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What Is Preferred Stock?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Investing is one of the best ways to grow your nest egg — and one of the only ways to make more money without logging extra hours at work.

But it also can be pretty confusing. Once you figure out what the stock market is and how it works, you still have to learn about the different types of assets out there. You’ll also want to do your research before you make any purchases.

Even if you feel fairly confident about investing in stocks, you may not realize that these basic securities actually come in two different flavors: common and preferred.

So what is preferred stock, and why would you consider investing in it? Read on to learn more about this unique asset category and the benefits that make it attractive to some investors.

Preferred stock vs. common stock

In many ways, preferred stock and common stock are the same. In both cases, you purchase a small “share” of ownership in the company, which has the potential to create profit based on the success of the enterprise.

But as the name suggests, preferred stock owners enjoy preferential treatment in some regards. Although they may not be eligible to vote on shareholder issues like those who own common stock, they’re paid fixed dividends on a regular basis — and they’re paid immediately after bonds but before common stock.

That means buying preferred stock puts you at a lower level of risk since your dividends outrank common shareholders’ if the company should fail or endure major losses. Of course, that pendulum swings in both directions: Since the dividends on preferred stocks don’t fluctuate with the company’s market value, you may miss out on higher earnings if the company should see a sweeping success.

You can think about it as a kind of hybrid between common stock — which is the stock you’re probably thinking about when you talk about the market — and fixed-interest securities like bonds. Preferred stock offers a way to invest in equity that provides some of the same security as other fixed-interest securities. However, preferred stocks generally offer higher growth potential than bonds do, and in many cases, they can be held indefinitely (as opposed to the predefined, shorter-term lifespans of most bonds).

 Common StockPreferred Stock
Dividend PayoutDecided by boardPaid at regular intervals
Dividend AmountDetermined by profitability of company/market performanceFixed dividend amount that may respond to changes in interest rate
Voting Privileges for ShareholdersLikelyUnlikely or reduced
Callability (Issuer Can Recall)NoYes
Par ValueNoYes
RiskinessModerate to highHigher than bonds but lower than common stock
Growth PotentialHighHigher than bonds but potentially lower than common stock

Pros and cons of preferred stock

Like any other prospective investment, preferred stock comes with both benefits and drawbacks to consider before you add it to your portfolio.

Benefits of preferred stock

  • Predictability. Preferred stock is paid on a regular basis and often at a fixed dividend rate, which means you’ll have a better idea of what to expect as far as returns are concerned than you might with common stock.
  • Less vulnerability to market volatility. Although preferred stocks’ fixed dividend rates can respond to changing interest levels, these securities have a face value, sometimes known as a “par value,” like bonds. Unlike common stocks, their worth is not determined by market fluctuations.
  • More security in the case of insolvency. Because preferred stock dividends are paid before those of common stocks, you’ll be in a better position to recoup your losses should the company you’re investing in fail.

Drawbacks of preferred stock

  • Reduced or nonexistent voting rights. Unlike common stocks, preferred stocks may not come with voting rights for shareholders — or may confer only reduced voting privileges.
  • Less exponential growth potential. Although you generally know what you’re getting in return for your investment in preferred stock, your growth potential usually is capped at the predefined dividend payout. In the case of an outstanding success, you might have earned more if you’d purchased common stock.
  • In many cases, the issuer has the right to recall or redeem preferred stock at a preset price after a certain amount of time. This is known as “callability” and can create unexpected shifts in your long-term investing strategy.

When is preferred stock advantageous?

As you can see, preferred stock inhabits a bit of a gray area. It’s usually not considered as safe as a bond and doesn’t offer quite as much earning potential as common stock.

So when is it a good idea to choose this hybrid option?

  • Investing in preferred stock might be a good option for those who have a low risk tolerance but still would like to see greater returns than those available through bonds.
  • Preferred stock can create a source of steady income, which can be attractive to investors with higher cash-flow needs or a shorter investment horizon.
  • Preferred stock can add another layer of diversification to your portfolio, which can help your investments withstand market fluctuations and dips.

However, it’s important to keep in mind that it is a more advanced sort of investment than common stock or even bonds — which is why it’s purchased less frequently than common stock, said Malik S. Lee, certified financial planner at Felton & Peel Wealth Management.

