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What is an ETF?

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.

As an investing category, exchange-traded funds, commonly referred to as ETFs, are experiencing something of a boom. Between January and November 2018, fund managers added 575 new ETF offerings, according to research in Pensions & Investments, compared to the 458 funds that were added the year before.

But what is an ETF?

At its most basic, an ETF is a lot like a mutual fund. It’s a basket of investments put together to achieve some kind of goal or exposure — such as a group of stocks that track a particular index or that represent a specific industry. When you buy a share of an ETF, your money is distributed among those investments.

The difference between an ETF and a mutual fund are in how these investments are traded. When you buy or sell a mutual fund share, the sale or purchase of your shares happens at the end of the day, no matter when you put your order in. What you pay per share is determined by the price of the shares at the end of the day.

With an ETF, shares are bought and sold like a stock. “They trade throughout the day, and the prices move up and down, based on what the underlying stocks are doing inside of the ETF,” said Mark Beaver, a financial planner in Dublin, OH.

Pros and cons of ETFs

There are a variety of advantages to ETFs. First, they tend to be low-cost because the majority of them are passively managed, meaning a computer does the buying and selling based on an algorithm. That may be because managers of ETFs must disclose what the fund owns on a daily basis, whereas a mutual fund is only required to do this quarterly, Beaver said — and few active managers want to reveal what they’re buying and selling every day.

ETFs also tend to be more tax efficient than mutual funds, because transactions count as an exchange, which doesn’t trigger a tax event. When mutual funds are bought and sold, those transactions are considered sales, resulting in capital gains distributions.

Lastly, there are many choices for investors interested in ETFs. “Options range from things as broad as a total US stock market where it seeks to track the entirety of the US stock market to being as specific as companies that are just in Singapore,” said Howard Pressman, a financial planner in Vienna, VA. “You can get them in pretty much every area of bonds, commodities; there’s no end to the creativity of the folk who are out there creating these today.”

On the con side, your preference for an ETF versus a mutual fund may depend on how you want to invest. If you’re looking to invest a set amount of money on a regular basis — with a 401(k) contribution, for instance, or by investing $100 a month — you should know that ETFs are sold by the share, not the dollar amount. If shares of an ETF cost $30 at the time of your purchase and you’re putting $100 toward the buy, you’ll be left with a balance of $10 in cash until your next transaction. “An ETF will leave some cash uninvested because the price changes and you’re actually buying shares,” Beaver said.

Mutual funds, on the other hand, may allow you to buy partial shares, so you’ll be able to fully invest whatever money you’re hoping to contribute.

ETFs may also be considered slightly less liquid than mutual funds. While mutual fund companies are required to repurchase their shares if you want to sell them, an ETF share must find a buyer. If you’re in a large, broad ETF with many shareholders, that’s likely not an issue, but if you’re in a smaller or highly specific ETF, it may sell at a lower price than you’d hoped because the market for that ETF isn’t as big.

How to invest in ETFs

There’s a wide range of ETFs available to investors. “You can buy ETFs that represent a pretty broad market, or you can get really specific,” Beaver said. “I think I saw one that had to do with pet care recently.”

There are also ETFs that take very specific risks — such as inverse ETFs that base their investments on the theory that an index will decline in value, or leveraged ETFs that seek to provide two to three times the earnings of the index they’re tracking.

Particular ETFs or ETFs that bet on the market likely aren’t for beginners. “If you’re new to investing, don’t go anywhere near a leveraged ETF,” Beaver said. “It’s a lot of volatility and risk.”

Instead, newer investors may be better off getting broad exposure via an index fund or broad market fund. For instance, younger investors might look at ETFs that track a major index, such as the S&P 500, or that track the broader market, such as the Vanguard Total Stock Market ETF. “Beginners should be focusing on index ETFs that are focused on asset classes,” Pressman said.

That said, it’s worth looking at what an ETF owns before diving in. “There are ETFs out there that, while they track a particular index, they don’t actually own the underlying shares,” Pressman said. “What they own may be some sort of derivatives or synthetic investments that are meant to follow the index they track. Some of those can have unpredictable results.”

Bottom line

ETFs are an inexpensive way to invest, giving shareholders access to low-cost index funds and broad market investments for a diversified portfolio. Although it’s possible to get very specific and take some big bets on the market, the more complicated ETFs generally aren’t recommended for most investors. Stick to the basics for a balanced portfolio.

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.

Kate Ashford
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Kate Ashford is a writer at MagnifyMoney. You can email Kate 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
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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