis.

Average Hourly Wages

Investors may look at average hourly pay as a good barometer of overall US economic health. Rising wages point to stronger consumer confidence, and to a stronger economy overall. That scenario could lead to a stronger stock market, but it may also indicate future inflation.

A weaker hourly wage figure may be taken as a negative sign by investors, leading them to reduce their stock market positions and seek shelter in the bond market, or buy gold as a hedge against a declining US economy.

Revisions in the Nonfarm Payroll Report

Nonfarm payroll figures, like any specific economic benchmarks, are dynamic in nature and change all the time. Thus, investors watch any revisions to previous nonfarm payroll assessments to potentially re-evaluate their own portfolios based on changing employment numbers.

How to Trade the Nonfarm Payroll Report

While long-term investors typically do not need to pay attention to any single jobs report, those who take a more active, trading approach may want to adjust their strategy based on new data about the economy. If you fall into the latter camp, you’ll typically want to make sure that the report is a factor that you consider, though not the only one.

You’ll want to look at other economic statistics as well as the technical and fundamental profiles of individual securities that you’re planning to buy or sell. Then, you’ll want to devise a strategy that you’ll execute based on your research, your expectations about the jobs report, and whether you believe it indicates a bull or a bear market ahead.

For example, if you expect the nonfarm payroll report to be a positive one, with robust jobs growth, you might consider adding stocks to your portfolio, as they tend to appreciate faster than other investment classes after good economic news. If you believe the nonfarm payroll report will be negative, you may consider more conservative investments like bonds or bond funds, which tend to perform better when the economy is slowing down.

Or, you might opt to take a more long-term approach, taking the opportunity to potentially get stocks at a discount and invest while the market is down.

The Takeaway

Markets do move after nonfarm payroll reports, but long-term investors don’t have to make changes to their portfolio after every new government data dump. That said, active investors may use the jobs report as one factor in creating their investment strategy.

Whatever your strategy, a great way to start executing it is via the SoFi Invest® brokerage platform. It allows you to build your own portfolio, consisting of stocks, exchange-traded funds, and other investments such as IPOs and crypto currency. You can get started with an initial investment of as little as $5.


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 . 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) Cryptocurrency is offered 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, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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Source: sofi.com

Paying Taxes on Stocks: Important Information for Investing

Just as you owe taxes on money that you earn by working, you may also owe taxes on money that you earn through investments.

That’s important for investors to understand, so that they can plan for the tax implications of their investment strategy. Understanding how your investments could impact your taxes better prepare you for tax season and allow you to make more informed investment decisions.

Some investments may not look as appealing after you’ve factored in the potential impact of taxes, and taxes could impact both your returns and your payback period. That’s why it’s important to know the answer to the question: How are stocks taxed?

Before we get into it, we just want to say up front that we don’t provide tax advice. We can outline a few tax guidelines that you should pay attention to but, to fully understand the implications, you’ll want to consult a tax professional.

When Do You Pay Taxes on Stocks?

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There are several scenarios in which you may owe taxes related to the stocks you hold in an investment account. The most well known is the tax liability incurred when you sell a stock that has appreciated in value since you purchased it. The difference in value is referred to as a capital gain. When you have capital gains, you must pay taxes on those earnings.

You owe capital gains taxes only on your investments’ growth, based on the increase in value from when you bought them until when you sell them. That’s important to consider, whether you’re purchasing IPO stocks or buying blue chip established companies.

There are two types of capital gains tax:

Short-term Capital Gains

Short-term capital gains tax applies when you sell an asset that you owned for a year or less that gained in value. These gains would be taxed at the same rate as your typical tax bracket (here they are for the 2021-2022 tax year), so they’re important for day traders to consider.

Long-term Capital Gains

Long-term capital gains tax applies when you sell an asset that gained in value after holding it for more than a year. Depending on your taxable income and tax filing status, you’d be taxed at one of these three rates: 0%, 15%, or 20%. Overall, long-term capital gains tax rates are typically lower than those on short-term capital gains.

Capital Losses

If you sell a stock for less than you purchased it, the difference is called a capital loss. You can deduct your capital losses from your capital gains each year, and offset the amount in taxes you owe on your capital gains.

You can also apply up to $3,000 in investment losses to offset regular income taxes.

Taxes on Investment Income

You may have taxes related to your stock investments even when you don’t sell, if the investments generate income.

Dividends

You may receive periodic dividends from some of your stocks when the company you’ve invested in earns a profit. If the dividends you earn add up to a large amount, you may be required to pay taxes on those earnings. Each year, you will receive a 1099-DIV tax form for each stock or investment from which you received dividends. These forms will help you determine how much in taxes you owe.

There are two broad categories of dividends: qualified or nonqualified/ordinary. The IRS taxes nonqualified dividends at your regular income tax bracket. The rate on qualified dividends may be 0%, 15%, or 20%, depending on your filing status and taxable income. This rate is usually less than the one for nonqualified dividends, though those with a higher income typically pay a higher tax rate on dividends.