Although the differences we’ve outlined above hold true generally, preferred stocks vary considerably in their individual features, which means it’s extra important to do your research before you make an investment. For example, not all preferred stocks are callable, but some are; dividends might be cumulative (i.e. stackable if one is deferred) or noncumulative.

In short, “they’re complicated,” as Lee put it. “Each preferred stock will have different characteristics to it. You’ve really got to dive into the prospectus and look into what you’re buying.”

Should you invest in preferred stock?

Ultimately, the only person who can decide if preferred stocks are right for your investment portfolio is you. (Although talking with a qualified financial advisor probably wouldn’t hurt, either.)

If you do decide to invest in preferred stocks, you’ll purchase them the same way you would common stocks or other securities: through a brokerage firm, which may levy certain trading and commissions costs at the time of purchase. To learn how to get started, check out our step-by-step guide to investing for beginners.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jamie Cattanach
Jamie Cattanach |

Jamie Cattanach is a writer at MagnifyMoney. You can email Jamie here

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Investing

SoFi Automated Investing Review 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

SoFi is mostly known for student loan refinancing. However, in recent years the company has expanded its offerings to include mortgages, life insurance and now investing through SoFi Automated Investing.

Using the principles outlined in Modern Portfolio Theory, SoFi Automated Investing, formerly known as SoFi Wealth, aims to help you grow your wealth over time. SoFi Automated Investing uses ETFs to construct your portfolio based on your answers to a questionnaire. There are different strategies you can choose from and you have access to financial advisers, but ultimately, SoFi Automated Investing acts as a robo-advisor that puts together a portfolio for you based on your goals and risk tolerance.

SoFi Automated Investing
Visit SoFiSecuredon SoFi Automated Investing’s secure site
The Bottom Line: SoFi Automated Investing offers a simple way to start investing with a small amount of money to start and low fees.

  • Receive financial planning assistance free of charge
  • Special bonuses for members, including invitations to special events
  • A wide range of low-cost ETFs from 20 different asset classes

Who should consider SoFi Automated Investing?

SoFi Automated Investing is ideal for beginning investors looking to get their feet wet without the need for a large amount of money. You can open an account with a $100 one-time deposit or $20 monthly deposit. This makes it easy for newbies to begin investing.

Additionally, SoFi is especially suited for long-term investors looking to do very little of their own portfolio management.Due to broad-based ETFs that don’t rely on individual stock picking, there is very little effort required on the investors side. This makes SoFi investing ideal for financial goals such as retirement.

SoFi Automated Investing fees and features

Amount minimum to open account
  • $100 one-time deposit or $20 monthly deposit
Management fees
  • 0%
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $0 full account transfer fee
  • $0 partial account transfer fee
  • $0 inactivity fee
Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
  • SEP IRA
Portfolio
  • ETFs covering 20 asset classes
Automatic rebalancing
Tax loss harvesting
Tax loss harvesting detailSoFi does not currently offer tax loss harvesting.
Offers fractional shares
Ease of use
Mobile appiOS, Android
Customer supportPhone, Email, 4 branch locations

Strengths of SoFi Automated Investing

SoFi Automated Investing has several things going for it, making it a good choice for many investors.

  • No management fees: Right now, SoFi isn’t charging any management fees. ETF expense ratios still apply.
  • Diverse investments: SoFi investing offers a wide range of ETFs from 20 different asset classes. This makes it possible for you to enjoy diversity in your portfolio, according to your risk tolerance. You can get exposure to U.S. and international stocks, bonds and real estate with automatic rebalancing when needed.
  • Free access to financial advisers: SoFi Automated Investing offers unlimited access to financial planning professionals at no additional charge. There’s a wide range of hours available and you can meet with your adviser via chat, video or phone. SoFi’s financial advisers are fiduciaries, which means they must adhere to your best interest and they don’t make commissions based on recommendations.
  • Bonuses: Being a “member” of SoFi allows you access to some special bonuses. For example, SoFi often holds in-person events for which you can receive an invitation to join. On top of that, if you use SoFi investing, you can get a discount on your interest rates with SoFi loans. Finally, you can access career advice on top of financial planning help.

SoFi can be a great option for beginners looking to get started and who need a little help planning a goals-based roadmap.