Interest Income

This money can come from brokerage account interest or from bond/mutual fund interest, as two examples, and it is taxed at your ordinary income level. Municipal bonds are an exception because they’re exempt from federal taxes and, if issued from your state, may be exempt from state taxes, as well.

Net Investment Income Tax (NIIT)

Also called the Medicare tax, this is a flat rate investment income tax of 3.8% for taxpayers whose adjusted gross income exceeds $200,000 for single filers or $250,000 for filers filing jointly. Taxpayers who qualify may owe interest on the following types of investment income, among others: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, and income from businesses involved in trading of financial instruments or commodities.

Recommended: Investment Tax Rules Every Investor Should Know

When Do I Not Have to Pay Taxes on Stocks?

Again, this should first and foremost be a discussion you have with your tax professional. But there are a few situations you should know about where you often don’t pay taxes when selling a stock. For example, if you are investing through a tax-deferred retirement investment account like an IRA or a 401(k), you won’t have to pay taxes on any gains when you buy and sell stocks inside the account. However, if you were to sell stock in one of these accounts and then withdraw it, you could owe taxes on the withdrawal.

How to Pay Lower Taxes on Stocks

If the answer to “Do you have to pay taxes on stocks?” is “yes” for your personal financial situation, then the question becomes how to pay a lower amount of taxes. Strategies can include:

•  Holding on to stocks long enough for dividends to become qualified and for any capital gains tax to be in the long-term category because they are typically taxed at a lower rate

•  Offsetting your capital gains with capital losses

•  Putting your investments into retirement accounts or other tax-advantaged accounts

•  Avoiding the temptation to make early withdrawals from your 401(k) or other retirement accounts.

The Takeaway

The tax implications of your investments will vary depending on the types of investments in your portfolio and the accounts you use, among other factors. That’s why it may be worthwhile to work with an experienced accountant and a financial advisor who can help you understand and manage the complexities of different tax scenarios.

Many investment banks offer investing advice and guidance tailored to your needs. Some even offer advanced online tools to help you balance your investments and stay on target to reach your goals. Research and compare accounts to find an investment bank that meets your needs.

The SoFi Invest® brokerage platform offers convenient, easy-to-access investing options when you buy stocks online that pair the best of automated investing with custom advice from financial professionals. The platform allows you to get started investing by easily purchasing stocks, exchange-traded funds, and crypto currencies.


Choose how you want to 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 . 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) Cryptocurrency is offered 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, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
IPOs: Investing early in IPO stock involves substantial risk of loss. The decision to invest should always be made as part of a comprehensive financial plan taking individual circumstances and risk appetites into account.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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Source: sofi.com

19 Black-Owned Banks and How to Support Them | The Simple Dollar

Banking Black isn’t a new concept, but it’s gaining momentum amid the rise of the Black Lives Matter movement. But what does it mean to bank Black? According to the Urban Institute, a Black financial institution provides services to minority communities and is 51% or more Black-owned.

Black financial institutions have been around for centuries, with initial meetings among African Americans interested in establishing their own banks held as far back as 1851 — before the Civil War. However, the first Black-owned bank in the U.S. didn’t materialize until after the war, in 1888. 

The first Black-owned banks enabled African Americans to accumulate enough capital to start other service-oriented businesses like nursing homes, catering businesses and insurance companies. And they provided an opportunity for African Americans to learn accounting skills and other techniques required for handling large volumes of cash. 

Today, there are roughly 19 Black-owned banks in the U.S. offering the same services as other financial institutions, such as certificates of deposits, loans, online and mobile banking assistance and more. This number used to be much higher — in 2001, there were 48 Black-owned banks — but, as with other community banks, the numbers have dwindled over the years partially due to regulatory restrictions that often favor larger financial institutions. 

As we celebrate Black History Month, we celebrate the Black-owned financial institutions that have served as pillars in the community for years now.

In this article

Why you should consider banking Black

It’s no secret there’s a wealth gap between minority and non-minority households. As of 2016, the median wealth for a White family was $171,000 compared to $17,600 for a Black family. 

This is partly attributed to a lack of financial services in minority communities. Without financial inclusion, minorities can’t affordably save, invest and insure themselves, which is required to grow and sustain wealth. This lack of experience also places them at a disadvantage. 

“I believe it is vital that African Americans make financial literacy a priority in 2020 and beyond, especially because of the effects of the coronavirus. Over 67% of Americans cannot pass a basic financial literacy test. African Americans, on average, can only answer less than 40% of financial literacy questions correctly. According to research, African Americans have the lowest levels of financial literacy,” states Dr. JeFreda R. Brown, personal finance consultant, educator and CEO of Provision Financial Education.

Because of financial exclusion, minorities often resort to expensive financial services, such as check cashing stores and pay-day lenders, because there are fewer banks in their neighborhoods. There are roughly 41 financial institutions per 100,000 people in a White community compared to only 27 in non-White majority communities. And the financial institutions present in minority neighborhoods often make it difficult to open and maintain an account. For example, a bank may require higher account balances to eliminate service charges or a larger minimum account balance. According to one study, the average minimum account balance at banks in Black neighborhoods is $871, compared to $626 in White communities. 

Because of this, nearly half of Black households are either underbanked or lacking access to such institutions. 

“Earning money is not a problem for African Americans,” says Dr. JeFreda R. Brown. “However, there is a large gap for African Americans when it comes to personal finance education, understanding how money works, understanding economics and economic indicators, understanding time value of money and understanding wealth building.”

Many Black-owned banks aim to combat the wealth disparity gap through:

  • community development lending
  • supporting minority businesses and nonprofits
  • offering financial literacy workshops for community members
  • providing financial aid to underserved Black communities

“I think banking with Black-owned banks is good because many of them give people a second chance who can’t get bank accounts with other banks,” says Dr. JeFreda R. Brown. “Also, Black-owned banks offer the same services as other banks and credit unions.”

In 2016, there was a rise in support for Black-owned businesses following the Black Lives Matter movement. One initiative was the Black Money Matters movement, headed by rapper Michael “Killer Mike” Render. He made a call for action in July 2016 during a town hall meeting televised by BET, asking Blacks to “bank Black.” It was an effective yet short-lived effort that led to 8,000 new accounts at Atlanta’s Black-owned Citizens Trust Bank. In addition, One United Bank reported receiving $3 million in deposits at branches across the country, and Carver Bank witnessed $2.4 million in deposits thanks to the movement.

There is also the Bank Black Challenge, which was launched by One United Bank, that is challenging one million people to open a $100 savings account at a Black-owned bank to generate $100 million of economic power. This challenge started in 2016 and is still ongoing today. 

Initiatives like these are significant, but it requires ongoing support to make their effects long-lasting. In 2020, the current Black Lives Matter (BLM) movement is motivating people to support the Black community in new ways. And by banking with Black financial institutions, you can now play your part in reinvesting in the Black community in the U.S. 

“Black-owned banks should be given a chance to grow and be a strong financial staple in the communities they serve. Also, Black-owned banks are a great option for anyone because they promote economic revitalization. Banking with Black-owned banks helps increase community development and economic development. This is why they need support from everyone,” states Dr. JeFreda R Brown. 

Black-owned banks and credit unions

If you’re considering banking with a Black financial institution, check out this list of Black-owned banks and credit unions in the U.S. If you don’t see a bank listed in your area, keep in mind you may still be able to use the bank’s digital banking services.

  1. Alamerica Bank – located in Birmingham, Ala.
  2. Citizens Trust Bank – located in 15 cities across the U.S.
  3. Columbia Savings and Loan – located in Milwaukee, Wyo.
  4. Commonwealth National Bank – has two locations in Mobile, Ala.
  5. Broadway Federal Bank FSB – two locations in Los Angeles, Calif. and one in Inglewood, Calif. 
  6. Carver State Bank – two locations in Savannah, Ga.
  7. Carver Federal Savings Bank – located in three cities in N.Y.
  8. Columbia Savings & Loan ASSN – located in Milwaukee, Wyo.
  9. GN Bank – located in Chicago, Ill.
  10. First Independence Bank – located in two cities in Mich.
  11. Harbor Bank of Maryland – located in three cities in Md.
  12. Liberty Bank & Trust CO – located in 10 cities across the U.S. 
  13. Industrial Bank NA – has multiple locations in N.Y., Md. and N.J.
  14. OneUnited Bank – located in three cities across the U.S.
  15. Optus Bank – located in Columbia, S.C.
  16. Mechanics & Farmers Bank – located in five cities in the Carolinas
  17. Tri-State Bank of Memphis – located in Memphis, Tenn.
  18. Unity National Bank – located in three cities in Texas and Ga.
  19. United Bank of Philadelphia – located in Philadelphia, Pa. 

Considering making the switch?

Black-owned financial institutions are struggling. In 2013, 60% of Black banks lost money, and they were especially hit hard by the 2008 recession. As we enter yet another economic downturn, now is a great time to invest in Black banks. In doing so, you can help keep these entities afloat so that minority communities can continue working to close the disparity gap. 

Together, Black banks control $5 billion in assets, which is a fraction of what the banking giants have (for example, Wells Fargo has $1.7 trillion in assets alone). It’s up to the people to help grow Black financial institutions in the U.S. If you’d like to make a difference, then follow these simple steps to switch to a Black-owned bank. 

Step 1: Identify your banking needs

Are you currently banking with another bank? What do you like and dislike about it? Keep this in mind as you’re shopping for a new, Black-owned bank.

Maybe you like the mobile banking options your current bank offers but hate the high monthly fees. Or perhaps you want to do your banking with an institution that has more involvement in minority communities. 

Make a list of your must-haves to help you decide on the best Black banking solution for your needs. 