Drawbacks of SoFi Automated Investing

No SoFi Automated Investing review is complete without offering some of the drawbacks to the product. While there are some great upsides, the reality is that SoFi is relatively new to investing and doesn’t offer some of the benefits you might see with other robo-advisors like Betterment and Wealthfront.

  • No tax-loss harvesting: SoFi investing doesn’t offer any sort of tax strategy. It doesn’t automatically harvest losses when you sell ETFs and it won’t distribute your assets across your accounts in the most advantageous way.
  • Limited types of accounts: While you can open individual and joint taxable accounts, and set up retirement accounts, there aren’t a lot of other options. You can’t open a 529 account or set up a custodial account. If you’re looking to do a little more, you may want to explore other options.

Is SoFi Automated Investing safe?

Anytime you invest, it’s important to be careful and comfortable with your strategy. You always run the risk of loss whenever you put your money into any investment account. However, SoFi investing is as safe as any other robo-advisor. The use of index ETFs means that your portfolio follows overall market trends, which, over time, tend to head higher returns (despite short-term losses).

On top of that, SoFi Automated Investing carries SIPC insurance, which protects account holders if the broker fails. However, realize that SIPC insurance doesn’t protect your portfolio from losses due to market and economic events.

Before you invest, check with resources like FINRA BrokerCheck and the Better Business Bureau to see what disclosures and complaints might be related to the company.

Final thoughts

SoFi Automated Investing is a good option for most investors looking for a simple way to manage a long-term portfolio. It’s very easy to open an account and you get free personalized financial planning help and advice to help you coordinate your portfolio to meet your financial goals.

SoFi investing is still relatively new, so you might miss out on some benefits and tools offered by those that have been in the investing space for decades. Consider your needs and compare SoFi Automated Investing with services like Betterment, Ellevest, and Wealthfront to see if it works for you.

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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Miranda Marquit
Miranda Marquit |

Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

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Investing

Vanguard vs Fidelity: Which Broker Should You Choose?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

When it comes to building long-term wealth, investing in markets is the key to growing your money. Vanguard and Fidelity are two brokerage giants you’ve probably heard of. In fact, we have ranked both companies among our top picks for the best online brokerages. While it may seem difficult to choose between Vanguard and Fidelity, we’ve broken down each company’s fees, account minimums and special features to help you decide which broker is best for your needs.

For beginner investors who don’t have a lot of money stashed away, Fidelity is the clear winner since it has no account minimum. Established investors who want more personalized attention or who want to invest their money in futures may prefer Vanguard. Read on to find out more about these brokers and how they differ from one another.

Vanguard vs. Fidelity: Feature comparison

VanguardFidelity
Stock trading fees
  • $7 per trade for the first 25 trades per year, $20 per trade thereafter for accounts with less than $50,000
  • $7 per trade for accounts with $50,000 to $500,000
  • $7 per trade for accounts with $50,000 to $500,000
  • $2 per trade for accounts with $500,000 to $1M
  • $0 per trade for accounts with $1M to $5M for the first 25 trades per year, $2 per trade thereafter
  • $0 per trade for accounts with more than $5M for 100 trades per year, $2 per trade thereafter
  • $0 per trade for accounts with $1M to $5M for the first 25 trades per year, $2 per trade thereafter
  • $0 per trade for accounts with more than $5M for 100 trades per year, $2 per trade thereafter
  • $4.95 per trade
Amount minimum to open account
  • $1,000 for Vanguard Target Retirement Funds and Vanguard STAR® Funds; $3,000 for most other Vanguard funds
  • $0
Tradable securities
  • Stocks
  • ETFs
  • Mutual funds
  • Bonds
  • Options
  • Forex
  • Crypto-currency
  • Stocks
  • ETFs
  • Mutual funds
  • Bonds
  • Options
  • Futures / commodities
  • Forex
  • Crypto-currency
Account fees (annual, transfer, inactivity)
  • $20 annual fee for account balances below $10,000; waived if you have at least $10,000 in Vanguard funds or ETFs or sign up for statement e-delivery
  • $0 full account transfer fee
  • $0 partial account transfer fee
  • $0 annual fee
  • $0 full account transfer fee
  • $0 partial account transfer fee
  • $0 inactivity fee
Commission-free ETFs offered
Mutual funds (no transaction fee) offered
Offers automated portfolio/robo-advisor
Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • 529 Plan
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
  • Custodial Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
  • SEP IRA
  • Solo 401(k) (for small businesses)
  • SIMPLE IRA (Savings Incentive Match Plan for Employees)
  • Trust
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • 529 Plan
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
  • Custodial Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
  • Custodial IRA
  • SEP IRA
  • Solo 401(k) (for small businesses)
  • SIMPLE IRA (Savings Incentive Match Plan for Employees)
  • Trust
  • Guardianship or Conservatorship
Ease of use
 