Step 2: Choose a new banking institution

After you’ve identified your list of banking needs, it’s time to search for a Black-owned financial institution that meets those requirements. Use the list of Black-owned banks and credit unions above to start your search. Create a list of options and mark off the ones that don’t make the cut. 

Step 3: Take note of your automatic payments and deposits

Do you use automatic withdrawals for your billing? How about direct deposits from your employers (or clients)? If so, you’ll need to make a list of these automatic transactions so you can set them up with your new bank.

Step 4: Open up your new account

Once you’ve found a bank that meets your needs, it’s time to create your new account. Go through the application process and schedule to make a deposit (if required). Also, check with your new bank to determine what process they have to make  transferring funds from your old bank easier. Once your account is up and running, don’t forget to schedule your automatic payments and deposits.

Looking ahead

Deciding to bank Black isn’t just about choosing where you keep your money. It’s a way to take a stand against inequality in minority communities that lack financial inclusion. And it helps push the Black Lives Matter movement forward. 

In 2012, Wells Fargo was sued for pushing Blacks toward more expensive mortgages with higher fees and rates (compared to white borrowers with similar credit). Then in March 2018, Bank of America was fined for racial discrimination in its hiring and lending practices. 

Unfortunately, this is an ongoing issue for people of color who receive less than 1% of mortgages from white-owned banks.

Banking Black isn’t a choice only available to African Americans, either. It’s a viable option for anyone who wants to make a difference in their financial prosperity, as well as the prosperity of those in underserved communities.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

How Rising Inflation Affects Mortgage Interest Rates

Rising inflation can shrink purchasing power as prices of goods and services increase. This, in turn, can affect interest rates and the cost of borrowing. While the inflation rate doesn’t have a direct impact on mortgage rates, the two do tend to move in tandem.

What does that mean for homebuyers looking for a home loan and for homeowners who want to refinance a mortgage? Simply that as inflation rises, mortgage rates may follow suit.

Understanding the difference between the inflation rate and interest rates, and what affects mortgage rates for different types of home loans, matters in terms of timing.

Inflation Rate vs. Interest Rates

Inflation is defined as a general increase in the overall price of goods and services over time.

The Federal Reserve, the central bank of the United States, tracks inflation rates and inflation trends using several key metrics, including the Consumer Price Index, to determine how to direct monetary policy.

What to Learn from Historical Mortgage Rate Fluctuations

Inflation Trends for 2021 and Beyond

As of May 2021, the U.S. inflation rate had hit 5% as measured by the Consumer Price Index, representing the largest 12-month increase since 2008 and moving well beyond the 2% target inflation rate the Federal Reserve aims for.

While prices for consumer goods and services were up across the board, the biggest increase overall was in the energy category.

Rising inflation rates in 2021 are thought to be driven by a combination of things, including:

• A reopening economy

• Increased demand for goods and services

• Shortages in supply of goods and services

The coronavirus pandemic saw many people cut back on spending in 2020, leading to a surplus of savings. State reopenings have spurred a wave of “revenge spending” among consumers.

Although the demand for goods and services is up, supply chain disruptions and worker shortages are making it difficult for companies to meet consumer needs. This has resulted in steadily rising inflation.

Fed Chair Jerome Powell said in June 2021 that he anticipates a continued rise in the U.S. inflation rate in 2021. This is projected to be followed by an eventual dropoff and return to lower inflation rates in 2022.

In the meantime, the Fed has discussed the possibility of an interest rate increase, though there are no firm plans to do so yet. Some Fed bank presidents, though, have forecast an initial rate increase in 2022.

Recommended: 7 Factors that Cause Inflation – Historic Examples Included

Is Now a Good Time for a Mortgage or Refi?

It’s clear that there’s a link between inflation rates and mortgage rates. But what does all of this mean for homebuyers or homeowners?

It simply means that if you’re interested in buying a home it could make sense to do so sooner rather than later. Despite the economic upheaval in 2020 and the rise in inflation that’s happening now, mortgage rates have still held near historic lows. If the Fed decides to pursue an interest rate hike, that could have a trickle-down effect and lead to higher mortgage rates.

good mortgage rate, especially as home values increase.

The higher home values go, the more important a low-interest rate becomes, as the rate can directly affect how much home you’re able to afford.

The same is true if you already own a home and you’re considering refinancing an existing mortgage. With refinancing, the math gets a bit trickier.

You might want to determine your break-even point when the money you save on interest charges catches up to what you spend on closing costs for a refi loan.

To find the break-even point on a refi, divide the total loan costs by the monthly savings. If refinancing fees total $3,000 and you’ll save $250 a month, that’s 3,000 divided by 250, or 12. That means it’ll take 12 months to recoup the cost of refinancing.

If you refinance to a shorter-term, your savings can multiply beyond the break-even point.

If your current mortgage rate is above refinancing rates, it could make sense to shop around for refinancing options.

Keep in mind, of course, that the actual rate you pay for a purchase loan or refinance loan can also depend on things like your credit score, income, and debt-to-income ratio.

Recommended: How to Refinance Your Mortgage – Step-By-Step Guide 

The Takeaway

Inflation appears to be here to stay, at least for the near term. Understanding what affects mortgage rates and the relationship between the inflation rate vs. interest rates matters from a savings perspective.

Buying a home or refinancing when mortgage rates are lower could add up to a substantial cost difference over the life of your loan.

SoFi offers fixed-rate home loans and mortgage refinancing. Now might be a good time to find the best loan for your needs and budget.

It’s easy to check your rate with SoFi.

Photo credit: iStock/Max Zolotukhin


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

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

LTV 101: Why Your Loan-to-Value Ratio Matters

Are you thinking about taking out a home loan or refinancing your mortgage? If so, knowing your loan-to-value (LTV) ratio, or the loan amount divided by the value of the property, is important.

Let’s break down LTV: what it is, how to calculate it, and why it matters. (Hint: It could help save you a lot of money.)

LTV, a Pertinent Percentage

The relationship between the loan amount and the value of the asset securing that loan constitutes LTV.

To find the loan-to-value ratio, divide the loan amount by the value of the property.

LTV = (Loan Value / Property Value) x 100

Here’s an example: Say you want to buy a $200,000 home. You have $20,000 set aside as a down payment and need to take out a $180,000 mortgage. So here’s what your LTV calculation looks like:

180,000 / 200,000 = 0.9 or 90%

Here’s another example: You want to refinance your mortgage (which means getting a new home loan, hopefully at a lower interest rate). Your home is valued at $350,000, and your mortgage balance is $220,000.

220,000 / 350,000 = 0.628 or 63%

As the LTV percentage increases, the risk to the lender increases.

Why Does LTV Matter?

Two major components of a mortgage loan can be affected by LTV: the interest rate and private mortgage insurance (PMI).

Interest Rate

LTV, in conjunction with your income, financial history, and credit score, is a major factor in determining how much a loan will cost.

When a lender writes a loan that is close to the value of the property, the perceived risk of default is higher because the borrower has little equity built up—and therefore, little to lose.

Should the property go into foreclosure, the lender may be unable to recoup the money it lent. Because of this, lenders prefer borrowers with lower LTVs and will often reward them with better interest rates.

Though a 20% down payment is not essential for loan approval, someone with an 80% LTV is likely to get a more competitive rate than a similar borrower with a 90% LTV.
The same goes for a refinance or home equity line of credit: If you have 20% equity in your home, or at least 80% LTV, you’re more likely to get a better rate.

If you’ve ever run the numbers on mortgage loans, you know that a rate difference of 1% could amount to thousands of dollars paid in interest over the life of the loan.

Let’s look at an example, where two people are applying for loans on identical $300,000 properties.

Person One, Barb:

•  Puts 20%, or $60,000, down, so their LTV is 80%. (240,000 / 300,000 = 80%)

•  Gets approved for a 4.5% interest rate on a 30-year fixed-rate mortgage

•  Will pay $197,778 in interest over the life of the loan

Person Two, Bill:

•  Puts 10%, or $30,000, down, so their LTV is 90%. (270,000 / 300,000 = 90%)

•  Gets approved for a 5.5% interest rate on a 30-year fixed-rate mortgage

•  Will pay $281,891 in interest over the life of the loan

Bill will pay $84,113 more in interest than Barb, though it is true that Bill also has a larger loan and pays more in interest because of that.

So let’s compare apples to apples: Let’s assume that Bill is also putting $60,000 down and taking out a $240,000 loan, but that loan interest rate remains at 5.5%. Now, Bill pays $250,571 in interest;

The 1% difference in interest rates means Bill will pay nearly $53,000 more over the life of the loan than Barb will.

Mortgage CalculatorMortgage Calculator

PMI or Private Mortgage Insurance

Your LTV ratio also determines whether you’ll be required to pay for PMI. PMI protects your lender in the event that your house is foreclosed on and the lender assumes a loss in the process.

Your lender will charge you for PMI until your LTV reaches 78% (by law, if payments are current) or 80% (by request).

PMI can be a substantial added cost, ranging from 0.5% to 2.25% of the value of the loan per year. Using our example from above, a $270,000 loan at 5.5% with a 1% PMI rate translates to $225 per month for PMI, or about $18,800 in PMI paid until 20% equity is reached.

How Does LTV Change?

LTV changes when either the value of the property or the value of the loan changes.

If you’re a homeowner, the value of your property fluctuates with natural market pressures. If you thought the value of your home increased significantly since your last appraisal, you could have another appraisal done. You could also potentially increase your home value through remodels or additions.

The balance of your loan should decrease over time as you make monthly mortgage payments, and this will lower your LTV. If you made a large payment toward your mortgage, that would significantly lower your LTV.

Whether through an increase in your property value or by reducing the loan, decreasing your LTV provides you with at least two possible money-saving options: removal of PMI and refinancing to a lower rate.