 
Mobile appiOS, Android, Fire OSiOS, Android, Fire OS
Customer supportPhone, EmailPhone, 24/7 live support, Chat, Email, 190branch locations
Research resources
  • SEC filings
  • Mutual fund reports
  • SEC filings
  • Mutual fund reports
  • Earnings press releases

Vanguard vs. Fidelity: Fees & account minimums

When deciding between Vanguard and Fidelity, it’s important to understand the companies’ different brokerage account options, fees, and account minimums.

Fidelity offers three investment management services:

  1. Fidelity Go: Fidelity Go is a robo-advisor program featuring an annual management fee of 0.35% of your account balance and a $0 minimum to open an account.
  2. Fidelity Personalized Planning and Advice: Fidelity Personalized Planning and Advice is a hybrid robo-advisor that also gives you access to a team of advisors for coaching, for a 0.50% annual management fee. You need to have at least $25,000 in total minimum investments across all Fidelity accounts to be enrolled in this service.
  3. Portfolio Advisory Services: Portfolio Advisory Services gives you access to professionally managed investment accounts, with annual management fees ranging from 0.50% to 1.50%, depending on your investment balance. There is a $50,000 minimum investment.

Vanguard offers four options, including:

  1. Target Retirement Funds: For novice investors or those who prefer a hands-off approach, you can invest in a Vanguard Retirement Fund based on your targeted retirement date. The account is automatically rebalanced as you approach your retirement date, so you don’t have to worry about manually shifting your investments from stocks to bonds. You’ll need to have at least $1,000 to get started. The average expense ratio on Target Retirement Funds is 0.12%.
  2. Vanguard STAR Fund: The Vanguard STAR Fund is an option that invests 60% of your money in stocks, and 40% in bonds. It allows you to instantly diversify your portfolio across asset classes. To invest in a STAR Fund, you need a minimum of $1,000. STAR Funds have an expense ratio of 0.31%.
  3. Actively-managed funds: For more seasoned investors, you can opt for an actively-managed fund where a portfolio manager hand-picks the fund’s investments. You’ll need a minimum of $50,000 to invest in most actively-managed funds. The expense ratio is dependent on the fund; expense ratios average 0.12%.
  4. Personal Advisor Services: Vanguard Personal Advisor Services is a hybrid robo-advisor option with a 0.30% annual advisory fee for accounts with $5 million or less in assets. To get started, you need to have at least $50,000 in managed assets with Vanguard. Individual investment accounts, IRAs, trust accounts, and Vanguard Variable Annuity accounts all count toward the $50,000 minimum.

You may also be subject to an annual service fee with Vanguard. For example, brokerage and mutual fund-only accounts have a $20 annual fee.

When it comes to transaction fees, Fidelity is much simpler than Vanguard. Fidelity charges a flat transaction fee of $4.95 for any online trades that you make. With Vanguard, your fee is dependent on the kind of security you’re trading and whether you do it by phone or online. For example, you’ll pay $0 to trade ETFs online, but you’ll be subject to a $25 fee per trade if you complete the transaction over the phone.

In terms of expense ratios, Vanguard’s average expense ratio is 0.10% — that’s 83% less than the industry average. However, Fidelity reported that it offers lower expense ratios than other major companies, including Vanguard. Fidelity recently launched four new zero expense ratio index mutual funds that have no minimum deposit requirements.