The Takeaway

The loan-to-value ratio affects two big components of a mortgage loan: the interest rate and private mortgage insurance. A lower LTV percentage typically translates into more borrower benefits.

Whether you’re on the hunt for a new home loan or a refinanced mortgage, it’s a good idea to shop around for the best deal. Check out what SoFi has to offer.

See if a SoFi mortgage or refi is a good fit in just a few clicks.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

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

Leasing vs. Buying a Car: What’s Right for You?

So you’ve decided to get a new car. You’ve picked out everything from the color to the floor mats. But pump the brakes. Should you lease or buy? There are many factors to consider.

Check out this overview of leasing vs. buying, plus get help deciding how to save for your next set of wheels.

Owning vs. Leasing a Car

When you own a car, you purchase the vehicle outright from a dealer or private owner with cash or by financing it. You can keep it for as long as you want, and you can sell it in the future, if you wish.

When you lease a car, you do not own the vehicle. Instead, you make monthly payments to the owner for the right to use the vehicle. You must return the car at the end of your lease agreement or buy it at that time.

Initial Costs

When buying a car, the upfront costs are fairly obvious. You either need enough money to buy the car outright, or you need a big enough down payment to start financing the vehicle. Financing will also involve taxes, registration fees, and other charges.

When financing a car, it’s a good idea to look at the total cost: Multiply the monthly payment by the number of months in the loan, and then add the value of any trade-in or down payment, and the cost of taxes, fees, and add-ons.

emergency fund to cover unforeseen events? If you can answer yes to these questions, you may be in good shape to buy a vehicle.

As for leasing, you should assess whether you have enough income to cover the lease payments for the entire term. Breaking a lease can be an expensive proposition: It means paying the balance due, including any penalties and fees.

You also want to ensure that you have enough money to cover any unexpected expenses, including costs for going over your mileage limit.

Dollars & Sense of Leasing or Buying a Car

The monthly cost of leasing a vehicle is often lower than auto loan payments. But to parse it further, consider the costs of buying a new vs. used car.

In one detailed comparison of leasing a car, buying a new car, and buying a used car, over the course of six years the total costs for a used car were the lowest (the comparison did not include any repairs). Leasing was the next lowest. Buying a new car had the highest total costs.

Here’s another wrinkle if you do lease: If you decide to buy the car at the end of the contract, you’ll likely pay thousands of dollars more than if you had bought it from the get-go.

The Takeaway

The decision to lease vs. buy a car can rest on factors like total costs, annual mileage, and the urge to drive the latest model every few years.

Need help saving for a car, purchased or leased? A money-tracking app like SoFi Relay can help.

Keep tabs on your cash flow and spending habits, and get credit score updates, at no cost.

Put your finances in gear with SoFi Relay today.


SoFi’s Relay tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
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

What Is UCITS?

Undertakings for Collective Investment in Transferable Securities (UCITS) are a category of investment funds designed to both streamline and safeguard investment transactions. UCITS are usually structured like traditional mutual funds, exchange traded funds, or a money market fund

European Union (EU) regulates UCITs, but they are widely available to non-EU investors. U.S. investors, for example, can buy shares of UCITS through U.S.-based fund managers, although local, EU-based money managers run the funds.

Collectively, they hold €18.8 trillion in assets under management, or nearly $23 trillion. Because they undergo a high level of regulatory scrutiny, many view UCITS as a relatively safe investment.

What Is a UCITS Fund?

UCITS funds are a type of mutual fund that complies with European Union regulations and holds securities from throughout the region. They emerged as part of an effort by the European Union to consolidate disparate European financial investments into one central sector, governed by the EU, with a “marketing passport,” that enables financial services firms across the EU to invest in multiple countries under a common set of rules and regulations.

The EU launched UCITS for two primary reasons:

1.   To structure a single financial services entity under the EU umbrella that allowed for the cross-sale of mutual funds across the EU, and across the globe.

2.   To better regulate investment asset transactions among all 28 EU member countries, giving investors inside and outside of the EU access to more tightly regulated investment funds.

Fundamentally, UCITS funds rules give EU regulators a powerful tool to centralize key financial services issues like types of investments allowed, asset liquidity, investment disclosures, and investor safeguards. By rolling the new rules and regulations into UCITS, EU regulators sought to make efficient and secure investment funds available to a broad swath of investors, primarily at the retail and institutional levels.

For investors, UCITS funds offer more flexibility and security. Not only are the funds widely viewed as safe and secure, but UCITS funds offer a diversified fund option to investors who might otherwise have to depend on single public companies for the bulk of their investment portfolios.

According to the European Union, UCITS comprise 75% of all European Union investments by individual investors. Data from the European Fund and Asset Management Association notes that, through 2020, UCITS funds have $11.7 trillion (in euros). That’s approximately 62% of all Euro-based investment funds. Additionally, there were about 34,000 UCIT funds at the end of 2020.

A Brief History of UCITS

The genesis of UCITS funds dates back to the mid-1980’s, with the rollout of the European Directive legislation, which set a new blueprint for financial markets across the continent. The new law introduced UCITS funds on an incremental basis and have been used as a way to regulate financial markets with regular updates and revisions over the past three decades.

In 2002, the EU issued a pair of new directives related to mutual fund sales – Directives 2001/107/EC and 2001/108/EC, which expanded the market for UCITS across the EU and loosened regulations on the sale of index funds in the region.

The fund initiative accelerated in 2009 and 2010, when the Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 clarified the use of UCITS in European investment markets, especially in coordination of all laws, regulations, and administrative oversight. The next year, te European Union reclassified UCITS w as investment funds regulated under Part 1 of the Law of 17 December 2010.

In recent years, “Alt UCITS” or alternative UCITS funds have grown in popularity, along with other types of alternative investments.

How Does a UCIT Fund Work?

Structurally, UCITS are built like mutual funds, with many of the same features, regulatory requirements, and marketing models.

Individual and institutional investors, who form a collective group of unit holders, put their money into a UCIT, which, in turn, owns investment securities (mostly stocks and bonds) and cash. For investors, the primary goal is to invest their money into the fund to capitalize on specific market conditions that favor the stocks or bonds that form the UCITS. UCTIS funds may provide one way for American investors to get more international diversification within their portfolios.

A professional money manager, or group of managers, run the fund, and they are singularly responsible for choosing the securities that make up the fund. The UCITS investor understands this agreement before investing in the fund, thus allowing the fund managers to choose investments on their behalf.

An investor may leave the fund at any point in time, and do so by liquidating their shares of the fund on the open market. American investors should know that the Internal Revenue Service may classify UCITS as passive foreign investment companies, which could trigger more onerous tax treatments, especially when compared to domestic mutual funds.

UCITS Rules and Regulations

UCITS do have some firm regulatory and operational requirements to abide by in the European Union, as follows:

•  The fund and its management team are usually based on a tax-neutral EU country (Ireland would be a good example.)

•  A UCITS operates under the laws mandated by the member state of its headquarters. After the fund is licensed in the EU state of origin, it can then be marketed to other EU states, and to investors around the world. The fund must provide proper legal notification to the state or nation where it wants to do business before being allowed to market the fund to investors.

•  A UCITS must provide proper notice to investors in the form of a Key Investor Information Document, usually located on the fund’s website. The fund must also be approved.

•  A UCITS must also provide a fund prospectus to investors (also normally found on the fund’s web site) and must file both annual and semiannual reports.

•  Any time a UCITS issues, sells, or redeems fund shares, it must make pricing notification available to investors.

The Takeaway

UCITS may be an interesting type of investment for U.S. investors looking to diversify their portfolios. As with any investment, investors must conduct thorough due diligence on the UCITS, which should include a review of fund holdings, past performance, management stability, fees, and tax consequences. Before steering money into a UCITS fund account, talk with a financial advisor well-versed in UCITS in particular, and with diversified fund investments in general.

If you’re interested in other investment opportunities, a great way to build your portfolio is by opening a SoFi Invest® brokerage account. You can open an Active Investing Account and build your own portfolio of investments including stocks, bonds, exchange-traded funds, and cryptocurrency. Or, you can opt for an automated account, which selects and monitors investments on your behalf.

Photo credit: iStock/kupicoo


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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 . 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) Cryptocurrency is offered 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, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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

How to Gift a Stock

Stocks are a unique gift that have the potential to keep on giving over time. They can be given to family members, friends, charities, and others. Gifting stock is easy to do and can have benefits for both the giver and the receiver—though it’s worth noting there can be tax implications for the receiver.

The Benefits of Gifting Stocks

There are several upsides to giving (and receiving) stocks:

•  If you’re giving the gift of stocks to kids, it can begin their investing education and provide them with an asset that will grow over time.

•  For anyone receiving stock, there’s potential that the value of the gift will grow over time. (Though it must be said, the value could also diminish over time.)

•  If the giver already owns stock in the company, they may benefit on their taxes by transferring some or all of that stock to someone else. If a stock has appreciated in value, the owner would normally owe capital gains if they sell it. However, if they gift it, they don’t have to pay the taxes. Those gains do get transferred to the receiver—but depending on their tax bracket, they won’t owe any taxes when they sell. In that case, both the giver and receiver would avoid paying the capital gains.

8 Ways to Gift Stocks

There are several ways that stocks can be gifted.

Set Up a Custodial Account for Kids

Parents can set up a custodial brokerage account for their kids and transfer stocks, mutual funds, and other assets into it. They can also buy assets directly for the account. When the child reaches a certain age they take ownership of it.

This can be a great way to get kids interested in their finances and educate them about investing or particular industries. Teaching kids about short and long term investments by giving them a stock that will grow over time is a great learning opportunity. However, keep in mind that there is a so-called “kiddie tax” imposed by the IRS if a child’s interest and dividend income is more than $2,200.