Vanguard vs. Fidelity: Tradable securities

While both Vanguard and Fidelity allow you to invest in stocks, bonds and CDs, there are other security options to consider:

  • Mutual funds: Fidelity offers over 10,000 professionally managed mutual funds. By contrast, Vanguard allows you to invest in its own mutual funds, or thousands of outside mutual funds. As of August 2019, there are 129 Vanguard-exclusive mutual funds available.
  • Options trading: With options, you can sell securities at a preset price over a set period of time on the options market. Fidelity allows you to invest in the options market, and you can get up to 500 commission free trades over the course of two years. Like Fidelity, Vanguard also allows you to invest in the options market. However, the process to get started is more involved. You’ll have to submit an application and include information about your finances, investment experience and your objectives. Also, your application could be denied.
  • Exchange Traded Funds (ETFs): Fidelity has over 500 commision-free ETFs. Vanguard offers commission-free trading on 1,800 ETFs from the company, and about 100 from outside companies.
  • Foreign exchange trading: If you want to invest in the foreign exchange market, you can do so by signing up with Fidelity FOREX, LLC, a Fidelity subsidiary. You’ll get access to currencies from over 35 countries, and you can transfer money from your brokerage accounts. By contrast, Vanguard doesn’t offer a foreign exchange option.
  • Futures: As of August 2019, Fidelity doesn’t offer futures trading. Vanguard recently launched the Vanguard Commodity Strategy Fund, an actively-managed commodity futures fund.
  • Cryptocurrency: Neither Fidelity or Vanguard allow you to invest in cryptocurrency.

Vanguard vs. Fidelity: Special features

  • Trading platforms: With Fidelity, you can get access to Active Trader Pro if you make at least 36 trades within a 12-month period. This tool gives you real-time insights, actionable alerts, and detailed analytics so you can make informed investing decisions.
  • Investor centers: If you want in-person advice, Fidelity operates over 140 brick-and-mortar investor centers throughout the United States. You can meet with an advisor to get financial and investment guidance, including one-on-one retirement planning or college planning services.
  • Advisor access: With Vanguard Personal Advisor Services, you can schedule an appointment and talk with an advisor via phone, email or chat.
  • Comprehensive assistance: Vanguard Personal Advisor Services doesn’t just offer help with your investments. You can also contact an advisor for guidance on Social Security, health care funding or the right approach for withdrawing from your retirement savings.
  • Robo-advisors: Both Vanguard and Fidelity offer robo-advisor options. However, Fidelity’s program — Fidelity Go — has a $0 minimum to get started, whereas Vanguard Personal Advisor Services has a $50,000 minimum.

Vanguard advantages

  • Investment options: Vanguard’s funds have low expense ratios and excellent past performance records. You can choose index funds or actively managed funds so you can maximize your investment.
  • Complete financial planning: Vanguard’s programs will take into account your outside investments, such as a company-offered 401(k), when building your personalized financial plan. Taking those other accounts into consideration will ensure your investments are properly balanced for your goals.
  • Actively managed funds: For seasoned investors who have more assets, opting for a Vanguard actively-managed fund can be a smart move. The company offers more than 70 U.S. based actively-managed funds, including a range of stock, bond and balanced funds.
  • Past performance: Vanguard has an outstanding record. The company boasts that 88% of its funds have performed better than peer-group averages over the past decade.

Fidelity advantages

  • Low account minimums: Vanguard has account minimums ranging from $1,000 to $3,000, depending on the account, which makes it harder for new investors to get started. Fidelity allows you to get started with just $0, making it a great choice for beginners.
  • Technology: For those who prefer online trading or using an app, Fidelity is more technology-friendly. And, the firm’s Active Trader Pro platform is a powerful resource.
  • Flat transaction fees: Unlike Vanguard, which has different transaction fees depending on the type of security and how you complete trades, Fidelity has a flat $4.95 fee, so there are no surprises.
  • Investor education: Fidelity has a robust library of investor education resources, including articles and videos, so you can become better informed on investing topics.

Vanguard vs Fidelity: Which is best for you?

Vanguard and Fidelity offer excellent investment options for investors of every experience level, allowing you to grow your money with confidence. When looking at which company is best for you, it’s important to consider your starting point and the level of attention you think you’ll need.

With Fidelity, you can get started with $0 and can take advantage of flat transaction fees and its educational tools. And, if you do need to speak to someone in person, you can meet with an advisor at one of its investor centers.

If you’re a more established investor with a significant amount of assets, Vanguard may be a better choice for you. You can take advantage of Vanguard’s low cost funds and its low fees, and get access to comprehensive financial planning.

If you’re researching all of your investment options, make sure you check out the best online stock brokers of 2019.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kat Tretina
Kat Tretina |

Kat Tretina is a writer at MagnifyMoney. You can email Kat here