Set up a DRiP

Dividend Reinvestment Plans, or DRiPs, are another option for gifting stocks. These are plans that automatically reinvest dividends from stocks, which allows the stock to grow with compound interest.

Gifting to a Spouse

When gifting stocks to a spouse, there are generally no tax implications as long as both people are U.S. citizens. A spouse can either gift a present interest or a future interest in shares, meaning the recipient spouse gets the shares immediately or at a specified date in the future.

According to the IRS , If the recipient spouse is not a U.S. citizen, there is an annual gift tax exclusion of $159,000. Any amount above that would be taxed.

Virtual Transfers and Stock Certificates

Anyone can transfer shares of stock to someone else if the receiver has a brokerage account. This type of gifting can be done with basic personal and account information. One can either transfer shares they already own, or buy them in their account and then transfer them. Some brokers also have the option to gift stocks periodically.

Individuals can also buy a stock certificate and gift that to the recipient, but this is expensive and requires more effort for both the giver and receiver. To transfer a physical stock certificate, the owner needs to sign it in the presence of a guarantor, such as their bank or a stock broker.

Gifting Stock to Charity

Another option is to give the gift of stocks to a charity, as long as the charity is set up to receive them. This can benefit both the giver and the charity, because the giver doesn’t have to pay capital gains taxes, and as a tax-exempt entity, the charity doesn’t either. The giver may also be able to deduct the amount the stock was worth from their taxes.

For givers who don’t know which charity to give to, one option is a donor-advised fund . While the giver can take a tax deduction on their gift in the calendar year in which they give it, the fund will distribute the gift to the charities over multiple years.

Passing Down Wealth

Gifting stocks to family members can be a better way to transfer wealth than selling them and paying taxes. For 2021, up to $15,000 per year, per person, can be transferred through gifting of cash, stocks, or a combination. This means a couple can gift $30,000 to one individual, free of the gift tax.

If a person wants to transfer stocks upon their death, they have a few options, including:

•  Make it part of their will.
    Recommended: How to Create An Estate Plan

•  Create an inherited IRA.
    Recommended: 8 IRA Rollover Rules to Know

•  Arrange a transfer on death designation in a brokerage account.

It’s important to look into each option and one’s individual circumstances to figure out the taxes and cost basis for this option.

Gifting Through an App

Another option is to find an investing app that has stock gifting features.

Gift Cards

It may be surprising to hear, but stocks can be given via gift cards. These may be physical or digital gift cards.

Thing to Consider When Giving a Stock Gift

Gifting stocks is relatively straightforward, but there are some things to keep in mind. In addition to the $15,000 per year gifting limit and the capital gains tax implications of gifting, timing of gifts is important, and gifting may not always be the best choice.

For instance, when gifting to heirs, it may be better to wait and allow them to inherit stocks rather than gifting them during life. This may reduce or eliminate the capital gains they owe.

Also, there is a lifetime gift exclusion for federal estate taxes, which was $11.58 million in 2020, which can be used to shelter giving that goes over $15,000. However, this is not a great tax option, due to the ways gifts and inherited stocks are taxed.

Generally a better way to give a substantial amount of money to someone is to establish a trust fund.

Tax Implications of Gifting Stocks

There are some tax ramifications of giving stock as a gift.

Capital Gains Tax

There are a few things to be aware of with the capital gains taxes. If the stock is gifted at a lower value than it was originally purchased at, and sold at a loss, the cost basis for the recipient is based on the fair market value of the stock on the date they received it.

However, if the price of the stock increases above the price that the giver originally paid, the capital gains are based on the value of the stock when the giver bought it. In a third scenario, if the stock is sold on the date of the gift at a higher than fair market value, but at a lower value than the giver’s cost basis, no gain or loss needs to be recorded by the recipient.

•  Tax implications for giving: When gifting stocks, the giver can avoid paying capital gains tax. can sometimes be a way for the giver and the receiver to avoid paying capital gains taxes.

•  Tax implications for receiving: The recipient won’t pay taxes upon receiving the stock. When they sell it, they may be exempt from capital gains taxes if they’re in a lower tax bracket (consider, for example, a minor or retired individual). Otherwise, if they sell at a profit, they should expect to pay capital gains tax. If the annual gifting limit is exceeded, there may be taxes associated with that and the giver will need to file an estate and gift tax return.

Recommended: What Are Capital Gains Taxes?

The Takeaway

Gifting stocks is a unique idea that may have benefits for both the giver and the receiver. As you plan for your future, you may decide to build up a portfolio of stocks that you intend to give to your children, parents, or others as you grow older.

You can easily start investing online with SoFi Invest®. The app lets you quickly buy and sell stocks right from your phone. You can also research and track specific stocks, and see all of your investing information in one simple dashboard.

Find out how to get started with SoFi Invest.

Photo credit: iStock/akinbostanci


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